Bob Allen of Oxford writes the smartest thing I have read in at least a year. The conclusion of Robert Allen (2009), The British Industrial Revolution in Global Perspective (Cambridge: Cambridge University Press: 9780521687850), p. 272 ff.:
I have argued that the famous inventions of the British Industrial Revolution were responses to Britain's unique economic environment and would not have been developed anywhere else.... Buy why did those inventions matter?.... Weren't there alternative paths to the twentieth century? These questions are closely related to another... asked by Mokyr: why didn't the Industrial Revolution peter out after 1815?... [O]ne-shot rise[s] in productivity [before] did not translate into sustained economic growth. The nineteenth century was different--the First Industrial Revolution turned into Modern Economic Growth. Why? Mokyr's answer... that scientific knowledge increased enough to allow continuous invention [is incomplete]....
Britain's pre-1815 inventions were particularly transformative.... Cotton was the wonder industry.... [T]he great achievement of the British Industrial Revolution was... the creation of the first large engineering industry that could mass-produce productivity-raising machinery. Machinery production was the basis of three developments that were the immeiate explanations of the continuation of economic growth until the First World War... (1) the general mechanization of industry; (2) the railroad; and (3) steam-powered iron ships. The first raised productivity... the second and third created the global economy and the international division of labor... (O'Rourke and Williamson, 1999). Steam... accounted for close to half of the growth in labor productivity in Britain in the second half of the nineteenth century (Crafts 2004). The nineteenth-century engineering industry was a spin-off from the coal industry. All three of the developments... depended on two things: the steam engine and cheap iron....
Cotton played a supporting role in the growth of the engineering industry.... The first is that it grew to immense size.... Mechanization in other activities did not have the same potential... global industry with.. price-responsive demand... cotton... sustained the engineering industry by providing it with a large and growing market for equipment....
There was a great paradox... the macro-inventions of the eighteenth century... increased the demand for capital and energy relative to labour. Since capital and energy were relatively cheap in Britain, it was worth developing the macro-inventions there and worth using them in their early, primitave forms. These forms were not cost-effective elsewhere.... However, British engineers improved this technology.... This local learning often saved the input that was used excessively in the early years of the invention's life and which restricted its use to Britain. As the coal consumption of rotary steam power declined from 35 pounds per horsepower-hour to 5 pounds, it paid to apply steam power to more and more uses.... Old fashioned, thermally inefficient steam engines were not "appropriate" technology for countries where coal was expensive. These countries did not have to invent an "appropriate" technology for their conditions, however. The irony is that the British did it for them....
[T]he British inventions of the eighteenth century--cheap iron and the steam engine, in particular--were so transformative... the technologies invented in France--in paper production, glass, and knitting--were not, The French innovations did not lead to general mechanization or globalization.... The British were not more rational or prescient than the French... simply luckier in their geology. the knock-on effect was large, however: there is no reason to believe that French technology would have led to the engineering industry, the general mechanization of industrial processes, the railway, the steamship, or the global economy.... [T]here was only one route to the twentieth century--and it traversed northern Britain.
What Bob Allen said.
N.F.R. Crafts (2004), "Steam as a General Purpose Technology: A Growth Accounting Perspective," Economic Journal 114:495, pp. 338-51.
Kevin O'Rourke and Jeffrey Williamson (1999), Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy (Cambridge: MIT Press).
Pessimism of the intellect! But optimism of the will, Andrew! I must say I want my sensible bipartisan center back, I want it back real bad.
Andrew:
Climate Vote Shows Why I Am Still a Man Without a Party: I had three reactions to yesterday's cap-and-trade vote, two of which came from The New York Times article that I read this morning and one of which came from Stan's very smart post. Here they are:
From the article, "Only eight Republicans voted for the bill, which runs to more than 1,300 pages."
From the article, "The bill would grant a majority of the permits free in the early years of the program, to keep costs low."
From Stan, "But the bigger story is that the White House once again has demonstrated an excellent ability to get Congress to go along with the things it wants."
And now let me take each one in turn.
1) From the article, "Only eight Republicans voted for the bill, which runs to more than 1,300 pages." Much as you may like the idea, this is another 1300 pages of complexity and loopholes. Buried in there, I'll wager, are more than enough ways for large organizations (the ones who hire lobbyists) to get all the exemption and evasion they'll need. Consider the alternative of a carbon tax calibrated to achieve the same emission reductions, and applied to all sectors including vehicle fuel consumption. I'm no expert on translating ideas into pages of a bill, but that can't be much. And given that it allows us to do away with the CAFE standards, I figure we've done a great service of dramatically simplifying the whole regulatory process for carbon emissions.
2) From the article, "The bill would grant a majority of the permits free in the early years of the program, to keep costs low." That's a couple of interesting pages, no? This is the critical issue and the bill is flawed for giving into the special interests who demanded and got this giveaway. The caps require the price to go up, much like a tax would. Advocates of a green tax swap, like me, would like the additional revenue that consumers of carbon-intensive products pay to be returned to the private sector in a way that lowers the taxes on something desirable, like payroll. Giving the revenue back to the producers should not be an option.
3) From Stan, "But the bigger story is that the White House once again has demonstrated an excellent ability to get Congress to go along with the things it wants." I think that this sentence -- which is a completely accurate description of the way policy gets made in Washington -- is also an indication of what's backwards about the way policy gets made in Washington. The power in government should reside with the legislature, not the executive. I think that much of the reason why the presidential election season has grown to its current monstrous proportions (a full two years of campaigning) is that politicians have realized that the presidency has all the power and the Congress has made itself a weak, secondary player. I'll be a much happier citizen when Stan has occasion to write, "But the bigger story is that the Congress once again has demonstrated an excellent ability to get the White House to go along with the things it wants."
So how does all of this make me a man without a party? On each one of these issues, my reading of the polical landscape is that the Republicans are further from the correct policy action than the Democrats.
It's a step. It's not a big step. It's a very small step. And it's mostly in a sideways direction. But at least it is a step that is not away from where we need to be, and the hope is that having taken one step it will then be easier to take another.
But God only knows what--if anything--will come out of the Senate and conference if this is what comes out of the House.
I would have thought it impossible for Krugman to cite Robert Reich completely approvingly, without even a trace of snark. Yet, lo and behold, it has happened:
Robert Reich's Blog: "What Can I Do?": Someone recently approached me at the cheese counter of a local supermarket, asking "what can I do?" At first I thought the person was seeking advice about a choice of cheese. But I soon realized the question was larger than that. It was: what can I do about the way things are going in Washington?
People who voted for Barack Obama tend to fall into one of two camps: Trusters, who believe he's a good man with the right values and he's doing everything he can; and cynics, who have become disillusioned with his bailouts of Wall Street, flimsy proposals for taming the Street, willingness to give away 85 percent of cap-and-trade pollution permits, seeming reversals on eavesdropping and torture, and squishiness on a public option for health care.
In my view, both positions are wrong. A new president -- even one as talented and well-motivated as Obama -- can't get a thing done in Washington unless the public is actively behind him. As FDR said in the reelection campaign of 1936 when a lady insisted that if she were to vote for him he must commit to a long list of objectives, "Maam, I want to do those things, but you must make me."
We must make Obama do the right things. Email, write, and phone the White House. Do the same with your members of Congress. Round up others to do so. Also: Find friends and family members in red states who agree with you, and get them fired up to do the same. For example, if you happen to have a good friend or family member in Montana, you might ask him or her to write Max Baucus and tell him they want a public option included in any healthcare bill.
My memory reaches back to September 18, 1787:
Mrs. Powell: "Well, doctor, what have we got?”
Benjamin Franklin: "A Republic, if you can keep it."
Oh dear. Only 52 hours in working for National Review, and the brainrot has gotten to Reihan Salam:
The Agenda on National Review Online: Daniels for Rushmore: Like NR's Mark Hemingway, I'm a slightly fanatical admirer of Indiana Governor Mitch Daniels...
One of the threads of Ron Suskind's The Price of Loyalty is that Mitch Daniels simply did not do his job as Bush's OMB Director. The OMB Director is the principal--indeed, the only--voice inside the White House for fiscal prudence, for trying to ensure that the money the government spends is spent well and that the resources the government raises are adequate for the spending plans the White House evolves. While he was Bush OMB Director, Daniels simply did not do his job.
Page 219:
Mitch Daniels became agitated. He blurted out, "Well, yes, but if you can't do the right thing when you're at 85 percent approval, then when can you do the right thing? I think it's time to say no." Everyone looked with surprise at Daniels--he has a way of expressing what others are thinking but don't say. Often, he'd find himself doubling back when he got an arched brow from Cheney or Rove...
And page 296:
The Commerce Secretary echoed much of what had been said.... As usual, not a real discussion, O'Neill thought as he looked over at [Mitch] Daniels.... He knew Daniels was focused on the perils of rising deficits, but it would take gumption to air those concerns in a room full of tax cut ideologues. "I think we need to balance concerns," Daniels said.... "You need to be out front on the economy, but I am concerned that this package may not do it. The budget hole is getting deeper... we are projecting deficits all the way to the end of your second term." From across the table came glares from the entire Bush political team. Daniels paused.... "Ummmm. On balance, then, I think we need to do a [tax cut] package... accelerate the rate cuts and the double taxsation of dividends..." O'Neill looked with astonishment at Daniels... turn 180 degrees in midsentence...
Surely we can do better? Surely we can find a Republican who has (a) held high federal office and (b) actually done his job?
Clueless? Rude? Neither? Both?: [A]n incident I experienced years ago. I was surprised economists didn’t get more of a mention in the thread following John H’s post earlier given what I’ve seen in their colloquia. I have close-to no experiences in philosophy exchanges... but I’ve attended quite a few talks among economists so I’m used to their style of Q&A.... [I]t often starts a few slides in – or in some famous cases the speaker doesn’t get to proceed past the title slide for most of the time allotted – and being rather aggressive seems standard. If that’s the local norm, they are likely used to it and it doesn’t raise any eyebrows. However, what if you put such an economist in a room full of sociologists? Is it okay for him to import his style or should he take a moment to familiarize himself with the local norms?
What struck me as rather curious was the way an economist behaved during a job talk I attended in a sociology department.... The economist engaged in the usual norms for his own department’s culture: interrupting at pretty much every slide. He didn’t take any cues from the rest of the group.... [S]ociologists don’t tend to interrupt a speaker, certainly not a slide or two in, and certainly not for questions that are more than mere points of clarification.... [T]his was a job talk, which in... this particular department meant that people would... more courteous [than] usual. (Do not confuse courteous with lack of very serious and difficult questions, of course.) The audience was listening intently and the room was quiet for the most part except for the economist’s questions.... [I]t is a bit surprising that he did not pick up on the fact that his approach was not in line with local norms. Perhaps he did, but just didn’t care. I was clearly not the only one bothered by the economist’s style. The uneasiness in the room was palpable. In the end, a senior sociologist stepped in. She turned to the economist and explicitly stated that this is simply not how we do things and asked that he hold his questions until the speaker had finished his talk. You could tell that everyone (presumably other than the economist) in the room was quite relieved to have had her do this...
Eszter seems to me to be getting three things wrong:
Economists are used to situations in which you are supposed to be quiet until the paper-giver has finished speaking, only those are not "workshops" but rather "conference presentations." A conference presentation would, typically, have the presenter speak for 30 minutes, an assigned discussant speak for 10, the presenter respond for 5, and then 15 minutes for questions from the floor and answers by the presenter. It's not a discipline-wide norm that economists follow in workshops, but rather one specific to the format of the "workshop."
The difference between interrupting and non-interrupting cultures is not a simple and arbitrary choice of social norm, but instead reflects a judgment about whose words are likely to be most valuable to hear. In an "interrupting culture" the presumption is that everyone has read and thought about the paper beforehand, and that to spend half or more of the available time with the presenter simply summarizing the paper (or, worse, reading large chunks of it) is a waste of everybody's time. Much better to have people raise and argue the points that puzzled them or that they think need to be expanded at their appropriate place in the argument. Moreover, when questions are asked in non-interrupting cultures at the end of the seminar, they don't lead to any discussion: questions come in response to things the presenter said 15, 30, or 45 minutes ago, and lead to formulaic thrust-and-parry-and-end rather than any more complex discussion. Now in a conference, where the presenter and the discussant are up at front for a reason, and where many in the audience have indeed not read the paper, the noninterrupting culture format makes a certain amount of sense. But in a workshop it does not.
The noninterrupting culture format is, in the last analysis, one that does even the presenter no favors. It greatly diminishes the fraction of the audience that will read the paper beforehand--for everyone knows that the presenter is going to eat up the lion's share of the time going over it with everyone else sitting around like bumps on a log. A good presenter is more interested in what an intelligent and thoughtful audience thinks of his or her argument than in listening to himself or herself summarize the paper one more time. And if for some reason the presenter gets off on the wrong foot and does not make contact with the audience, then an interrupting culture gives the presenter clues that may allow him or her to adjust on the fly and reconnect. In a non-interrupting culture--no chance of that.
This last was brought home to me when I heard about a job talk in another discipline than mine at... let me call it Potlatch State University...
The young presenter was, the story goes, making an argument that the British classical economists in fact had as much of the milk of human kindness and as much of a desire to build a better world as any group--but just found themselves by their observations and by the logic of their discipline led to conclude that lots of policies that you might think of as good were in fact counterproductive. And he went through example after example, while the audience sat silently. And then he got to the end of his presentation with ten minutes left, because he had gone over. And, the story goes, one of the most senior people asked the first question, which was:
It is said that Benjamin Jowett, Master of Balliol College, was seated at High Table next to British classical economist Nassau Senior during the Irish Potato Famine. And that Jowett asked Senior how many people would die in the famine. And Senior replied: "About one million--and that is not nearly enough..."
Now if there is a better anecdote to back the claim that the British classical economists were Enemies of Humanity--shills for the ruling classes, social darwinists before Darwin, who sought to exalt the wealthy while gleefully grinding the bones of the poor into meal in the Dark Satanic Mills of the Industrial Revolution--I don't know what it is.
If this question had been raised at the start or even in the middle of the seminar, the speaker could have scrambled to recover--qnd would have had a chance of fitting that story into his broad argument. He would have said that Nassau Senior:
believed that Irish land was good enough to support 4 million people at a reasonable standard of living, but that at the start of the Potato Famine it had 8 million.
thought that at a population of 4 million average labor productivity in agriculture would be high enough that children could be released from farmwork to go to school, where they would learn self-respect and the fear of God, that as a result the people of Ireland would be prudent and chaste and marry relatively late, and the population would be stable and the island prosperous.
thought, on the other hand, that at a population of 7 million average labor productivity in agriculture would be so low that children too would have to work digging potatoes and would grow up illiterate and unchurched, that not fearing God they would have sex as often and as young as possible, and that the population would then grow back to its pre-Potato Famine level of 8 million--at which Ireland was starving even when the potato harvest was good, and at which population was kept from growing further only because babies were so malnourished that their immune systems were compromised and women so thin that they stopped ovulating.
Senior believed that Ireland was trapped in a bad poverty-stricken Malthusian subsistence equilibrium at a population of 8 million, and that while a fall in population to 4 million would knock it out of that bad equilibrium and put it on the road to a better one, that a fall in population to 7 million would not and thus, as Jowett later quoted Senior, "would scarcely be enough to do much good." This was, Jowett said, why he had "always felt a certain horror of political economists."
Now Senior was wrong: Ireland in the mid-1840s was no longer hopelessly trapped in a bad Malthusian equilibrium. And Senior's policy advice was wrong because his analysis of Ireland was wrong. You can judge Senior harshly: he ought to have figured out that the Age of Malthus was over. But Nassau Senior did not think that with each Irish famine death an angel got its wings.
That was the argument that the presenter could have made had he been embedded in an interrupting culture and figured out that the most senior people he was talking to were starting from Jowett's High Table at Victorian Balliol. But in a noninterrupting culture in which you have two minutes to respond to each question at the end because there are ten other senior faculty members who want to ask their questions that they have been nursing since minute 20? In a noninterrupting culture you are dead if your audience is starting at a different place than you think they are starting.
"'Help'" appears to be a verb in the "superman conditional" tense here; as in, to simply have "help the people of Iran overthrow their corrupt regime" on your "to do" list would make a lot of sense if you were Superman, or God Almighty, but anyone else probably ought to make it a bit more specific than that. Care to make any slightly more concrete suggestions?
Robert Reich's Blog: The Great Debt Scare: Why Has It Returned?: It’s the kind of thing I expect to hear from deficit hawks and chicken littles -- from the self-described "fiscally responsible" right, from the scolds Ross Perot and Pete Peterson, from my former cabinet colleague Bob Rubin.... The Great Debt Scare is back. Odd that it would return right now, when the economy is still mired in the worst depression since the Great one. After all, consumers are still deep in debt and incapable of buying. Unemployment continues to soar. Businesses still are not purchasing or investing, for lack of customers. Exports are still dead, because much of the global economy continues to shrink. So the purchaser of last resort -- the government -- has to create larger deficits if the economy is to get anywhere near full capacity, and start to grow again.
Odder still that the Debt Scare returns at the precise moment that bills are emerging from Congress on universal health care, which, by almost everyone’s reckoning, will not increase the long-term debt one bit because universal health care has to be paid for in the budget.... Even odder that the Debt Scare rears its frightening head just as the President’s stimulus is moving into high gear with more spending on infrastructure. Every expert who has looked closely at the nation’s crumbling infrastructure knows how badly it suffers from decades of deferred maintenance -- bridges collapsing, water pipes bursting, sewers backed up, highways impassable, public transit in disrepair. The stimulus, along with the President’s long-term budget, also focus on the nation’s schools, as well as America’s capacity to reduce emissions of greenhouse gases. These public investments are as important to the nation’s future as are private investments.
First, some background: Deficit and debt numbers mean nothing in and of themselves. They take on meaning only in relation to something else.... Pay close attention, in particular, to the debt/GDP ratio. True, that ratio is heading in the wrong direction right now. It may reach 70 percent by the end of 2010. That’s high, but it’s not high compared to the 120 percent it was in 1946, after the ravages of Depression and war. Over time, the basic way America has reduced the debt/GDP ratio is by growing the U.S. economy.... That growth path, by the way, will be faster and stronger if the nation invests in our infrastructure, our schools, and our environment -- which is exactly what Obama aims to do. In this respect, national budgets are like family budgets. It’s dumb for an indebted family to borrow more money to take a world cruise. But it’s smart even for an indebted family to borrow money to send their kids to college.... Don't get me wrong. I'm not saying there's nothing to worry about when it comes to long-term deficit and debt projections. I'm just saying now's not the time to worry, and we ought to temper our worries by understanding the larger context...
Back in 1992 the real interest rate on a ten-year U.S. Treasury bond was 5% per year. Right now the real interest rate on a ten-year U.S. Treasury bond is more or less zero. Borrow back in 1992 thinking that the government is going to repay its borrowings ten years down the road and ten years down the road you find yourself paying back $1.65 in real purchasing power for each dollar you borrowed in 1992. Today you find yourself paying back just $1 in real purchasing power ten years from now for each dollar you borrow today. As Commander Whorf would say if he were an economist rather than a Klingon professional practitioner of coercive violence: "Today is a good day to borrow," for the government at least.
There are worries about the long-run deficit to the extent that we are unable to bend the curve on government health-care expenditures, but those demand policy actions to raise taxes or change the medical-care system not today but in the 2012 time frame and beyond.
And of course there is the real way to cure destructive long-term deficits: stop electing Republicans like George W. Bush and Ronald Reagan who don't care about the quality of the economic policies they pursue. Elect Democrats like Bill Clinton and Barack Obama who do care about the quality of their economic policies instead.
Completion of PE 100 and IAS 45 are required before students can register for the course.
Sequence:
Students intending to become Political Economy majors will ideally complete PE 101 by the end of their sophomore year.
Objectives:
PE 101 examines modern approaches to the interaction between economics and politics--what in an earlier age would have been called "moral philosophy." Building on the knowledge of world history covered in IAS 45 and the thinkers of the classical political economy tradition covered in PE 100, it focuses on the usefulness of alternative theories of political economy, both the classical theories covered in PE 100 and the modern theories of the 20th and 21st centuries in the their historical context. The course is explicitly interdisciplinary: theories of political economy cannot do their job if they are constrained by discipinary boundaries. It is a thoeretical course: empirical and historical facts are used as aids to theoretical comprehension and yardsticks to assess the usefulness of alternative theoretical perspectives.
The first two-thirds or so of the course will introduce students to general theoretical works and current intellectual debates in political economy. The last third or so of the course will specialize. Political Economy majors here at Berkeley tend to concentrate in one of six areas:
the political economy of post-industrial societies,
economic late develpment and political democratization,
international relations and globalization,
comparative political and economic systems,
historical issues of the Great Transformation,
modern China.
The last third or so of each course should focus on those aspects of political economy theory that will be most useful to students concentrating in one (or at a pinch two) of these areas.
Topics:
Political economy and war, market and non-market systems, distributive justice, libertarianism and communitarianism, liberal democracy and regulated capitalism, social democracy and mixed economy, international economic orders and American hegemony, globalization, public choice, late development successes, late development failures, worlds of welfare capitalism, neoliberalism and its discontents, market reforms in post-industrial economies, transitions from communism, political economy and the digital age.
Authors:
Tentatively and provisionally, the teaching staff believe that all versions of the course taught should cover the thoughts and approaches of John Maynard Keynes, Karl Polanyi, Friedrich Hayek, Charles Lindblom, Anthony Downs, James Buchanan, Mancur Olson, Carl Schmitt, Georg Lukacs, Juergen Habermas, Antonio Gramsci, and Dani Rodrik--not necessarily through intensive reading of the works of the social scientists and moral philosophers themselves, but at least through readings that apply their theories and approaches to issues in 20th and 21st century political economy.
Authors whose works and approaches have been assigned recently in PE 101 include: George Akerlof, Benedict Anderson, Norman Angell, Hannah Arendt, Benjamin Barber, Robert Bates, Simone de Beauvoir, Isaiah Berlin, James Buchanan, Nancy Chodorow, Ronald Coase, Milovan Djilas, Anthony Downs, Barry Eichengreen, James Fallows, James Ferguson, Betty Friedan, Michel Foucault, Robert Frank, Milton Friedman, Francis Fukuyama, Alexander Gerschenkron, Peter Gourevich, Antonio Gramsci, Juergen Habermas, Peter Hall, Friedrich Hayek, Robert Heilbroner, Albert Hirschman, John Hobson, Stephen Holmes, Tony Judt, Terry Karl, John Maynard Keynes, Charles Kindleberger, Jeane Kirkpatrick, Janos Kornai, Paul Krugman, Timur Kuran, Vladimir Lenin, Arthur Lewis, Charles Lindblom, Georg Lukacs, Charles Maier, Hyman Minsky, Mancur Olson, George Orwell, William Pfaff, Karl Polanyi, John Rawls, Robert Reich, Dani Rodrik, Elaine Scarry, Carl Schmitt, Joseph Schumpeter, James Scott, Amartya Sen, Robert Shiller, Judith Shklar, Jessica Stern, Joseph Stiglitz, Gordon Tullock, Michael Walzer, Eugen Weber, Fareed Zakaria. Instructors are certainly not expected to cover all of the topics or assign all the authors listed, but they should discuss enough topics and assign enough authors to span the space of political economy.
Course Boundaries vis-a-vis PE 100:
This course covers the twentieth century world since the Great Depression, which is where PE 100 ends. At most a week should be spent on pre-Depression theorists and events in this course, allowing students to see the ways in which the project of classical political economy set the stage for new kinds of theory to be discussed in PEIS 101. John Maynard Keynes and Karl Polanyi are social scientists/moral philosophers whose thoughts straddle the boundary of the courses.
Assessments and Assignments:
The material lends itself to in-class exams, take-home exams, and research papers. Each instructor cam generate those kind of assignments that work best with that instructor’s teaching. At least three written assignments/exams should be required over the course of the semester, in order to observe student improvement. Provide studente with as many opportunities as possible to reflect upon tbe course content: it will be new and strange to many.
Course Instructional Support:
Since the last budget crisis this course is without GSI-led section support, but with readers/graders. The hope is that capping PE 101 sections at 50 will allow for meaningful interaction to take place in the lecture itself.
Neil Sinhababu calls for the Revolt of the Moral Philosophers:
The Ethical Werewolf: Taking political philosophy back from the economists: The take-home message for you and me is that economists have managed to convince people of indefensible views on normative topics such as what it's rational for individuals to do, what's an appropriate object of moral criticism, and what would be a good distribution of resources. I don't know how many of them would, when pressed, defend these sorts of claims -- their discipline isn't supposed to be one that makes normative claims.
Saying you're not making any normative claims is, of course, a good way of getting people to accept the normative claims you make. A lot more in this sort of thing depends on the sorts of emotions that get communicated as people talk about stuff and the loaded words you use. Pareto optimality, for example, has 'optimality' built into it, and who doesn't like optimality? Of course, as Rawls tells us, a distribution where one person owns all tradable goods and services while nobody else has anything is Pareto optimal.
In any event, this is the kind of thing we ought to be concerned about, both as citizens and as philosophers. While ideas from other parts of academia can't get out to the public, economists are convincing people of ridiculous theses in moral and political philosophy that their research doesn't even support. (It probably helps that widespread social acceptance of these theses is favorable to the interests of very wealthy people.) I'm not really sure what we can do about the spread of bad political philosophy through economics 101, but there's got to be something.
He is responding to Matthew Yglesias:
Matthew Yglesias » Ideas Matter: [A]s Brad DeLong pointed out yesterday, economists’ protestations that they’re doing value-free social science actually embeds an implicit idea that “that shifts in distribution are of no account–which can be true only if the social welfare function gives everybody a weight inversely proportional to their marginal utility of wealth.” In other words, under guise of eschewing values, economics has adopted a philosophical value system which says that the well-being of rich people is more important than the well-being of poor people. Nobody ever says “social welfare function” when engaging in practical political debate, but the idea that not caring about distribution constitutes some kind of neutral middle ground is an important underlying premise of much practical political debate, and it’s viability stems from the fact that everyone remembers being taught that this is true in their Economics 101 courses.
As a third example, as a society we’ve become accustomed to the idea that when empirical evidence seems to contradict basic economic theory—as when the United States experienced rapid economic growth under conditions of widespread unionization and a high minimum wage—that we ought to accept the theory as true. This, again, is usually a claim you hear being made by economists, but its social prestige ultimately is a kind of idea in epistemology or the philosophy of science. And all this, of course, is to say nothing of the specific influence of particular empirical claims in economics which hold that high levels of taxation and government spending are everywhere and always economically destructive....
I do think that these big ideas matter.... They’re enormously important in terms of setting the terms of political debate, in terms of influence what’s considered “possible” and what kinds of people have standing to have their views taken seriously. Building a better world ultimately requires getting people to understand that both the empirical and philosophical underpinnings of America’s free market society are much weaker than is generally understood. That doesn’t mean these questions will ever be debated by politicians at a live town hall. But it does mean trying to press a better understanding of these issues on the mass elite who set the tone for much of American political life.
If any of those fighting on the anti-economist side of this disciplinary war want to contact me to ask me to serve as a spy reporting to them the plans of the inmost secret counsels of the economist, the password is "swordfish"...
What form would this "public plan" take? Would it be administered by CMS and HHS? Would it offer Medicare reimbursement rates or something else?
And we aren't we simply letting people who want to sign up for FEHBP? Isn't that the simplest public plan?
Ezra Klein observes:
Why Health Reform Is Likely to Have a Public Plan: Huffington Post's Ryan Grim has been doing great work covering Sen. Ben Nelson's (D-Neb.) endless flips and flops on the public health insurance plan. A few weeks ago, you might remember that Nelson was talking about forming a "coalition of like-minded centrists opposed to the creation of a public plan, as a counterweight to Democrats pushing for it." Back then, the public plan was a "deal breaker."
Now? He's open to a public plan. Neat how that works. But Nelson isn't alone. Support for the public plan seems to have elevated in a few corners. Max Baucus (D-Mont.), previously cool to the idea, is now said to be fighting "tooth and nail" for its inclusion. Sen. Arlen Specter (D-Pa.), once a monosyllabic opponent ("no"), is now proclaiming himself open to the idea.
Meanwhile, the public plan's supporter -- Sens. Chuck Schumer (D-N.Y.), Ted Kennedy (D-Mass.), and others -- have organized and begun insisting, rather than merely mentioning, the idea. Liberal senators came together and signed a letter in support of the policy. The White House, which seemed relatively unsinterested in the issue a few months ago, has begun pushing hard for it.
And that, in my reporting, is what seems to be underneath the change. A few months ago, most observers thought the public plan was a bargaining chip. It had a lot of public supporters but few real friends. In recent weeks, that's begun to change. The White House seems genuinely intent on including a public plan -- or at least some form of public competition -- in the final bill. And that's changed the incentives for senators down the line. The public plan was safe to oppose so long as the powerful players weren't really interested in its survival. Indeed, when the policy was going to be bargained away anyway, the incentives were to try to convince the health industry that you'd been their key ally in that victory. But now that the White House has put some muscle behind the policy, opposition has potential consequences. And that's making the policy's opponents rethink their stridency.
A few months ago, I would have bet against the presence of a public plan in the final bill. Now I'd put my money in favor of it.
The Wall Street Journal picks up my draft call for more fiscal expansion:
Making the Case for Another Fiscal Stimulus: Although President Obama’s $787 billion fiscal stimulus is still working its way through the pipeiline, Berkeley economist — and former Clinton Treasury official — Brad Delong makes the case for another round. In a draft of a letter he says he may send Obama next week, he said:
At the end of 2008, when your incoming administration was preparing your recession-fighting strategy, your forecasts were that the recession would bottom out in August of 2009, with a peak unemployment rate of 7.9%. The unemployment rate in May was already 9.4%. 10% unemployment this year is a nearly foregone conclusion. 11% unemployment — a recession twice as deep as the one your incoming administration was forecasting at the end of 2008 — is not unlikely …. Even had the fiscal expansion plans of your administration not been cut back by roughly a quarter in their employment-generating effectiveness by the Congress, fiscal stimulus plans that appeared to be adequate and appropriate at the turn of the year now appear to be inadequate. Compounding the problem of inadequate fiscal expansion at the federal level is the problem of inappropriate and substantial fiscal contraction at the state level...
Delong’s proposal:
Seek from the Congress for authority to guarantee the debt of states that, in response to the current recession, (a) seek to conduct their own state-level fiscal expansions, and (b) devise plans and strategies for the long-term repayment of the debt the federal government guarantees that the Secretary of the Treasury certifies as prudent and sustainable.
Seek an additional $500 billion of federal aid to states for the federal fiscal year that begiins Oct. 1, 2001, to be distributed per capita and conditioned on their maintaining effort at the provision of public services — on their not repeating the mistake of Herbert Hoover of cutting government employment and spending in a downturn.
But then the WSJ hints that I am yet another self-interested lobbying group:
Delong, of course, works for the state university system in California, where Gov. Arnold Schwarzenegger and the state legislature are struggling with a colossal budget deficit.
Truth to tell, the possibility that an additional round of fiscal expansion targeted at aid to the states might trickle down and help pay for my forthcoming master bathroom renovation literally never crossed my mind over the past week…
What did cross my mind was (a) memories of Paul Krugan last fall warning about this, (b) running the numbers on the deterioration of the forecast over the past six months, (c) Peter Schrag’s recountings of Sacramento politics over lunch, and Gene Smolensky’s and John Ellwood’s repeated pointings-out that California is only the worst case as far as fiscal contraction by state governments are concerned, and (d) my eighteen-year-old Michael’s summer job, which involves going to California budget conference committee hearings and taking notes…
I have started a new Atlantic blog.... Knock me around whenever I say something stupid. I'm still new to blogging, and I find that the most enjoyable part is having people point out when you're being wrong on the internet.
And here it is:
What Socialism Looks Like - Conor Clarke: Have you heard that the United States is headed toward socialism? Jonah Goldberg says it is. Alabama Senator Richard Shelby says it is. Phyllis Schlafly says it is. Richard Viguerie says it is. The Republican National Committee says it is. We must be getting pretty close....
There is a serious discussion to be had here, and I think Jon Henke is having it: Socialism, like farenheit, comes in degrees. Sure, a government that nationalizes GM is "more socialist" than one that does not, even if it doesn't mean we're living "under socialism." But differences of degree shouldn't obscure differences of kind, and as Tim Fernholz says, "it's clear that putting the government in charge of private production is not the Obama administration's guiding philosophy."
If it were, 99.79% of the American corporate assets that existed at the start of the Obama administration would not remain in private hands. The differences of degree are so small that they aren't worth mentioning. And yet, somehow, they keep getting mentioned.
The ability to use checks, banknotes, and credit cards rather than having to cart around chests of silver, scales, and reagents to assay purity, and needing armed guards to protect the silver (and more guards to watch the first set of guards) has obvious efficiencies.
So does the ability of households to borrow and lend in order not to be forced to match income and expenditure every day, week, month, or year.
But what use is "high" finance?
Economists’ conventional description depicts high finance as providing us with three types of utility. First, it allows for many savers to pool their wealth to finance large enterprises that can achieve the efficiencies of scale possible from capital-intensive modern industry.
Second, high finance provides an arena to curb the worst abuses by managers of large corporations. Managers’ fear that if the stock price drops too low they will be out on their ears provides a useful restraint.
Finally, high finance allows for portfolio diversification, so that individual investors can seek high expected returns without being forced to assume large, idiosyncratic risks of bankruptcy and poverty.
But these are the benefits of high finance as they apply to the ideal world of economists — that is, a world of rational utilitarian actors who are skilled calculators of expected utility under uncertainty, who are masters of dynamic programming. We do not live in such a world.
Economists have spent their lives attempting to evolve theories that would account for how salient features of reality might emerge if we did live in their ideal world, but since we don’t, their theoretical enterprise is of doubtful utility. It is like describing how one could bake a delicious wedding cake using only honey, bicarbonate of soda, and raw eggplant.
If we take the world as it really is, we see that high finance performs two further tasks that advance our collective welfare. It induces us to save, accumulate, and invest by promising us safe, liquid investments even in extraordinary times.
It is a fact that we are much happier saving and accumulating, and that we are much more likely to do so when we think that the resources we have saved and accumulated are at hand. It is also true that when we invest our wealth — in Pfizer’s intellectual property, factories in Shenzhen, or worldwide distribution networks — it is not, in fact, at hand. Our invested wealth can only be made to appear liquid, and only if there is no general shift in our collective desire for liquidity.
And it is also a fact that we are happier saving and accumulating if we receive positive and negative feedback on our decisions on a time scale that allows us to believe that we can do better next time by altering our strategy — hence marketwatch.com and CNN/Money.
Of course, investors who believe that their wealth is securely liquid, and that they are adding value for themselves by buying and selling are suffering from a delusion. Our financial wealth is not liquid in an emergency. And when we buy and sell, we are enriching not ourselves, but the specialists and market makers.
But we benefit from these delusions. Psychologically, we are naturally impatient, so it is good for us to believe that our wealth is safe and secure, and that we can add to it through skillful acts of investment, because that delusion makes us behave less impatiently. And, collectively, that delusion boosts our savings, and thus our capital stock, which in turn boosts all of our wages and salaries as well.
Seventy-three years ago, John Maynard Keynes thought about the reform and regulation of financial markets from the perspective of the first three purposes and found himself "moved toward... mak[ing] the purchase of an investment permanent and indissoluble, like marriage...." But he immediately drew back: the fact "that each individual investor flatters himself that his commitment is ’liquid’ (though this cannot be true for all investors collectively) calms his nerves and makes him much more willing to run a risk...."
Moreover, for Keynes, "[t]he game of professional investment is intolerably boring and over-exacting to anyone who is entirely exempt from the gambling instinct; whilst he who has it must pay to this propensity the appropriate toll...."
It is for these reasons that we have seemed frozen for the past generation or two whenever we have contemplated reforming our system of financial regulation. And it is why, even in the face of a severe financial crisis, we remain frozen today.
[DeLong's] series of ill informed assertions and claims, without any supporting arguments in most cases, personal opinions and prejudices put forth in a pontifical manner, and value judgments dished out as if they were factual statements. I haven't the inclination to deal with all the nonsense in this garbled attack on Marx, but I will highlight a few examples.... Delong says that Marx was "part prophet."... "Large-scale prophecy of a glorious utopian future is bound to be false when applied to this world." He follows this up with a lot of idiotic comments about the New Jerusalem and Marx's not having visited the island of Patmos (the old stomping grounds of St. John the Divine)...
Ummm...
Karl Marx:
Hand in hand with this centralization, or this expropriation of many capitalists by few, develop, on an ever-extending scale, the co-operative form of the labor-process, the conscious technical application of science, the methodical cultivation of the soil, the transformation of the instruments of labor into instruments of labor only usable in common, the economizing of all means of production by their use as means of production of combined, socialized labor, the entanglement of all peoples in the net of the world-market, and with this, the international character of the capitalistic regime. Along with the constantly diminishing number of the magnates of capital, who usurp and monopolize all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working-class, a class always increasing in numbers, and disciplined, united, organized by the very mechanism of the process of capitalist production itself. The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralization of the means of production and socialization of labor at last reach a point where they become incompatible with their capitalist integument. Thus integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated...
John of Patmos, after having gotten into the 'shrooms:
And there came unto me one of the seven angels which had the seven vials full of the seven last plagues, and talked with me, saying, Come hither, I will shew thee the bride, the Lamb's wife. And he carried me away in the spirit to a great and high mountain, and shewed me that great city, the holy Jerusalem, descending out of heaven from God, having the glory of God: and her light was like unto a stone most precious, even like a jasper stone, clear as crystal; And had a wall great and high, and had twelve gates, and at the gates twelve angels, and names written thereon, which are the names of the twelve tribes of the children of Israel: On the east three gates; on the north three gates; on the south three gates; and on the west three gates. And the wall of the city had twelve foundations, and in them the names of the twelve apostles of the Lamb. And he that talked with me had a golden reed to measure the city, and the gates thereof, and the wall thereof. And the city lieth foursquare, and the length is as large as the breadth: and he measured the city with the reed, twelve thousand furlongs. The length and the breadth and the height of it are equal. And he measured the wall thereof, an hundred and forty and four cubits, according to the measure of a man, that is, of the angel. And the building of the wall of it was of jasper: and the city was pure gold, like unto clear glass. And the foundations of the wall of the city were garnished with all manner of precious stones. The first foundation was jasper; the second, sapphire; the third, a chalcedony; the fourth, an emerald; The fifth, sardonyx; the sixth, sardius; the seventh, chrysolite; the eighth, beryl; the ninth, a topaz; the tenth, a chrysoprasus; the eleventh, a jacinth; the twelfth, an amethyst. And the twelve gates were twelve pearls; every several gate was of one pearl: and the street of the city was pure gold, as it were transparent glass. And I saw no temple therein: for the Lord God Almighty and the Lamb are the temple of it. And the city had no need of the sun, neither of the moon, to shine in it: for the glory of God did lighten it, and the Lamb is the light thereof. And the nations of them which are saved shall walk in the light of it: and the kings of the earth do bring their glory and honour into it. And the gates of it shall not be shut at all by day: for there shall be no night there. And they shall bring the glory and honour of the nations into it. And there shall in no wise enter into it any thing that defileth, neither whatsoever worketh abomination, or maketh a lie: but they which are written in the Lamb's book of life. And he shewed me a pure river of water of life, clear as crystal, proceeding out of the throne of God and of the Lamb. In the midst of the street of it, and on either side of the river, was there the tree of life, which bare twelve manner of fruits, and yielded her fruit every month: and the leaves of the tree were for the healing of the nations. And there shall be no more curse: but the throne of God and of the Lamb shall be in it; and his servants shall serve him: And they shall see his face; and his name shall be in their foreheads. And there shall be no night there; and they need no candle, neither light of the sun; for the Lord God giveth them light: and they shall reign for ever and ever...
Libertarians and Taxes: From David Boaz of the Cato Institute, who visited Dartmouth yesterday:
Too many advocates of small government still have this lingering attachment to the Republican party,” Boaz said. “It’s like being a battered wife — how long do you wait to leave?
Perhaps the more interesting part of the analogy is, Where do you go when you leave? Typically, it is not to another partner, but to a period in which you are not in a relationship until you can recover from what just happened and make the changes that are needed so it never happens again. Are the Libertarians doing that? I'm not so sure. Consider more of what Boaz said: Boaz described the recent Republican tea parties in protest of tax day as “the revival of a freedom movement.” He also referenced a recent advertisement run by the Cato Institute in several major U.S. newspapers, including The New York Times. The advertisement discussed perceived flaws in the economic stimulus package. “Someday, this ad is going to be remembered as the revival of the free market movement,” Boaz said.
At moments like this, we go back to Milton Friedman's adage, "To spend is to tax." I cannot really come up with a better word than juvenile for the tea parties -- don't protest the taxes unless you can identify the specific cuts in expenditures that you would make to bring the budget into balance. If you think taxes are bad, then you should think deficits are worse, because they raise the taxes of people who were not represented in the decisions to spend the money. That's the real lesson from the Revolutionary War period that should be drawn. And the danger for the Libertarians is that if they don't put the reduction in expenditures ahead of the reduction in taxes on their agenda, they are destined for another abusive relationship down the road. This title of an Economix post [by David Leonhardt] had it right, "Where Were the Medicare Tea Parties?"
Conor Clarke worries about Martin Feldstein's fears. I would say that it is an argument from the permanent income hypothesis rather than Ricardian equivalence--RE is that tax-law changes have no effect, while the PIH says that taxes matter not because current taxes affect current income but rather because the the long expected stream of future taxes affects the long expected stream of future income:
Will Tax Increases Kill The Recovery? : Martin Feldstein's Wall Street Journal op-ed... the argument he makes ("Tax Increases Could Kill the Recovery") is one that comes up a lot and I want to say one brief -- if slightly wonkish and tedious -- thing about it. When I read Feldstein's headline I thought, "But none of the tax increases take effect until 2011!" And while Feldstein anticipates that argument, I'm not sure his response makes a lot of sense:
Even if the proposed tax increases are not scheduled to take effect until 2011, households will recognize the permanent reduction in their future incomes and will reduce current spending accordingly.
[But] Feldstein supported a deficit-financed fiscal stimulus... when I went back and checked Feldstein's op-ed on the subject of fiscal stimulus I found that he has this to say....
Under normal circumstances, I would oppose this rise in the budget deficit and the higher level of government spending. When an economy is closer to full employment, government borrowing to finance budget deficits can crowd out private investment that would raise productivity and the standard of living. Budget deficits automatically increase government debt, requiring higher future taxes to pay the interest on that debt. The resulting higher tax rates distort economic incentives and thus weaken future economic performance.... Nevertheless, I support the use of fiscal stimulus in the US, because the current recession is much deeper than and different from previous downturns. Even with successful countercyclical policy, this recession is likely to last longer and be more damaging than any since the depression of the 1930's...
I prefer the Marty Feldstein of three months ago. Which one does Feldstein prefer?
My reading is that Marty has two things in mind:
Trying to make sure that the current recovery is not derailed by the possibility that lots of press about coming tax increases causes consumers to cut back even more.
Setting up the pins for three years from now, when we turn back to worrying about the long-run deficit, with the aim of starting from as low a level of taxes as possible when we start raising taxes and cutting spending to cut the deficit.
Completion of PE 100 and IAS 45 are required before students can register for the course.
Sequence:
Students intending to become Political Economy majors are expected to complete PE 101 by the end of their sophomore year.
Objectives:
PE 101 is examines modern approaches of the interaction between economics and politics--what in an earlier age would have been called "moral philosophy." Building on the knowledge of world history covered in IAS 45, it focuses on the usefulness of alternative theories of political economy, both the classical theories covered in PE 100 and the modern theories of the 20th and 21st centuries in the their historical context. The course is explicitly interdisciplinary: theories of political economy cannot do their job if they are constrained by discipinary boundaries. It is a thoeretical course: empirical and historical facts are used as aids to theoretical comprehension and yardsticks to assess the usefulness of alternative theoretical perspectives.
The first two-thirds or so of the course will introduce students to general theoretical works and current intellectual debates in political economy. The last third or so of the course will specialize. Political Economy majors here at Berkeley tend to concentrate in one of five areas:
the political economy of post-industrial societies,
economic develpment and political democratization,
international relations and globalization,
comparative political and economic systems,
modern China.
The last third of each course should focus on those aspects of political economy theory that will be most useful to students concentrating in one (or at a pinch two) of these area.
Instructors are not expected to cover all of the topics or assign all the authors listed below, but they should discuss enough topics and assign enough authors to span the space of political economy.
Topics:
Political economy and war, market and non-market systems, distributive justice, libertarianism and communitarianism, liberal democracy and regulated capitalism, social democracy and mixed economy, international economic orders and American hegemony, globalization, public choice, late development successes, late development failures, worlds of welfare capitalism, neoliberalism and its discontents, market reforms in post-industrial economies, transitions from communism, political economy and the digital age.
Authors:
George Akerlof, Benedict Anderson, Norman Angell, Hannah Arendt, Benjamin Barber, Robert Bates, Simone de Beauvoir, Isaiah Berlin, James Buchanan, Nancy Chodorow, Ronald Coase, Milovan Djilas, Anthony Downs, Barry Eichengreen, James Fallows, James Ferguson, Betty Friedan, Michel Foucault, Robert Frank, Milton Friedman, Francis Fukuyama, Alexander Gerschenkron, Friedrich Hayek, Peter Hall, Robert Heilbroner, Albert Hirschman, John Hobson, Stephen Holmes, Tony Judt, John Maynard Keynes, Charles Kindleberger, Jeane Kirkpatrick, Janos Kornai, Paul Krugman, Timur Kuran, Vladimir Lenin, Arthur Lewis, Charles Lindblom, Charles Maier, Hyman Minsky, Mancur Olsen, George Orwell, William Pfaff, Karl Polanyi, John Rawls, Robert Reich, Dani Rodrik, Elaine Scarry, Joseph Schumpeter, James Scott, Amartya Sen, Robert Shiller, Judith Shklar, Jessica Stern, Joseph Stiglitz, Gordon Tullock, Michael Walzer, Eugen Weber, Fareed Zakaria.
Course Boundaries vis-a-vis PE 100:
This course covers the twentieth century world since the Great Depression, which is where PE 100 ends. At most a week should be spent on pre-Depression theorists and events in this course, allowing students to see the ways in which the project of classical political economy set the stage for new kinds of theory to be discussed in PEIS 101.
Assessments and Assignments:
The material lends itself to in-class exams, take-home exams, and research papers. Each instructor cam generate those kind of assignments that work best with that instructor’s teaching. At least three written assignments/exams should be required over the course of the semester, in order to observe student improvement. Provide studente with as many opportunities as possible to reflect upon tbe course content: it will be new and strange to many
Course Instructional Support:
Since the last budget crisis this course is without GSI support. The hope is that capping PE 101 sections at 50 will allow for meaningful interaction to take place in the lecture itself.
Appendix: Bev Crawford's Outline:
Theoretical Perspectives on Political Economy (4 weeks)
The Political Economy of Freedom (Liberalism)
The Political Economy of Equality (Distributive Justice, Socialism, Social Democracy)
The Political Economy of Community (Communitarianism and Nationalism)
20th Century Theory and 20th Century History * Liberal, Really-Existing Socialist, Nationalist, and Social Democratic Systems
* How they worked and didn't work
Political Governance of the International Economy
How it worked and didn't work
Three Crises
The Great Depression
The Asian Financial Crisis
The Current Financial Crisis
Political Economy Theory and Economic Development
Political Economy Theory and 21st Century Globalization
Political Economy Theory and 21st Century Post-Industrial Societies
Ideally students intending to major in Political Economy should complete PE 100 by the middle of their sophomore year.
Objectives:
Students must apply critical thinking skills to engage classical theories of political economy as they were originally written in primary sources. These primary sources may be bolstered, should the instructor choose, with some additional reading material explicating salient points of each text. The course should generally be chronological. Students should engage the writers and their ideas, and confront the ideas of one theorist with those of another, so that they can see hoq ideas grow out of other ideas in their particular historical contexts.
Students should learn the basic historical thinking skills, among them analysis; argumentation; chronological reasoning; interpretation; contextualization; comparison; and synthesis. Students should also be given practice at other critical thinking skills, such as Inquiry, as the instructor sees fit.
Topics:
The principal aim of the course is to engage the students with the central question of political economy: the evolving relationship between the state and the economy as analyzed in the “classical” texts which discuss (1) connections between people and their rulers; (2) the nature and purpose of the state; and (3) linkages between states and their economies. The inevitable focus of the course is the rise of liberalism and the various responses to it
Subjects that ought to be covered in each iteration of PE 100 include but are not limited to: mercantilism, capitalism, industrialization, liberalism, Marxism, socialism, imperialism, nationalism, and internationalization. Students should be constantly considering the applicability of the "classical" theories to the present day. Instructors follow their own judgment in assigning relative weight to these subjects and the degree of engagement of the course with current headlines.
Authors:
Thomas Hobbes, Leviathan; John Locke, Two Treatises on Government; Adam Smith, Wealth of Nations; Jean-Jacques Rousseau, Discourse on Inequality and/or On Social Contract; Mary Wollstonecraft, Vindication of the Rights of Women; Thomas Malthus, Essay on Population; David Ricardo, Principles of Political Economy; Friedrich List, National System of Political Economy; Karl Marx, Das Kapital; Karl Polanyi, The Great Transformation; Max Weber, “On Bureaucracy” and/or The Protestant Ethic and the Spirit of Capitalism; V.I. Lenin, “Imperialism: the Highest Stage of Capitalism”; Joseph Schumpeter, Imperialism. In addition, students should be familiar with the work of J.M. Keynes
Course Boundaries vis-a-vis PE 101:
This course covers the early modern world (but may go back to antiquity or the middle ages) and the modern world ending with the Great Depression, which is where PE 101 will begin. At most a week should be spent on Keynesian political economy in this course, allowing students to see the ways in which he synthesized the classical theorists and set the stage for new kinds of theory to be discussed in PEIS 101.
Assessments and Assignments:
The material lends itself to in-class exams, take-home exams, and research papers. Each instructor cam generate those kind of assignments that work best with that instructor’s teaching. At least three written assignments/exams should be required over the course of the semester, in order to observe student improvement. Provide studente with as many opportunities as possible to reflect upon tbe course content: it will be new and strange to many
Course Instructional Support
This course has--until the next budget crisis--weekly GSI-led sections. Students find the material difficult, and having a regular weekly discussion section is usually the best way for them both to practice their critical thinking skills and internalize content.
Appendix: The Larger Barrington Moore Problematic:
Thomas Hobbes, Leviathan
John Locke, Second Treatise of Government, Letter on Toleration
Jean-Jacques Rousseau, Discourse on the Origin of Inequality, The Social Contract
David Hume, Of Commerce, Of the Balance of Trade, Of the Original Contract, Idea of a Perfect Commonwealth
Bernard de Mandeville, Fable of the Bees
Albert Hirschman, The Passions and the Interests
Adam Smith, Theory of the Moral Sentiments, Inquiry into the Nature and Causes of the Wealth of Nations
Thomas Paine, Common Sense
James Madison, Alexander Hamilton, and John Jay, The Federalist
Mary Wollstonecraft, A Vindication of the Rights of Women
William Godwin, An Enquiry Considering Political Justice
Edmund Burke, Reflections on the Revoution in France, Letters on a Regicide Peace
Joseph de Maistre, Essay on the Generative Principle of Political Constitutions
Thomas Malthus, Essay on Population
David Ricardo, Principles of Political Economy
Friedrich List, The National System of Political Economy
Alexis de Tocqueville, The Old Regime and the French Revolution,Democracy in America, Recollections
Karl Marx, Introduction to the Critique of Hegel's Philosophy of Justice, Communist Manifesto, Wage Labor and Capital, Class Struggles in France, Preface to A Contribution to the Critique of Political Economy, Capital, Critique of the Gotha Program
Thomas Carlyle, Occasional Discourse on the Nigger Question
John Stuart Mill, Essay on Bentham, Essay on Coleridge, On Liberty, The Subjection of Women, Principles of Political Economy
Max Weber, Politics as a Vocation, Science as a Vocation, The Chinese Literati, The Protestant Ethic and the Spirit of Capitalism, The City, Class, Status, Party, Bureaucracy
Thorstein Veblen, The Theory of the Leisure Class
Emile Durkheim, Elementary Forms of the Religious Life
Vladimir Lenin, Imperialism: the Highest Stage of Capitalism
Joseph Schumpeter, Imperialism
Sigmund Freud, Group Psychology and the Analysis of the Ego, Civilization and Its Discontents
John Maynard Keynes, The Economic Consequences of the Peace, Essays in Persuasion
Karl Polanyi, The Great Transformation
Barrington Moore, Social Origins of Dictatorship and Democracy
Ideally students intending to major in Political Economy should complete IAS 45 by the middle of their sophomore year.
Objectives:
Instructors must use a hybrid chronological-thematic organization. Within this model with, however, a great deal of leeway--there are many cases that can be used to illustrate colonization, of which only a very few can be taught colonization. Concepts are more important than the details; details are useful only as illustrations of larger processes. Thus world or global history differs from a series of regional histories in which students face a different country each week. The course should take a global rather than a civilizational approach.
Without reliable and detailed information about the past historical thinking is not possible. Yet historical analysis involves much more than the compilation and memorization of data. It requires the cultivation of seven distinct albeit interrelated and overlapping intellectual skills: analysis; argumentation; chronological reasoning; interpretation; contextualization; comparison; and synthesis. Students must learn these modes of historical thinking.
Topics: Periods and Themes:
No more than 20% (3 weeks) of the course should be spent before 1450. The focus of the course not be on the twentieth century. Otherwise, istructors are free to weight each period as they choose.
Periods:
Period 1: pre-1450: (1) The peopling of the earth and the Neolithic Revolution; (2) state development and interaction; (3) the development and expansion of networks of communication and exchange; (4) the rise of cultural systems including religion.
Period 2: c. 1450-c. 1750: (1) Globalizing networks of communication and exchange; (2) new forms of social organization and modes of production; (3) types and varieties of colonialism and empires.
Period 3: c. 1750-c.1900: (1) imperialism and territorial expansion; (2) ideologies, revolutions and reforms; (3) industrialization and global capitalism; (4) global migration.
Period 4: c.1900-present: (1) dissolution of global empires and the rise of nationalism; (2) global war and conflict; (3) new global institutions.
Themes:
Theme 1: humans and their environment: during prehistory as hunters, fishers, and foragers whose migrations led to the peopling of the earth; since the agricultural revolution as farmers or pastoralists constrained by environmental factors such as rainfall patterns, climate, and available flora and fauna; intensified exploitation of nature as populations grew, migrated, and increased exponentially during the industrial revolution; the balance of sophisticated technology and limited natural resources; cities, trade networks, and diseases; the rise of global environmentalism.
Theme 2: cultural evelopment and interaction: the origins, uses, dissemination, and syncretic adaptations of ideas, beliefs, and knowledge within particular societies and in circulation across societies; study of belief system(s) or religions, philosophical interests, and technical and artistic approaches as a key to understanding how the society views itself and others and how it responds to challenge; transmission and adaptation of culturel components at boundaries; the uniqueness and commonalities of human expressions and abilities; cultural trends and trace their influence across human societies.
Theme 3: state building, expansion, and conflict: hierarchical modes of domination and their conflicts; state forms (e.g. kingdoms, empires, nation-states) across time and space; organizational and cultural foundations of long-term stability; internal and external causes of conflict on the other; contextualizing state development and expansion in relation to different modes of production (e.g. agrarian, pastoral, mercantile), cultural and ideological foundations (e.g. religions, philosophies, ideas of nationalism), and social and gender structures; interstate relations--war, diplomacy, and international organizations.
Theme 4: creation, expansion, and interaction of economic systems: patterns and systems to produce, distribute, and consume desired goods and services across time and space; major transitions between modes of production; labor systems; ideologies, values, and
institutions (such as capitalism and socialism) that support and sustain modes of production and forms of labor organization; trade and commerce; regional and global networks of communication and exchange and their relation to economic growth; cultural and technological diffusion, migration, state formation, social classes, and human interaction with the environment.
Theme 5: the development and transformation of social structures: human societies group their members and pattern interaction across social groups; stratification based on gender roles, kinship systems, racial and ethnic associations, and hierarchies of wealth and class; processes through which such categories and practices were created, maintained, and transformed; connections between changes in social structures and other historical shifts, especially trends in political economy, cultural expression, and human ecology.
Assessments and Assignments:
Instructors must assign students a research paper that requires them to use primary source documents of some kind (either the student’s or the instructor’s choice). The paper must be submitted in stagesto give students a chance to master historical thinking skills and obtain feedback from the instructor and/or GSI. The paper should be no more than a dozen pages. Instructors must provide a final eam. All exams including midterms (if any) should require students to demonstrate critical and historical thinking skills--not simply the regurgitation of factual content.
Benefits of blogging: The discredited ideas theme really needs a book, and JQ appears to be the ideal person to write it. I will even contribute the title: “Dead Ideas from New Economists.” No charge.
Karl Marx (1853),"The Future Results of British Rule in India," New York Daily Tribune (August 8): The political unity... imposed by the British sword, will now be strengthened and perpetuated by the electric telegraph. The native army, organized and trained by the British.... The free press.... From the Indian natives... educated at Calcutta under English superintendence, a fresh class is springing up, endowed with the requirements for government and imbued with European science. Steam has brought India into regular and rapid communication with Europe.... The day is not far distant when... the distance between England and India, measured by time, will be shortened to eight days, and when that once fabulous country will thus be actually annexed to the Western world....
[N]ow the ... millocracy have discovered that the transformation of India into a reproductive country has become of vital importance... [and] it is necessary... to gift her with means of irrigation and of internal communication. They intend now drawing a net of railroads over India....
I know that the English millocracy intend to endow India with railways with the exclusive view of extracting at diminished expenses the cotton and other raw materials.... But... [y]ou cannot maintain a net of railways... without introducing all those industrial processes necessary to meet the immediate and current wants of railway locomotion, and out of which there must grow the application of machinery to those branches of industry not immediately connected with railways. The railway-system will therefore become, in India, truly the forerunner of modern industry... the capacities and expertness of the native engineers in the Calcutta mint... the natives attached to the several steam engines in the Burdwan coal districts.... Mr. Campbell himself... is obliged to avow “that the great mass of the Indian people possesses a great industrial energy, is well fitted to accumulate capital, and remarkable for a mathematical clearness of head and talent for figures and exact sciences.” “Their intellects,” he says, “are excellent.”
Modern industry, resulting from the railway system, will dissolve the hereditary divisions of labor, upon which rest the Indian castes.... All the English bourgeoisie may be forced to do will neither emancipate nor materially mend the social condition of the mass of the people.... But what they will not fail to do is to lay down the material premises for both. Has the bourgeoisie ever done more? Has it ever effected a progress without dragging individuals and people through blood and dirt, through misery and degradation?...
The bourgeois period of history has to create the material basis of the new world... universal intercourse... the transformation of material production into a scientific domination of natural agencies. Bourgeois industry and commerce create these material conditions.... When a great social revolution shall have mastered the results of the bourgeois epoch, the market of the world and the modern powers of production, and subjected them to the common control of the most advanced peoples, then only will human progress cease to resemble that hideous, pagan idol, who would not drink the nectar but from the skulls of the slain...
What went wrong?
Lant Pritchett, "Divergence, Big Time":
Lewis: The Evolution of the International Economic Order:
"How did the world come to be divided into industrial countries and agricultural countries?"
rodrik: Getting Interventions Right: How Korea and Taiwan Grew Rich:
Ezra Klein : [Russell] Shorto... [thinks that in] the Netherlands.... [T]here's "a cultural tendency not to stand out or excel...the very antithesis of the American ideal of upward mobility." But... Americans are in the odd position of fervently believing in upward mobility while not actually having very much of it. Eruopeans, conversely, don't really believe in economic mobility but have plenty of it.... Brookings... examined the relative mobility in other Nordic countries. And the United States doesn't come out that well.... The United States believes itself to be uncommonly meritocratic. But compared to European countries who don't believe themselves very meritocratic, it actually exhibits less income mobility....
If you believe that your country is extremely mobile, you're likely to believe the results of the economic competition are relatively fair. As such, you won't want to slap the rich with particularly high tax rates and you won't be terribly concerned about spreading economic opportunity. After all, anyone can make it! On the other hand, if you don't believe your country is terribly mobile, then you're less likely to believe economic outcomes are fair. And if you don't believe the outcomes are fair, you're likely to tax the winners relatively heavily and plow those profits into things like universal health care and free college. Policies, in other words, that spread opportunity more widely and thus make your society more mobile. Put like that, it sort of makes sense. If you believe your society is already economically mobile, you don't spend a lot of time trying to solve the problem of insufficient economic mobility. if you don't believe that, then you implement policies meant to increase mobility. What's odd is that the public perceptions in Europe and America don't seem to be changing much in response to actual outcomes.
He doesn't quite get it, I think. He treats Peter Theil as suffering from a generic libertarian democraphobia--rather than the more specific Fear of an Ovarian Planet.
Will Wilkinson:
Libertarian Democraphobia: Which brings us to Thiel’s boneheaded quip about women’s suffrage. Extending the franchise to women is, in my estimation, one of the great triumphs... the rejection of a shameful tradition of paternalism.... I cannot see how anyone who accepts basic liberal assumptions about freedom and equality can see the establishment of equal political rights as anything but an unequivocal good... unless he rejects the legitimacy of politics in principle. I think this is were Thiel was coming from.
But if politics is in-principle illegitimate, it was illegitimate before women got the vote, so why bring it up? By bringing it up as a reason why democratic progress is hopeless, Thiel does make it sound like he thinks the problem’s not democratic politics per se, but democratic politics without good prospect of producing the right answer...
But it is not democratic politics as corrupted by the votes of the unwashed, the illiterate, the media-dazzled, or the organized and interested that Thiel denounces, it is democratic politics as corrupted by Persons with Ovaries--plus, don't forget, "welfare recipients." There are and always have been lots of sources of "false consciousness" in politics. But few indeed are those who have focused on estrogen levels as a cause.
Will goes on:
[L]iberalism starts from the recognition that free and equal people don’t agree about the right answer but need to find a way to live together anyway.... Thiel’s comment seemed to imply that political recognition of the fundamental equality of persons is not only tangential to the right answer, but might even get in the way of arriving at it, which is just screwed up.
If establishing equal rights to political participation in fact created an impediment to the political success of libertarianish ideas, maybe there are some very good reasons for that.... [I]f libertarian-style politics seems especially unnatractive to members of formerly oppressed and disenfranchised groups, maybe that’s because... [they] suspect that a politics that focuses relentlessly on the inviolability of property... is a politics meant to protect those who reap the gains of a still-rigged and unjust system.
Paul Krugman, "Introduction" to John Maynard Keynes, The General Theory of Employment, Interest and Money http://tinyurl.com/dl20090112z
Barry Eichengreen (1996), "Institutions and Economic Growth: Europe Since 1945," in Nicholas Crafts and Gianni Toniolo (eds), Economic Growth in Europe Since 1945 (Cambridge University Press), pp. 38-72 http://tinyurl.com/dl20090112x
Mancur Olson (1996), "The Varieties of Eurosclerosis: The Rise and Decline of Nations Since 1982," in Nicholas Crafts and Gianni Toniolo (eds), Economic Growth in Europe Since 1945, (Cambridge, Cambridge University Press), pp.73-94 http://tinyurl.com/dl20090112x
J. Bradford DeLong (1995), "America’s Only Peacetime Inflation: The 1970s," in Christina Romer and David Romer, eds., Reducing Inflation: Motivation and Strategy (University of Chicago Press), pp.-, http://tinyurl.com/dl20090112v
The idea of a divine harmony between private advantage and the public good is already apparent in Paley. But it was the economists who gave the notion a good scientific basis. Suppose that by the working of natural laws individuals pursuing their own interests with enlightenment in condition of freedom always tend to promote the general interest at the same time! Our philosophical difficulties are resolved-at least for the practical man, who can then concentrate his efforts on securing the necessary conditions of freedom. To the philosophical doctrine that the government has no right to interfere, and the divine that it has no need to interfere, there is added a scientific proof that its interference is inexpedient. This is the third current of thought, just discoverable in Adam Smith, who was ready in the main to allow the public good to rest on 'the natural effort of every individual to better his own condition', but not fully and self-consciously developed until the nineteenth century begins. The principle of laissez-faire had arrived to harmonise individualism and socialism, and to make at one Hume's egoism with the greatest good of the greatest number. The political philosopher could retire in favour of the business man - for the latter could attain the philosopher's summum bonum by just pursuing his own private profit. Yet some other ingredients were needed to complete the pudding. First the corruption and incompetence of eighteenth-century government, many legacies of which survived into the nineteenth. The individualism of the political philosophers pointed to laissez-faire. The divine or scientific harmony (as the case might be) between private interest and public advantage pointed to laissez-faire. But above all, the ineptitude of public administrators strongly prejudiced the practical man in favour of laissez-faire - a sentiment which has by no means disappeared. Almost everything which the State did in the eighteenth century in excess of its minimum functions was, or seemed, injurious or unsuccessful. On the other hand, material progress between 1750 and 1850 came from individual initiative, and owed almost nothing to the directive influence of organised society as a whole. Thus practical experience reinforced a priori reasonings. The philosophers and the economists told us that for sundry deep reasons unfettered private enterprise would promote the greatest good of the whole. What could suit the business man better? And could a practical observer, looking about him, deny that the blessings of improvement which distinguished the age he lived in were traceable to the activities of individuals ‘on the make’? Thus the ground was fertile for a doctrine that, whether on divine, natural, or scientific grounds, state action should be narrowly confined and economic life left, unregulated so far as may be, to the skill and good sense of individual citizens actuated by the admirable motive of trying to get on in the world...
Let us clear from the ground the metaphysical or general principles upon which, from time to time, laissez-faire has been founded. It is not true that individuals possess a prescriptive ‘natural liberty’ in their economic activities. There is no ‘compact’ conferring perpetual rights on those who Have or on those who Acquire. The world is not so governed from above that private and social interest always coincide. It is not so managed here below that in practice they coincide. It is not a correct deduction from the principles of economics that enlightened self-interest always operates in the public interest. Nor is it true that self-interest generally is enlightened; more often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these. Experience does not show that individuals, when they make up a social unit, are always less clear-sighted than when they act separately. We cannot therefore settle on abstract grounds, but must handle on its merits in detail what Burke termed “one of the finest problems in legislation, namely, to determine what the State ought to take upon itself to direct by the public wisdom, and what it ought to leave, with as little interference as possible, to individual exertion.”...
I will illustrate what I have in mind by two examples. (1) I believe that in many cases the ideal size for the unit of control and organisation lies somewhere between the individual and the modern State.... (2).... The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.... Many of the greatest economic evils of our time are the fruits of risk, uncertainty, and ignorance. It is because particular individuals, fortunate in situation or in abilities, are able to take advantage of uncertainty and ignorance, and also because for the same reason big business is often a lottery, that great inequalities of wealth come about; and these same factors are also the cause of the unemployment of labour, or the disappointment of reasonable business expectations, and of the impairment of efficiency and production. Yet the cure lies outside the operations of individuals; it may even be to the interest of individuals to aggravate the disease. I believe that the cure for these things is partly to be sought in the deliberate control of the currency and of credit by a central institution, and partly in the collection and dissemination on a great scale of data relating to the business situation, including the full publicity, by law if necessary, of all business facts which it is useful to know...
Paul Krugman, "Introduction" to John Maynard Keynes, The General Theory of Employment, Interest and Money http://tinyurl.com/dl20090112z
In the spring of 2005 a panel of “conservative scholars and policy leaders” was asked to identify the most dangerous books of the 19th and 20th centuries. You can get a sense of the panel’s leanings by the fact that both Charles Darwin and Betty Friedan ranked high on the list. But The General Theory of Employment, Interest, and Money did very well, too. In fact, John Maynard Keynes beat out V.I. Lenin and Frantz Fanon. Keynes, who declared in the book’s oft-quoted conclusion that “soon or late, it is ideas, not vested interests, which are dangerous for good or evil,” [384] would probably have been pleased.... Stripped down, the conclusions of The General Theory might be expressed as four bullet points: (1) Economies can and often do suffer from an overall lack of demand, which leads to involuntary unemployment. (2) The economy’s automatic tendency to correct shortfalls in demand, if it exists at all, operates slowly and painfully. (3) Government policies to increase demand, by contrast, can reduce unemployment quickly. (4) Sometimes increasing the money supply won’t be enough to persuade the private sector to spend more, and government spending must step into the breach. To a modern practitioner of economic policy, none of this – except, possibly, the last point – sounds startling or even especially controversial. But these ideas weren’t just radical when Keynes proposed them; they were very nearly unthinkable. And the great achievement of The General Theory was precisely to make them thinkable...
Barry Eichengreen (1996), "Institutions and Economic Growth: Europe Since 1945," in Nicholas Crafts and Gianni Toniolo (eds), Economic Growth in Europe Since 1945 (Cambridge University Press), pp. 38-72 http://tinyurl.com/dl20090112x
Mancur Olson (1996), "The Varieties of Eurosclerosis: The Rise and Decline of Nations Since 1982," in Nicholas Crafts and Gianni Toniolo (eds), Economic Growth in Europe Since 1945, (Cambridge, Cambridge University Press), pp.73-94 http://tinyurl.com/dl20090112x
J. Bradford DeLong (1995), "America’s Only Peacetime Inflation: The 1970s," in Christina Romer and David Romer, eds., Reducing Inflation: Motivation and Strategy (University of Chicago Press), pp.-, http://tinyurl.com/dl20090112v
The extremely sharp-witted Rob Stavins gets one wrong.
Rob:
Harvard UniversityAn Economic View of the Environment: Does economic analysis shortchange the future?: Much skepticism about discounting and, more broadly, the use of benefit-cost analysis, is connected to uncertainties in estimating future impacts.... Benefits also depend on the values future generations would attach.... But how can we predict future generations’ values? Economists and other social scientists try to infer them through surveys and by inferring preferences from individuals’ behavior. But these approaches are far from perfect, and at best they indicate only the values or tastes of people alive today. The uncertainties are substantial and unavoidable, but they do not invalidate the use of discounting (or benefit-cost analysis). They do oblige analysts, however, to assess and acknowledge those uncertainties in their policy assessments, a topic I discussed in my last post (“What Baseball Can Teach Policymakers”), and a topic to which I will return in the future...
But he does not mention the elephant in the room: cost-benefit analysis sums up Benthamite utilities of individuals weighting each one's by the inverse of their personal marginal utility of wealth. The richer you are, the lower your marginal utility of wealth, and the more weight your preferences get in benefit-cost analysis. This is a problem. This is especially a problem when real interest rates are high, for when real interest rates are high the future is (relatively) poor and thus gets (relatively) little weight.
Peter Orszag congratulates Emmanuel Saez: "Emmanuel's energy, intelligence, and dedication are deeply impressive—as was his ability to explain, despite his French accent, a complicated research project that I worked on with him to a group of H&R Block workers administering it..." But perhaps Emmanuel's most impressive accomplishment is that he has been personally denounced on the editorial page of the Wall Street Journal.
OMB - Blog Post - Congratulations to Emmanuel Saez: SMy co-author and friend Emmanuel Saez was awarded the John Bates Clark Medal on Friday. The prize, which is awarded to the best American economist under the age of forty, is one of the highest honors the economics profession can bestow upon one of its own. Emmanuel is deeply deserving of the honor—his work on income inequality and taxation has helped to shape my own thinking on these matters, and it had no small influence on the President's Budget.
Emmanuel is perhaps best known for his detailed examination of how wages at the top end of the U.S. income distribution have evolved over the past century. He and his co-author Thomas Piketty discovered that the overall pattern for the share of income accruing to those in the top 10 percent is U-shaped (see chart 1 below). Thus, the share going to the top 10 percent was around 45 percent from the mid-1920s to 1940, but then declined to approximately 33 percent during World War II. Emmanuel attributes this fall-off to the sharp reduction in capital incomes brought about by the war and the revenue increases needed to finance the war effort. After the war, the share of income accruing to the top 10 percent remained essentially flat until the late 1970s, when it began climbing dramatically, ultimately surpassing its pre-war highs. Indeed, in 2006, the top 10 percent earned 50 percent of national income, a higher share than even in 1928, the peak year of the "roaring twenties" stock market bubble.
Chart 1: Share of Total U.S. Income Accruing to the Top 10%, 1917-2006
Perhaps even more interesting than his findings about the evolution in earnings for the top 10% is what he found when he isolated data from just the top 1 percent of earners—namely, that virtually all the historical fluctuation in the share of income going to the top 10 percent was due to fluctuations in income within the top percentile alone (see chart 2 below). Stated differently, the dramatic changes in income inequality seen in the United States over the last century are almost entirely a function of how well the very highest earners did at any given point in time.
Chart 2: Decomposing the Top 10% of U.S. Income Share into Three Groups, 1913-2006
And in the most recent past, the very highest earners did very well indeed, capturing almost three-quarters of total income growth in the economic expansion of 2002 to 2006, while the remaining 99 percent of the U.S. population split among themselves the final 25 percent of the increase. (What makes this trend all the more concerning is something that Emmanuel and his co-authors demonstrated in another paper: that this dramatic increase in incomes at the very top has not been mitigated by an increase in income mobility, which can be seen in the relatively stable probability of staying in the top 1 percent of earners from one year to the next since the early 1970s.)
Emmanuel's work on income inequality has helped to point the way for the Administration in its pledge to rebalance the tax code, with a tax cut going to 95 percent of working Americans while asking those at the very top to contribute more. The inequality that has arisen over the past three decades is not going to go away overnight, and it has been driven by many factors—including a decline in the growth rate of college-educated workers. But where the prior administration used changes in the tax code to exacerbate these trends, this Administration thinks that the tax code should be used to mitigate them because an economy in which all can enjoy success is one that is strong for us all.
Emmanuel's energy, intelligence, and dedication are deeply impressive—as was his ability to explain, despite his French accent, a complicated research project that I worked on with him to a group of H&R Block workers administering it. I look forward to reading his work for years and decades to come.
Circling around again to Chris Bertram's whine about how lousy my "evaluating Karl Marx as an economist" lecture is, and how he would do something else:
Explaining Marx to newbies: Suppose I were lecturing about Karl Marx: I’d do the same thing. I’d probably start by discussing some of the ideas in the Manifesto about the revolutionary nature of the bourgeoisie, about their transformation of technology, social relations, and their creation of a global economy. Then I’d say something about Marx’s belief that, despite the appearance of freedom and equality, we live in a society where some people end up living off the toil of other people. How some people have little choice but to spend their whole lives working for the benefit of others, and how this compulsion stops them from living truly truly human lives. And then I’d talk about Marx’s belief that a capitalist society would eventually be replaced by a classless society run by all for the benefit of all. Naturally, I’d say something about the difficulties of that idea. I don’t think I’d go on about Pol Pot or Stalin, I don’t think I’d recycle the odd bon mot by Paul Samuelson, I don’t think I’d dismiss Hegel out of hand, and I don’t think I’d contrast modes of production with Weberian modes of domination...
Something occurs to me: Bertram thinks that the lecture should be exclusively about the Communist Manifesto and before. Karl Marx wrote the Communist Manifesto when he was 29, drawing substantially on what Engels had written about the condition of British textile workers in Manchester in his Condition of the Working Class in England when he was 23. Chris Bertram doesn't think that what either of them wrote about for the rest of their lives is worth wrestling with.
That is, I think, a much harsher judgment of Karl Marx-as-economist than I would deliver...
Understanding Karl Marx
J. Bradford DeLong
University of California at Berkeley and NBER
brad.delong@gmail.com
http://delong.typepad.com/>
+1 925 708 0467
April 20, 2009
In the beginning was Karl Marx, with his vision of how the Industrial
Revolution would transform everything and be followed by a Great
Communist Social Revolution—greater than the political French
Revolution—that would wash us up on the shores of Utopia.
The mature Marx saw the economy as the key to history: every forecast
and historical interpretation must be based on the economy's logic of
development. This project as carried forward by others ran dry.
Sometimes--as in, say, Eric Hobsbawm's books on the history of the
nineteenth century--this works relatively well. But sometimes it led
nowhere. The writing of western European history as the rise, fall, and
succession of ancient, feudal, and bourgeois modes of production is a
fascinating project. But the only person to try it seriously soon throws the
Marxist apparatus over the side, where it splashes and sinks to the bottom
of the sea. Perry Anderson's Passages from Antiquity to Feudalism and
Lineages of the Absolutist State are great and fascinating books, but they
are not Marxist. They are Weberian. The key processes in Anderson's
books concern not “modes of production” but rather “modes of
domination.” And when Marx and Engels's writings became sacred texts
for the world religion called Communism, things passed beyond the
absurd into tragedy and beyond tragedy into horror: the belief that the
logic of development of the economy was the most important thing about society became entangled in the belief that Joe Stalin or Mao Zedong or
Pol Pot or Kim Il Sung or Fidel Castro was our benevolent master and
ever-wise guide.
But let us go back to a time before Marxism lost its innocence. Let us go
back and look at the thinker, Karl Marx, and what he actually wrote and
thought.
Karl Marx had a three part intellectual trajectory. He started out as a
German philosopher; became a French-style political activist, political
analyst, and political historian; and ended up trying to become a British-
style economist and economic historian. At the start of his career he
believed that all we had to due to attain true human emancipation was to
think correctly about freedom and necessity. Later on he recognized that
thought was not enough: that we had to organize, politically. And then in
the final stage he thought that the political organization had to be with and
not against the grain of the truly decisive factor, the extraordinary
economic changes that the coming of the industrial revolution was
bringing to the world.
At each stage Marx had the enthusiasm of the true-believing convert: it
was never the case that philosophy alone could bring utopia, it was never
the case that after the revolution all problems will be resolved, and it was
never the case that the underlying economic mode of production was the
base and that its evolution drove the shape of the superstructure.
Karl Marx never completed the intellectual trajectory he set himself on.
He tried as hard as he could to become a British-style classical economist-
-a "minor post-Ricardian theorist" as Paul Samuelson once joked--but he
did not make it: the late, mature Marx is mostly an economist and
economic historian, but he is also part political activist--and also part
prophet.
Marx the prophet, here is a sample: Marx on India:
The ruling classes of Great Britain.... The aristocracy
wanted to conquer [India], the moneyocracy to plunder it,
and the millocracy to undersell it. But now the... millocracy
have discovered that the transformation of India into a
reproductive country has become of vital importance....
They intend now drawing a net of railroads over India...
exclusive view of extracting at diminished expenses the
cotton and other raw materials for their manufactures....
You cannot maintain a net of railways over an immense
country without introducing all those industrial processes
necessary to meet the immediate and current wants of
railway locomotion, and out of which there must grow the
application of machinery to those branches of industry not
immediately connected with railways. The railway-system
will therefore become, in India, truly the forerunner of
modern industry.... All the English bourgeoisie may be
forced to do will neither emancipate nor materially mend
the social condition of the mass of the people, depending
not only on the development of the productive powers, but
on their appropriation by the people. But what they will not
fail to do is to lay down the material premises.... Has the
bourgeoisie ever done more? Has it ever effected a progress
without dragging individuals and people through blood and
dirt, through misery and degradation?...
The bourgeois period of history has to create the material
basis of the new world... universal intercourse founded
upon the mutual dependency of mankind... the development
of the productive powers of man.... When a great social
revolution shall have mastered the results of the bourgeois
epoch... and subjected them to the common control of the
most advanced peoples, then only will human progress
cease to resemble that hideous, pagan idol, who would not
drink the nectar but from the skulls of the slain...
Large-scale prophecy of a glorious utopian future is bound to be false
when applied to this world. The New Jerusalem does not descend from the
clouds "prepared as a Bride adorned for her Husband." And a Great Voice
does not declare: "I shall wipe away all tears from their eyes; and there
shall be no more death, neither sorrow, nor crying, neither shall there be
any more pain: for the former things are passed away..." But Marx clearly
thought at some level that it would: he never got to the island of Patmos
on which John the Divine lived, but there is a sense that he got too much
into the magic mushrooms.
Marx the political activist. As I see it, he had three big ideas:
that while previous systems of hierarchy and domination
maintained control by hypnotizing the poor into believing that the
rich in some sense “deserved” their high seats in the temple of
civilization, capitalism would–replace masked exploitation by
naked exploitation. Then the scales would fall from people's eyes,
for without its masking ideological legitimations unequal class
society could not survive. This idea seems to me to be completely
wrong. Cf. Antonio Gramsci, passim, on legitimation and
hegemony. See also Fox News.
that even though the ruling class could appease the working class
by using the state to redistribute and share the fruits of economic
growth it would never do so. They would be trapped by their own
ideological legitimations--they really do believe that it is in some
sense “unjust” for a factor of production to earn more than its
marginal product. Hence social democracy would inevitably
collapse before an ideologically-based right-wing assault, income
inequality would rise, and the system would collapse or be
overthrown. The Wall Street Journal editorial page works day
and night 365 days a year to make Marx’s prediction come true.
But I think this, too, is wrong.
that factory work was the wave of the future, and factory work--
lots of people living in cities living alongside each other working
alongside each other--would lead people to develop a sense of their
common interest. Hence people would organize, revolt, and
establish a free and just society in a way that they could not back in
the old days when the peasants of this village were suspicious of
the peasants of that one, and peasants formed not a class for
themselves but, rather, a sack of potatoes which can attain no
organization but simply remains a sack of potatoes. Here I think
Marx mistook a passing phase for an enduring trend. Active
working-class consciousness as a primary source of loyalty and
political allegiance was never that strong. Nation and ethnos trump
class, never more so that when the socialists of Germany told their
emperor in 1914 that they were Germans first and Marxists second.
Add to these the fact that Marx's idea of the "dictatorship of the
proletariat" was clearly not the brightest light on humanity's tree of ideas,
and I see very little in Marx the political activist that is worthwhile today.
Marx the economist--well, Marx the economist had six big things to say,
some of which are very valuable even today across more than a century
and a half, and some of which are not. I would call them the three goods
and the three bads:
Marx the economist was among the very first to recognize that the
fever-fits of financial crisis and depression that afflict modern
market economies were not a passing phase or something that
could be easily cured, but rather a deep disability of the system--as
we are being reminded once again right now, this time with Ben
Bernanke, Tim Geithner, and Larry Summers in the Hot Seats.
Marx pointed the spotlight in the right direction here. However, I
don't think that his theory of business cycles and financial crises
holds up. Marx thought that business cycles and financial crises
were evidence of the long-term unsustainability of the system. We
modern neoliberal economists view it not as a fatal lymphoma but
rather like malaria: Keynesianism--or monetarism, if you prefer--gives us the tools to transform the business cycle from a life-
threatening economic yellow fever of the society into the
occasional night sweats and fevers: that with economic policy
quinine we can manage if not banish the disease.
Marx the economist was among the very first to get the industrial
revolution right: to understand what it meant for human
possibilities and the human destiny in a sense that people like
Adam Smith did not. In his Politics Aristotle observed that it was
not possible to run a household in a way that permitted its head
enough leisure and freedom to, say, become a lover of wisdom
unless the household owned slaves, and that this would be true
unless and until we had instruments like "the statues of Daedalus,
or the tripods of Hephaestus, which, says the poet, 'of their own
accord entered the assembly of the Gods;' if, in like manner, the
shuttle would weave and the plectrum touch the lyre without a
hand to guide them, chief workmen would not want servants, nor
masters slaves..." Karl Marx was among the very first to see that
the industrial revolution was giving us the statues of Daedalus, the
tripods of Hephaestus, looms that weave and lyres that play by
themselves--and thus opens the possibility of a society in which we
people can be lovers of wisdom without being supported by the
labor of a mass of illiterate, brutalized, half-starved, and
overworked slaves.
Marx the economist got a lot about the economic history of the
development of modern capitalism in England right--not
everything, but he is still very much worth grappling with as an
economic historian of 1500-1850. Most important, I think, are his
observations that the benefits of industrialization do take a long
time--generations--to kick in, while the costs of redistributions and
power grabs in the interest of market efficiency and the politically-
powerful rising mercantile classes kick in immediately. You have
to take seriously the idea that the industrial revolution did not
make most or even many people better off right away. Reflect also
that, as Tyler Cowen observes, capitalist systems can produce less
autonomy than small scale production. Standards of living do rise
from industrialization--which can undercut the cultures and
networks of suppliers that make the choice of a petit bourgeois
lifestyle sustainable.
Now on to the three bads:
Marx believed that capital is not a complement to but a substitute
for labor. Thus technological progress and capital accumulation
that raise average labor productivity also lower the working-class
wage. Hence the market system simply could not deliver a good or
half-good society but only a combination of obscene luxury and
mass poverty. This is an empirical question. Marx's belief seems to
me to be simply wrong.
Marx the economist did not like the society of the cash nexus. He
believed that a system that reduced people to some form of
prostitution--working for wages and wages alone--was bad. He
saw a society growing in which worked for money, and their real
life began only when the five o’clock whistle blows--and saw such
an economy as an insult, delivering low utility, and also
sociologically and psychologically unsustainable in the long run.
Instead, he thought, people should view their jobs as expressions of
their species-being: ways to gain honor or professions that they
were born or designed to do or as ways to serve their fellow-
human. Here, I think, Marx mistook the effects of capitalism for
the effects of poverty. The demand for a world in which people do
things for each other purely out of beneficence rather than out of
interest and incentives leads you down a very dangerous road, for
societies that try to abolish the cash nexus in favor of public-
spirited benevolence do not wind up in their happy place. We
neoliberal economists shrug our shoulders and say that we are in
favor of a market economy but not of a market society, and that
there is no reason why people cannot find jobs they like or insist
on differentials that compensate them for jobs they don’t.
Marx believed that the capitalist market economy was incapable of
delivering an acceptable distribution of income for anything but
the briefest of historical intervals. As best as I can see, he was
pushed to that position by watching the French Second Republic of
1848-1851, where the ruling class comes to prefer a charismatic
mountebank for a dictator--"Napoleon III"--over a democracy
because dictatorship promises to safeguard their property in a way
that democracy will not. Hence Marx saw political democracy as
only surviving for as long as the rulers could pull the wool over the
workers' eyes, and then collapsing. I think that Western Europe
over the past fifty years serves as a significant counterexample. It
may be difficult to maintain a democratic capitalist market system
with an acceptable distribution of income. But "incapable" is
surely too strong. Beveridgism or Myrdalism--social democracy,
progressive income taxes, a very large and well-established safety
net, public education to a high standard, channels for upward
mobility, and all the panoply of the twentieth-century social-
democratic mixed-economy democratic state can banish all Marx’s
fears that capitalist prosperity must be accompanied by great
inequality and great misery.
The good things that Marx was able to think must, I believe, be credited to
his own account--to his thoughtfulness, his industry, his intelligence, and
his desperate desire to try to get things right. The bad things have, I
believe, two of his intellectual origins: Marx's beginnings in German
philosophy, and the fact that he hooked up in the 1840s with Friedrich
Engels whose family owned textile factories in Manchester.
German philosophy, or perhaps rather Hegel. I remember reading Capital
for the first time. The first three sections of chapter 1 seemed (a) boring,
and (b) tautological. For example:
When, at the beginning of this chapter, we said in common
parlance that a commodity is both a use value and an
exchange value, we were, accurately speaking, wrong. A
commodity is a use value or object of utility and a value. It
manifests itself as this twofold thing that it is as soon as its
value assumes an independent form – viz., the form of
exchange value. It never assumes this form when isolated
but only when placed in a value or exchange relation with
another commodity of a different kind. When once we
know this such a mode of expression does no harm...
And then I hit section 4: "The Fetishism of Commodities and the Secret
Thereof":
A commodity is… a mysterious thing… in it the social
character of men’s labour appears to them as an objective
character stamped upon the product… the relation of the
producers to the sum total of their own labour is
presented… as a social relation… not between themselves
but between the products…. In the same way the light from
an object is perceived by us not as the subjective excitation
of our optic nerve but as the objective form of something
outside the eye…. But in the act of seeing there is at all
events an actual passage of light from one thing to another,
from the external object to the eye. There is a physical
relation between physical things. But it is different with
commodities. There the existence of the things quâ
commodities and the value relation between the products of
labour which stamps them as commodities have absolutely
no connection with their physical properties… [I]t is a
definite social relation between men that assumes in their
eyes the fantastic form of a relation between things… we
must have recourse to the mist-enveloped regions of the
religious world… the productions of the human brain
appear as independent beings endowed with life and
entering into relations both with one another and the human
race. So it is in the world of commodities with the products
of men’s hands. This I call the Fetishism which attaches
itself to the products of labour so soon as they are produced
as commodities…. This Fetishism of commodities has its
origin, as the foregoing analysis has already shown, in the
peculiar social character of the labour that produces them...
Marx describes this as coquett[ing] with the modes of expression peculiar
to [Hegel].
Put me on record as saying that this “coquetting” is profoundly unhelpful.
What is going on here? What I think is going on inside Marx's head is
something strange. To say that "the value relation[s] between the products
of labour... have absolutely no connection with their physical properties"
is simply wrong: if the coffee beans are rotten--or if their caffeine level is
low--they have no value at all, for nobody will buy them. Marx says that
the value of a good is something inscribed within it and attached to it--the
socially-necessary labor time for its production—that then bosses people
around. And it is the values--not the prices at which things are actually
bought and sold--that are the elements of the real important reality. And
those values: "appear as independent beings endowed with life and
entering into relation both with one another and the human race."
Now I have never found anybody who thinks this way.
Nobody I talk to believes that "values" are objective quantities inherent in
goods by virtue of the time it took to produce them.
Everybody I talk to believes that things are both (a) useful to me and (b)
useful to other people, and moreover (c) we live in a society where we
exchange stuff--where we, in Adam Smith's words, truck, barter, and
exchange. If the combination of my wealth and its usefulness to me makes
me value it the most, then I use it--it is to me what Marx calls a use value.
If there is somebody else out there whose combination of their wealth and
its usefulness to them makes them value it more than I do, then I trade it
away to them directly or indirectly for stuff that I value more--they
consume it, and it is to me what Marx calls an exchange value. But what
Marx calls exchange values are really use values to others: a combination
of (a) bargaining power--wealth--and (b) utility to actual concrete
breathing humans. Things have value not because of the abstraction that
socially-necessary labor time is needed to produce them but because of the
concretion that somebody somewhere wants to use it and has something
ese that others find useful to trade in turn. What Marx calls the mysterious
and bizarre dual character of commodities is nothing mysterious or
bizarre: it is simply the fact that I am not the only person in the world, and
that things very useful to me may be less useful to others, and vice versa.
Moreover, capitalist production has nothing to do with what Marx
describes as this mysterious dual character of commodities. The
distinction between use-value and exchange-value is not something
invented by or peculiar to the capitalist mode of production: it is found in
all human societies, no matter how large or small, no matter what the glue
that holds them together. The cattle slaughtered and cooked by the thralls
of Hrothgar, King of the Geats, have use-value to Hrothgar: He and his
family can eat (some of) them. The cattle have exchange-value to
Hrothgar as well: He feeds them to his warriors at their nightly banquets in
his great hall of Heorot. In exchange for livery and maintenance, the
warriors fight Hrothgar's wars. Success in war gains Hrothgar more
thralls, more cattle, and a bigger and better reputation as a great drighten
worth following--until Grendel comes along and makes eating Hrothgar's
cattle in exchange for following him into battle too hazardous to life and
limb.
In my view, Marx has trapped himself. He has been primed to expect a
deeper layer of real reality underneath mere appearances. And he has
chosen the wrong model of the underlying real reality--the labor theory of
value, which is simply not a very good model of the averages around
which prices fluctuate. Socially-necessary labor power usually serves as
an upper bound to value--if something sells for more, then a lot of people
are going to start making more of them, and the prices at which it trades
are going to fall. But lots of things sell for much less than the prices
corresponding to their socially-necessary labor power lots of the time. And
so Marx vanishes into the swamp which is the attempt to reconcile the
labor theory of value with economic reality, and never comes out.
This matters because one conclusion Marx reaches is that markets and
their prices are a source of oppression--that they aren't sources of
opportunity (to trade your stuff or the stuff you make to people who value
it more) but rather of domination by others and unfreedom: the system
forces you to sell your labor-power for its value which is less than the
value of the goods you make. And it is that conclusion that human
freedom is totally incompatible with wage-labor or market exchange that
leads the political movements that Marx founded down very strange and
very destructive roads.
I've done Hegel. Now let me do Manchester.
The British interests of the German partnership of Ermen and Engels were
not in London or in Birmingham but instead in Manchester. Engels's 1845
Condition of the Working Class in England, cribbed for section 1 of the
Manifesto, was about the condition of the working class in Manchester.
Yet as Asa Briggs (1963) stressed most strongly, Manchester was not
typical of England. Briggs quotes Tocqueville's descriptions of
Manchester as a city with "a few great capitalists, thousands of poor
workmen and little middle class" compared to Birmingham with "few
large industries, many small industrialists... workers work in their own
houses or in little workshops in company with the master himself... the
working people of Birmingham seem more healthy, better off, more
orderly and more moral than those of Manchester..." Briggs speculated
that Engels's book would have been very different indeed had Ermen and
Engels's interests been elsewhere than Manchester: "his conception of
‘class’ and his theories of the role of class in history might have been very
different.... Marx might have been not a communist but a currency
reformer..."
Back in 1998, we got George Boyer of Cornell to take a look at the
historical circumstances of the composition of the Manifesto:
[A]verage age of death of "mechanics, labourers, and their
families" in Manchester was 17, as compared to 38 in rural
Rutlandshire... despite the fact that laborers’ wages were at
least twice as high in Manchester... 57 percent of children
born in Manchester to working class parents died before
their fifth birthday.... Engels arrived in Manchester in the
late fall of 1842, Britain was just beginning to recover from
the deep depression of 1841-42... "crowds of unemployed
working men at every street corner, and many mills were
still standing idle" (Engels, 1845 [1987], pp. 121 – 22)....
The Economist reported that in the first six months of 1848
[as the Manifesto was being written], 18.6 percent of the
workforce in Manchester’s cotton mills was unemployed,
and another 9.5 percent was on short time (Boyer, 1990, p.
235)....
John Stuart Mill (1848 [1909], p. 751)... concluded that
"hitherto it is questionable if all the mechanical inventions
yet made have lightened the day’s toil of any human being.
They have enabled a greater population to live the same life
of drudgery and imprisonment, and an increased number of
manufacturers and others to make fortunes."... Marx and
Engels… were not alone in asserting that the standard of
living... was quite poor, and perhaps declining... during the
"hungry ’40s."... [A]rmy recruits born around 1850 were
shorter than those born around 1820...
It looks as though Marx and Engels wrote the Manifesto--and made their
permanent intellectual commitments--in 1848, at the nadir of living
standards as far as British Lancashire textile workers were considered.
Their assertion that wages declined as capitalism progressed looks good
up until 1848 if you take Manchester as your guide. Thereafter it proved
wrong. By 1880 manual workers were earning 40% more than in 1850.
Parliament began to regulate conditions of employment in the 1840s.
Parliament began to regulate public health in the 1850s. Parliament
doubled the urban electorate in 1867, just as volume 1 of Capital was
published. Parliament gave unions official sanction to bargain collectively
in the 1870s.
Marx appears to have responded to this not by rethinking his opposition to
markets as social allocation mechanisms or by reworking his analyses of
the dynamics of economic growth, capital accumulation, and the real wage
level, but by blaming British workers for not acting according to his model
in response to predictions by Marx of continued impoverishment and ever-
larger business cycles that had not come to pass. Boyer quotes Marx
writing in 1878 about how British workers "had got to the point when [the
British working class] was nothing more than the tail of the Great Liberal
Party, i.e., of the oppressors, the capitalists." And Boyer quotes Engels
writing in 1894 of how "one is indeed driven to despair by these English
workers... bourgeois ideas... viewpoints... narrow-mindedness..."
In the late 1870s--after the failure of the British working class to become
more militant, the failure of the Paris Commune and the founding of the
French Third Republic, and Bismarck's creation of a unified Prussified
German Empire--Marx and Engels started to turn their attention toward
Russia.
Matthew Yglesias: Delay Claims Poorer-than-Average Texas is “Wealthy” Because Texans “Work Hard”: A few bloggers have noted that Tom DeLay went on a strange neo-secessionist binge yesterday on Hardball with Chris Matthews. This segment of the interview in which he lays out his substantive rationale has gotten less attention. But DeLay’s conceit is that Texas is a “wealthy state” because of it’s right-wing business-friendly policies, a situation that he specifically contrasts with the environment in California, New York, and New Jersey which have allegedly impoverished themselves with high taxes and overregulation.
One problem here is that Texas isn’t a wealthy state. Its median household income of $47,548 made it 28th in the country. Below average, in other words. New Jersey is second, California is eighth, and New York is nineteenth. Indeed, of the top ten states in per capita income nine are “blue” states.
The exception is Alaska, whose wealthy is due not to “hard work” on the part of the population or a business-friendly policy environment but to the combination of substantial natural resource wealth and a small population. Texas is like a poor man’s Alaska, with the substantial natural resource wealth but with the wealth spread across a much greater population. Absent oil, Texas would probably look more like its even poorer neighbors Louisiana (46), Oklahoma (44), Arkansas (49), and New Mexico (45). To some extent, I think the relative poverty of the South can really be attributable to the harmful consequences of Dixie-style conservative policies. But beyond that, it’s generally the case that state wealth is highly path-dependent—economic vibrancy attracts high-skilled workers which in turn leads to more economic vibrancy. But however you weigh that balance, the idea that Texas points us forward to a wealth-generating policy environment is absurd.
The conventional line of political argument was always that we are virtuous and hard-working and if we are poor it is because the evil others are manipulating the system to steal from us--and, indeed, that's what Tom Delay is about when he talks about welfare recipients. But there is no argument here that New Jersey and California are rich because they manipulate the system--instead, the idea that there are other states that are richer than Texas is simply something that Tom Delay has never learned.
One would imagine that a shift in a single generation from the top living 8 to the top living 24 times as high as the middle would have produced a substantial leftward shift in economic politics, but instead the reverse has happened. Our social politics has moved steadily leftward; our economic politics here in the United States has not.
Agathon: "Be sure to teach them about the market's social welfare function."
Glaukon: "The market has a social welfare function?"
Agathon: "Under appropriate conditions of perfect competition, non-increasing returns, and the absence of externalities the market's decisions about the production and allocation of goods and services attain a point on the Pareto frontier. Every point on the Pareto frontier maximizes some social welfare function."
Glaukon: "Yes, of course."
Agathon: "Therefore the market, considered as a collective mechanism for making social decisions, chooses to maximize a particular social welfare function. It is instructive to consider what that social welfare function is."
Glaukon: "I resent the tone in which you are talking down to me."
Agathon: "You do not. This part of this conversation never took place in even approximate form in the real world. It is interpolated in order to bring readers of this weblog up to speed. Since I never said my last speech to you, you could not have resented it."
Glaukon: "And I want readers of this weblog to know that I am considerably smarter and more clued-in than he is letting me appear to be."
Agathon: "Are you quite finished?"
Glaukon: "Plato at least worked harder to make his information dumps fit more gracefully into the conversation. I want a better author.
Agathon: "Are you quite finished?"
Glaukon: "Yes."
Agathon: "As I was saying, the market system chooses an allocation. That allocation can only be justified under the assumption that moves along the Pareto frontier in every direction--moves that transfer wealth from one member of society to another--are of no benefit to social welfare, while moves toward the Pareto frontier do benefit social welfare. If we restrict ourselves to social welfare functions that are weighted sums of individual utilities, that means that the market system's social welfare function gives each individual a weight inversely proportional to his or her marginal utility of wealth."
Glaukon: "Didn't somebody say about society that there was no such..."
Agathon: "Hush! If you want to quote Margaret Thatcher, you must introduce her as a speaking character in this dialogue and grant her some of her time..."
Glaukon: "I? You're the authorial stand-in in this dialogue, not me..."
Agathon: "That means that the market system, in weighting utilities and adding them up, gives you a much lower utility than it gives Richard Cheney. In fact, if marginal utility of wealth is inversely proportional to the square of lifetime wealth, the market system gives Richard Cheney about 400 times as big a weight as it gives you."
Glaukon: "That's sick."
Agathon: "And it gives Bill Gates a weight about 400,000,000 times as big a weight as it gives you."
Glaukon: "That's sicker."
Agathon: "But it gives you about 40,000 times the weight it gives your average Bengali peasant, who thus has about 1/16,000,000,000,000 the amount of the market system's concern as Bill Gates has. Will you teach that?"
Glaukon: "They'll call me a Communist!"
Agathon: "But it's true!"
Glaukon: "That I'm a Communist?"
Agathon: "No. That that's what the market system does!"
Glaukon: "We are value neutral economists! We don't care about distribution! We care about efficiency!"
Agathon: "But claiming that you don't care about distribution is implicitly saying that shifts in distribution are of no account--which can be true only if the social welfare function gives everybody a weight inversely proportional to their marginal utility of wealth."
Glaukon: "You're introducing politics into a value-neutral technocratic social science."
Agathon: "Politics?! Moi? I'm simply evaluating the derivatives of a social welfare function under the assumption that the market allocation is its ArgMax. What could be more technocratic than that? I'm just trying to attain a little clarity of thought."
Thrasymachus: "But where rule rests not--as somebody or other said at one of Old Joseph de Maistre's little soirees in St. Petersburg--on the hangman, but on misdirection and confusion, to strip away the veils of alienation and false consciousness that keep humans from perceiving their species-being, the act of unveiling is itself a powerfully political act."
Agathon: "Are you Thrasymachus or Karl Marx?"
Thrasymachus: "Ah. Marx thought unveiling was a good thing. I think it is neither good nor bad, for 'good' like 'justice' is really just another word for the interest of the stronger party."
Glaukon: "And we gave you tenure here at Berkeley?"
Thrasymachus: "Shhh! The humanities departments still think relativism is sexy. They haven't yet figured out that to assume a position of relativism--like the claim to be neutral on issues of distribution--is really a statement that you are on the side of the powerful."
Agathon: "And are you?"
Thrasymachus: "It is the just and the good--or, rather, the 'just' and the 'good'--thing to do.
Obsidian Wings: The Regulatory Origins of the Internet: Patrick Ruffini argues that Obama's alleged regulatory overreaching could (or at least should) move Silicon Valley back into the Republican camp. I'm not really diving into that, but I wanted to quibble with this statement:
The irony here is that many of the entreprenuers who succeeded in the most unregulated environment possible -- the Internet -- are at once hyper-capitalist and socially-liberal Obama voters. (Good luck creating Twitter or Facebook in any industry as tightly regulated as the auto or banking sectors in the Age of Obama.)
This really can't be repeated enough -- the Internet was regulated. Regulation is what made it work. Indeed, the Internet's phenomenal success stemmed directly from the underlying common carrier regulation that made it possible. There was no immaculate conception. The Internet came about because of sustained federal funding for research and development. Originally, the data services that ultimately evolved into what we now call "the Internet" depended entirely on access to the underlying phone networks. And so when these data services got going, the federal government faced a choice. A crossroads, if you will. The government could ensure that Internet/data services had nondiscriminatory access to the underlying phone networks on which they "rode." Or, it could have allowed the phone companies (i.e., AT&T) to dictate the terms of access. (This is basically how most wireless service in America works -- it's the "walled garden" approach. And don't you loves it?).
Wisely, in the Computer Inquiries proceedings, the FCC opted for open, nondiscriminatory access. The Twitters of yesteryear didn't need permission from AT&T to start their business. The nondiscriminatory access that made the Internet successful didn't happen because AT&T was full of benevolent, far-seeing souls. It was because of government regulation. (On an aside, that's why the fight over net neutrality is actually a battle to maintain a ridiculously successful status quo).
Given that the Internet is probably the single greatest advance of mankind since the printing press, you could plausibly argue that the Internet is regulation's crown jewel.
On the Wall Street Journal editorial page, George Bittlingmayer and Thomas Hazlitt remind us that FDR's radical policies--regulating the banking system, abandoning the gold standard, abandoning the goal of balancing the short-term budget, and committing the government to an anti-laissez faire program of interventionist social democracy--were an extraordinary and immediate success:
GEORGE BITTLINGMAYER and THOMAS W. HAZLETT: [Roosevelt's] first step was to stem the banking panic with a national bank holiday (many states had already imposed their own). He closed troubled institutions, injected capital into the healthy ones, and reassured Americans that their deposits would be safe. His approach met with quick success. The New York Stock Exchange, closed during the bank holiday, opened up 15% on March 15. By July 3, the Dow Jones Industrial Average was 93% above its close on March 3, the day before Inauguration Day in 1933...
Wall Street Journal: Employee Free Choice Act "does not remove the secret ballot": Corporate front groups' one-line attack on the Employee Free Choice Act is the false claim that it somehow eliminates the secret ballot option.... But it seems one of their closest allies is finally willing to acknowledge the truth. In this morning's Wall Street Journal, the corporate-friendly editorial board admits:
"The bill doesn't remove the secret-ballot option from the National Labor Relations Act," wrote the WSJ.
There you have it. The Employee Free Choice Act "doesn't remove the secret ballot."... Think Progress has the dirt:
The acknowledgment by the WSJ that the legislation doesn't eliminate the option of a secret-ballot election is surprising given that it has been one of the most aggressive pushers of the false meme:
"Democrats in the House passed the Employee Free Choice Act, a measure that rewrites the rules for union organizing by eliminating secret-ballot elections." [WSJ, 3/8/07]
"Labor wants to trash the secret-ballot elections that have been in place since the 1930s." [WSJ, 10/17/08]
"Mr. Pryor knew the GOP would block the bill, which gets rid of secret ballots in union elections." [WSJ, 1/2/09]
"Big Labor's drive to eliminate secret ballots for union elections has united American business in opposition." [WSJ, 3/11/09]
It's great to see the Wall Street Journal has seen the light. Next time you hear a corporate-funded front group pushing this lie, tell them to read the Wall Street Journal to get the facts.
The Case For Small Government: I think the argument suffers from a problem that's common to both sides in the debates over the desirability of European-style social democracy - namely, the hope that what's ultimately a philosophical and moral controversy can have a tidy empirical resolution.... [T]he philosophical case for limited government - that human existence in the shadow of a nanny state doesn't conduce to "Aristotelian happiness"... because it strips human beings of the deeper sorts of agency and responsibility that ought to be involved in a life well lived - he's on firm (if obviously arguable) ground. But when he segues into the possibility that the emerging science of human nature will "prove" the limits of welfare-statism, and force liberals to give ground... there's an unwarranted hope that the right facts and figures can settle a debate that ultimately depends on the philosophical assumptions that you bring to it...
Matthew Yglesias calls bullshit:
Matthew Yglesias: Crippling Poverty is Not Service to Family: Left out of here is what the right always loves to leave out of discussions of economic policy choices: interest. If you’re poor in the United States and you live in a neighborhood where poor people can afford to live, you will almost certainly be living in a neighborhood that’s much more dangerous than the neighborhoods in which poor Dutch people live. You’ll also find yourself living in a country that’s much less friendly to the interests of people who can’t afford a car than is the Netherlands. Conversely, if a European executive meets an American executive and feels a twinge of jealousy, it’s not for the American’s greater level of “entrepreneurship” it’s for the fact that the U.S. social model leaves top executives much richer than European executives.... [I]ncome level is fairly predictive of voting behavior and this is neither a coincidence nor the reflection of an abstract disagreement about the value of “voluntarism.” It reflects the fact that politics is, among other things, a concrete contest over concrete economic interests.... I don’t think, for example, that America’s high child poverty rate reflects American preference for “service to one’s family” over “ease of life”...
The basic objectives, shared, I am sure, by most economics, are political freedom, economic efficiency, and substantial equality of economic power. Thes objectives are not, of course, entirely consistent.... I believe--and at this stage agreement will be far less widespread--that all three objectives can best be realized by relying, as far as possible, on a market mechanism within a "competitive order" to organize the utilization of economic resources...
Friedman's argument against social democracy was that it would not do the job--that you would lose a lot of economic efficiency and some political liberty and in return get no equalization of economic power because the government would redistribute income and wealth the wrong way, and the beneficiaries would be the strong political claimants to governmental largess who would not be those with strong claims to more opportunity.
By the time you have resorted to arguing that "human existence in the shadow of a nanny state doesn't conduce to 'Aristotelian happiness'... because it strips human beings of the deeper sorts of agency and responsibility that ought to be involved in a life well lived..." you have lost the argument completely. And I have not even raised the point that Aristotle thought that Aristotelian happiness was possible only if you yourself owned lots of slaves:
Aristotle: There is in some cases a marked distinction between the two classes, rendering it expedient and right for the one to be slaves and the others to be masters.... The master is not called a master because he has science, but because he is of a certain character.... [T]here may be a science for the master and science for the slave. The science of the slave would be such as the man of Syracuse taught who made money by instructing slaves in their ordinary duties.... But all such branches of knowledge are servile. There is likewise a science of the master... not anything great or wonderful; for the master need only know how to order that which the slave must know how to execute. Hence those who are in a position which places them above toil have stewars who attend to their households while they occupy themselves with philosophy or with politics...
To paraphrase Mauriac, I love France, but I don’t want there to be two of them, least of all if one is in the United States. … I think President Obama’s counter-revolution goes in the right direction. … Still, the $3.6 trillion Obama budget made me a little queasy. There is a touch of France in its “étatisme” — the state as all-embracing solution rather than problem — and there’s more than a touch of France in the bash-the-rich righteousness.... Americans, at least in their imaginations, have always lived at the new frontier; French frontiers have not shifted much in centuries. Churn is the American way. … If America loses sight of these truths, it will cease to be itself...
And then Clive Crook:
I was hoping that Brooks would press Shields to say what exactly it is about France he objects to, what makes him recoil at the parallel. Where has France gone too far, in the view of an American liberal?... Presumably, liberals approve of the universal health care, the generous and extensive welfare state, the comprehensive worker protections, the stricter regulation, the vastly more-generous subsidies for higher education, the stronger unions, the higher taxes, and especially the higher taxes on the rich.... Perhaps some liberals privately long to make the United States over in the image of France, but the great majority, I imagine, are more interested in taking the things they regard as best in the European economic model—all the things I just listed—and combining those “socially enlightened” policies with the traditional economic virtues of the United States.... Color me skeptical. Culture shapes institutions and vice versa.... This unusually severe economic crisis has called American capitalism into question, highlighting its weaknesses and making it easier to forget its strengths.... Change the system and, with time, you will change the culture. How much you will change it is debatable, and so is whether change of that kind would be good, bad, or indifferent for the country’s economic and political prospects. But it would be an error to assume that the policy transformation that some liberals long for—and which Obama, if his budget is any guide, appears to be aiming for—would leave America’s unusual cultural traits unaffected....
[T]he American exception is alive and well, and that it is more than likely the secret of this country’s awesome success.... It would be a shame to see America revert to the Western European norm.... [H]is plan to enlarge government is married to an uncompromising assault on economic inequality. And if all of this is not enough to remind you of Europe, Obama has also expressed strong support for the Employee Free Choice Act, arguing that bigger and stronger unions are a vital part of sharing prosperity more widely.... The policies that Obama is proposing have all been tried elsewhere. Ideas that look bold and new in this country are old hat across the Atlantic. And we know something about how well they work.
And Henry Farrell puts his finger on it:
There is something very, very strange in my eyes about this kind of argument. On the one hand. a notion of a healthy American culture of can-do entrepreneurialism, which has survived for centuries and caused America to prosper. On the other, the claim that the combination of broader-if-not-quite-universal healthcare, a slightly easier time for unions, and a return to the relatively mild form of progressive taxation we saw in the 1990s would very probably lead to the destruction of said robust culture. Something here Does Not Compute....
The Obama proposals are not particularly radical departures from existing practice in the US. They are certainly nothing like traditional European social democracy. Even David Brooks effectively acknowledges this, when he says that they are potentially problematic in combination rather than individually. They aren’t going to set the US on a different national trajectory, let alone make it ‘French’ or ‘European.’ Some of us might like to see this happen, but it isn’t going to, even given the ideological trauma that the US is undergoing. And arguing that American individualism is likely to wilt if exposed to nasty foreign influences smacks more of a kind of capitalist-road José Bové-ism than any serious kind of intellectual analysis.
Although its collapse has dominated recent media coverage, the financial sector is not the only segment of the U.S. economy running into serious trouble. The institutions that govern the labor market have also failed, producing the unusual and unhealthy situation in which hourly compensation for American workers has stagnated even as their productivity soared.
Indeed, from 2000 to 2007, the income of the median working-age household fell by $2,000- an unprecedented decline. In that time, virtually all of the nation’s economic growth went to a small number of wealthy Americans. An important reason for the shift from broadly-shared prosperity to growing inequality is the erosion of workers’ ability to form unions and bargain collectively.
A natural response of workers unable to improve their economic situation is to form unions to negotiate a fair share of the economy, and that desire is borne out by recent surveys. Millions of American workers – more than half of non-managers – have said they want a union at their work place. Yet only 7.5% of private sector workers are now represented by a union. And in all of 2007, fewer than 60,000 workers won union status through government-sanctioned elections. What explains this disconnect?
The problem is that the election process overseen by the National Labor Relations Board has become drawn out and acrimonious, with management campaigning fiercely to deter unionization, sometimes to the extent of violating the labor law. Union sympathizers are routinely threatened or even fired, and they have little effective recourse under the law. Even when workers overcome this pressure and vote for a union, they are unable to obtain contracts one-third of the time due to management resistance.
To remedy this situation, the Congress is considering the Employee Free Choice Act. This act would accomplish three things: It would give workers the choice of using majority sign-up-- a simple, established procedure in which workers sign cards to indicate their support for a union – or staging an NLRB election; it triples damages for employers who fire union supporters or break other labor laws; and it creates a process to ensure that newly unionized employees have a fair shot at obtaining a first contract by calling for arbitration after 120 days of unsuccessful bargaining.
The Employee Free Choice Act will better reflect worker desires than the current “war over representation.” The Act will also lower the level of acrimony and distrust that often accompanies union elections in our current system.
A rising tide lifts all boats only when labor and management bargain on relatively equal terms. In recent decades, most bargaining power has resided with management. The current recession will further weaken the ability of workers to bargain individually. More than ever, workers will need to act together.
The Employee Free Choice Act is not a panacea, but it would restore some balance to our labor markets. As economists, we believe this is a critically important step in rebuilding our economy and strengthening our democracy by enhancing the voice of working people in the workplace.
Statement Endorsers
Henry J. Aaron, Brookings Institution
Katharine Abraham, University of Maryland
Philippe Aghion, Massachusetts Institute of Technology
Eileen Appelbaum, Rutgers University
Kenneth Arrow, Stanford University
Dean Baker, Center for Economic Policy and Research
Jagdish Bhagwati, Columbia University
Rebecca Blank, Brookings Institution
Joseph Blasi, Rutgers University
Alan S. Blinder, Princeton University
William A. Darity, Duke University
Brad DeLong, University of California/Berkeley
John DiNardo, University of Michigan
Henry Farber, Princeton University
Robert H. Frank, Cornell University
Richard Freeman, Harvard University
James K. Galbraith, University of Texas
Robert J. Gordon, Northwestern University
Heidi Hartmann, Institute for Women’s Policy Research
Lawrence Katz, Harvard University
Robert Lawrence, Harvard University
David Lee, Princeton University
Frank Levy, Massachusetts Institute of Technology
Lisa Lynch, Brandeis University
Ray Marshall, University of Texas
Lawrence Mishel, Economic Policy Institute
Robert Pollin, University of Massachusetts
William Rodgers, Rutgers University
Dani Rodrik, Harvard University
Jeffrey D. Sachs, Columbia University
Robert M. Solow, Massachusetts Institute of Technology
William Spriggs, Howard University
Peter Temin, Massachusetts Institute of Technology
Mark Thoma, University of Oregon
Lester C. Thurow, Massachusetts Institute of Technology
Laura Tyson, University of California/Berkeley
Paula B. Voos, Rutgers University
David Weil, Boston University
Edward Wolff, New York University
Domar: In order to have a rich upper class of warriors/administrators/bureaucrats, you need to have:
sufficient productivity to support an upper class...
sufficient differential in military effectiveness to make becoming a lord or an unproductive specialist in coercive violence worth the risk...
scarce land, or an effective "recapture technology" (Cossacks, language competence, black skin as a marker, etc.) to keep your slaves/serfs/debt peons from successfully running away...
Austen and Smith: Colonial-era Caribbean slavery requires:
guns that European merchants can sell to African kings on the coast...
prior slave-raiding that can be made more effective and larger scale by guns...
caravels and equivalent to carry slaves to the Caribbean reliably...
Europe rich enough to pay for sugar...
Europe with a taste for sugar...
Legal systems that will support colonial slavery...
Marx and Engels: Things are not that different:
formal judicial equality is not substantive equality...
over time, variance means that some of the rich get richer and others lose their wealth and fall into the proletariat--hence income gets more concentrated...
Marx believes working-class wages are doomed to remain at "subsistence." It is not clear why. His arguments for rising inequality are, I think, coherent. His arguments for the absolute immiserization of the working class are, I think, not coherent at all...
Paul Krugman makes an intellectually honest argument against the buy-America provisions that almost made it into the Obama fiscal boost program:
Protectionism and stimulus (wonkish) - Paul Krugman Blog: Should we be upset about the buy-American provisions in the stimulus bill? Is there an economic case for such provisions? The answer is yes and yes. And I do think it’s important to be honest about the second yes....
[Under p]rotectionism... each country produces goods in which it has a comparative disadvantage, and consumes too little of imported goods... under normal conditions that’s the end of the story. But these are not normal conditions. We’re in the midst of a global slump.... [T]here are major policy externalities. My fiscal stimulus helps your economy, by increasing your exports — but you don’t share in my addition to government debt... this means that the bang per buck on stimulus for any one country is less than it is for the world as a whole.... [I]f each country adopted protectionist measures that “contained” the effects of fiscal expansion within its domestic economy? Then everyone would adopt a more expansionary policy — and the world would get closer to full employment.... Yes, trade would be more distorted, which is a cost; but the distortion caused by a severely underemployed world economy would be reduced....
What’s the counter-argument? Don’t say that any theory which has good things to say about protectionism must be wrong: that’s theology, not economics. The right argument, I think, is... [e]verything I’ve just said applies only when the world is stuck in a liquidity trap... [not] the normal situation. And if we go all protectionist, that will shatter the hard-won achievements of 70 years of trade negotiations — and it might take decades to put Humpty-Dumpty back together again.
And Clive Crook attacks Paul for being... intellectually dishonest. Clive Crook on Paul Krugman:
Politics is damaging the credibility of economics: Economists are failing to express anything resembling consensus on the most basic questions of economic policy.... I had thought they would at least agree that raising trade barriers at a time like this must be a bad idea. Then I read Paul Krugman, Nobel laureate, Princeton professor, and New York Times columnist...
But the column Crook cites--the one above--does say that raising trade barriers at a time like this is a bad idea.
Crook goes on:
[Krugman] explain[s] that raising tariffs – though perhaps unwise for other reasons – “can make the world better off”. “There is a short-run case for protectionism,” he went on, “and that case will increase in force if we don’t have an effective economic recovery programme.” What are his readers to make of this?
Well, they are supposed to read Paul Krugman. Theen they would understand that on those exceptional cases when the world is in a liquidity trap it faces a fiscal policy coordination problem. Trade barriers, Krugman says, lessen that problem--but their (momentary, transitory) advantages do not offset their (persistent, permanent) drawbacks.
Crook, however, goes on:
This impression of disarray... is not the fault of economics.... It is a mostly false impression created by some of its leading public intellectuals, Mr Krugman among them.... If you wish to know what Mr Krugman thinks on any policy question, do not read his scholarly writings; see which policies are advocated by the progressive wing of the Democratic party. Mr Krugman agrees with liberal Democrats about most things, and for the rest gives as much cover as the discipline of economics can provide – which, given its scientific limitations, is plenty. He does this even on matters where, if his scholarly work is any guide, the economics is firmly against his allies. Liberal Democrats are protectionists. Mr Krugman is not, but politics comes first...
Once again, more slowly now: Krugman's column asks the question: "Should we be upset about the buy-America provisions in the stimulus?" And Krugman's answer is: "Yes, we should be upset."
Now just what in the Eternal and Holy Name of The One Who Is is going on here?
In the second half of the column things become less muddy. Crook's first targets in the column are elsewhere. But Crook has succumbed to the High Broderism--he cannot be "unbalanced," he cannot attack a right-winger like Robert Barro for what Barro does say without also attacking a left-winger like Paul Krugman--albeit for what Paul Krugman does not say.
Let's roll the videotape for the second half of Crook's column. Remember: Crook misleads when he says that Krugman supports trade barriers. But Barro surely does oppose the stimulus package:
Clive Crook - Politics is damaging the credibility of economics: [M]ost economists believe that a powerful fiscal stimulus is both possible and desirable in present circumstances, and that the best stimulus would include big increases in public spending. Yet recently, Robert Barro, a scholar with conservative sympathies, wrote in the Wall Street Journal that this view was an appeal to “magic”. The problem is... that... both [Krugman and Barro] set the consensus [of the economics profession] aside so carelessly.... [They] destroy the credibility of their own discipline.... They narrow or deny the common ground. Why does this matter? Because the views of readers inclined to one side or the other are further polarised; and in the middle, those of no decided allegiance conclude that economics is bunk...
And then Crook shifts to his second target: the internet:
The web, for all its blessings, is an aggravating factor. Many of the most successful economics blogs promote communication within political groupings, not across them. On the web you best build an audience by organising a claque and stroking its prejudices. Extend elaborate courtesy to people you agree with and boorish contempt to those who do not get it. Celebrate exasperation and incivility as marks of intellectual authenticity – an attitude easier to tolerate in teenagers under hormonal stress than in professors at world-class universities. Consensus economics does exist. The Obama administration and the Federal Reserve are trying to apply it. The economics professoriate has an obligation to criticise and improve those policies. But if politics is allowed to split the discipline, and communication across that divide continues to break down, the science of economics will forfeit what little respect it still commands.
And here we have to say: "Huh?"
Robert Barro's article is not in a web publication: it is in newsprint on the op-ed page of the Wall Street Journal, which was a den of right-wing wingnuttery for decades before the world wide web was even a gleam in Tim Berners Lee's eye. That Robert Bartley and Paul Gigot have always regarded their editorial task as to degrade the stream of discourse about economic policy is a shame. But it is not the internet's fault.
UPDATE: Clive Crook responds:
Dismal science, revisited - Clive Crook: I think Paul is disingenuous (there I go again, more hysterics) when he says that the blog-post in question makes it clear he is not in favour of acting on the short-run argument for protection. You be the judge. In my view, he says it is all very complicated. He kind of supports free trade in an ideal world--that would be an Econ 101 world--but there are circumstances, which happen to be very like today's circumstances, in which protection could make sense. This "needs to be taken seriously", and the case gets stronger if optimal macro co-ordination is not forthcoming (which it won't be). Ask any Democratic congressman what Paul's advice on "Buy American" is. The answer will not be, "Don't do it." It will be, "The most brilliant economist I know of thinks there's a case"...
To which one must observe how Krugman starts:
Protectionism and stimulus (wonkish): Should we be upset about the buy-American provisions in the stimulus bill? Is there an economic case for such provisions? The answer is yes and yes...
And how Krugman ends:
Don’t say that any theory which has good things to say about protectionism must be wrong: that’s theology, not economics. The right argument, I think, is in terms of political economy. Everything I’ve just said applies only when the world is stuck in a liquidity trap; that’s where we are now, but it won’t be the normal situation. And if we go all protectionist, that will shatter the hard-won achievements of 70 years of trade negotiations — and it might take decades to put Humpty-Dumpty back together again. But there is a short-run case for protectionism — and that case will increase in force if we don’t have an effective economic recovery program.
I think Henry Farrell gets it right:
Are blogs ruining economic debate?: I suspect that Crook’s main beef with Krugman isn’t with polarization, but with the particulars of Krugman’s suggestion that the case for free trade is a qualified rather than an absolute one. Crook more or less accuses Krugman of being a dishonest partisan hack for saying this. However, from my limited understanding, Krugman is making claims that are reasonable ones within the internal debate among economists. Certainly, Crook doesn’t provide any contrary evidence. Thus, I suspect that Krugman’s perceived crime was to express these qualifications in the agora rather than in closed session. Which is to say that the ‘consensus’ that Krugman is setting aside so ‘carelessly’ is a political one – the shibboleth that free trade is an Unqualified Good Thing – rather than a seamless consensus that emerges from the underlying academic debates...
What relevance and use does a work like Karl Marx and Friedrich Engels (1848), "Manifesto of the Communist Party" have to twenty-first century economists today?
Readings:
Evsey Domar (1970), "The Causes of Slavery or Serfdom: A Hypothesis," Journal of Economic History, pp. 18-32
Ralph Austen and Woodruf D. Smith (1992), "Private Tooth Decay as Public Economic Virtue: The Slave-Sugar Triangle, Consumerism, and European Industrialization," in Joseph E. Inikori and Stanley L. Engerman, eds., The Atlantic Slave Trade (Durham, Duke Univ. Press, 1992), pp. 183-203 http://books.google.com/books?id=Aa78ghyF2fIC&client=safari.
Stanley Engerman and Kenneth Sokoloff (1994), "Factor Endowments, Institutions and Differential Paths of Development Among New World Economies: A View from Economic Historians of the United States" NBER Working Paper no. 10066
http://papers.nber.org/papers/h0066.pdf
General Notes:
The standard mode of discourse in economics is positive-sum win-win Pareto-optimality. You provide people with the right incentives through property rights to invest and accumulate and they do so—and the benefits of their investment and accumulation spill over and produce higher incomes for everybody else as well. You provide people with secure contract rights and they trade what they personally value less for what they personally value more—redistributing the goods of society across individuals until the Pareto frontier is reached. You incentivize people through property rights to be good stewards of natural resources, and they are.
But a look back at human history suggests that this focus is perhaps misplaced. Much of human economic and political history looks as though it is made up of thugs with spears (or kalishnikovs) taking stuff; or those who can for some reason command the services of thugs with spears taking stuff; or those who can for some reason command the services of thugs with spears threatening others so inducing them to enter into contracts on unfavorable terms. Slavery. Serfdom. Debt peonage. Latifundia. Land barons. Cattle barons. Capital barons. Perhaps economics should focus not on Pareto-optimal exchange equilibria and economic growth but instead on distribution: perhaps economics should be not a hymn to the win-win bounties of the division of labor but instead a discourse on the origins (and maintenance) of inequality.
That is what this week is: Evsey Domar with an abstract paper on slavery, serfdom, and land barons; Austen and Smith on commercial consumer capitalism as the driving energy of the genocide that was the North Atlantic slave trade; Marx and Engels saying that the market economy of Pareto-improving exchange of which economists sing is, really, nothing new; and Engerman and Sokoloff on the long-run consequences of redistributive-based rather than gains from trade-based political economy.
Entitlements on the back of an envelope: Right now, the federal government spends about 9 percent of GDP on the three biggies, Social Security, Medicare and Medicaid, with the total roughly evenly divided between retirement and medical care. We have an aging population, which will tend to increase the share of GDP spent on these programs. Looking ahead to circa 2050, we’ll go from about 3 workers per retiree to 2. This would, other things equal, raise spending on the programs by about 4 percentage points of GDP. (Not 4.5, because only part of Medicaid is age-related). That is, we’d spend 6.75 percent of GDP on retirement, 6.25 percent on health care. Now, 4 percent of GDP is a lot, but not catastrophic: remember, the share of GDP spent by the government currently is 10 percentage points or more higher in a number of wealthy countries than it is here.
What makes the projections you actually see so scary is the assumption that “excess cost growth” in health care will continue — that is, health spending per person will continue to rise at close to 2 percent faster than GDP per capita. This means, circa 2050, that health care costs will be roughly double what pure demography would predict, adding another 6 plus percentage points to the entitlements projection. Looking beyond that, demography adds very little — it’s all health care.
So if excess cost growth in health care can be brought under control, the entitlement problem is manageable. If not, even savage cuts in Social Security will make little difference.
The macroeconomic impacts of any economic stimulus program are very uncertain. Economic theories differ in their predictions about the effectiveness of stimulus. Furthermore, large fiscal stimulus is rarely attempted, so it is difficult to distinguish among alternative estimates of how large the macroeconomic effects would be. For those reasons, some economists remain skeptical that there would be any significant effects, while others expect very large ones.
It's sort of like that mutual fund boilerplate, "Past performance is no guarantee of future results." Except that we're not even sure of what the past performance was. (And I say this as somebody who thinks the stimulus legislation is on balance a good idea.)
Well, why should we be certain of what past performance was? There haven't been a great many uses of large-scale fiscal policy to try to cure depression. And in those cases in which it has been tried, a lot else has been going on.
But when fiscal boost was tried on a large enough scale, it certainly did the job. And it is reasonable to infer (with all the caveats provided by the CBO) that what is true in the very large will be true in the merely large as well. Eugene Fama says that it is theoretically impossible for fiscal stimulus to boost output: World War II proves him wrong. Robert Barro says that the multiplier is zero: World War II proves him wrong. Benn Steil says that Jacques Rueff in 1947 conclusively proved that fiscal policy could not boost employment: World War II proves him wrong.
The extent to which the Great Depression and World War II changed how economists thought--and how those who know their history still think--cannot be overstated. And even those economists who don't know their history should be forced to come up with a reason why the lessons of the Great Depression do not apply to today.
As I am going to say in class a couple of weeks from now:
The end in the Great Depression of laissez faire--the idea that the government should keep its hands off of the economy--as a doctrine for guiding economic policy did not mean the end of the market economy as a social resource allocation mechanism. "Keynesianism" and the doctrine of the "mixed economy" that it supported emerged in the nick of time, soon became the ruling ideologies in the industrial core of the world economy, and provided North America and western Europe with a Keynesian escape route from what had seemed the insoluble crises of the interwar period.
The Keynesian escape route opened up key ground in the middle between fascist-style regimentation and socialist-style national planning. Keynes argued that the market economy and capitalist order could be salvaged, and salvaged by relatively minor reforms. An activist welfare-state government with a commitment to full employment had the tools to eliminate Great Depressions, and could put economies back onto the road to Utopia. If only governments would reduce interest rates to get private agents or would themselves spend money freely (without raising taxes) in times when total demand was low, and raise interest rates to reduce private spending and themselves raise taxes (without raising spending) in times when total demand was high, then fiuctuations in employment and production could be greatly reduced, and Great Depressions avoided.
Belief in this escape route was strongly reinforced by facts. Those countries that had tried it by accident during the Depression--had infiated early, printed money, ensured low interest rates, and run large budget deficits--managed to survive the Depression much more easily than others. World War II provided final proof, were any necessary--"vindication by Mars," as John Kenneth Galbraith calls it. That component of unemployment, called "structural" or "permanent" during the 1930s, that was seemingly-immune to both the self-adjusting forces of the market and the armament of the New Deal vanished entirely in the 1940s as the federal budget deficit approached and then exceeded the levels that had long been recommended by John Maynard Keynes. And the United States fought World War II without reducing civilian consumption: all of U.S. war production came from new capacity or from capacity that stood idle at the end of the 1930s.
Demand expansion--deliberate attempts by governments to put the unemployed back to work by deficit spending and loose-money low interest rate policies--was successful in the 1930s and 1940s. It put the unemployed back to work. It did not contain within itself the seeds of a renewed Great Depression. It did not explode into hyperinflation. The coming of "stablization policy" enlarged the policy steps that could be undertaken without forcing a definitive break with the market-capitalist order, and without forcing a choice between Hitler's way and Stalin's.
In later years--in the second and third post-World War II generation--tasks of macroeconomic management would prove harder, and the truth of the doctrines of Keynes's disciples if not of the doctrines of Keynes himself would become less clear.
Alan Beattie in Washington, Peter Smith in Sydney and Mure Dickie in Tokyo for the FT:
World wary of softer Buy American plan: US trade partners reacted warily on Thursday after the US Senate tried to head off an international trade conflict by voting to soften the controversial Buy American provisions in the near-$900bn economic stimulus bill. Late on Wednesday night, the Senate narrowed the provisions, which require that federal money be spent on goods from US companies, to ensure they would be compatible with US commitments under existing trade treaties....
The US is a signatory to the World Trade Organisation’s agreement on government procurement, under which it has committed itself to open certain goods and services to international tender. It also has more wide-ranging commitments under the North American Free Trade Agreement to Canada and Mexico. But even the narrower provision, which is similar to one in the House of Representatives, would still permit the US to exclude non-signatories to the WTO agreement, such as China, Brazil and India, from certain parts of its spending...
Well then, it's time for China, Brazil, and India to sign the WTO agreement on government procurement, isn't it?
Perspective - Ross Douthat: But the most pressing issue, it seems to me, is whether we've reached - or will reach - a point at which all our abundance cushions us against the political consequences of suddenly-diminished expectations. In 1932 or so, the West's porridge-eating past wasn't nearly as far in the rearview mirror as it is today, but a Brad DeLong of the Great Depression could still have marshaled all sorts of statistics to prove that even amid economic crisis, your average Westerner was in vastly better shape than his pre-industrial forefathers.
Indeed, John Maynard Keynes did--that was his essay on "Economic Possibilities for Our Grandchildren"...
Ross continues:
Yet that underlying reality didn't save Europe from a [Great Depression] decade in which democratic capitalism was thought to be discredited, and the whole edifice of modern civilization was very nearly torn apart. Hopefully the world - not only DeLong's North Atlantic cluster, but the developing powers as well - has grown rich enough and stable enough that something like that simply couldn't happen again, no matter how hard the fall and how deep the depression. Hopefully.
Matthew Yglesias agrees that Kevin Murphy gives the:
Best Anti-Stimulus Argument I’ve Seen: Kevin Murphy’s slides here. I think he overstates the deadweight loss effect and is working with the wrong conception of “efficiency” for these purposes when he claims that government is inefficient, so the odds of a stimulus being successful therefore aren’t as bad as he indicates. And this doesn’t change the fact that I haven’t heard any better ideas than doing a big stimulus. But this is a sobering reminder that a big stimulus doesn’t guarantee success—very hard work needs to be done on making sure that stimulus funds target genuinely idle resources rather than diverting non-idle resources while leaving the idle ones as idle as ever.
Here is Kevin:
Evaluating the Fiscal Stimulus
Kevin M. Murphy
January 16, 2009
A Framework for Thinking about the Stimulus Package
Let G = increase in government spending
1-α= value of a dollar of government spending (α measures the inefficiency of government)
Let f equal the fraction of the output produced using “idle” resources
Let λ be the relative value of “idle” resources
Let d be the deadweight cost per dollar of revenue from the taxation required to pay for the spending
When Will the Stimulus Add Value?
The net gain is the value of the output produced less the costs of the inputs and the deadweight loss
In terms of the previous notation we have: Net Gain = (1-α)G –[(1-f)G + λfG] –dG
Net gain = (f(1-λ) –α–d)G
A positive net gain requires that: f(1-λ) > α+d
Difference of opinion comes from different assumptions about f, λ, α, and d
My View
* α likely to be large
* Government in general is inefficient
* The need to act quickly will make it more inefficient
* The desire to spend a lot in a short period of time will
make it more inefficient
* Trying to be both stimulus and investment will make it
even more inefficient
* 1-f likely to be positive and may be large
* With a large fraction of resources employed (roughly 93%) much will be drawn from other activities rather than “idle” resources
* Ricardian equivalence implies that people will save to
pay for future taxes reducing private spending
* λ is non-zero and likely to be substantial
* People place positive value on their time
* Unemployed resources produce value through relocation (e.g. mobility & job search)
* d is likely to be significant
* Wide range of estimates of d
* Estimates based on the analysis of taxable income
imply d≈0.8
* With these parameters the stimulus package is likely to be a bad idea
As I read it, Kevin thinks α = 1/2, f = 1/2, λ = 1/2, d = 0.8, and gets 0.25 > 1.3. I would say that α = 0 (increasing income inequality and starvation of the non-health non-military public sector over the past generation have left a bunch of low hanging fruit), f = 1.5 (there are multipliers out there, and markets work if there is sufficient demand: as long as there are idle resources people will use them first as long as demand is available), λ = 1/5 (the cyclically unemployed are not having much fun), and d = 1/3. So I get 1.2 > 0.33.
More interesting, I think, is that there is an unemployment rate at which Kevin Murphy's priors would switch and he would become a stimulus advocate. What is it?
A message from Dismal Scientist and Professional Bureaucrat Robert Sunshine:
This afternoon, Dr. Douglas W. Elmendorf was appointed Director of the Congressional Budget Office by Speaker of the House Nancy Pelosi and President Pro Tempore of the Senate Robert C. Byrd. He is the eighth Director of CBO---following in the footsteps of Alice M. Rivlin, Rudolph G. Penner, Robert D. Reischauer, June E. O'Neill, Dan L. Crippen, Douglas Holtz-Eakin, and Peter R. Orszag.
Before he came to CBO, Dr. Elmendorf was a senior fellow in the Economic Studies program at the Brookings Institution. As the Edward M. Bernstein Scholar, Dr. Elmendorf served as coeditor of Brookings Papers on Economic Activity and the director of the Hamilton Project, an initiative to promote economic growth. His areas of expertise are macroeconomics, the financial system, public economics, and fiscal policy, and his latest research at Brookings focused on policy responses to the current mortgage and financial crisis and on economic volatility at the aggregate and household levels.
Dr. Elmendorf was previously an assistant professor at Harvard University, a principal analyst at the Congressional Budget Office, a senior economist at the White House's Council of Economic Advisers, a deputy assistant secretary for economic policy at the Treasury Department, and an assistant director of the Division of Research and Statistics at the Federal Reserve Board. In those positions, he worked on budget policy, Social Security, Medicare and health care generally, financial markets, macroeconomic analysis and forecasting, and other topics. He earned his Ph.D. and A.M. in economics from Harvard University, where he was a National Science Foundation graduate fellow, and his A.B. summa cum laude from Princeton University.
With respect to Avner Greif's article on this week's readings, how do you have trade without a reliable system of law? How effective are substitutes for law at enabling trade? And what are the consequences of developing a legal system that provides a secure umbrella for the protection of property rights and the enforcement of contracts?
Readings for January 28, 2009:
Avner Greif (1989), "Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders," Journal of Economic History 49:4 (December), pp. 857-882 http://tinyurl.com/dl20090112g
Jan de Vries (1994), "The Industrious Revolution and the Industrial Revolution," Journal of Economic History 54:2 (June), pp. 249-70 http://tinyurl.com/dl20090112i
Jan de Vries (1994), "How did Pre-Industrial Labour Markets Function?" in George Grantham and Mary McKinnon, eds, Labour Market Evolution (London, Routledge, 1994), pp. 39-63. On reserve at Haas.
January 14, 2009
Jared Diamond (1987), "The Invention of Agriculture: The Worst Mistake in the History of the Human Race," Discover http://tinyurl.com/dl20090112d
Gregory Clark (2005), "The Logic of the Malthusian Economy," draft of chapter 2 of A Farewell to Alms (published version: Princeton University Press, 2007) http://tinyurl.com/dl20090112e
Gregory Clark (2005), "Living Standards in the Malthusian Era," draft of chapter 3 of A Farewell to Alms http://tinyurl.com/dl20090112j
Why was the pace of innovation so slow in the old days?
M. I. Finley (1965), "Technical Innovation and Economic Progress in the Ancient World," Economic History Review, New Series, 18:1, pp. 29-45 http://tinyurl.com/dl20090112f
What conclusions did Malthus draw from his "Malthusian" theory?
http://tinyurl.com/dl20090120d: It is, undoubtedly, a most disheartening reflection that the great obstacle in the way to any extraordinary improvement in society is of a nature that we can never hope to overcome. The perpetual tendency in the race of man to increase beyond the means of subsistence is one of the general laws of animated nature which we can have no reason to expect will change. Yet, discouraging as the contemplation of this difficulty must be to those whose exertions are laudably directed to the improvement of the human species, it is evident that no possible good can arise from any endeavours to slur it over or keep it in the background. On the contrary, the most baleful mischiefs may be expected from the unmanly conduct of not daring to face truth because it is unpleasing. Independently of what relates to this great obstacle, sufficient yet remains to be done for mankind to animate us to the most unremitted exertion. But if we proceed without a thorough knowledge and accurate comprehension of the nature, extent, and magnitude of the difficulties we have to encounter, or if we unwisely direct our efforts towards an object in which we cannot hope for success, we shall not only exhaust our strength in fruitless exertions and remain at as great a distance as ever from the summit of our wishes, but we shall be perpetually crushed by the recoil of this rock of Sisyphus...
It is a perfectly just observation of Mr. Godwin, that, 'There is a principle in human society, by which population is perpetually kept down to the level of the means of subsistence.' The sole question is, what is this principle? is it some obscure and occult cause? Is it some mysterious interference of heaven.... Or is it a cause, open to our researches, within our view, a cause, which has constantly been observed to operate, though with varied force, in every state in which man has been placed? Is it not a degree of misery, the necessary and inevitable result of the laws of nature, which
human institutions, so far from aggravating, have tended considerably to mitigate, though they never can remove?.... It seems highly probable, therefore, that an administration of property, not very different from that which prevails in civilized states at present, would be established, as the best, though inadequate, remedy for the evils which were pressing on the society...
"I now know it is a rising, not a setting, sun" --Benjamin Franklin, 1787
From Brad DeLong
J. Bradford DeLong, Professor of Economics at U.C Berkeley, a Research Associate of the NBER, a Visiting Scholar at the Federal Reserve Bank of San Francisco, and Chair of Berkeley's Political Economy major.
The Eighteen-Year-Old is going to college next year, which means that I need to think about making more money. (The idea that one might write checks to rather than receive checks from universities is now strange to me.) So I have signed up with the Leigh Speakers' Bureau which also handles, among many others: Chris Anderson; Suzanne Berger; Michael Boskin; Kenneth Courtis; Clive Crook; Bill Emmott; Robert H. Frank; William Goetzmann; Douglas J. Holtz-Eakin; Paul Krugman; Bill McKibben; Paul Romer; Jeffrey Sachs; Robert Shiller;James Surowiecki; Martin Wolf; Adrian Wooldridge.
Graphs
Global Warming
The U.S. Federal Budget Deficit
Modern Economic Growth Is a Historically Recent Phenomenon
