Ha-Joon Chang: learn the language of power

A nice short video featuring professor of economics Ha-Joon Chang on the importance of what he calls ‘mass economic literacy’. He argues that to improve the functioning of our societies, our political systems and our economies in the ultimate service of human welfare, we need to demystify economics for the majority. Economics has become the language of power, and is seen by many as too difficult and technical to understand. This educational hang-up needs to be overcome.

Thanks to Steven Boxall, who blogs at Regeneration X, for tweeting this video and bringing it to my attention.

The current inflation: a Marxist approach

Inflation-1024x681I have posted a couple of times this year on inflation, but a dissatisfaction with both mainstream and a variety of Keynesian approaches (including Modern Monetary Theory or MMT) to the subject have recently led me to revisit some more radical, but also richer and, I think, more realistic Marxist approaches. I started with Robert Rowthorn, a professor at Cambridge University, whose key contribution on inflation goes back to the 1970s. At the time many of the advanced economies were experiencing stagflation (unemployment and inflation rising together). The Keynesian-social democratic consensus on economic policy was being undermined, both by economic events, but also theoretically, with the rise of pre-Keynesian neoclassical ideas which took the form of Milton Friedman’s monetarism and then the new classical macroeconomics incorporating rational expectations.

It is not the purpose of this post to review all the alternative theories of inflation. I merely want to set out a Marxist approach, drawing on Rowthorn, but also on Anwar Shaikh’s ideas from his 2016 book Capitalism, as well as some other Marxist economists such as SOAS’ Ben Fine and Alfredo Saad-Filho of King’s College, London. There is a substantial overlap between these authors’ ideas on inflation. Continue reading

The impediment to productivity growth: Waste that makes some people rich — Real-World Economics Review Blog

from Dean Baker.

The New York Times ran a piece discussing why innovations in cloud computing and artificial technology have not led to more rapid increases in productivity. It raises a number of possibilities, but leaves out an obvious one, increasing waste associated with rent-seeking. We clearly see an increase in waste associated with rent-seeking, the only […]

The impediment to productivity growth: Waste that makes some people rich — Real-World Economics Review Blog

Quote of the week: Ha-Joon Chang on liberalism, ‘the most confusing term in the world’

Chang EconomicsUsersGuide

“Few words have generated more confusion than the word ‘liberal’. Although the term was not explicitly used until the nineteenth century, the ideas behind liberalism can be traced back to at least the seventeenth century, starting with thinkers like Thomas Hobbes and John Locke. The classical meaning of the term describes a position that gives priority to freedom of the individual. In economic terms, this means protecting the right of the individual to use his property as he pleases, especially to make money. In this view, the ideal government is the one that provides only the minimum conditions that are conducive to the exercise of such a right, such as law and order. Such a government (state) is known as the minimal state. The famous slogan among the liberals of the time was ‘laissez faire’ (let things be), so liberalism is also known as the laissez-faire doctrine.

Today, liberalism is usually equated with the advocacy of democracy, given its emphasis on individual political rights, including the freedom of speech. However, until the mid-twentieth century, most liberals were not democrats. They did reject the conservative view that tradition and social hierarchy should have priority over individual rights. But they also believed that not everyone was worthy of such rights. They thought women lacked full mental faculties and thus did not deserve the right to vote. They also insisted that poor people should not be given the right to vote, since they believed the poor would vote in politicians who would confiscate private properties. Adam Smith openly admitted that the government ‘is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all’.

What makes it even more confusing is that, in the US, the term ‘liberal’ is used to describe a view that is the left-of-centre. American ‘liberals’, such as Ted Kennedy or Paul Krugman, would be called social democrats in Europe. In Europe, the term is reserved for people like the supporters of the German Free Democratic Party (FDP), who would be called libertarians in the US.

Then there is neo-liberalism, which has been the dominant economic view since the 1980s. It is very close to, but not quite the same as, classical liberalism. Economically, it advocates the classical minimal state but with some modifications – most importantly, it accepts the central bank with note issue monopoly, while the classical liberals thought that there should be competition in the production of money too. In political terms, neo-liberals do not openly oppose democracy, as the classical liberals did. But many of them are willing to sacrifice democracy for the sake of private property and the free market.

Neo-liberalism is also known, especially in developing countries, as the Washington Consensus view, referring to the fact that it is strongly advocated by the three most powerful economic organizations in the world, all based in Washington, DC, namely, the US Treasury, the International Monetary Fund (IMF) and the World Bank.”

Ha-Joon Chang (2014), Economics: The User’s Guide, Pelican Books, p.69-70.

Robert Skidelsky on the importance of history in economics

Robert Skidelsky is a professor of political economy at Warwick University and the author of a magisterial biography of John Maynard Keynes. In this short video he argues for the importance of history, as well as other disciplines apart from mathematics, in the study of economics. History is needed, both to inform us of the origins of particular ideas in economic theory, as well as to provide context to the development of the economy and the application of those ideas. That economic theory has always been contested is also vital to understand, as opposed to an acceptance that one body of theory, namely today’s neoclassicism, is the correct one and is beyond dispute.

Thanks to Lars P Syll for drawing my attention to this video.

Every fact requires a theory

HodgsonHEFHEconomics, like any science, involves the search for some kind of truth. This necessarily requires a philosophy of economics to establish the groundwork, whether economists make it explicit or implicit. As touched on last week, my current reading is Geoffrey Hodgson’s How Economics Forgot History, which tackles the issue of historical context in social science. Hodgson argues that the attractive quest for ‘general theories’ in economics, which are universal and ahistorical, has led the subject astray and diminished understanding of the economy and society in which we live. While any theory must necessarily simplify and abstract from a complex and sometimes messy reality, and thus generalise, this can go too far, and weaken its explanatory power. There is therefore a need to take account of historical context. Different contexts across historical time and geographical space may require different theories if economics is to satisfactorily explain particular phenomena.

One approach to economic analysis which is criticised by Hodgson is what is known as empiricism. This holds that the search for truth should be guided by sensory experience, ‘the facts’ or data. This assumes that the reality that we as human beings experience is directly observable and measurable through our five senses or through additional measuring devices. Continue reading

Say’s Law and the Fundamental Failure of Economics — repost from flassbeck economics international

One would think that “experts” who pretend to understand one thing particularly well and even recommend that thing to economic policymakers would at least be able to comprehend the logical basis of what they are saying. But this has not been the case for decades with the so-called supply theorists. …More …

Say’s Law and the Fundamental Failure of Economics — flassbeck economics international

Quote of the week: Ha-Joon Chang’s nine one-sentence summaries of various schools of economic thought

ha-joon-changHa-Joon Chang is both a professor of economics and a writer of popular books on the subject. His main area of research is development economics, specifically the role of the state in economic change. But he is also keen to educate the public on economics and economic issues. His Economics: The User’s Guide is one such attempt, as is 23 Things They Don’t Tell You About Capitalism. From a chapter in the former book which sets out the case for pluralism in economics, here are nine schools of thought, each summarised in one sentence. I found these to be pithy and in a way entertaining, and a good form of appetite-wetting education for non-economists, or even those economists who have not explored the history of economic thought.

The Classical School: The market keeps all producers alert through competition, so leave it alone.”

The Neoclassical School: Individuals know what they are doing, so leave them alone – except when markets malfunction.”

The Marxist School: Capitalism is a powerful vehicle for economic progress, but it will collapse, as private property ownership becomes an obstacle to further progress.”

The Developmentalist Tradition: Backward economies can’t develop if they leave things entirely to the market.”

The Austrian School: No one knows enough, so leave everyone alone.”

The (Neo-)Schumpeterian School: Capitalism is a powerful vehicle of economic progress, but it will atrophy, as firms become larger and more bureaucratic.”

The Keynesian School: What is good for individuals may not be good for the whole economy.”

The Institutionalist School: Individuals are products of their society, even though they may change its rules.”

The Behaviouralist School: We are not smart enough, so we need to deliberately constrain our own freedom of choice through rules.”

Ha-Joon Chang (2014), Economics: The User’s Guide, Pelican Books, p.115-156.

What I am reading right now. And why.

HodgsonHEFHI have long been interested in the work of Geoffrey Hodgson, who has researched and written extensively on institutional and evolutionary economics. For reasons which I will outline in this post, I have started on his book How Economics Forgot History. It was published back in 2001, but retains a strong relevance to those dissatisfied with the narrowness of much mainstream economics, and its neglect of history, both in terms of its own theory and of the economy more generally.

Beyond economics, now and again I like to dip into the work of what one might call ‘alternative’ or subversive thinkers, particularly the late social philosopher and author Robert Anton Wilson. His newly issued book The New Inquisition, originally published in 1986, like many of Wilson’s works, is a rollicking good read, and aims to shake up and indeed open up one’s belief system. He styled himself as aiming to achieve ‘model agnosticism’ in his learning about and understanding of the world. That is, given that all that we sense and perceive of the world around us is filtered through our nervous system, we can never experience ‘reality’ directly and fully. This a kind of philosophical realism: the world beyond our senses exists apart from those senses, and would continue to exist even if all humans perished. But our ways of perceiving the world are structured and filtered by a nervous system which emerges from a combination of our genetics and our lifelong learning, informing our beliefs and our models or maps of that world. Continue reading

Quote of the week: Dean Baker on inequality and the “rigged” economy

DeanBakerRiggedDean Baker is Co-Director of the Center for Economic and Policy Research (CEPR) in Washington, D.C. and a progressive pro-market, pro-capitalist economist. Much of his research in recent years is summarised in the excellent 2016 book Rigged, which can be downloaded for free here, and which explores the many ways in which US government policy is structured to generate high levels of inequality in income and wealth. With appropriate changes to macroeconomic policy and market regulation, he argues that inequality could be much lower, benefiting the vast majority of citizens, and would act as a form of “predistribution”: that is, it would impact the distribution of market incomes prior to taxation and public spending, and would obviate the need for much redistribution, with beneficial effects on market efficiency.

Baker favours “market-friendly” policies where possible, enacted in ways which change the “rules of the game” in a progressive direction. He admits that his policy proposals, while feasible, would face stiff opposition from many beneficiaries of the status quo. Thus the political economy of many of his policies remains difficult. Continue reading