Neo-classical economics doesn’t offer useful insights for disruption.Evonomics
More than a century ago, the effective operation of the public economy was a significant, active concern of economists. With the insurgence of market-centrism and rational choice economics, however, government was devalued, its role circumscribed and seen from a perspective of “market failure.” As Backhouse (2005) has shown, the transformation in economic thinking in the latter half of the 20th century led to a “radical shift” in worldview regarding the role of the state. The very idea of a valid, valuable public non-market has almost disappeared from sight....
Because mainstream economists in the U.S. and elsewhere have been so market-focused for so long, production outside the market has been erased from the equations of economics. So now, government action is regarded as an “intervention” that “distorts” smooth operation of an otherwise beneficent market. Government is considered to have an economic role only (or primarily) in cases of so called “market failure.” Consequently, there is no viable and explanatory concept of an actual, let alone a legitimate, public non-market economy. So pervasive is the creed that government only “intervenes” in what is thought to be the valid, market economy that even literature from the Congressional Research Service (Labonte, 2010) relegates government to an outsider role....
As I noted earlier, the “public choice” school has become the framework to which economists default for an explanation of the public economy. Backhouse (2005) outlines the development of the public choice school, which stems from a cluster of works published in the 1950s and 1960s by James Buchanan, Gordon Tullock, Mancur Olson, and Anthony Downs. It became a school, and a movement, when James Buchanan and Warren Nutter found a home for their efforts at George Mason University in Virginia. In the mid-1980s George Mason opened the Center for the Study of Market Processes, with its largest supporter being the Koch Family Foundations. Stretton and Orchard (1994) have demonstrated the anti-government, anti-democratic stance of public choice theorists in their extensive treatment of the school in Public Goods, Public Enterprise, Public Choice; Theoretical Foundations of the Contemporary Attack on Government. After critiquing the theory in economics terms, they suggest that public choice “reasoning seems to arise from the theorists’ reluctance to ‘come out’ and identify themselves as open enemies of democracy or at least of universal suffrage…Governments are viewed as exploiters of the citizenry, rather than the means through which the citizenry secures for itself goods and services that can best be provided jointly or collectively.”...
Public non-market production makes up a quarter to a half or more of all economic activity among advanced democratic nation-states. Yet the public economy’s ability to function on behalf of the populace as a whole is seriously imperiled in many western democracies, and particularly jeopardized in the United States. The surging influence of mainstream economics has been a prime factor in the degradation of the public domain over the last several decades – a phenomenon that James Galbraith (2008) has called “the collapse of the public governing capacity.”
Market advocates, exploiting neoclassical economic theory, have foisted market axioms and precepts onto government, intent on transforming public goods production in imitation of an idealized and idolized market model.
The ravaging of government in the interests of ideology and private profit has proceeded largely unhampered because we have no adequate theory to explain the nature and dynamics of the non-market public economy, no intellectual infrastructure to explain how its purposes and processes differ crucially from those of the market, and no effective explanatory model that shows why such differences matter substantially for democratic governance and the well-being of the populace....The post is short and to the point.
Wednesday, President Trump uttered the following now widely-publicized statement regarding the top economic positions in his administration:
“And I love all people, rich or poor, but in those particular positions, I just don’t want a poor person. Does that makes sense? Does that make sense?”
While this has provided wonderful material for critics and satirists, are they really being fair? On the surface of it, there’s a certain logic to his statement. Shouldn’t those who have been the most successful in the economy also be the ones to offer advice?
Unfortunately, no. Here are four reasons why putting rich folks in charge is in no way a guarantee of superior economic performance:Forbes — Pragmatic Economics
MMT is a description of the existing monetary system and its interaction with the production mechanisms. It takes a unique viewpoint that highlights opportunities that remain out of sight to traditional methods.
From this viewpoint comes a number of suggested policy proposals. So how do those proposals help keep things running smoothly?Modern Money Matters
Sir Tony Atkinson, the doyen of inequality economics, passed away in January. This column, by a longstanding friend and co-author, outlines his contributions to the analysis and measurement of inequality – and many other areas of economics, including taxation, social protection, and the welfare state. The ultimate goal of Atkinson’s research was to translate economic analysis into policy actions: economics is a tool for understanding the world and taking informed decisions on policies, but economists must strive to communicate their results beyond the narrow circles of decision-makers, making them accessible for public discussion.
There are many more economists in the public sphere than sociologists. The president has a Council of Economic Advisers, but no Council of Sociological Advisers. Every presidential candidate has an economic team, but you never hear about a sociology team. There are government-run institutions like the World Bank, the International Monetary Fund and the Federal Reserve banks staffed with Ph.D. economists, but no such brain-trusts of sociologists.
In the media, economists such as Paul Krugman, my Bloomberg View colleague Tyler Cowen and others command large audiences and great intellectual respect. Nor are they unusual -- many economists blog, or write for important news outlets. As for sociologists, though a few do interact with the public -- for example, Tressie McMillan Cottom of Virginia Commonwealth University or Fabio Rojas of Indiana University-Bloomington -- most remain in the ivory tower.
That’s a shame, because, as Bloomberg reporter Brendan Greeley recently pointed out, more and more of America’s problems look sociological rather than economic.It's a terrible mistake to see all issues as chiefly or exclusively economic, either in origin or solution.
The study of economics does not seem to require any specialized gifts of an unusually high order. Is it not, intellectually regarded, a very easy subject compared with the higher branches of philosophy or pure science? An easy subject at which few excel! The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts. He must be mathematician, historian, statesman, philosopher—in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near to earth as a politician. — J. M. Keynes "Alfred Marshall, 1842-1924" The Economic Journal, (Sept.,1924), 321-322This goes not only for policy but also education. The disciplinary approach reflects the disjointed approach of methodological individualism that is fundamental to neoclassical based economics and the neoliberal political theory based on it. It's literally killing us.
Not all fiscal stimuli act with the same degree of potency. Chart 2 separates the type of stimulus between " investment" and "tax" measures. The governments obtain the greatest bang for the buck when undertaking infrastructure projects, both for their immediate impact on jobs and income as well as for their longer term benefits in adding to productive capacity (e.g. urban transportation systems). Next in importance are stimulus programs generated by increasing government consumption of goods and services (i.e. day-to-day expenses associated with government operations).
Tax measures, on the other hand, have not proven to be anywhere nearly as effective in promoting growth. The impact of reductions in personal or corporate tax cuts are de minimis. Since some portion of a tax cut is usually saved rather than entering the spending stream, tax multipliers are lower than government spending multipliers.
Thus, economists have long urged governments to look to stepping up their capital investment activities as the primary driver of fiscal stimulus policy.Sober Look
Step 1: What's the market failure?
When should the State intervene? The technically sound answer is: When you are certain there is a market failure, and when you are confident you know how to setup the correct State capacity for the intervention.
Market failures come in four kinds: 1. Asymmetric information, 2.externalities, 3. market power and 4. public goods. These are technical terms in microeconomics and each needs to be carefully understood.
The first hurdle that must be crossed in policy thinking is: "Is there a market failure?" Every proposal to do something in public policy faces this test.
Step 2: What's the proposed intervention?
Once we agree there is a market failure, we have to figure out what we'd like to do about it. Here, it's important to understand the anatomy of the market failure, and solve it at its root cause.
If there is a causal chain x -> y -> z, and there is a problem with the outcome z, don't use the power of the State to change y or z. Understand the root cause, and solve it there.…
Step 3: The hurdle of public administration
Okay, you are all dressed up and ready to go, with a demonstrated market failure, and a minimal intervention which solves it. Now the question arises: Can you design a feasible solution with real world public administration?
Google this.Once the intricacies of infinitely expanding public Policy Space options becomes routine for Jane/Joe Sixpacks of the future, then maybe fiat currency operations will be trivial or at least pragmatic and straightforward again, rather like in 1933, and 1776, and 1729, and 1686 ... and ... (how far back?). Only the lineage of common sense knows.
***Now, more about neuro-marketing. So far, it's an example of a new micro-advertising tool run amok. It's use is not yet selectively scaling up to help more than hinder macro-public-policy. The initial applications ignore return-on-coordination, and instead non-selectively promotes blind scaling-up of any & all micro-processes by unregulated merchants wearing blinders. Does the following make sense to you, AFTER you stop and think about it?
Yesterday, I posted some graphs about underemployment in the EU, mainly to draw people’s attention to this important subject. The main takeaway:Real-World Economics Review Blog
Underemployment is high as well as cyclically sensitive.
And I stated that we should start to incorporate it in macro models. Well, Bill Mitchell and Joan Muysken are already doing this, I discovered. And incorporating underemployment in models turns out to make a large difference....
