Michael Hudson: Adam Smith was no ‘free market’ economist

hudson-200x300Here are some further enlightening extracts from Michael Hudson’s iconoclastic J is for Junk Economics, this time on Adam Smith (p.28) and the school of Classical Political Economy. Hudson has an extraordinary knowledge of economic history, as can be gathered from viewing any of his interviews on YouTube, or reading his books.

Smith is often falsely regarded as being an advocate of the free market, justifying a libertarian focus on deregulation and minimal levels of taxation. Hudson shows that Smith’s (and the Classical’s) thinking was a bit more complicated: Continue reading

The political economy of the future: AI, Big Tech and humanity

Human-Intelligence-Can-Fix-AI-Shortcomings-1Peering into our technological future may seem a little inappropriate amidst the current global pandemic, but before Covid-19 had emerged, one of the major themes tackled by many scientists, economists and social theorists of both left and right had been the advance of technology, Artificial Intelligence (AI) in particular, and its potential impact on the worlds of business, the economy, politics and society.

The prospects of humankind given the inexorable march of technology typically range between a variety of utopias and dystopias. What will AI mean for productivity and living standards? Will it lead to a society of abundance with more leisure time than ever before for the majority? How about the distribution of income and wealth, the implications for democracy, and so on?

Four compelling books from 2019, written by, respectively, a computer scientist, two journalists and a maverick scientist and futurist, address some of these issues, from different perspectives, but with some overlap, particularly in terms of the necessary human response to the advance of AI. Continue reading

Inequality redux: responses to Thomas Piketty

The French economist Thomas Piketty is well-known for his best-selling work on inequality, Capital in the 21st Century (hereafter Capital), which has sold over two million copies worldwide. It also ranks highly for the book which people buy and don’t get very far with. Nevertheless, its theme struck a chord with the zeitgeist.

I have posted on some critiques of Piketty’s work here and here, before actually getting round to reading his magnum opus. I have now read it, so perhaps I can rest easy!

Capital is a tremendous achievement and its popularity has reset the agenda on inequality in economics. In some ways it is a return to the considerations of the classical political economists and Marx, in that it examines major categories in economics such as growth and distribution, and tries to find theoretical and empirical links between them, and draw implications for policy. Continue reading

Classical economics, rents and the surplus under capitalism

rents-rent-seeking-coverAn extract from SOAS Professor Mushtaq Khan‘s illuminating chapter on ‘Rents, Efficiency and Growth’ which summarises the classical economists’ concern with the economic surplus. He discusses the relation of the surplus to economic rents, and how conflicts over their distribution can affect economic growth and development.

By drawing on ideas from classical economics in his discussion of rents and rent-seeking, it is possible to broaden the analysis of neo-classical economics, which dominates the modern mainstream, by bringing in the insights of Smith, Ricardo and Marx. The book that this quote comes from ‘radically’ extends the rent-seeking framework, ‘by incorporating insights developed by political scientists, institutional economists, and political economists’.

For me, an interdisciplinary political economy such as this can yield deeper insights into the nature of economic processes by considering notions such as power, conflict and the resultant distribution of resources and their effect on growth and development.

“Our analysis of rents can be substantially extended by introducing some insights from classical political economy. Classical economists were interested in the size and allocation of the economic surplus which constitutes the potential investment fund of a society. In particular, they were concerned with the allocation of the surplus since this determined growth. The surplus could be productively invested, or ‘wasted’ in luxury consumption, and, even when it was invested, its allocation across sectors could determine the rate of growth achieved. While there were differences between classical economists, they defined the surplus not as the excess income of any group but, rather, as the income accruing to property owners after paying the direct costs of production. In a capitalist economy, the principal property owners are capitalists, but landlords and some of the middle classes may also be recipients of parts of the economic surplus. What is interesting about the classical analysis is that distributive conflicts and the associated re-allocations of the ‘economic surplus’ can determine the rate of growth. Thus, like rents, surpluses can be associated with a wide range of economic outcomes, depending on the technological context, and the type of distributive conflict going on over the allocation of the surplus. Since rents too can be the subject of distributive conflicts, the classical analysis is of immediate relevance (my emphasis).”

Mushtaq Khan (2000), Rents, Rent-Seeking and Economic Development, Ch.1, p.23

The Orwellian turn in contemporary economics

Economist Michael Hudson on some of the trends in contemporary economics, and plenty more besides! He is certainly a fountain of ideas. While I am not sure that I agree with it all, he remains thought-provoking, taking points of view that are definitely unorthodox. For me in particular, his theory, drawing on classical economics, that government-funded provision of education, health, welfare etc can lower production costs and make the economy more competitive is an important one in a world in which the private is so often assumed to be more efficient than the public.

His criticism of Obama as blowing the chance to be a great president during a potentially major turning point in world history, and in fact being a worse one than George W Bush, was unexpected.

This interview was produced by the Real News Network, which is a useful source of independent reporting.

Sustainable development: economy, society, environment


An illustration of the concept of sustainable development

I have blogged far too little on sustainable development, a pattern which I hope to redress. This blog started out back in 2008, when I was beginning to turn my attention from the more traditional concerns of economics and development, towards incorporating environmental concerns. Not long afterwards I studied a masters-level module on SD with CeDEP, which runs excellent distance learning courses for postgraduates. This opened my eyes to new ways of looking at development and the environment, and how much can be learned from studying the two together.

Concerns about climate change, biodiversity loss, natural resource depletion and the health of the biosphere are ever-present. Sadly, the more immediate focus among politicians across the capitalist world has been restoring growth in the aftermath of the financial crisis. The issue of inequality within many of the richest nations has also been more to the fore, even if little has yet been done about it on the policy side. But in times of recession, the environment tends to take a back seat. Mainstream debates focus on growth at all costs. Continue reading

Joseph Stiglitz: time to get radical on inequality

An interview with Nobel prize-winning economist Joseph Stiglitz on the rise of inequality, particularly in the US, but also in many other rich countries. This has been reflected in stagnant or falling wages for lower and middle income earners, and soaring incomes and wealth at the very top of society.

Stiglitz debunks ‘trickle-down economics‘ and calls for relatively radical changes in the way capitalism in the US and elsewhere is structured. He is an economist of the centre-left, and in recent years has become increasingly critical of the mainstream economics which he himself has contributed towards during his career. He sees as vital changes in the power structure of society in order to reduce inequality and increase economic efficiency. The two can go together and this is refreshing to hear.

Free trade and the American economy: against the mainstream

I am an admirer of the work of New School economics Professor Anwar Shaikh. Here is a wide-ranging discussion with him that covers free trade and its impact on the US over the past 30 years, as well as how both the creative and destructive power of markets should be channelled through appropriate policy.

With regards to trade, Shaikh argues against Ricardo’s theory of comparative cost advantage in favour of Adam Smith’s earlier theory of absolute cost advantage. For Smith, and Shaikh, international trade takes place between businesses rather than nations, which means that there are winners and losers as trade expands. There is also a necessity for interventionist trade and industrial policies to promote development among the poorest nations, if they want to ‘catch up’ with their richer cousins.

Shaikh is pessimistic about the prospects for significant progressive change in American society and more widely, which he sees as a problem of political mobilisation and will, rather than a purely economic one. Having said that, this interview was recorded before the rise of Bernie Sanders, which certainly offered hope to many, at least for a while.

Trade Unions, social justice and economic performance

keep-calm-and-join-a-trade-unionTrade Union membership has been in decline across much of the west in recent decades, a trend which is generally welcomed by the right and lamented by the left. The gradual fall in employment in manufacturing and the public sector as a result of deindustrialisation and privatisation have contributed to this phenomenon. But do trade unions have a role to play in not only promoting workers’ rights and decent wages, but also in improving economic performance?

In the UK during the 1980s under Prime Minister Margaret Thatcher, Trade Unions were seen as an obstacle to economic efficiency. The ‘hold-up problem’ in economics suggested that unions and management in industry were failing to cooperate over the returns to production (wages and profits) since management were concerned that over-mighty unions would bargain for too large a share of the total income from production, thus reducing the profits available for future investment. If this occurred, investment, output and productivity would grow more slowly than otherwise, harming economic performance. Continue reading

Postcapitalism: Paul Mason’s ‘guide to our future’?

MasonCoverI said I would post something on Paul Mason’s thought-provoking book, Postcapitalism – a guide to our future, which has just come out in paperback. It makes a good read, and contains a wealth of ideas from economics, political economy, and futurism, all mixed together in the author’s aim to inspire a progressive transition beyond capitalism, but not to socialism, which he admits has been a huge failure for the left. Instead, he calls his utopian vision ‘postcapitalism’.

Mason starts by describing the current political economic paradigm, neo-liberalism, as having reached its limits with the crisis of 2008 and the subsequent tepid, or in many cases absent, recovery. There has been sluggish output and productivity growth, alongside wage rises for those at the very top of the income distribution but barely any change for the middle and bottom. In fact, these trends were only temporarily overcome by the excessive expansion of credit prior to the crisis which allowed consumption to grow in countries such as the US and UK despite stagnant wages. Continue reading