Friday, December 28, 2018

Branko Milanovic — Marx for me (and hopefully for others too)

Branko Milanovic explains why Marx's historical analysis of socio-economic phenomena remains not only relevant but also preeminent, based on a few key insights. While he does not identify as a Marxist or even a Marxian, he credits the important influence of Marx on his thinking.

There are no non-trivial economic phenomena that are not socio-economic, and Marx is the analyst that put his finger on the how and why. While it would be a mistake to dogmatize Marx, it would also be a great mistake to dismiss his analysis, or even to underestimate it. Milanovic discovered this empirically through his work on inequality. Class structure and power counts, and their foundation is economic.
This is also where the work on inequality parts ways with one of the scourges of modern micro- and macro-economics, the representative agent. The role of the representative agent was to obliterate all meaningful distinctions between large groups of people whose social positions differ, by focusing on the observation that everybody is an “agent” who tries to maximize income under a set of constraints. This is indeed trivially true. And by being trivially true it disregards the multitude of features that make these “agents” truly different: their wealth, background, power, ability to save, gender, race, ownership of capital or the need to sell labor, access to the state etc. I would thus say that any serious work on inequality must reject the use of representative agent as a way to approach reality. I am very optimistic that this will happen because the representative agent itself was the product of two developments, both currently on the wane: an ideological desire, especially strong in the United States because of the McCarthy-like pressures to deny the existence of social classes, and the lack of heterogeneous data. For example, median income or income by decile was hard to calculate but GDP per capita was easy to get hold of.
That means the jettisoning of marginalism aka "conventional economics" as it is currently practiced and taught in the academy. It would require revisiting classical economics, institutionalism as a competitor of marginalism, and integrating sociological economics, anthropological economics and political economy. The heterodox have already been engaged in this and much of this work has already been accomplished. What is needed is not so much new knowledge and reframing economics based on priorities. Much of what now passes for economic theory is rather irrelevant for current and future needs, since the scope and scale of the models limits them to the trivial.

This post covers a lot of ground in a few paragraphs, but it requires some background in Marx to appreciate in depth.
  1. The most important of Marx’s influences on people working in social sciences is, I think, his economic interpretation of history.…
  2. The second Marx’s insight which I think is absolutely indispensable in the work on income and wealth inequality is to see that economic forces that influence historical developments do that through “large groups of people who differ in their position in the process of production”, namely through social classes.…
  3. The third extremely important Marx’s methodological contribution is the realization that economic categories are dependent on social formations.…
  4. The last among Marx’s contribution that I would like to single out—perhaps the most important and grandiose—is that the succession of socio-economic formations (or more restrictively, of the modes of production) is itself “regulated” by economic forces, including the struggle for the distribution of the economic surplus....
Global Inequality
Marx for me (and hopefully for others too)
Branko Milanovic | Visiting Presidential Professor at City University of New York Graduate Center and senior scholar at the Luxembourg Income Study (LIS), and formerly lead economist in the World Bank's research department and senior associate at Carnegie Endowment for International Peace

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