1972.How does economics change to fit new circumstances?

Provocation # 134

In a time of crises, what is the role of institutions, in particular economics? To the extent economics maps adequately onto the real world as it has recently existed, what happens to that mapping when the world rapidly changes? The models that have been in use tend increasingly to not fit, and cannot be made to fit because they use existing “variables” that are not representative of the new world? Does economics just drag its feet as it is pulled forward reluctantly, actually being part of the conservative momentum?

Economics could be an amazingly challenging and interesting social science as it spans both theoretical – like science – and pragmatic – like journalism and law and lets face it, interesting gossip – No other social science is as close to the pragmatics of human action yet much of the time so far removed in its concepts from the phenomena of the economy.

We tend to believe that there is some substantial permanent world and we have found it. Hence we are smarter than the others, closer to power, closer to the core of unfolding events. Probably not true: all is flux, some long term, some short, and we get it all mixed up. Certainly smugness is one of the chief sins of many economists. As such we miss much of what is interesting and worth study.

 

Here is a beautiful example of cross boundary thought, from Seaford Richard Seaford-Money and the Early Greek Mind_ Homer, Philosophy, Tragedy-Cambridge University Press (2004)

“Whereas gifts create solidarity between individuals from different groups, solidarity within the group is created by distribution, or redistribution. “

The Geeks of Athens believed that civilization starts with legally mandated redistribution toward equality. First came hunters who shared the kill, then sacrifice which maintained the tradition of distribution, and the use of law – the nomos of eco-nomos came originally from neimen, equal distribution. There would not be a law created if not needed, in this case equal distribution mandated against greed and inequality.

This is so rich because it hints at ways out of our current dysfunction.

1970. New politics, new economy. Morning brainstorm

This was motivated by a discussion about what is wrong with the Democratic party – it is not proposing any alternative to the current malaise except a bit more civility and , and stuck on just creating jobs, despite all the obvious problems with such as approach. There is currently no developed alternative to the rightly pissed off populism that itself has no proposal for institutional changes to capable of dealing with its issues.

To get outside current thinking – which is stuck or fragmented,  is a bit like getting a rocket out of being trapped in an earth orbit – a little more energy is needed to break out of conventional current politics and economy. In particular we would have to take on

Key targets for new thinking

  • capitalism
  • democracy
  • growth
  • climate
  • technology
  • meaning and purpose, quality of life

David Hockney gives permission to rethink.

“In the end –after you got a roof food warmth–h all you can buy his beauty what else can you spend money on? + David Hockney A History of pictures.

in more detail..

  • green everything with focus on productivity and aesthetics.
  • use of resources to fix the worst conditions before fixing the better (currently money goes to fix the housing and communities of the richest. (That should be low priority.)
  • think through what is capital
  • who owns it
  • alternative to a small elite selected on wealth to make decisions for society.
  • property as status (what is proper) evolves to  property for ..? All property sale gives ten percent to public trust to recreate commons (parks, wilderness, green belts.
  • Better justice: no entrapment, no plea bargaining
  • rethink schools to development of self, not skills oriented. Create community centers around schools including child care and retirement communities with space for startups, incubators.
  • Make environments for all people that work for all people, especially families children and parents. Currently we have high density poverty co-located with traffic, garbage and pollution(noise, chemicals, ugliness).
  • Foreign policy based on working relationships with all countries, taking them as they are and looking for common problems to work on.
  • Rethink guns.
  • Cut green house gases,accept higher unemployment, deal with it through other forms of distribution (ten percent of all stock held in public trust paying equal dividends on he ten percent to all)
  • Find ways to shift culture from conspicuous consumption to conspicuous, or not, aesthetics, beauty, enjoyment, self-development.
  • Life is prescious. Everyone is interesting. Lets live as though we believe it.

 

1968.

Economics dominates our conversation about the state of society and we are not good at discussing history (the stories of what happened), anthropology (observations of how others had or still live), Philosophy (thoughts about who we are and how then to live). Much is being written, driven by the expanding awareness of crisis.  At times it seems to me we would be better off without the word “economics” –  just drop it all,  all of which makes it look like the experts are in control and making sense.  We could continue to discuss things more specific like interest, money, investment, class, technology, trade, but not using  the awkward vocabulary of economists such as  marginalists, GDP, utility.

  But I have come to a different view. That there is lots of good in the idea of “economy”, just that it has been co-opted by those who are the supporting cast for the seriously wealthy who use economics as a justification to legitimate their exploitation. 

The history of economics shows that the discussions started, with the Athenians around Plato and Aristotle,  as a larger self-conscious  reflection on the purpose of the use of land to feed us, and the emerging social organization to manage the whole.  They were able to discuss the role of elites and the meaning of community good in the same conversation. But over time generations of economists  reduced economy from being a natural part of life to being a mechanical system of a few forces in quantifiable interactions. 

This evolution of economic thought made some sense because the relative importance of the land-food-families logic was slowly overshadowed by trade, manufacturing and finance.  The early debate – just prior to Adam Smith’s Wealth of Nations in 1776, was about those thinkers, pamphleteers really,  called the physiocrats who maintained stubbornly that all wealth came from land, and that manufacturing was just a rearrangement of what was already produced.  

The industrial-minded won that argument stressing abstract aggregates,  contracts and tax policies, trade balances and resources, but at the cost of avoiding the realities of the impact of these  on land used to grow food of quality  to support families’ well being. The best known egregious example , clearest from England, was  producing more wealth from  the land by forcing local farmers off the land and out of their houses so there could be more sheep.  Interesting that the kings and queens of the time tried to prevent such policies, because of their concerns (of sorts)  for the well-being of the whole, whereas the policies were of clear benefit to large land holders, who won out in the Parliaments    

The conflict was about which image of society helped manage the wealth – in one case the wealth of owners of large estates, in the other of the wealth of new factory owners who saw the opportunity to get rich by putting new technology on large enclosures called factories with steam-driven belt  manufacturing for example. The general good of society, which was at least a part of the earlier thinking about economics in a line from Aristotle to and including Adam Smith,  was being forgotten.  It has been as though there was a new merry-g-round emerging in the middle of society, and economics was for those managing it and their support staff (the lawyers, accountants, teachers, police) and not for those who failed to get a ride and play a role in the flow of wealth.

 Nature for early economic thought was around food, land and families and all that went with it. Imagine a country scene with cows and calves,  and men with scythes cutting hay, little cottages.  But the nature important to manufacturing was the nature being explored in  in the natural philosophy which became physics: energy, heat, speed, mechanics – not sexual reproduction.   The nature of Newton was about timeless differential equations, energy and force.  It was as though economics became the operation manual for those who were or wanted to be rich – obviously a part, not the whole, of the population. 

Pamphlets  were written  starting in the 1600’s with lead sentences  like “X is  about wealth and how to obtain it, ”wher X could be commerce, trade, manufacuring.   The word econmy had not yet reentered the mainstream. This shift in focus, fitting the needs of an industry as a machine for wealth creation (at the expense of society), has basically ruined us. The human aspects of a full life in society   has been stripped out of  economics,   reducing economics to a  mechanical rather than organic perspective.  Many are making this complaint. I take for example 

“What they care about is what it means to be human, what it mean have relationships, what it means to live life, to have loves, or to tell lies. If  you want to engage such people, YOU have to tell a story about culture  and values—who we are, how we got that way, where we’re headed and What makes us tick. That’s what has always interested me; it’s what my reporting has always been about. The gee—whiz technology is just a Win:dow through which to gaze upon human nature.” – Joel Garreau in Radical Evolution.

What has gone  missing.. 

“Economy” is suggestive of a more holistic interest and  was used by  Aristotle  as estate management. The farm or estate was the major unit of social organization and production  and Aristotle discusses everything: land, grain, animals,  slaves, family members and relation to others – politics. It as an exploration of how to manage in order to produce the livelihood of human beings. All societies have an economy, but the many discussions such as in the marvelous book, Money Changes Everything by William Goetzmann, do not lead with  a philosophical view built on  reflections on the purpose of an economy.  Much economic writing starts with a complex society but fails to look at origins. It talks of “tax  changes…”, “interest rates retreated… , incomes rose, investment declined.” Just look at the vocabulary used in the sessions of the 2018 American Economic Association annual meeting (https://www.aeaweb.org/conference/2018/preliminary). No mention of real people and the way they deal.  Quantification requires aggregation, not details.

A reintegration of humans with nature is the core task for this century. It implies a better understanding of people in relation to each other.   it means people in the full scope of the human life cycle and the families in which these are lived. The imply a concern for the belief systems and meanings understood by the population ,  from births  into community and out of the community through death.

Plato and Aristotle saw that well-managed estates  produced a surplus. Simple analytics. People require food, the estate is organized to produce that food,  but, if well done, there is a surplus beyond sustainability.  The modern answer is to reinvest to make even more (of which scraps to the people, feasts to the very rich and scraps for the people) or buy stuff, from chocolate chip cookies  to Yachts.  

Plato and Aristotle’s answer was clear: the surplus should be used to create leisure time, and that time to be used in self-development, education and participation in the community in politics and philosophy. The surplus should not be spent on things because human development was more likely an outcome from surplus used to create leisure used for study and serious conversation  than  surplus used for buying things  beyond the tools of production. The welfare of society depends on good thinking and community conversation. 

This is very important because, as soon as we have two possible views of the uses of surplus, the conversation is opened up to further exploration. We are no longer stuck in the TINA – there is no alternative – world of Margaret Thatcher and We desperately need such a conversation to get out of our current mess. The key thought here is to resurrect the original meaning of the concept economics, which has become almost useless and dangerously misleading.  Since most of us want to live in a healthy blend of civilization and nature, why don’t we use our wealth to go there? Amazing how economics avoids that idea and is not much  help in us getting there. In fact the standard  advice taught within economics is contrary to that goal. 

Lets do better with ourselves, our society and our planet.We need clarity of purpose and clarity of means.  We all have  the responsibility to think about our future and manage the present? The purpose has to be growing good and interesting people, and that means developing our  environment and society to support that goal. So we need an approach that is comprehensive, including understanding people,  society, and  the planet. Hence revitalizing economics. We need to break the vocabulary of economics out of its protective cocoon and be more of a butterfly. 

1967. Economy across languages

Provocation #132. Economy across languages. 

Most science begins with a phenomena and explores it. Economics begins with an economy that has been defined, redefined and refined again, always passing through the ideological filters of the times. The result is that  Economy as we develop an economics to understand it  is split off from society. The two, economics and society,  have dangerously  diverged.  Over time, the holistic sense of economy as  estate management (the original Greek) in all its organic details gave way to an economics of commerce and finance.  This is the reason why economics is so destructive, by supporting a view of economic life that tears apart communities, families, individuals and the climate, and why the  way the history  of economics is written, as the triumph of the wonderful present, is only part, and a misleading part, of the story of economics and its attempts to understand economies..

Th very word economy hints at a coherent self-contained systemic concept of something separable from its context  in society. Only those languages derivative from the Greek have the word for economy, such as French  economie (which in French means both economy and economics).  Other languages  without Greek influence have to  make up something to fit when translating from the English.  

In Chinese two characters (as eco-nomos is also a combination of two words) that have been adapted for translation have very different implications from the western economy. . 

The first, jing can mean To manage, to engage,  or via, close to the nomos of economy, but  also meaning “classical or sacred texts. It is one of the words in the title of Lao Tzu’s Dao De Jing The way (forward) and its power (to make things happen). The second, li, means to benefit, to cross a stream, to relieve, to help, to aid, to assist. So In Chinese the words used to translate economy can be read as effort to carry the great past into the future. Not completely different from the western economy which is the effort to make the future (good use of resources for production. Production means to make forward).The difference which may be important is that the Chinese makes it clear that what is carried forward is a great civilization. 

This suggests that the West is uniquely burdened by the implication that economy  is a coherent object for study and policy, mechanical and separable from society.   It really is not a good slice of reality and in practice it has evolved over time  from the holistics of estate management  to the more limited  mechanism of  wealth treated as a physical system owned by capital but not by labor.

If we were to take modern society without the word economy or economics I doubt that we would put together the existing ensemble into such a concept.

1966. From math to narrative in economics.

Schumpeter’s meme, that economy is about creative destruction should suggest that math, which requires stability of the variables in order to be applied, won’t work.
Mainstream economics, neoclassical – wants to treat the world in some form of A=kB, where k is some constant and A and B are variable in an unrealistic world where ceteris paribus, everything else is equal. But players in the economy are trying to innovate: taste, technology and product, managerial style, and use war as a last resort. As a result A and B are anything but stable in their role as major independent and dependent variables. In much of economics what looks like A or B has to be replaced by variables that are actually determinant at any one time, but not in the next.
The result is that mathematizing the economy, a slow process anyway, does not fit a dynamics of open systems with constantly new variables. What is needed is the ability to tell meaningful stories about what is happening, which means narrative, characters, social shifts, complexity. The major economists: Smith, Marshal, Mill, Keynes, among many others, have all argued that the use of math is not quite legitimate and gives a distorted view of the unfolding facts.

But we have a further problem. For whom is the current neoclassical done? Not only are most economic papers not widely read, they are not widely read by economists. What then is their purpose? I think it is clear that the publishing mafia that controls the main journals is interested in a regime of methodology and publishing that makes economics look substantial, delivering prestige while supporting the 1% that wants to believe that the economy is ok if we just fix a few glitches. Economics is also, in its neoclassical/mainstream form, an aid to career alignment and departmental management of hiring and tenure.

The serious problem is, what would the content and education of a narrative focused economics look like?

Dani Rodrik writes in Project Syndicate

What’s Been Stopping the Left?
Apr 10, 2018 DANI RODRIK
If progressive political parties had pursued a bolder agenda in the face of widening inequality and deepening economic anxiety, perhaps the rise of right-wing, nativist political movements might have been averted. So why didn’t they?

Yet the lesson of recent studies is that beliefs about what the government can and should do are not immutable. They are susceptible to persuasion, experience, and changing circumstances. This is as true for elites as it is for non-elites. But a progressive left that is able to stand up to nativist politics will have to deliver a good story, in addition to good policies.

1965. People’s stock ownership

We need new economics sufficient to make a significant difference. In provocation #129 I appended a short paragraph that proposed that we enter into a new stock plan for the nation (and as a model for others to follow).

The plan is simple and as I tried it out with people during the week I got a surprising amount of encouragement. 

It starts with two facts:

1. Few people feel part of society. To live in a society where you don’t own a part is pathetic. The people should own their own society.

2. Capitalism is once again  feeling the punch of serious criticism, since it has engendered oligopoly, climate change, and increasing inequality (Piketty 2018) .

Can we include the people and save capitalism?

The idea is simple: requisition ten percent of all the stock ownership in the US (that would be about $3 trillion in value) and put it in a federal holding agency paying dividends once a year to every citizen in the country. (Payout would be,   given  total stock of $30T, ten percent of that is 3 trillion and earning about 2% pay out to each person would be about $2,000. Family of four would be $8,000. (This idea is  a modification of Peter Barnes, first in his Capitalism 3.0, which is based on the Alaska citizen’s fund, and further back, to Henry George, Progress and Property)

The holding agency would not have to do any management beyond being a holder. Normal corporate management would be left in place. But the managers and regular owners would feel the national pressure, now that ownership is spread to all the people  to make decisions in the long-term interest of the country. Since we have to move  the economy in a green direction, now there would be a large constituency coming to bear on the corporations to have sensible polices, including reasonable executive compensation plans. 

This would eliminate some welfare needs and shift people from being welfare recipients to being owners.  I am more willing to sacrifice (say in response to  climate change) if I anticipate that I will benefit

Meanwhile the morale of the country would go up and everyone would be a capitalist, not welfare recipients,  in that they actually are collectively owners of stock that pays out

An advantage of giving dividends rather than stock is that many people would, pressured by economic necessities  sell the stock, as happened in Russia. Provisions would have to be made to keep them however for selling future anticipated payout for current cash. There are probably other pitfalls and corruptions to cope with. The banks obviously would try to turn that stream of income to themselves.

The one percent, the primary losers in this transaction, have to compare this loss to the loss of social upheaval and much stronger taxes and potential loss of everything through social system collapse. Ten percent seems politically feasible because it is reasonable. 

This can be justified by returning to older values of equality,  as Emma Rothschild writes

For Arthur Condorcet O’Connor, the Irish general who married Condorcet’s daughter Eliza, “the Turgots, the Condorcets, the Smiths” were the “fathers of the science” of political economy, whose principles, including “the eternal principle of equality,” had been overturned by the “new sect of so-called economists” of the post- Revolutionary reconstruction. (Economic Sentiments page 4) 

Capital begins with the fruits of cattle breeding. The new head, cap, is new surplus and can be re-bred. The question since Mesopotamian times has been,  how is the herd and it surplus to be managed? The “divided”, the divided, is part of the answer, but how distributed is the key, to social morale.The use of the word “stock” is inherited from  that cattle culture.

1963. Petra.

https://www.bbc.com/ideas/videos/welcome-to-petra-a-little-bit-of-heaven-on-earth/p05zn715

Screen Shot 2018-04-10 at 10.05.54 AM.png

The blend of architecture and greening. Then we have

Writing early in the first century A.D., the Greek historian Strabo reported that while foreigners in Petra are “frequently engaged in litigation,” the locals “had never any dispute among themselves, and lived together in perfect harmony.” Dubious as that may sound, we do know that the Nabateans were unusual in the ancient world for their abhorrence of slavery, for the prominent role women played in political life and for an egalitarian approach to governing. Joukowsky suggests that the large theater in the Great Temple that she partially restored may have been used for council meetings accommodating hundreds of citizens.

Strabo, however, scorns the Nabateans as poor soldiers and as “hucksters and merchants” who are “fond of accumulating property” through the trade of gold, silver, incense, brass, iron, saffron, sculpture, paintings and purple garments. And they took their prosperity seriously: he notes that those merchants whose income dropped may have been fined by the government. All that wealth eventually caught the attention of Rome, a major consumer of incense for religious rites and spices for medicinal purposes and food preparation. Rome annexed Nabatea in A.D. 106, apparently without a fight.

Read more: https://www.smithsonianmag.com/history/reconstructing-petra-155444564/#HhkZ84fTQEhbOPzh.99