David F. Ruccio — This is the end—or is it?

Where I think Mishra goes wrong is in arguing that “A new economic consensus is quickly replacing the neoliberal one to which Blair and Clinton, as well as Thatcher and Reagan, subscribed.” Yes, in both the United Kingdom and the United States—in the campaign rhetoric of Theresa May and Trump, and in the actual policy proposals of Corbyn and Sanders—neoliberalism has been challenged. But precisely because the existing framing of the questions has not changed, a new economic consensus—an alternative common sense—cannot be born.

To put it differently, the neoliberal frame has been discarded but the ongoing debate remains framed by the terms that gave rise to neoliberalism in the first place. What I mean by that is, while recent criticisms of neoliberalism have emphasized the myriad problems created by individualism and free markets, the current discussion forgets about or overlooks the even-deeper problems based on and associated with capitalism itself. So, once again, we’re caught in the pendulum swing between a more private, market-oriented form of capitalism and a more public, government-regulated form of capitalism. The former has failed—that era does seem to be crumbling—and so now we begin to turn (as we did during the last system-wide economic crisis) to the latter.**

However, the issue that keeps getting swept under the political rug is, how do we deal with the surplus? If the surplus is left largely in private hands, and the vast majority who produce it have no say in how it’s appropriated and distributed, it should come as no surprise that we continue to see a whole host of “morbid phenomena”—from toxic urban water and a burning tower block to a new wave of corporate concentration and still-escalating inequality.

As long as it is assumed that capital (ownership of means of production) must be favored over labor (people) and land (environment) because capital formation in the sine qua non of growth, then the frame remains it place.

A frame that integrates people, environment and productive capacity needs to be developed to replace the flawed frame, which can never work satisfactorily for all the factors. hence, will always lead to social and environmental problems if balance is not restored.

Questioning some dimensions of neoliberalism does not, in and of itself, constitute a new economic consensus. I’m willing to admit it is a start. But, as long as remain within the present framing of the issues, as long as we cannot show how unreasonable the existing reason is, we cannot say the existing era has actually come to an end and a new era is upon us.

For that we need a new common sense, one that identifies capitalism itself as the problem and imagines and enacts a different relationship to the surplus.

For this it is necessary to acknowledge that the problem is based on the expropriation of workers and the environment, which is not sustainable in the long run and leads to periodic breakdowns. Short term fixes just put off dealing with the causes.

Occasional Links & Commentary
This is the end—or is it?
David F. Ruccio | Professor of Economics, University of Notre Dame

David Ruccio — Dual economies and the vanishing middle-class

Both Peter Temin and I are concerned about the vanishing middle-class and the desperate plight of most American workers. We even use similar statistics, such as the growing gap between productivity and workers’ wages and the share of income captured by the top 1 percent.

And, as it turns out, both of us have invoked Arthur Lewis’s “dual economy” model to make sense of that growing gap. However, we present very different interpretations of the Lewis model and how it might help to shed light on what is wrong in the U.S. economy—with, of course, radically different policy implications.

It is ironic that both Temin and I have turned to the Lewis model, which was originally intended to make sense of “dual economies” in the Third World, in which peasant workers trapped by “disguised unemployment” and receiving a “subsistence” wage (equal to the average product of labor) in the “backward,” noncapitalist rural/agricultural sector could be induced via a higher “industrial” wage rate (equal to the marginal product of labor) to move to the “modern,” capitalist urban/manufacturing sector, which would absorb them as long as capital accumulation increased the demand for labor.

That’s clearly not what we’re talking about today, certainly not in the United States and other advanced economies where agriculture employs a tiny fraction of the work force—and where much of agriculture, like the manufacturing and service sectors, is organized along capitalist lines. But Lewis, like Adam Smith before him, did worry about the parasitical role of the landlord class and the way it might serve, via increasing rents, to drag down the rest of the economy—much as today we refer to finance and the above-normal profits captured by oligopolies....

So, our returning to Lewis may not be so far-fetched. But there the similarity ends. 

Occasional Links & Commentary
Dual economies and the vanishing middle-class
David F. Ruccio | Professor of Economics, University of Notre Dame

Richard D. Wolff — Economic Theorists: The High Priests of Capitalism

Richard Wolff traces a pattern of advocacy in social, political, and economic explanation. One might also call it persuasion.

Truthout | OpEd
Economic Theorists: The High Priests of Capitalism
Richard D. Wolff, Truthout | Op-Ed

Richard D. Wolff is professor of economics emeritus at the University of Massachusetts, Amherst, where he taught economics from 1973 to 2008. He is currently a visiting professor in the Graduate Program in International Affairs of the New School University, New York City. He also teaches classes regularly at the Brecht Forum in Manhattan. Earlier he taught economics at Yale University (1967-1969) and at the City College of the City University of New York (1969-1973). In 1994, he was a visiting professor of economics at the University of Paris (France), I (Sorbonne). His work is available at rdwolff.com and at democracyatwork.info.

Also

Poverty Has Always Accompanied Capitalism
Mark Karlin interviews Richard D. Wolff for Truthout
See also

Stumbling and Mumbling
Cognitive biases, ideology & control
Chris Dillow | Investors Chronicle

David Ruccio — Capitalism—what’s in a word?

Quote from Richard Wolf.

According to Richard Wolff, critics of capitalism need to be clear about what they mean by capitalism. It’s not free markets or free enterprise, both of which have been present in various forms of slavery and feudalism (and, of course, both of which have been absent in various forms of capitalism). Instead, it’s how surplus labor is organized, in the form of surplus-value.

Note that in this view, political economy is about distribution. Distribution determines the type of economy and the economic infrastructure determines the type of society, that is, social structure in terms of institutional arrangements that order socio-economic relationships. Imposition of institutional arrangements is a matter of power and therefore politics.

Occasional Links & Commentary
Capitalism—what’s in a word?
David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

David F. Ruccio — Who wants to be a billionaire?

In other words, most billionaires acquired their fortunes—now or in the past—by helping themselves to the surplus created by their employees.

Occasional Links & Commentary
Who wants to be a billionaire?
David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

Also

David Ruccio,  Map of the day : the world’s billionairs

Dean Baker, Unmentioned Myth About Billionaires: They Know Anything About Public Policy at CEPR

 The Washington Post treated us to "five myths about billionaires" this morning. Incredibly, they missed the most obvious one: that billionaires know anything special about what is good for the country and the world.

When A "Surplus" Of Fiat ... Is A Negative, ...... aka, ....... N-tuple Entry, Indirect Semantics

   (Commentary posted by Roger Erickson)




From the Mad Hatter department, this just glossed over too lightly, even at MNE.

Labour says it wants budget surplus if it wins next UK election

In a seemingly unprecedented mix of broken semantics, the only loser is the sectoral balance between sense and nonsense in public discourse.

In the great fiat debate, if anyone simply asks "what does that mean" - or spends 10 seconds doing a google search on a term - then they might quickly note the following. In the parallel universe of Double Entry Accounting as applied to sovereign fiscal policy, a "surplus of fiat" involves a net drain or a "negative" flow of net private financial savings. Exactly which "deficit" matters, to whom, when?

Some could be excused for concluding that Labour is threatening to "cut" it's citizens, i.e., make them "bleed" if they DO elect them.

Or, is that a very sick punk politician's circuitous way of asking for institutional help?

And to think that some wag just accused me of using inscrutable jargon, i.e., twisted semantics! :)

Sometimes even "yes" isn't an adequate response, when people say you're trying diverse jargon to get them to notice their own broken semantics. When enough different options are introduced, someone in the audience at a Kabuki play will eventually accuse you of indirection, while STILL not seeing their own. Fine. Should we just bribe a politician to formally name the next government Fiscal Spending measure as the "Word Games Bill?" Based on past experience, even that might not work.

If that doesn't work, what's a teacher to do? Start blaming the parents? (And if they blame the storks? What then?)

To explain net creation, innovation or return-on-coordination to some Control Frauds, it may be expedient to invoke Dark Blather, but that won’t work on everyone, all the time.

David F. Ruccio — Capital and distributions of the surplus in the 21st century

Solow seems to be onto something: the source of the salary incomes of the top 1 percent is just as much capital as are the other sources of their income, such as profits, dividends, interest, rent, and capital gains. All of them—including the salaries of “supermanagers”—represent distributions of the surplus initially appropriated by capital.

Therefore, as Solow concludes, “it is pretty clear that the class of supermanagers belongs socially and politically with the rentiers, not with the larger body of salaried and independent professionals and middle managers.”

Ya think? As we've been saying here for a long time. Power, including corporate power, is the basis of rent extraction. Solow sees the situation but it seems he can't really admit to himself why, since power and rent don't figure in conventional models.

Maybe now that Piketty has pointed out somethings of interest, the investigation will get real and go deeper. but I doubt it. Conventional economics is shown to be vapid speculation about a fantasy world as soon as power and economic rent are introduced. They just are not going to go there.

Real-World Economics Review Blog
Capital and distributions of the surplus in the 21st century
David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

Chris Dillow — The Problem Of Distribution

In a comment here, Nuno Ornelas Martins says: "the central problem of economics is the distribution of the surplus rather than the allocation of scarce resources."

This, of course, flatly contradicts the standard view that scarcity is the problem of economics. However, in one context at least, he is right. J.W. Mason points outthat, in the US, companies have (net) long ceased to raise money from financial markets. A similar thing is true in the UK; for years, companies' retained profits have exceeded capital spending - something which the OBR expects to continue....

I am not saying here that the central problem of economics is always distribution rather than scarcity. I'm just saying that, in this context and now, it is. Most interesting facts in the social sciences are local and particular.

While the post make good points, I don't think this is quite right in its scope. This issue, like most, is much more complex that most narratives make it out to be. There is no such thing as an economy that is the subject of study of the discipline of economics. "The economy" is a conceptual construct that is built on assumptions that characterize one methodological approach among many other existing approaches and many more possible approaches.

The conventional approach that starts with the problem of scarcity rather than the distribution of a surplus defines the problem and therefore constructs the subject of study based on a set of assumptions that assume certain things as relevant and assume away other things as irrelevant. Conventional economics assumes a cycle of production, distribution, and consumption in which distribution is handled by the invisible hand of the market, which is presumed to be optimally efficient to the degree that it cannot be improved upon.

Only those institutional arrangements are appropriate that advance market efficiency or economic efficiency more broadly considered. For example, intellectual property like patents, copyright and trademarks, are considered to advance economic efficiency through creating incentive — even though they also create asymmetric market power. The corporation as a legal person capable of owing property in perpetuity is another. There are many more. The proof of their efficiency and effectiveness is in the innovation that they bring and growth they produce.

Opponents object that this disregards negative externalities that are socialized, ecological, environmental, social and political, in addition to economic. The so-called free market as a mechanism of price discovery and efficient distribution is a myth. Actual practice, such as administered pricing that now predominates, and legal and institutional arrangements that dictate winners and losers reveal that markets are not as represented.

They cannot be made free either, any more than friction can be eliminated from physical systems owing to the construction of modern society and its institutions. "Liberalization" simply increases the market power of factions in that social, political and economic asymmetry cannot be eliminated from individual relationships any more than friction can from the physical world. The idea of a market in which all participants are symmetrical in information, power, and influence is a fantasy.


Once this is recognized and acknowledged then that problem of allocating scarce resource comes to be seen in a different light, where the surplus a society creates is social rather than an aggregate of the contributions of individuals competing equally on a level playing field. Just it was a social and political issue initially about what institutional arrangements to create to produce results that are effective and efficient according to defined criteria; so too, is it a social and political issue to distribute those results in a way that takes into account that certain participants were favored in order to produce the optimal results.


The notion of redistribution is a matter of responsibility where there is a right to use private property for economic gain in addition to subsistence. Since individuals characteristically do not rise to the responsibility, it becomes necessary to undertake it institutionally.

Economically, the issue may be seen as addressing scarcity in the optimal way to achieve efficiency and effectiveness in accordance with defined criteria (norms). However, in the larger context of a society social, political, legal, institutional factors must be considered along with the economic factors.


In addition, open national economies must be considered relative to a closed world economy. Given that modern economies are interdependent, e.g. with respect to resources, and humans inhabit the same global ecology in which externalities play a fundamental role socio-economically, addressing scarcity and abundance becomes a human issue, involving human rights, and a global issue with respect to context.

Stumbling and Mumbling
The Problem Of Distribution
Chris Dillow | Investors Chronicle

If National Fiat = Public Initiative, Then A National Budget Surplus = Unused (Squandered) Public Initiative

(Commentary posted by Roger Erickson)



Static assets can be held in reserve, but that concept doesn't apply for dynamic assets, such as personal or public initiative, or fiat currency to a currency issuer.



You may wonder how entire governments end up expressing the exact opposite of something so simple. By 1001 ways? That's how a 10 year process of bureaucratic planning, left to the bureaucrats, ends up painting itself into a corner - as beautifully illustrated in the ongoing review by Bill Mitchell of the march to launch of the euro monetary union.

"Adherence to the objective of sound budgetary positions close to balance or in surplus will allow all Member States to deal with normal cyclical fluctuations while keeping the government deficit within the reference value of 3 % of GDP." [European Council, 1997b]

Using simple, algebraic substitution, one can translate that into the legal proposition that net national Public Initiative should be frozen, or partially wasted.

You can almost see where this 1st-grade thinking got started. If there was zero population growth and/or zero innovation rates, one might be tempted to see that rule as a way to keep adequate reserves of public initiative. However, that is, of course, NOT how things actually progress.

Attempting to use the EMU 1st-draft as permanently propagated policy is like requiring a child growing from age 2 to age 18 to spend the same amount of time motionless on the couch ... regardless of growth in size, capabilities or context. We're immediately talking criminal negligence! Seriously, everyone involved in the worldwide rape of the Middle Class should end up as defendants in a Nuremberg-like class-war--crimes trial. The scale of the social destruction is unprecedented.

As Bill notes, there has been a steady trickle of opposition even within orthodox economics.

"Most mainstream macroeconomic theoretical innovations since the 1970s (the New Classical rational expectations revolution associated with such names as Robert E. Lucas Jr., Edward Prescott, Thomas Sargent, Robert Barro etc, and the New Keynesian theorizing of Michael Woodford and many others) have turned out to be self-referential, inward-looking distractions at best. Research tended to be motivated by the internal logic, intellectual sunk capital and esthetic puzzles of established research programmes rather than by a powerful desire to understand how the economy works – let alone how the economy works during times of stress and financial instability. So the economics profession was caught unprepared when the crisis struck …" [Willem Buiter, 2009]

But to no avail. It's been too little, too meek, too late.

Unfortunately, a critical policy process was once again left to the presumed process owners. Equally inevitable, that entire field, systematically denied external feedback, promptly spiraled into self-referential insanity, divorced from the ongoing evolution of unpredictable reality. You can still see them, shuffling in front of their tenured mirrors, intellectual spittle showing at the side of their articles, mouthing "ISLM" reassuringly at their reflected images, and holding up large stacks of self-references as "overwhelming" proof. The only difference is in the public health profession, which finally sees the slack-jawed self-references for what they are, and has announced a diagnosis. Austerians.

The only step remaining is convalescence, and either therapeutic recovery or aggressive interventions. We can make recovery a face-saving, painfully drawn out adjustment, or simply change directions and drain the academic swamp, rather like George Marshall once did, to catalyze more agile responses to another war.

One Flew Over The Economic Cuckoo Nest? That may be a fascinating read, but it would have been more useful as a warning fiction, not as a review of experienced reality.
Now we're left wondering whether or not the main culprit, Big Purse, deserves all the blame, whether she should be fired, or whether all the actors are equally to blame ... for biasing the entire system in that direction, for letting the charade go on this far, and for participating in the first place! Instead of more letters to economists asking them what happened, why not pen letters to our aggregate self, asking ourselves "Whiskey, Tango Foxtrot happened?"

Our biggest regret, and shame, is that we all allowed this debacle to occur, under our very noses. And it is NOT just in Europe. Austerianism is an infectious cultural disease that works by perverting cultural embryology and stunting cultural development. The effects on specific cultures depends on local variables, but the outcomes are all bad. As always, prevention is the best cure, delivered via an educational vaccine, so that all citizens are immune to the regressive agents, whether memo-viruses, or a social Noirp.

Just put the book down, slowly back away, take a step outside ..... and return to discovered, operational reality?

Why? Here's why.

Ever notice that none of the characters in the original Cuckoo's Nest story had children, and were successfully reproducing, and then rearing productive adults? Those two themes don't interesect, which is reason enough to keep Economic Cuckoos in the realm of fiction, and out of the policy pages.

If we want a propagating future for the USA, do we want more aggregate options? Or do we want to sit on our fiat budgies, and be content to stare blankly at virtual non-reality, with simple, neat lines of ISLM drool on the cheeks of a declining, couch-potato nation?

Matias Vernengo — Psychologists and the Surplus Approach

Naked Keynesianism
Psychologists and the Surplus Approach
Matias Vernengo | Associate Professor of Economics, University of Utah

Bruce Bartlett — Mismeasurement of Federal Spending, Investment and Saving

One solution to this problem [of cutting government investment in deficit reduction] would be to have a capital budget that segregates government investment spending from consumption spending. Virtually all the states do this already. Conservatives who routinely defend a balanced-budget amendment to the Constitution, on the grounds that the states must balance their budgets annually, appear to be unaware that such requirements apply only to operating budgets, excluding capital outlays. 

If households were required to balance their budgets the way balanced-budget amendment supporters want the federal government to operate, they would almost never be able to buy homes or cars. Such outlays almost always exceed their annual incomes over and above consumption and would thus constitute deficit spending.

Of course, families could draw down savings to buy homes and cars. But that’s an option not available to the government because it has no savings, only a large debt. Treating it and private individuals the same way, as balanced-budget supporters propose, would require the entire national debt to be paid off and a surplus accumulated before it would be permitted to make new investments in roads, bridges, buildings and other long-lived assets.

The New York Times — Economix
Mismeasurement of Federal Spending, Investment and Saving
Bruce Bartlett

Another silly thing about the government as big household or firm analogy is debt to GDP (national income) ratio compared with corporate debt to firm income ratio, which is often much higher.

While the analogy fails on the currency issuer v. user basis, it also fails on the basis of actual operations and financial ratios.

Matias Vernengo on the surplus

Robert Paul Wolff comments on something I have often said about the economic history: Economics begins with the transition from tribal subsistence to surplus societies, and both political and economic history is chiefly about the surplus. According to Wolff:

"A good deal of Theology, Philosophy, History, Political Science, Sociology, Anthropology, and of course Economics is devoted to answering ... three questions.

The three questions are:

1. Who Gets the Surplus?
2. How do the Surplus Getters get the Surplus? and
3. What do the Surplus Getters do With the Surplus After They Get It?"

Naked Keynesianism
And Now for Something Completely Different (very short)
Matias Vernengo | Associate Professor of Economics, University of Utah

Gov't deficit probably too small to ensure system stability

Matt Franko has been posting updates from the Daily Treasury Statement that show Dec and the current month running well shy of the deficit levels needed to ensure sufficient $NFA's to keep the system stable. In December, Treasury ran a $20 bln surplus and so far this month Treasury is running a meager -$29 bln deficit. This is far below the historical average of the past year of -$90 bln deficit per month. A surge in bank credit likely reflects people and firms grasping for some liquidity. Banks may continue to provide this, it's hard to say, but the longer we go like this the greater the likelihood of some "liquidation event" that brings the system back into equilibrium. Remember, too, that higher tax demands as of Jan 1, mean that the historic -$90 bln deficit per month is probably low.

Matias Vernengo — What makes capitalism capitalism?

Are you sure you know? Take the test.

Naked Keynesianism

What makes capitalism capitalism?

Matias Vernengo

Federal Gov't running largest surplus in six months, threatening economy

Deficits add to private sector financial balances and surpluses reduce those balances. That's why running a surplus is bad for the economy.

The most recent data from the US Treasury shows that the government is now running the largest surplus in six months. What this means is that the rosy, 2.5% GDP (preliminary) number we saw for the third quarter is not going to be repeated in the fourth quarter if this surplus is not reversed soon.

Expect the economic data to start getting very, very, bad.