1869. The need for economics – if we change.

Last week I wrote:

Would economics be able to shift focus to deal with such shifts in the economy, ….

This week..

Provocation 94 :The opportunities for economics: the need.

Caveat. I see things from my place in and around Silicon Valley where I am in daily conversations about climate, corruption, security, control, and the future of tech and society. . Half of the people are appalled. Half are looking for ways to make money from this. The two halves are intermingled. So this provocation of mine comes from my participation and I think the perspective is already widely shared.

“Stimulate growth”
“keep th economy rising”
“its a job”

 

Image Copied on 2017-07-16 at 10.40 AM.jpeg

In many of these discussions people are quite clear about the problems we face – climate, inequality, population, energy and automation. Governance is rarely mentioned. Policy plus tech it is assumed can solve any problem. But when it comes to talk of what to do, proposals seem weak. The usually proposed solutions don’t scale to the required effects, and take too long.

Interdependencies are not considered. The talk about what progressives (or democrats) need to do to win elections leaves out the things the population is savvy to, that the economy and the climate and automation are in a complex collision course. Almost everyone sees that the political power is in the hands of the .0001%. If alternatives to Trump (parties, candidates, government officials, press, professions and Universities) do not discuss these (For example stressing growth without consideration of the complexities) it is seen as almost – or maybe in some ways worse – than the Trump destruction machine. (The best current source on this – among many – is Chris Arnade’s Twitter postings from his travels around the States. @Chris_Arnade)

The problems are interconnected. Growth* means, given today’s tech, more pollutants and more climate heating. Renewables will take time to scale up. Do we have the time? Cutting energy now means most people are doing the wrong job. Imagine cutting energy use by 80% as would perhaps be necessary to meet climate goals of “only” a 2 degree Celsius increase. Such an increase is not evenly distributed and is forcing the collapse of some especially vulnerable regions of the world. Increased temperatures mean increased air conditioning means… uh oh. Feedback loops. But the loss of jobs if energy use is curtailed is hardly discussed. (An example of an opportunity for INET). The fate of “stranded assets” , oil in the ground or newly built but already abandoned factories with many more to come,  is also not much discussed. What will happen to the value of the parking lots and extra lanes, garages and supporting infrastructure that Lyft/Uber will “liberate”.

It is hard to imagine a way to cut energy use and not instantly increase unemployed. Joblessness will create more foreclosures. There go the banks. Maybe the state takes over the banks and redirects investments in green or at least greener technologies. Huge struggle taking lots of time.

Food chains are vulnerable, often produced in the hottest place and energy use for transportation my have to be cut.

Will technology help? It might, but tech is also a means to concentrate wealth in the hands of the one percent. That enhances their political power to create lifeboat earth for themselves and dump the rest of us.

Growth. Any increase in demand for product and service will motivate managers to look for automating solutions. No hassle with workers (such as the accounting and legal issues) And the companies will own the machines. A return to slavery. Growth will not create many new jobs but eliminate many that exist by speeding up the substitution of algorithms for employees. Another analytic opportunity for INET?

I think most people are already thinking most of this. Part of the alienation in politics is because people don’t see the politicians, nor the press, nor the universities, talking about these problems.

It is of course very hard to hold the problems in mind in a systemic way, and very hard to imagine solutions. The major resistance to change, I think, is the judgement that people will want their cars, their energy, their on line retail, and resist giving it up. It is assumed that the alternative is imagined to be – nada. The possibilities of cooperation and community are not allowed in to our assumptions about the capacities and the imagination of other.

There are proposals to decentralize to smaller units, perhaps bioregions where with community interest and support, imagination can cope and use the Internet to distribute ideas and opportunities (needs) across the world to learn from each other and distribute surplus. Bucky Fuller said we have few billion people and the globe. Putting them tougher is just a design problem. But doing so is a threat to our egos. We really assume we are better and the number cable of innovation and management are few. This is a limiting and probably wrong assumption.

As it is, we are playing musical chairs. We are engaged in class warfare.

Can we as a species rise to manage the world in a humane way? What is thee role of economics? What would the common sense philosophy of the Scottish enlightenment and Adam Smith have to say?

Perhaps we are facing square on the human condition; given who we are, product of local adaptation to trends over a million years, not systemic planning. Given our DNA we were bound to get an evolving society with technology, opportunities for egos and property, organized in hierarchies, all running as can till the system breaks. Maybe this is just us. No way out. Speed the dance. Musical chairs enhanced. (Fred Hoyle once wrote the reason we are not visited by aliens is because no civilization in the history of the universe has been able to both develop the technology to get here and survive socially)

But I think we can do better – Recognizing that each person is interesting and capable and worth fighting for – and they will help. We need to spread health and education and and the skills to participate in an open experimental economy whose goal is not the one percent but the whole. “Without a vision the people will fail..” Imagine an economic discussion that compares the outcome of this broad participation with the outcome we currently have.

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*Growth. “Need to grow to eliminate poverty”. But growth in the last few decades as gone along with wealth concentration at the top and stagnation in the lower 80%. Why will this pattern not continue if we get “growth”? Watch

Third world poverty. People lifted out of poverty. What has happened in much of the world is local elites aligned with multinationals exploiting their own people, People don’t live villages for opportunities in the city. They are driven off the land for state=corporate agriculture and forced to live in dreadful high-rise. Try raising a family on the 50th floor,

Growth accelerates the motives to automate. Some jobs will emerge, but the rate of loss in the “growing” sector will be faster and more, to slower and less.

Growth is a problem for climate. Growth would of necessity use mostly older technologies, at least for a while. Diesel trucks for example.

There is a path to growth with greater equity and as part of a serious break on global warming. But the argument is not being made. We are getting fragmented rather than systemic thinking.

The result will be cancerous rather than healthy growth. More one percent, more global warming. More inequality. Class warfare. Migration wars. Serious inter-state rivalry.

Bronco is arguing “Economic growth is key for reducing global poverty (and even global inequality.” H writes

If one really believed in, and wanted to argue for the incidental nature of economic growth (“whether or not the economies grow”), then he or she should start by trying to change the bases on which our (global capitalist) civilization has been built, namely insatiability of needs and commodification. But these features have become so strongly ingrained that I cannot see how they can be changed in any foreseeable future. All the rest is romanticism.

In http://glineq.blogspot.com/

It will be very useful to watch carefully how these issues play out – or don’t – in the Inequality CUNY conference.

Seventh Meeting of the Society for the Study of Economic Inequality (ECINEQ)
New York City
July 17-19, 2017

 

1865. The deeper cultures of “economy”.

Provocation # 90
Aristotle, as most economists know, used an existing greek word economy from oiko=house = nomos=rules… By it he and other Greeks meant estate management which we know both by the way the word was used and by the surrounding society which was organized in what we today would see as cattle ranches. Cattle was the chief food for the Greeks, and “sacrifice” as a ritual act honoring the gods while feeding the people, was , to us, shockingly central. Athens at the time of Plato had a herd of 100,000 cattle for those events.(see Mcinerny, The Cattle of the Sun:Cows and culture in the world of the Ancient Greeks and Richard Seaford Money and the Early Greek Mind. The following is a paraphrase of some of Dotan Leshem’s very helpful book The Origins of Neoliberalism)

Plato and Aristotle realized that a well managed estate could produce a surplus. What was that? New thought, because nature did not seem to produce a surplus, using up everything it produced. It was recognized that the surplus could free up time that could be used – and the two key categories for time spending were philosophy and Politics. Note the economy produced the surplus to be used for these social and individually developmental projects.

[Interesting that the three key terms, economics, politics and philosophy – were Athenian in origin.]

The purpose of estate management then was to free up citizens (not slaves or women) for contemplative or political time. There was no sense of using it to further expansion the economy. More leisure could be gained with more surplus by prudent management and the control of desires for spending. These were seen as the source of surplus, not innovation, which was unknown.

Comes along Rome and shift of economy from the encompassing polis to being embedded in empires. The practicality of that raised the stakes for political participation and philosophy fell to the side[1]Next came early Christianity, much more important than we were taught. The idea was that the surplus created by the economy , used in Greece for philosophy and politics, could now be used, in the community of the faithful, to support prayerful and meditative. time. Since the world was given by god, the economy was the world, the meditation was to be in touch with gods’ plan – economy- (I am not making this up. The greek word, economia – was used widely in this sense .)

Imagine starting with the Garden f Eden, God’s economy, and then passed on… Important to see that we are talking about words and meanings that pervaded whole societies – and changed. These ideas, strange to us, should not be. Foucault and Arendt basically covered this territory up to this point, and made the connections with the modern economy and politics. ). Since economy was about cosmos and materiality and god created the world, gods plan – the word used was economy – also included God’s giving Jesus to humanity as an incarnation of his plan for humanity:  this was, fr the time, a coherent understandable project. Remarkable how much current economics can sound the same – growth through economy to meet the limitless expansive needs of society. As society grew more complex and populated, the idea of the economy and the value of surplus moved outside the christian communities of the faithful into the broader society (you could see it happening, and this required new thinking. The INET of the era.) The result is the economy we have now, with its displacement of philosophy and politics as economy became more central to the management of the empire.

As I have been poking around in various literatures I keep finding things we really need to know. If economics could move from being subservient to philosophy and politics to the incarnation of Christ and the community of the faithful and then to society writ large in growth and surplus seeking, not for the use of leisure time for thought and personal development, but for filling the garage with toys and the skies with weapons, then we need to know about this. If economics used to be subservient to politics and philosophy, it certainly is not now. It speaks to the idea that economy can be different and we are freer to choose, if we can bring ourselves to see it. This perspective means new economic thinking at a scale larger than Marginalism, Keynes, even Marx. There is a feast here.

Here from Leshaem is one of the many readings that have helped me clarify.

https://www.dropbox.com/s/spculc5mh4lwmhw/leshem%20From_Oikos_to_Ecclesia_to_Market.pdf?dl=0

p.s.
And

“None of the world’s top industries would be profitable if they paid for the natural capital they use.”
By David Roberts on Apr 17, 2013

None of the world’s top industries would be profitable if they paid for the natural capital they use

If so are we ecnomists?

1833. Should economics discuss politics?

Provocation #79.

When Clinton said “aren’t you all better off than eight years ago?”, she was ignoring the data that says 85% of the population are worse off. She and her supporters were blinded by The economic analysis which ignored those on the margin or outside the benefits of the economy .

Too many of us acted as if The economy was doing fine while the people were doing badly.

Economists wants clean hands by using antiseptic models. To listen to most economists talk, or read what they write, you never get a sense of urgency or pain or even a confession of confusion. Economist treat the economic world as a part of nature, while the political world is seen as irrational, driven by conflict and false imagination. But it is this avoidance of the political (class, don’t touch it) that has gotten us into serious problems with inequality, war, climate and automation.

One path to reframing the task of descriptive economics is to see that the political regime is the major output of the economy.

The economy is the major governing infrastructure of the world and economics provides  its concepts. People are much more aware of their place in economy than in politics. We know more about interest rates, banks and bailouts than about the difference between democracies and republics.

But society needs governance.

What if the governing world cannot absorb the changes needed in the factors that lead to inequality, and climate problems? What if the realities of governance suggest leaving the economy pretty much as it is?

But that world faces collapse.

We live in the shadow of unresolved issues from the French Revolution. the nature of property, wealth, capital, innovation , the meaning of freedom, individual, community desperately need to be rethought. Is economics up to that task? Or is it better off remaining as the plumbers of the economy without interest in who owns the pipes?

From the Treaty of Westphalia through the French Revolution to WW 1/2 to now – there is a strong continuity of unresolved issues. “What is society for and for whom, and how achieved, how managed, and how educated?”

Perhaps economics has been a way out of the complexities of civilized life. Yes. it is a religion. It is a source of meaning. Capital replaces God as the prime mover through the intermediary of the invisible hand. We believed in equilibrium as an unseen force with its inherent conservatism.

All of which is to say, the task ahead is larger than we thought, more is at stake than we thought.

OK, Now what?

1799. The meaning of “rational”

There is a lot of provocation today. Start with Sheila Dow’s paper  on our website, “The people have had enough of experts”, and the comments on Twitter in response, such as the paper posted by John Boit in Medium,

https://medium.com/@JohnBoik/an-economy-of-meaning-or-bust-2aa46457b649#.hp1u95kh3.

These are worth serious reading for their hints about new economic thinking. Dow writes for example ” but the fact remains that these models are by their nature incapable of predicting a crisis because of the way they are constricted to ensure settlement on equilibrium.” Great language.

As it is, wrongly constructed economics is blamed on excess formalism whereas it might be understood as making systems that support, or do not undermine, the economics of the one percent.

The reason a math approach gets it wrong is because you cannot do math without assuming some things in the system are constants or constantly distributed. The interesting things about life do not fit such assumptions. As  a society we may want steady state security but our social rhetoric is all in the direction of innovation, competitive advantage and change.

But l will add a few thoughts from a slightly different angle.

What is often rational is, in economics, called irrational and what is irrational called rational. The use of “rational” in economics generally refers to calculating probabilities.  What is not calculable  is called irrational.

This conflicts with classical thinking which treats rational as the use of the mind in the service of life and irrational what does not.

we have

https://www.bloomberg.com/view/articles/2017-01-25/behavioral-economics-isn-t-dead-yet

 

This throws cold water on the dream of linking psychology with economics, since it means that seemingly irrational economic behavior results from the sum of a whole plethora of psychological effects.

 

The implication is that all things psychological are not rational,  like mood, shifting preferences, concern for how a purchase looks in our community. From a human point of view such considerations are the height of  rationality. If my mood tells me “no” perhaps the mood reflects some state of my being I should take seriously. To call it irrational is to suggest that major structures that arose through evolution are irrational – do not serve a life purpose. This is a very strange place to end up, calling the results of evolution irrational.

 When interest rates or gross domestic product change, people in Gabaix’s model don’t quite realize that things are different. Even more importantly, they’re short-sighted — they don’t think as much about the probability of a recession happening 10 years from now as they do about one occurring in the next six months.

People have a lot on their minds, and limited bandwidth. To ignore something is not irrational. If we ignore something because our mind is preoccupied and we fail to make all the calculations , this is “irrational” in a way that discounts reality.

One example is a paper by Northwestern University’s Lorenz Kueng. He adds yet another piece of evidence against the so-called permanent income hypothesis — the theory that rational, forward-thinking consumers don’t increase their consumption when they get a temporary boost in income. When the Alaska Permanent Fund — a pot of money funded mostly by oil revenue — gives people their annual handouts, they go out and binge instead of sticking it all in the bank as standard rational theory would predict. Kueng shows that this is consistent with a behavioral theory in which consumers are close to rational, but not quite.

 

Why isn’t a binge  rational? What is life for? The model of rationality here is a caricature of a character type that sacrifices pleasure to savings.  Who is rational,  the saver or the pleasure seeker? This cannot be answered except in the assumption of a framework of values.  I think of William Saroyan’s “Every man knows his true destiny, but he likes his detours because they take time.

To equate rational with the results of calculation is to reduce rational to means-ends consistency, kind of like engineering. A design of a bomb can be rational from an engineering view, but its irrational when considered in the framework of life giving.

Want to see how “irrational” this gets?

Another example is a paper by Rawley Heimer, Kristian Myrseth and Raphael Schoenle. The authors document how young people save too little, and the elderly spend too little, relative to standard fully rational theories. The latter might be explained by old people wanting to pass money to their children, but low savings among the young require an explanation. Heimer and Schoenle’s theory is that young people don’t realize how long they’re going to live. Far from believing in their own immortality, Heimer et al. posit that young people spend like there’s no tomorrow. Presumably, once they reach middle age, people regret their youthful binges.

So I will live a long time. I will save everything I can  year after year – and then I die. Rational?

Rational comes from ratio, balance, proportion. Machine logic is not life  Logic and economics should be aware of the difference and not subordinate our description of people to an economy where at its most “rational” neither workers (low wages) nor owners (savers) get to benefit from the regime.

Economics avoids the flowing world and tries to replace it with a solid abstract model. Such solidity is not given to humans, though they yearn for it.

“Men find it difficult, Machiavelli noted, to accept a world of becoming; they hunger for constants. This leads them to create an illusory world which is then treated as though it were a real basis for action. In terms of human behavior this often took the form of clinging to certain habits despite their having been long outdistanced by the pace of events.”

 

from  Wolin Politics and Vision.

 

 

 

 

1738. Equilibrium and wealth concentration.

Provocation # 60 equilibrium.

Here is a possibly naive question.

The equilibrium we have in our economy now is produced by a number if factors, forces, arrangements, that determine where the equilibrium is going. A moving point.

If we take simply the understanding that every cycle in markets moves wealth upward.. The rich have better information and can buy early at a lower price and with cheaper interest, and sell earlier at a higher price as the market starts downward.  Each cycle shifts the difference upward, making the rich richer.

Hence capitalism self-destructs. The hope is that regulation can keep the equilibrium point lower, but the pressure from within capitalism is always toward increasing profit, and narrowing the scope of the enterprise to what can be controlled or externalized. Things like the good of others is pushed aside. Climate is ignored by most business because it can only interfere with sales. The exception is business aimed at climate, but then the game is to use that business to make s profit by ignoring things like inequality and jobless automation.

So the question is, does not equilibrium dynamics lead to inequality? The equilibrium point of the dynamic is monopoly ownership?

The problem is, how else can we incentivize? The great agricultural empires did it with authoritarian control and hereditary class positions – roles. What is the future for new economic/political arrangements that are holistic and can cope with systemic problems?

1737. Who are the elites?

Provocation 59. Elites = professionals

Who are the “elites”? We tend to think they are they, not us. But lets take for the moment the idea that the elites are the owners of big capital and the supporting professional staffs of lawyers, accountants, pr firms, spouses and children, and all the people who have used licensing or selection, such as college admissions, to get a place in society. Residue of the old craft guilds.

The reality is that the game is quite fixed with prepared paths to neighborhood, school, college, and first “jobs” that follow from parental influence, outright interventions, and values. Some are supported by regulations that allow quasi monopolization of their small business such that the owner of a hardware store, a chain restaurant, can have an annual income in the neighborhood of a million. Other regulations create preferred paths to colleges and graduate degree, all protected by thousands of “procedures”, like the GRE, the grade system, grants and licensing that define and protect the professionals, making them part of the one percent, and being a target of the Trump voters. This would be tolerated if the income of the top 10% were reduced by 10%, the top one percent by half, the top .1% by 90%

The point is that the nexus of relationships is seriously hard to modify. This means, among other things that climate warming will proceed till the under 30 generation pulls governance apart, and inequality will continue to generate multiple social pathologies. We need to take responsibility that it was us, not the Trump supports who benefitted by and helped legitimate, if not create, the dysfunction we currently live in.

Our current mess highlights that the chief output of an economy is not the society of the spectacle as Guy DeBord brilliantly has it, but the society of power. We need to take seriously the idea that the power established is an economic outcome of the economy we have and participate in, as earners and spenders. Change must break habits. In order for economics to play a role in such changes we have to break out of the cocoon of economic formalism into the messy reality of the humanities and social sciences. From archeology through political thought to post modern novels.
PS.

Is this mere coincidence?

The first-move advantage in chess is the inherent advantage of the player (White) who makes the first move in chess. Chess players and theorists generally agree that White begins the game with some advantage.
First-move advantage in chess – Wikipedia
Wikipedia › wiki › First-move_advantag…

The white first rule seems to have been established in the 1860-1880 period.

1734. Bias in numbers away from action

Provocation # 58. Why do economists present us with bad numbers?

What can economics – and INET – do about the use of economic indicators that are distortions of reality, either toward simplicity, or politically motivated? GDP is the most grievous. “Third world country X has an increased GDP so all is well, we are lifting billions out of poverty”. But increasing earnings at the top (the people who work for corporations or government or the professions) and lowering for the bottom 80%, GDP can be increasing, but most people are worse off. Th effect is amplified because while income is up, costs have risen faster, and people are being pushed off the land removing them from the statistics on earnings.

Janet Yellin’s testimony to congress last week got standard headline across most of the press. “Unemployment at 4.9% we should move the fed rate up.”

4.9% fails to deal with the large number that give up job search because there aren’t any in their neighborhood, and that those who are working are working fewer hours and for less wages than their previous jobs.

Yellin’s testimony to Congress was relatively nuanced but you have to go to the Fed’s web site to find her speech and see that nuance.

Her testimony. The Economic Outlook
The U.S. economy has made further progress this year toward the Federal Reserve’s dual-mandate objectives of maximum employment and price stability. Job gains averaged 180,000 per month from January through October, a somewhat slower pace than last year but still well above estimates of the pace necessary to absorb new entrants to the labor force. The unemployment rate, which stood at 4.9 percent in October, has held relatively steady since the beginning of the year. The stability of the unemployment rate, combined with above-trend job growth, suggests that the U.S. economy has had a bit more “room to run” than anticipated earlier. This favorable outcome has been reflected in the labor force participation rate, which has been about unchanged this year, on net, despite an underlying downward trend stemming from the aging of the U.S. population. While above-trend growth of the labor force and employment cannot continue indefinitely, there nonetheless appears to be scope for some further improvement in the labor market. The unemployment rate is still a little above the median of Federal Open Market Committee (FOMC) participants’ estimates of its longer-run level, and involuntary part-time employment remains elevated relative to historical norms. Further employment gains may well help support labor force participation as well as wage gains; indeed, there are some signs that the pace of wage growth has stepped up recently. While the improvements in the labor market over the past year have been widespread across racial and ethnic groups, it is troubling that unemployment rates for African Americans and Hispanics remain higher than for the nation overall, and that the annual income of the median African American household and the median Hispanic household is still well below the median income of other U.S. households.

Quite good, though I fault the lack of mention of automation and climate on future trends in employment. (I think these are already having effects). The press is a huge industry hungry for quotes, conflict, and emotion. How does a profession like economics function in such an environment? And how much have economists swallowed the 4.9% unemployment rate as real?

Perhaps the tendency of the press, echoing the more vocal economists, make things look better than they are is because the pressure is then off to do something, in particular redistribution.

I realize that in the time of false news, this is a bit quixotic, but standards are important for building a viable culture.

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I sense that Trump’s overreach on a number of issues will lead to massive reactions and mid course changes. But meanwhile perhaps he tries to run the government as an infrastructure for Trump Inc. The feudal system of large corporations evolves toward a strong King. History favors this dynamic. The enlightenment reaction against absolute monarchy may have run its course and the parts, such as IT have aligned with central power.