Sunday, December 1, 2019

Week-end Wrap – Political Economy – December 1, 2019

Week-end Wrap – Political Economy – December 1, 2019
by Tony Wikrent
Economics Action Group, North Carolina Democratic Party Progressive Caucus

Strategic Political Economy

The Failure of Liberal Politics: Canadian interview of political philosopher Michael Sandel
"The rise of right wing populism represents the failure of liberal and progressive politics," says Harvard political philosopher Michael Sandel. He joins The Agenda to diagnose the failure of liberal politics, the decline of civic life, and what liberals need to know in the age of anger and populism.
From the transcript:
SANDEL: Two decades ago when I wrote the book that you just generously quoted from, I got a lot of resistance from my liberal and progressive friends who thought I was worrying unnecessarily, that liberalism was more or less intact, and that the embrace by liberalism of the global economy and even market mechanisms would be a way to avoid controversy in politics, a way of avoiding the contentiousness that arises when we engage in morally robust questions in public life. i thought that was a mistake. I thought that was hollowing out public discourse, creating a kind of vacuum that was dangerous. And so we see. 
INTERVIEWER: Somebody filled the vacuum. 
SANDEL: Yes. And not only in the U.S., but with the rise of right wing kind of ultra nationalist populism in many European countries, I think we see this vacuum being filled. People sensed that after three to four decades of a kind of base that markets would decide tough public questions for us, democratic citizens are impatient with too empty a public discourse. They want politics to be about big things and also about values, about moral questions, about justice and inequality and what it means to be a citizen. And when liberal and progressive voices fail to offer that kind of politics, when they became largely technocratic in their approach, that vacuum was filled by narrow, intolerant voices and the kind of strident nationalism we see today.
How America’s Elites Lost Their Grip
Anand Giridharadas  [Time, via Naked Capitalism 11-24-19]
The mercy of all this elite failure and backlash is this: the ongoing collapse of any pretense of selflessness among the winners of our new Gilded Age. 
If a single cultural idea has upheld the disproportionate power of this class, it has been the idea of the “win-win.” They could get rich and then “give back” to you: win-win. They could run a fund that made them sizable returns and offered you social returns too: win-win. They could sell sugary drinks to children in schools and work on public-private partnerships to improve children’s health: win-win. They could build cutthroat technology monopolies and get credit for serving to connect humanity and foster community: win-win.

As this seductive idea fizzles out, it raises the possibility that this age of capital, in which money was the ultimate organizing principle of American life, could actually end. Something could actually replace it. After all, a century ago, America was firmly planted in the first Gilded Age—and then it found its way into the Progressive Era and the New Deal, an era of great public ambition. Business didn’t go away; it wasn’t abolished; capitalists didn’t go into gulags. It was just that the emphasis of the society shifted. Money was no longer the lodestar of all pursuits.

The choice facing Americans is whether we want to be a society organized around money’s thirsts, a playground for the whims of billionaires, or whether we wish to be a democracy.
670 Years of Interest Rate History
[Visual Capitalist, via The Big Picture 11-24-19]

Job Loss Predictions Over Rising Minimum Wages Haven’t Come True
[Axios, via Naked Capitalism 11-26-19]
 "The minimum wage increase is not showing the detrimental effects people once would’ve predicted," Diane Swonk, chief economist at international accounting firm Grant Thornton, tells Axios. "A lot of what we’re seeing in politics is old economic ideology, not what economics is telling us today."
The great American labor paradox: Plentiful jobs, most of them bad 
[Quartz, via The Big Picture 11-24-19]
[Researchers] recently unveiled the US Private Sector Job Quality Index (or JQI for short), a new monthly indicator that aims to track the quality of jobs instead of just the quantity. The JQI measures the ratio of what the researchers call “high-quality” versus “low-quality” jobs, based on whether the work offer more or less than the average income. 
A reading of 100 means that there are equal numbers of the two groups, while anything less implies relatively lower-quality jobs.... 
“The problem is that quality of the stock of jobs on offer has been deteriorating for the last 30 years,” says Dan Alpert, an investment banker and Cornell Law School professor who helped create the index. (Along with Alpert, the index is built and maintained by researchers at Cornell University Law School, the Coalition for a Prosperous America, the University of Missouri-Kansas City, and the Global Institute for Sustainable Prosperity.) The “whole story” told by the index, he adds, is “the devaluation of American labor.”

Yep - this is what you get when you toss out the economic policies that actually built the USA, such as the Doctrine of High Wages

The Carnage of Establishment Neoliberal Economics

“Death is the biggest issue in the 2020 election” 
[Quartz, via Naked Capitalism 11-27-19] 
“Apocalyptic political rhetoric in the US might not be that far off base: US life expectancy is falling for the first time since the 1950s, particularly where president Donald Trump and the eventual Democratic presidential nominee will contest the 2020 election…. And more to the nub of the national discourse, the largest increases in mortality have taken place in the states that could be determinative in next year’s presidential elections, including Ohio, Pennsylvania, Michigan, and Florida…. The Democrats challenging Trump will certainly draw a contrast with their plans for the government to tackle the increase in mortality, from treating drug addiction like a public health problem to gun safety legislation.”
“Dying too young: Deaths among middle-aged adults reversing life expectancy trends” 
[NBC News, via Naked Capitalism 11-27-19]  
“An increasing number of Americans are dying in the prime of their lives, a trend not observed in other wealthy nations, according to research published Tuesday in the Journal of the American Medical Association. These ‘excess deaths’ — that is, people who die years and even decades before they’re expected to — tend to be clustered in the nation’s Rust Belt, where economies once boomed with a thriving steel industry, but have been in decline since the 1970s.” 

Lambert Strether points out what should be obvious: "... if the political class cared about statistics like this, it would be a political issue; Case Deaton published in 2017, after all. They either don’t care, or they’re actively seeking this result (cf. “ok boomer,” while, ya know, people of that age cohort are dying, before they even had a chance to get to the ice floes. It’s disgusting and enraging). Handy chart:"

[Times-Picayune, via Naked Capitalism 11-25-19]

[MarketWatch, via Naked Capitalism 11-26-19]

Economic disequilibrium

Think celebrities and CEOs make way too much money? Check out this chart
[Marketwatch, via Naked Capitalism 11-27-19]
[Twitter, via Naked Capitalism 11-25-19]

US billionaires philanthropic giving: - Gates, Buffett: annual giving ~3%–4% of their wealth - Other top 20 billionaires: ~0.3% of their wealth. Like a tiny, tiny wealth tax I made a table for you

9:07 PM · Nov 23, 2019

Thomas Piketty's Capital in the Twenty-First Century is Now a Movie
[Worth, via The Big Picture 11-29-19]
“The one percent slogan actually comes from French Revolution. That’s where the Occupy Movement got it from. I didn’t know that until I started making this film, but that was one of the things Thomas told me. In Paris just before World War I, 1 percent of the people owned 70 percent of the land. One of the things he found most alarming is that the level of inequality in America and in Britain today is at the same levels it was in France and Britain before World War I.”
Walmart Dodged US Tax on $2 Billion by Routing Cash Through Multiple Countries, Whistleblower Says 
[Quartz, via Naked Capitalism 11-30-19]

Information Age Dystopia

“Ruthless Quotas at Amazon Are Maiming Employees” 
[The Atlantic, via Naked Capitalism 11-26-19]
“[Candice Dixon] started the job in April 2018, and within two months, or nearly 100,000 items, the lifting had destroyed her back. An Amazon-approved doctor said she had bulging discs and diagnosed her with a back sprain, joint inflammation, and chronic pain, determining that her injuries were 100 percent due to her job. She could no longer work at Amazon. Today, she can barely climb stairs. Walking her dog, doing the dishes, getting out of her chair—everything is painful. According to her medical records, her condition is unlikely to improve. So this holiday-shopping season, as Amazon’s ferocious speed is on full display, Dixon is at a standstill. She told Reveal in mid-October that her workers’-compensation settlement was about to run out. She was struggling to land a new job and worried she’d lose her home.”
Two new investigations find that some Amazon warehouses have injury rates as high as triple the industry average 
[Indianapolis Star, via Naked Capitalism 11-27-19]
“When an Amazon worker was killed by a forklift in a Plainfield warehouse in 2017, the state of Indiana’s investigator found the company was at fault. The state cited Amazon for four major safety violations and fined it $28,000. But an investigation by Reveal from The Center for Investigative Reporting has found that, as Gov. Eric Holcomb sought to lure Amazon’s HQ2 to Indiana, state labor officials quietly absolved Amazon of responsibility. After Amazon appealed, they deleted every fine that had been levied and accepted the company’s argument — that the Amazon worker was to blame. The investigator on the case, John Stallone, had arrived at the warehouse a day after 59-year-old Phillip Lee Terry was crushed to death. He was so troubled by the pushback he was getting from higher-ups that he secretly recorded his boss, Indiana OSHA Director Julie Alexander, as she counseled the company on how to lessen the fine. ‘It’s like being at a card table and having a dealer teach you how to count cards,’ Stallone said.”
[New York Times, via Naked Capitalism 11-26-19]

Web inventor has an ambitious plan to take back the net 
[CTV News, via Naked Capitalism 11-25-19]

[Sam Klein, via Naked Capitalism 11-30-19]

Fleeing the Hellscape of Google Search with Qwant
Lambert Strether  [Naked Capitalism 11-25-19]
We at NC have no particular love for Google: They’ve downranked us, because we’re small (i.e., not “authoritative”), but also presumably because our links aggregation features compete with their pathetic and poorly sourced News feature[1]. And Yasha Levine asks a good question: “If the Internet is truly such a revolutionary break from the past, why are companies like Google in bed with cops and spies?” Nevertheless, blogging — just to lift the curtain a little, here — is all about production, and so if Google is the best for production, well, not everybody’s hands are always clean. But as Google search became increasingly crapified — losing its memory, and refusing to find material I am 100% sure exists, because I wrote it, without coaxing — and Google’s UI/UX became increasingly ugly and instrusive, a tipping point was bound to come, where Google was no longer the best, at least for me. I think that tipping point has now arrived. 
So I am shifting to a European search engine called Qwant, on grounds of user experience, freedom from Google’s algorithm, and most importantly, privacy (I know we have a lot of DuckDuckGo (DDG) users here, and I’ll discuss that platform briefly in context as we go along.)
I have also seen Google become more and more crappified when I search for material I know exists because I wrote it. These days Google almost never returns a search query that includes in its first page or two a link to the Real Economics website. 

[The New Republic, via Naked Capitalism 11-25-19]
“If Bernie Sanders or Elizabeth Warren wants to pass Medicare for All; if Biden or Pete Buttigieg wants to implement his public option, they will have to go around not just health-industry lobbyists and their money but a whole city of careerist worms whose children’s college funds and extravagant lifestyles depend on money scraped from the [Partnership for America’s Health Care Future’s] vaults.”
“The Army Built to Fight ‘Medicare for All'”
[Politico, via Naked Capitalism 11-25-19] 
“With the images of that Sanders [#MedicareForAll] event replaying in his head, [Chip Kahn, the CEO of the Federation of American Hospitals] made a phone call — and then, over the next few weeks, another and another. Those calls would lead to a series of secretive meetings in downtown D.C. where officials from every part of the health care industry — from insurance companies to hospital giants, drugmakers and even, for a time, doctors — would forge an alliance united to ensure that Sanders’ promises never became reality. Out of their pact grew an influence operation known today as the Partnership for America’s Health Care Future, a multimillion-dollar cooperative designed to overwhelm not just the swelling Medicare for All movement, but every single Democratic proposal that would significantly expand the government’s role in health care....”
“He also has experience taking down ambitious plans for health care reform. As executive vice president of the Health Insurance Association of America — then the insurance industry’s main trade group — he was a driving force behind the “Harry and Louise” TV ads that played a key role in tanking Bill Clinton’s health care package in 1993 and setting the standard for a generation of hard-hitting special interest campaigns that have shaped policy debates ever since.”
Lambert Strether: "Kahn’s killed an awful lot of people for money, hasn’t he?"

“‘There’s a Fear Factor, a Fear of Change.'” - The man who has built a national health care system
[Politico, via Naked Capitalism 11-25-19]
“Plenty of Americans have opinions about single-payer health systems like “Medicare for All,” and some have even studied them closely. But vanishingly few individuals in the world have actually built one from scratch. One who has is William Hsiao. A health care economist now retired from Harvard University, Hsiao designed a national health care system for Taiwan in the 1990s, and helped manage that country’s transition from American-style employer-based insurance to a national single-payer system. He has also designed single-payer reform programs for Cyprus, Colombia and China. In recent years, Hsiao, now 83, has consulted with Sen. Bernie Sanders on his Medicare for All plan, and also supports Sen. Elizabeth Warren’s version. But his reality-check prediction is that it will take two more election cycles, at least, before the political groundwork for Medicare for All will be laid. With powerful lobbies like insurers, hospitals and drug companies dug in against such plans, he points to two other forces that will need to play key roles: big employers, which he sees as nearing an inflection point where they will insist on a better system; and doctors, who are increasingly being paid as salaried employees, which is changing their views of private insurance.”

Climate and environmental crises

Chicago Takes a Beating as Lake Levels Surge 
[Scientific American, via Naked Capitalism 11-30-19]
High water has chewed away millions of cubic yards of sand and soil on the city’s north and south shores. Last week, the Chicago Department of Transportation and the Chicago Park District initiated an emergency shoreline protection project at Juneway Beach about 10 miles north of downtown, with additional projects to follow at other nearby beaches.
A city spokeswoman said the lake is about 3 feet higher than average for the month of November, and a quarter-inch below the record high-water mark for November.... 
Near-record precipitation fell over the basin in 2018 and 2019, tipping the lake’s balance between water inputs and evaporation, and driving lake levels to their highest measure since 1986. Lake storms are more frequent and pack greater power, posing additional risks to boaters, fishermen, and lakeshore residents, businesses and tourists.
[HuffPo, via Naked Capitalism 11-25-19]

Creating new economic potential - science and technology

Scientific Breakthrough: MIT Solves Two Huge Energy Problems 
[OilPrice, via Naked Capitalism 11-26-19]
Scientists from the Massachusetts Institute of Technology have published a paper that details the mechanism of a battery device that can suck out the carbon dioxide from the air, store it, and then release it for sequestration or storage and subsequent sale: the oil and gas industry uses CO2 to improve well output. 
The principle of the device is ingeniously simple: as the battery charges, it sucks in carbon dioxide. During discharge, the CO2 is released into the ground. The battery itself is made up of arrays of electrodes with gaps between the arrays so the gas can enter the device. Each electrode is coated with a carbon nanotube layer that enables an electrochemical reaction when carbon dioxide comes into contact with the surface of the electrodes. The guarantee for this contact is the fact the electrodes have a natural affinity for CO2, which means they attract the gas molecules when they enter the device.
China’s High-Speed Railway To Reach 35,000 Km By Year-End 
[Xinhua, via Naked Capitalism 11-25-19]
China’s high-speed railway network will continue to top the world with an estimated length of 35,000 km by the end of this year, said China Railway. The total length of China’s railways will exceed 139,000 km by the end of 2019, according to the company. In 2019, China’s railways are estimated to record 3.6 billion passenger trips, up 92 percent from 2012.
Photo taken on Oct. 29, 2019 shows a bullet train running through the fields of Gula Township of Binyang County, south China's Guangxi Zhuang Autonomous Region. (Xinhua/Lu Boan)
“High Plains Farmers Race to Save the Ogallala Aquifer” 
[Civil Eats, via Naked Capitalism 11-25-19] 
“It’s well-documented that the Ogallala Aquifer… is rapidly depleting…. The massive, 174,000-square-mile underground reservoir spans eight landlocked states in the Great Plains, from South Dakota to Texas. Along with being a critical source of drinking water, the aquifer supports one-fifth of all wheat, corn, cotton, and cattle in the United States. Irrigation technology, such as center pivot irrigation, patented in 1952, once helped transform the Great Plains into an agricultural oasis; flat land stretched over a seemingly endless reserve of groundwater at farmers’ disposal… Without the Ogallala, agriculture in the breadbasket of the U.S., at least as it is currently practiced, cannot continue. Yet there’s also reason to hope. … [Chris Grotegut] adopted a permaculture practice known as pasture cropping, or intermixing crops with grassland pasture. This method helps him keep more roots in the ground, building the health of the soil. And as the soil grows richer in organic matter, it can also hold more water…. After an initial loss of profits while transitioning from conventional row crops, Grotegut has seen his profits rise, due to saving on the cost of pumping groundwater and land maintenance.” • For you gardeners, horticulturalists, and permaculturists, this is a very exciting must read.
Banana agri-waste converted into biodegradable, recyclable plastic 
[New Atlas, via Naked Capitalism 11-30-19]

[World Economic Forum, via The Big Picture 11-29-19]
Erecting a new building ranks among the most inefficient, polluting activities humans undertake. The construction sector is responsible for nearly 40% of the world’s total energy consumption and CO2 emissions, according to a UN global survey (pdf).

A consortium of Swiss researchers has one answer to the problem: working with robots. The proof of concept comes in the form of the DFAB House, celebrated as the first habitable building designed and planned using a choreography of digital fabrication methods.

The three-level building near Zurich features 3D-printed ceilings, energy-efficient walls, timber beams assembled by robots on site, and an intelligent home system. Developed by a team of experts at ETH Zurich university and 30 industry partners over the course of four years, the DFAB House, measuring 2,370 square feet (220 square meters), needed 60% less cement and has passed the stringent Swiss building safety codes.

Economics in the real world

[Aviation Week and Space Technology 11-26-19]
MRO is maintenance. repair, and operations
The latest global data indicates that the world’s airlines spent an average of $1,452 per flight hour on maintaining widebodies in 2018. This worked out to $5.7 million per aircraft for the year. These figures were provided by IATA’s Maintenance Cost Technical Group, which surveyed 37 airlines operating 1,666 widebodies averaging 8.8 years in age. 
Equivalent estimates for narrowbodies were $824 per flight hour and $2.5 million for the year, based on reports from 50 carriers operating 2,649 jets averaging 8.9 years of age. For regional jets, MRO costs averaged slightly less, $817 per flight hour and $2.1 million per aircraft year. RJs averaged 7.5 years old and were reported by 13 airlines. Thirteen airlines reported an average of $993 MRO spend per flight hour on turboprops averaging 7.8 years of age.
[Bloomberg, via Naked Capitalism 11-27-19]
“The arc of Lighthizer’s rocky relationship with the WTO is hurtling toward a potentially dramatic inflection point. The pressure he and the Trump administration are applying on the WTO may, in just a few weeks, render the Geneva-based arbiter of trade inoperative…. The Trump administration, which previously threatened to block the WTO’s 2020 budget, offered members a proposal this week that would allow it to continue operating, but would hamstring the WTO’s appellate body. The U.S. said it would back the WTO’s 197.2 million-Swiss franc ($197.6 million) budget for 2020 with the condition that no more than 100,000 francs be paid to appellate body members, an 87% reduction from the full budget allotment, and spending by the body’s operating fund also be limited to 100,000 francs, a 95% reduction. The Trump administration argues that the organization’s compensation structure creates an incentive for appellate members, who can make more than 300,000 francs a year, to string out cases to boost pay.” 

Using the justice system to promote economic injustice

“Brett Kavanaugh’s latest opinion should terrify Democrats” 
[Vox, via Naked Capitalism 11-29-19]
“Beginning in the latter half of the Obama administration, Federalist Society gatherings grew increasingly fixated on diminishing the power of federal agencies to regulate businesses and the public — an agenda that would severely weaken seminal laws such as the Clean Air Act and the Clean Water Act. On Monday, Justice Brett Kavanaugh signaled that he is on board with this agenda.” 
When they were considering a name for their new organization, the creators of the Federalist Society first considered the Anti-Federalist Society, because that's who they really are. Lambert Strether adds that "Democrats should have fought all Federalist Society nominees tooth and nail on ideological grounds over the last few decades…. Unless they share the same ideology, of course." But I think in many cases, it was not a case of sharing the same ideology, but being entirely ignorant of the USA history of federalists versus anti-federalists. The Confederates were all hardcore anti-Federalists. And, the cases are already being teed up:

“Oracle finally responds to wage discrimination claims… by suing US Department of Labor” 
[The Register, via Naked Capitalism 11-29-19]
“With one hand holding the constitution and the other bashing its chest, the database giant warned perilously that ‘the rise of the modern administrative state has altered our government structure’ but that it had ‘not undone our constitutional structure.'”
ALEC to host December meeting with state legislators and think tanks to discuss anti-union strategy
[Documented, via North Carolina AFL-CIO 11-25-19]
The event is scheduled for December 3rd, a day before ALEC will hold its States and Nation Policy Summit in Scottsdale, Arizona. Details of the event, which do not appear on the ALEC conference agenda or elsewhere online, are revealed in records obtained by Documented via state public record requests. A copy of the invitation is below. 
According to the invitation, the attendees will discuss “Janus decision implementation, union release time reform, union recertification and provide an opportunity to connect with staff from local think tanks.” 
The event invitation was sent by Michael Slabinski, Director for the Commerce, Insurance and Economic Development Task Force at ALEC. The Private Sector Chair of this ALEC task force is Alibaba Group Director of State and Local Government Affairs, Bill Ashworth. Alibaba is the giant Chinese e-commerce company renowned for its so-called “996” work schedule, where workers are required to work 9am to 9pm for 6 days a week. Documented in partnership with the Intercept first revealed the Alibaba involvement in ALEC....
. On the call, SPN CEO Tracie Sharp made clear that this was really about weakening the power of the groups that oppose their political agenda.
“I want you to know that later this month, or any day now, the chances are good that we may actually have this unprecedented opportunity with the Janus Supreme Court case decision,” Sharp told her donors. “If it comes down on our side, of course, it makes every state a ‘right-to-work’ state. And so we have the opportunity to change the way the left funds everything that you and I disagree with.” At a different point on the call, she said, “Once this ruling comes down — and we do expect it to come down in our favor — everything will change. The door to pass a dream list of free-market reforms is going to swing open for us.”

Predatory Finance

It’s Official: JPMorgan Chase Is the Riskiest Big Bank in the U.S.
By Pam Martens and Russ Martens, November 25, 2019 [Wall Street on Parade]
The National Information Center is a little-known repository of bank data collected by the Federal Reserve. It is part of the Federal Financial Institutions Examination Council (FFIEC), which was created by federal legislation to create uniformity in the examination of U.S. financial institutions by the numerous federal regulators of banks.
Quietly, the National Information Center has done something that has likely made Jamie Dimon hopping mad. Dimon is the Chairman and CEO of JPMorgan Chase who has bragged perpetually in his annual letter to shareholders about how the bank he leads has a “fortress balance sheet.” But now the National Information Center has created a graphic profile of JPMorgan Chase versus its peer banks. The graphics crunch a series of important financial metrics at JPMorgan Chase, showing it to be the riskiest bank in the United States. 
The data used to create these graphics come from what is known as the “Systemic Risk Report” or form FR Y-15 that banks have to file with the Federal Reserve. To measure the systemic risk that a particular bank poses to the stability of the U.S. financial system, the data is broken down into five categories of system risk: size, interconnectedness, substitutability, complexity, and cross-jurisdictional activity. Those measurements consist of 12 pieces of financial information that banks have to provide on their Y-15 forms. That data shows that in 7 out of 12 financial metrics, JPMorgan Chase has the riskiest footprint among its peer banks.

Democratic Party leadership insists on suicide

“Suppressing Protest: Human Rights Violations in the U.S. Response to Occupy Wall Street” (PDF)
[The Global Justice Clinic (NYU School of Law) and the Walter Leitner International Human Rights Clinic at the Leitner Center for International Law and Justice (Fordham Law School), via Naked Capitalism 11-27-19]

Obama Privately Considered Leading ‘Stop-Bernie Campaign’ to Combat Sanders 2020 Surge: Report
[Common Dreams, via Naked Capitalism 11-27-19]
“Obama’s post-presidency is grating and full of contradictions,” tweeted David Klion, news editor at Jewish Currents. “He considers himself the leader of the party but refuses to lead. He considers himself a success but the mere fact of Trump’s presidency belies this. He won on hope and counsels hopelessness.”
David Dayen, executive editor for The American Prospect, wrote last week that Obama’s attacks on the progressive wing of the Democratic Party “are music to the ears of the wealthy and powerful.” 
“This defense of the reigning economic order, originating with the donor class and media allies, with its effective abandonment of the vulnerable and disenfranchised, with nothing for those struggling to make it in a rigged economy, is a recipe for social and political unrest,” Dayen wrote. “From lofty heights, Obama has now become a dampener of hope, a barrier to change, and a threat to progress.”
“Waiting for Obama”
[Politico, via Naked Capitalism 11-26-19]
“Publicly, he has been clear that he won’t intervene in the primary for or against a candidate, unless he believed there was some egregious attack. ‘I can’t even imagine with this field how bad it would have to be for him to say something,’ said a close adviser. Instead, he sees his role as providing guardrails to keep the process from getting too ugly and to unite the party when the nominee is clear. There is one potential exception: Back when Sanders seemed like more of a threat than he does now, Obama said privately that if Bernie were running away with the nomination, Obama would speak up to stop him. (Asked about that, a spokesperson for Obama pointed out that Obama recently said he would support and campaign for whoever the Democratic nominee is.)”

Enemy Actions

[HuffPost, via Naked Capitalism 11-28-19]
With his Thanksgiving vacation, President Donald Trump’s golf hobby has now cost Americans an estimated $115 million in travel and security expenses ― the equivalent of 287 years of the presidential salary he frequently boasts about not taking.

Of that amount, many hundreds of thousands ― perhaps millions ― of dollars have gone into his own cash registers, as Secret Service agents, White House staff and other administration officials stay and eat at his hotels and golf courses....

But lawsuits filed by news organizations and watchdog groups against other executive branch agencies ― the White House is exempt from Freedom of Information Act queries ― have revealed payments totaling hundreds of thousands of dollars, arguably in violation of the Constitution’s domestic emoluments clause, which prohibits Trump from accepting benefits beyond his salary from the federal or any state government.

ProPublica, for example, found that Mar-a-Lago charged taxpayers $546 a night for rooms ― three times the per-diem rate and the maximum allowed by federal rules ― for 24 Trump administration officials who stayed there during a visit by Chinese President Xi Jinping in 2017. Taxpayers also picked up a $1,006.60 bar tab for 54 top shelf drinks ordered by White House staff.

The group Property of the People recently revealed payments totaling $254,021 from the Secret Service to various Trump properties in just the first five months of his presidential tenure. Over that period, Trump had golfed 25 times. As of Wednesday, he has spent 223 days at a golf course he owns. If the first five months are an accurate indicator, that means the Secret Service has likely spent nearly $2.3 million in taxpayer money at Trump’s businesses, of which he is the sole owner.

Military Affairs

[Foreign Policy, via Naked Capitalism 11-25-19]
Advances in the fields of aerospace, robotics, machine learning, 3D printing, and nanomaterials are creating new classes of missiles and lethal drones that can be launched discreetly, travel great distances, and hamstring massed forces—all for a fraction of the cost of traditional manned weapons. 
New hypersonic missiles, for example, combine the speed and range of ballistic missiles with the maneuverability and accuracy of cruise missiles. Unmanned aerial vehicles and underwater gliders have achieved transoceanic range. Algorithms can coordinate swarms of more than 1,000 drones.... 
China and Russia can send hordes of conventional missiles and expendable drones to wreak havoc on America’s networks, destroying U.S. weapons platforms while they are on base, cutting U.S. communications links, and wiping out vital fuel and ammunition dumps. 
The U.S. military would have trouble quickly responding to such attacks because it is so unprepared for them. Most bases have few, if any, missile defense systems or hardened shelters. Combat aircraft and warships often are parked in the open, side by side. Communications between command centers and soldiers in the field rely heavily on satellites that follow predictable orbits and on undersea cables that are mapped in open sources.

Sunday, November 24, 2019

Week-end Wrap – Political Economy – November 24, 2019

Week-end Wrap – Political Economy – November 24, 2019
by Tony Wikrent
Economics Action Group, North Carolina Democratic Party Progressive Caucus

Strategic Political Economy

Mike Pompeo scorns the law because powerful men like him never have to follow it
Robert Fisk [Independent, via Naked Capitalism 11-22-19]

Dylan Ratigan: The Super Rich Have No Country. 
[YouTube, via Naked Capitalism 11-22-19]
“This is a 2 hour tour de force nailing down the failures of the media and Democrats on the GFC. Great explanation of the whole GFC too.”
[Common Dreams, via Naked Capitalism 11-22-19]

The Carnage of Establishment Neoliberal Economics

[Atlantic, via Naked Capitalism 11-21-19]
“A passion for affordability” became one of the company’s new, unloved slogans, as did “Less family, more team.” It was enough to drive the white-collar engineering union, which had historically functioned as a professional debating society, into acting more like organized labor. “We weren’t fighting against Boeing,” one union leader told me of the 40-day strike that shut down production in 2000. “We were fighting to save Boeing.”

....Stonecipher, who promptly affirmed: “When people say I changed the culture of Boeing, that was the intent, so that it’s run like a business rather than a great engineering firm.” A General Electric alum, he built a virtual replica of GE’s famed Crotonville leadership center for Boeing managers to cycle through....

The company that once didn’t speak finance was now, at the top, losing its ability to converse in engineering... It wasn’t just technical knowledge that was lost, Aboulafia said. “It was the ability to comfortably interact with an engineer who in turn feels comfortable telling you their reservations, versus calling a manager [more than] 1,500 miles away who you know has a reputation for wanting to take your pension away. It’s a very different dynamic. As a recipe for disempowering engineers in particular, you couldn’t come up with a better format.” ....
“If in fact there’s a reverse takeover, with the McDonnell ethos permeating Boeing, then Boeing is doomed to mediocrity,” the business scholar Jim Collins told me back in 2000. “There’s one thing that made Boeing really great all the way along. They always understood that they were an engineering-driven company, not a financially driven company . If they’re no longer honoring that as their central mission, then over time they’ll just become another company.”

Sunday, November 17, 2019

Week-end Wrap – Political Economy – November 17, 2019

Week-end Wrap – Political Economy – November 17, 2019
by Tony Wikrent
Economics Action Group, North Carolina Democratic Party Progressive Caucus

Strategic Political Economy

Senate Democrats Join GOP to Back ‘Automatic Austerity’ Bill That Would Gut Social Programs, Hamstring Bold Policies [Common Dreams., via Naked Capitalism 11-15-19]
I include this here because the next link directly addresses the persistence of economic austerity as a policy idea, despite it having failed repeatedly, and causing misery for untold millions of people.
A handful of Senate Democrats joined forces with Republicans last week to advance sweeping budget legislation that would establish an "automatic deficit-reduction process" that could trigger trillions of dollars in cuts to Medicare, Medicaid, food stamps, and other social programs—and potentially hobble the agenda of the next president. 
The Bipartisan Congressional Budget Reform Act (S.2765), authored by Sens. Sheldon Whitehouse (D-R.I.) and Mike Enzi (R-Wyo.), passed out of the Senate Budget Committee on November 6. The legislation is co-sponsored by five members of the Senate Democratic caucus: Whitehouse, Mark Warner (Va.), Tim Kaine (Va.), Chris Coons (Del.), and Angus King (I-Maine).
Lambert Strether added: "I really can’t think of a worse characterization for austerity proponents than “deficit scold,” though for some reason liberal Democrats like it. “Deficit scolds” are slaves to the ideas of long-dead economists and have caused a lot of suffering and death. They’re vicious sociopaths, not scolds."

Against Economics
David Graeber [New York Review of Books]
This is one of the best indictments of mainstream economic thinking I have seen in years, and I urge a full and attentive reading of it. In the excerpt below, note the role of John Locke, after whom the big Art Pope- and Koch-funded conservative propaganda outfit in North Carolina, the Locke Foundation, is named.
In England, the pattern was set in 1696, just after the creation of the Bank of England, with an argument over wartime inflation between Treasury Secretary William Lowndes, Sir Isaac Newton (then warden of the mint), and the philosopher John Locke. Newton had agreed with the Treasury that silver coins had to be officially devalued to prevent a deflationary collapse; Locke took an extreme monetarist position, arguing that the government should be limited to guaranteeing the value of property (including coins) and that tinkering would confuse investors and defraud creditors. Locke won. The result was deflationary collapse. A sharp tightening of the money supply created an abrupt economic contraction that threw hundreds of thousands out of work and created mass penury, riots, and hunger. The government quickly moved to moderate the policy (first by allowing banks to monetize government war debts in the form of bank notes, and eventually by moving off the silver standard entirely), but in its official rhetoric, Locke’s small-government, pro-creditor, hard-money ideology became the grounds of all further political debate. 
According to Skidelsky, the pattern was to repeat itself again and again, in 1797, the 1840s, the 1890s, and, ultimately, the late 1970s and early 1980s, with Thatcher and Reagan’s (in each case brief) adoption of monetarism. Always we see the same sequence of events:
  1. The government adopts hard-money policies as a matter of principle.
  2. Disaster ensues.
  3. The government quietly abandons hard-money policies.
  4. The economy recovers.
  5. Hard-money philosophy nonetheless becomes, or is reinforced as, simple universal common sense.
How was it possible to justify such a remarkable string of failures? Here a lot of the blame, according to Skidelsky, can be laid at the feet of the Scottish philosopher David Hume.

Friday, November 15, 2019

Against Economics - Graeber Review of Skidelsky

Thorstein Veblen was unusual as an economist, because, among other things, he was also an anthropologist. David Graeber is a professor of anthropology at the London School of Economics. Much like Veblen, Graeber has become a major irritant for mainstream economists. His 2011 book, book Debt: The First 5,000 Years relentlessly annihilated a basic assumption of modern economics: that the earliest economic systems were based on barter. 
The new issue of New York Review of Book, features a review by Graeber of Money and Government: The Past and Future of Economics, the new book by Robert Skidelsky, the heterodox British lord who wrote a widely celebrated if little read three-volume biography of John Maynard Keynes. Graeber's review is one of the best critiques of mainstream economics I can recall. 
Another basic assumption of  mainstream economics is that resources are scarce. I've not seen many people attacking this, though there are a few Marxists who have noted that this assumption is used to justify the worst effects of economic inequality, including penury and even starvation. The American School economists such as Henry Carey and Friedrich List emphatically rejected this assumption, and argued that the crucial consideration of economics was increasing the productive power of labor: the creation of science and technology, and the diffusion of scientific and technological knowledge. Graeber touches on this when he writes 
"Keynes himself was staunchly anti-Communist, but largely because he felt that capitalism was more likely to drive rapid technological advance that would largely eliminate the need for material labor. He wished for full employment not because he thought work was good, but because he ultimately wished to do away with work, envisioning a society in which technology would render human labor obsolete. In other words, he assumed that the ground was always shifting under the analysts’ feet; the object of any social science was inherently unstable." 
And when he writes "If an “economy” is to be defined as the means by which a human population provides itself with its material needs," Graeber is directly, if unknowingly, attacking this assumption of scarcity. 
Without the constant development of new science and technology, any society will become impoverished, and will eventually collapse. Jared Diamond’s book, Collapse: How Societies Choose to Fail or Succeed, examines how societies descend inexorably into collapse when they ignore environmental limitations and mismanage their natural resources. The key point that most readers of Diamond miss is that a society’s environmental limitations are defined only within a fairly specific period of time based on the prevailing technological mode of that society’s economy. Any society that remains stuck in one technological mode will eventually bump up against environmental limitations: what is considered a resource and how much of it is readily available and usable. All an economy really is, is how a society organizes itself to procure and process raw materials (natural resources) to create and distribute what is needed to sustain and reproduce human life. Modern mainstream economics had veered so far from reality at so many points, that I frankly cannot decide where to begin attacking. Fortunately, Graeber has delivered a superlative attack on the economics discipline -- and in clear, concise language. 

Against Economics
by David Graeber

Review of Money and Government: The Past and Future of Economics
by Robert Skidelsky
Yale University Press, 492 pp., $35.00

There is a growing feeling, among those who have the responsibility of managing large economies, that the discipline of economics is no longer fit for purpose. It is beginning to look like a science designed to solve problems that no longer exist.
A good example is the obsession with inflation. Economists still teach their students that the primary economic role of government—many would insist, its only really proper economic role—is to guarantee price stability. We must be constantly vigilant over the dangers of inflation. For governments to simply print money is therefore inherently sinful. If, however, inflation is kept at bay through the coordinated action of government and central bankers, the market should find its “natural rate of unemployment,” and investors, taking advantage of clear price signals, should be able to ensure healthy growth. These assumptions came with the monetarism of the 1980s, the idea that government should restrict itself to managing the money supply, and by the 1990s had come to be accepted as such elementary common sense that pretty much all political debate had to set out from a ritual acknowledgment of the perils of government spending. This continues to be the case, despite the fact that, since the 2008 recession, central banks have been printing money frantically in an attempt to create inflation and compel the rich to do something useful with their money, and have been largely unsuccessful in both endeavors.
We now live in a different economic universe than we did before the crash. Falling unemployment no longer drives up wages. Printing money does not cause inflation. Yet the language of public debate, and the wisdom conveyed in economic textbooks, remain almost entirely unchanged.
One expects a certain institutional lag. Mainstream economists nowadays might not be particularly good at predicting financial crashes, facilitating general prosperity, or coming up with models for preventing climate change, but when it comes to establishing themselves in positions of intellectual authority, unaffected by such failings, their success is unparalleled. One would have to look at the history of religions to find anything like it. To this day, economics continues to be taught not as a story of arguments—not, like any other social science, as a welter of often warring theoretical perspectives—but rather as something more like physics, the gradual realization of universal, unimpeachable mathematical truths. “Heterodox” theories of economics do, of course, exist (institutionalist, Marxist, feminist, “Austrian,” post-Keynesian…), but their exponents have been almost completely locked out of what are considered “serious” departments, and even outright rebellions by economics students (from the post-autistic economics movement in France to post-crash economics in Britain) have largely failed to force them into the core curriculum.
As a result, heterodox economists continue to be treated as just a step or two away from crackpots, despite the fact that they often have a much better record of predicting real-world economic events. What’s more, the basic psychological assumptions on which mainstream (neoclassical) economics is based—though they have long since been disproved by actual psychologists—have colonized the rest of the academy, and have had a profound impact on popular understandings of the world.
Nowhere is this divide between public debate and economic reality more dramatic than in Britain, which is perhaps why it appears to be the first country where something is beginning to crack. It was center-left New Labour that presided over the pre-crash bubble, and voters’ throw-the-bastards-out reaction brought a series of Conservative governments that soon discovered that a rhetoric of austerity—the Churchillian evocation of common sacrifice for the public good—played well with the British public, allowing them to win broad popular acceptance for policies designed to pare down what little remained of the British welfare state and redistribute resources upward, toward the rich. “There is no magic money tree,” as Theresa May put it during the snap election of 2017—virtually the only memorable line from one of the most lackluster campaigns in British history. The phrase has been repeated endlessly in the media, whenever someone asks why the UK is the only country in Western Europe that charges university tuition, or whether it is really necessary to have quite so many people sleeping on the streets.
The truly extraordinary thing about May’s phrase is that it isn’t true. There are plenty of magic money trees in Britain, as there are in any developed economy. They are called “banks.” Since modern money is simply credit, banks can and do create money literally out of nothing, simply by making loans. Almost all of the money circulating in Britain at the moment is bank-created in this way. Not only is the public largely unaware of this, but a recent survey by the British research group Positive Money discovered that an astounding 85 percent of members of Parliament had no idea where money really came from (most appeared to be under the impression that it was produced by the Royal Mint).
Economists, for obvious reasons, can’t be completely oblivious to the role of banks, but they have spent much of the twentieth century arguing about what actually happens when someone applies for a loan. One school insists that banks transfer existing funds from their reserves, another that they produce new money, but only on the basis of a multiplier effect (so that your car loan can still be seen as ultimately rooted in some retired grandmother’s pension fund). Only a minority—mostly heterodox economists, post-Keynesians, and modern money theorists—uphold what is called the “credit creation theory of banking”: that bankers simply wave a magic wand and make the money appear, secure in the confidence that even if they hand a client a credit for $1 million, ultimately the recipient will put it back in the bank again, so that, across the system as a whole, credits and debts will cancel out. Rather than loans being based in deposits, in this view, deposits themselves were the result of loans.
The one thing it never seemed to occur to anyone to do was to get a job at a bank, and find out what actually happens when someone asks to borrow money. In 2014 a German economist named Richard Werner did exactly that, and discovered that, in fact, loan officers do not check their existing funds, reserves, or anything else. They simply create money out of thin air, or, as he preferred to put it, “fairy dust.” [Jon posted the Werner study here in January 2015: Creating money out of thin air. Tony posted about it at DailyKos a few days later, then posted here some of the reactions, which quite fully confirm the points Graeber makers below about the unquestioning acceptance of the professional class of the neoliberal ideology of money creation: Creating Money Out of Thin Air and Trained Incapacity.]
That year also appears to have been when elements in Britain’s notoriously independent civil service decided that enough was enough. The question of money creation became a critical bone of contention. The overwhelming majority of even mainstream economists in the UK had long since rejected austerity as counterproductive (which, predictably, had almost no impact on public debate). But at a certain point, demanding that the technocrats charged with running the system base all policy decisions on false assumptions about something as elementary as the nature of money becomes a little like demanding that architects proceed on the understanding that the square root of 47 is actually π. Architects are aware that buildings would start falling down. People would die.
Before long, the Bank of England (the British equivalent of the Federal Reserve, whose economists are most free to speak their minds since they are not formally part of the government) rolled out an elaborate official report called “Money Creation in the Modern Economy,” replete with videos and animations, making the same point: existing economics textbooks, and particularly the reigning monetarist orthodoxy, are wrong. The heterodox economists are right. Private banks create money. Central banks like the Bank of England create money as well, but monetarists are entirely wrong to insist that their proper function is to control the money supply. In fact, central banks do not in any sense control the money supply; their main function is to set the interest rate—to determine how much private banks can charge for the money they create. Almost all public debate on these subjects is therefore based on false premises. For example, if what the Bank of England was saying were true, government borrowing didn’t divert funds from the private sector; it created entirely new money that had not existed before.
One might have imagined that such an admission would create something of a splash, and in certain restricted circles, it did. Central banks in Norway, Switzerland, and Germany quickly put out similar papers. Back in the UK, the immediate media response was simply silence. The Bank of England report has never, to my knowledge, been so much as mentioned on the BBC or any other TV news outlet. Newspaper columnists continued to write as if monetarism was self-evidently correct. Politicians continued to be grilled about where they would find the cash for social programs. It was as if a kind of entente cordiale had been established, in which the technocrats would be allowed to live in one theoretical universe, while politicians and news commentators would continue to exist in an entirely different one.
Still, there are signs that this arrangement is temporary. England—and the Bank of England in particular—prides itself on being a bellwether for global economic trends. Monetarism itself got its launch into intellectual respectability in the 1970s after having been embraced by Bank of England economists. From there it was ultimately adopted by the insurgent Thatcher regime, and only after that by Ronald Reagan in the United States, and it was subsequently exported almost everywhere else.
It is possible that a similar pattern is reproducing itself today. In 2015, a year after the appearance of the Bank of England report, the Labour Party for the first time allowed open elections for its leadership, and the left wing of the party, under Jeremy Corbyn and now shadow chancellor of the exchequer John McDonnell, took hold of the reins of power. At the time, the Labour left were considered even more marginal extremists than was Thatcher’s wing of the Conservative Party in 1975; it is also (despite the media’s constant efforts to paint them as unreconstructed 1970s socialists) the only major political group in the UK that has been open to new economic ideas. While pretty much the entire political establishment has been spending most of its time these last few years screaming at one another about Brexit, McDonnell’s office—and Labour youth support groups—have been holding workshops and floating policy initiatives on everything from a four-day workweek and universal basic income to a Green Industrial Revolution and “Fully Automated Luxury Communism,” and inviting heterodox economists to take part in popular education initiatives aimed at transforming conceptions of how the economy really works. Corbynism has faced near-histrionic opposition from virtually all sectors of the political establishment, but it would be unwise to ignore the possibility that something historic is afoot.
One sign that something historically new has indeed appeared is if scholars begin reading the past in a new light. Accordingly, one of the most significant books to come out of the UK in recent years would have to be Robert Skidelsky’s Money and Government: The Past and Future of Economics. Ostensibly an attempt to answer the question of why mainstream economics rendered itself so useless in the years immediately before and after the crisis of 2008, it is really an attempt to retell the history of the economic discipline through a consideration of the two things—money and government—that most economists least like to talk about.

Skidelsky is well positioned to tell this story. He embodies a uniquely English type: the gentle maverick, so firmly ensconced in the establishment that it never occurs to him that he might not be able to say exactly what he thinks, and whose views are tolerated by the rest of the establishment precisely for that reason. Born in Manchuria, trained at Oxford, professor of political economy at Warwick, Skidelsky is best known as the author of the definitive, three-volume biography of John Maynard Keynes, and has for the last three decades sat in the House of Lords as Baron of Tilton, affiliated at different times with a variety of political parties, and sometimes none at all. During the early Blair years, he was a Conservative, and even served as opposition spokesman on economic matters in the upper chamber; currently he’s a cross-bench independent, broadly aligned with left Labour. In other words, he follows his own flag. Usually, it’s an interesting flag. Over the last several years, Skidelsky has been taking advantage of his position in the world’s most elite legislative body to hold a series of high-level seminars on the reformation of the economic discipline; this book is, in a sense, the first major product of these endeavors.

What it reveals is an endless war between two broad theoretical perspectives in which the same side always seems to win—for reasons that rarely have anything to do with either theoretical sophistication or greater predictive power. The crux of the argument always seems to turn on the nature of money. Is money best conceived of as a physical commodity, a precious substance used to facilitate exchange, or is it better to see money primarily as a credit, a bookkeeping method or circulating IOU—in any case, a social arrangement? This is an argument that has been going on in some form for thousands of years. What we call “money” is always a mixture of both, and, as I myself noted in Debt (2011), the center of gravity between the two tends to shift back and forth over time. In the Middle Ages everyday transactions across Eurasia were typically conducted by means of credit, and money was assumed to be an abstraction. It was the rise of global European empires in the sixteenth and seventeenth centuries, and the corresponding flood of gold and silver looted from the Americas, that really shifted perceptions. Historically, the feeling that bullion actually is money tends to mark periods of generalized violence, mass slavery, and predatory standing armies—which for most of the world was precisely how the Spanish, Portuguese, Dutch, French, and British empires were experienced. One important theoretical innovation that these new bullion-based theories of money allowed was, as Skidelsky notes, what has come to be called the quantity theory of money (usually referred to in textbooks—since economists take endless delight in abbreviations—as QTM).
The QTM argument was first put forward by a French lawyer named Jean Bodin, during a debate over the cause of the sharp, destablizing price inflation that immediately followed the Iberian conquest of the Americas. Bodin argued that the inflation was a simple matter of supply and demand: the enormous influx of gold and silver from the Spanish colonies was cheapening the value of money in Europe. The basic principle would no doubt have seemed a matter of common sense to anyone with experience of commerce at the time, but it turns out to have been based on a series of false assumptions. For one thing, most of the gold and silver extracted from Mexico and Peru did not end up in Europe at all, and certainly wasn’t coined into money. Most of it was transported directly to China and India (to buy spices, silks, calicoes, and other “oriental luxuries”), and insofar as it had inflationary effects back home, it was on the basis of speculative bonds of one sort or another. This almost always turns out to be true when QTM is applied: it seems self-evident, but only if you leave most of the critical factors out.
In the case of the sixteenth-century price inflation, for instance, once one takes account of credit, hoarding, and speculation—not to mention increased rates of economic activity, investment in new technology, and wage levels (which, in turn, have a lot to do with the relative power of workers and employers, creditors and debtors)—it becomes impossible to say for certain which is the deciding factor: whether the money supply drives prices, or prices drive the money supply. Technically, this comes down to a choice between what are called exogenous and endogenous theories of money. Should money be treated as an outside factor, like all those Spanish dubloons supposedly sweeping into Antwerp, Dublin, and Genoa in the days of Philip II, or should it be imagined primarily as a product of economic activity itself, mined, minted, and put into circulation, or more often, created as credit instruments such as loans, in order to meet a demand—which would, of course, mean that the roots of inflation lie elsewhere?
To put it bluntly: QTM is obviously wrong. Doubling the amount of gold in a country will have no effect on the price of cheese if you give all the gold to rich people and they just bury it in their yards, or use it to make gold-plated submarines (this is, incidentally, why quantitative easing, the strategy of buying long-term government bonds to put money into circulation, did not work either). What actually matters is spending.
Nonetheless, from Bodin’s time to the present, almost every time there was a major policy debate, the QTM advocates won. In England, the pattern was set in 1696, just after the creation of the Bank of England, with an argument over wartime inflation between Treasury Secretary William Lowndes, Sir Isaac Newton (then warden of the mint), and the philosopher John Locke. Newton had agreed with the Treasury that silver coins had to be officially devalued to prevent a deflationary collapse; Locke took an extreme monetarist position, arguing that the government should be limited to guaranteeing the value of property (including coins) and that tinkering would confuse investors and defraud creditors. Locke won. The result was deflationary collapse. A sharp tightening of the money supply created an abrupt economic contraction that threw hundreds of thousands out of work and created mass penury, riots, and hunger. The government quickly moved to moderate the policy (first by allowing banks to monetize government war debts in the form of bank notes, and eventually by moving off the silver standard entirely), but in its official rhetoric, Locke’s small-government, pro-creditor, hard-money ideology became the grounds of all further political debate.
According to Skidelsky, the pattern was to repeat itself again and again, in 1797, the 1840s, the 1890s, and, ultimately, the late 1970s and early 1980s, with Thatcher and Reagan’s (in each case brief) adoption of monetarism. Always we see the same sequence of events:
(1) The government adopts hard-money policies as a matter of principle.
(2) Disaster ensues.
(3) The government quietly abandons hard-money policies.
(4) The economy recovers.
(5) Hard-money philosophy nonetheless becomes, or is reinforced as, simple universal common sense.
How was it possible to justify such a remarkable string of failures? Here a lot of the blame, according to Skidelsky, can be laid at the feet of the Scottish philosopher David Hume. An early advocate of QTM, Hume was also the first to introduce the notion that short-term shocks—such as Locke produced—would create long-term benefits if they had the effect of unleashing the self-regulating powers of the market:
Ever since Hume, economists have distinguished between the short-run and the long-run effects of economic change, including the effects of policy interventions. The distinction has served to protect the theory of equilibrium, by enabling it to be stated in a form which took some account of reality. In economics, the short-run now typically stands for the period during which a market (or an economy of markets) temporarily deviates from its long-term equilibrium position under the impact of some “shock,” like a pendulum temporarily dislodged from a position of rest. This way of thinking suggests that governments should leave it to markets to discover their natural equilibrium positions. Government interventions to “correct” deviations will only add extra layers of delusion to the original one.
There is a logical flaw to any such theory: there’s no possible way to disprove it. The premise that markets will always right themselves in the end can only be tested if one has a commonly agreed definition of when the “end” is; but for economists, that definition turns out to be “however long it takes to reach a point where I can say the economy has returned to equilibrium.” (In the same way, statements like “the barbarians always win in the end” or “truth always prevails” cannot be proved wrong, since in practice they just mean “whenever barbarians win, or truth prevails, I shall declare the story over.”)
At this point, all the pieces were in place: tight-money policies (which benefited creditors and the wealthy) could be justified as “harsh medicine” to clear up price-signals so the market could return to a healthy state of long-run balance. In describing how all this came about, Skidelsky is providing us with a worthy extension of a history Karl Polanyi first began to map out in the 1940s: the story of how supposedly self-regulating national markets were the product of careful social engineering. Part of that involved creating government policies self-consciously designed to inspire resentment of “big government.” Skidelsky writes:
A crucial innovation was income tax, first levied in 1814, and renewed by [Prime Minister Robert] Peel in 1842. By 1911–14, this had become the principal source of government revenue. Income tax had the double benefit of giving the British state a secure revenue base, and aligning voters’ interests with cheap government, since only direct taxpayers had the vote…. “Fiscal probity,” under Gladstone, “became the new morality.”
In fact, there’s absolutely no reason a modern state should fund itself primarily by appropriating a proportion of each citizen’s earnings. There are plenty of other ways to go about it. Many—such as land, wealth, commercial, or consumer taxes (any of which can be made more or less progressive)—are considerably more efficient, since creating a bureaucratic apparatus capable of monitoring citizens’ personal affairs to the degree required by an income tax system is itself enormously expensive. But this misses the real point: income tax is supposed to be intrusive and exasperating. It is meant to feel at least a little bit unfair. Like so much of classical liberalism (and contemporary neoliberalism), it is an ingenious political sleight of hand—an expansion of the bureaucratic state that also allows its leaders to pretend to advocate for small government.
The one major exception to this pattern was the mid-twentieth century, what has come to be remembered as the Keynesian age. It was a period in which those running capitalist democracies, spooked by the Russian Revolution and the prospect of the mass rebellion of their own working classes, allowed unprecedented levels of redistribution—which, in turn, led to the most generalized material prosperity in human history. The story of the Keynesian revolution of the 1930s, and the neoclassical counterrevolution of the 1970s, has been told innumerable times, but Skidelsky gives the reader a fresh sense of the underlying conflict.

Keynes himself was staunchly anti-Communist, but largely because he felt that capitalism was more likely to drive rapid technological advance that would largely eliminate the need for material labor. He wished for full employment not because he thought work was good, but because he ultimately wished to do away with work, envisioning a society in which technology would render human labor obsolete. In other words, he assumed that the ground was always shifting under the analysts’ feet; the object of any social science was inherently unstable. Max Weber, for similar reasons, argued that it would never be possible for social scientists to come up with anything remotely like the laws of physics, because by the time they had come anywhere near to gathering enough information, society itself, and what analysts felt was important to know about it, would have changed so much that the information would be irrelevant. Keynes’s opponents, on the other hand, were determined to root their arguments in just such universal principles.
It’s difficult for outsiders to see what was really at stake here, because the argument has come to be recounted as a technical dispute between the roles of micro- and macroeconomics. Keynesians insisted that the former is appropriate to studying the behavior of individual households or firms, trying to optimize their advantage in the marketplace, but that as soon as one begins to look at national economies, one is moving to an entirely different level of complexity, where different sorts of laws apply. Just as it is impossible to understand the mating habits of an aardvark by analyzing all the chemical reactions in their cells, so patterns of trade, investment, or the fluctuations of interest or employment rates were not simply the aggregate of all the microtransactions that seemed to make them up. The patterns had, as philosophers of science would put it, “emergent properties.” Obviously, it was necessary to understand the micro level (just as it was necessary to understand the chemicals that made up the aardvark) to have any chance of understand the macro, but that was not, in itself, enough.
The counterrevolutionaries, starting with Keynes’s old rival Friedrich Hayek at the LSE and the various luminaries who joined him in the Mont Pelerin Society, took aim directly at this notion that national economies are anything more than the sum of their parts. Politically, Skidelsky notes, this was due to a hostility to the very idea of statecraft (and, in a broader sense, of any collective good). National economies could indeed be reduced to the aggregate effect of millions of individual decisions, and, therefore, every element of macroeconomics had to be systematically “micro-founded.”
One reason this was such a radical position was that it was taken at exactly the same moment that microeconomics itself was completing a profound transformation—one that had begun with the marginal revolution of the late nineteenth century—from a technique for understanding how those operating on the market make decisions to a general philosophy of human life. It was able to do so, remarkably enough, by proposing a series of assumptions that even economists themselves were happy to admit were not really true: let us posit, they said, purely rational actors motivated exclusively by self-interest, who know exactly what they want and never change their minds, and have complete access to all relevant pricing information. This allowed them to make precise, predictive equations of exactly how individuals should be expected to act.
Surely there’s nothing wrong with creating simplified models. Arguably, this is how any science of human affairs has to proceed. But an empirical science then goes on to test those models against what people actually do, and adjust them accordingly. This is precisely what economists did not do. Instead, they discovered that, if one encased those models in mathematical formulae completely impenetrable to the noninitiate, it would be possible to create a universe in which those premises could never be refuted. (“All actors are engaged in the maximization of utility. What is utility? Whatever it is that an actor appears to be maximizing.”) The mathematical equations allowed economists to plausibly claim theirs was the only branch of social theory that had advanced to anything like a predictive science (even if most of their successful predictions were of the behavior of people who had themselves been trained in economic theory).
This allowed Homo economicus to invade the rest of the academy, so that by the 1950s and 1960s almost every scholarly discipline in the business of preparing young people for positions of power (political science, international relations, etc.) had adopted some variant of “rational choice theory” culled, ultimately, from microeconomics. By the 1980s and 1990s, it had reached a point where even the heads of art foundations or charitable organizations would not be considered fully qualified if they were not at least broadly familiar with a “science” of human affairs that started from the assumption that humans were fundamentally selfish and greedy.
These, then, were the “microfoundations” to which the neoclassical reformers demanded macroeconomics be returned. Here they were able to take advantage of certain undeniable weaknesses in Keynesian formulations, above all its inability to explain 1970s stagflation, to brush away the remaining Keynesian superstructure and return to the same hard-money, small-government policies that had been dominant in the nineteenth century. The familiar pattern ensued. Monetarism didn’t work; in the UK and then the US, such policies were quickly abandoned. But ideologically, the intervention was so effective that even when “new Keynesians” like Joseph Stiglitz or Paul Krugman returned to dominate the argument about macroeconomics, they still felt obliged to maintain the new microfoundations.
The problem, as Skidelsky emphasizes, is that if your initial assumptions are absurd, multiplying them a thousandfold will hardly make them less so. Or, as he puts it, rather less gently, “lunatic premises lead to mad conclusions”:
The efficient market hypothesis (EMH), made popular by Eugene Fama…is the application of rational expectations to financial markets. The rational expectations hypothesis (REH) says that agents optimally utilize all available information about the economy and policy instantly to adjust their expectations….
Thus, in the words of Fama,…“In an efficient market, competition among the many intelligent participants leads to a situation where…the actual price of a security will be a good estimate of its intrinsic value.” [Skidelsky’s italics]
In other words, we were obliged to pretend that markets could not, by definition, be wrong—if in the 1980s the land on which the Imperial compound in Tokyo was built, for example, was valued higher than that of all the land in New York City, then that would have to be because that was what it was actually worth. If there are deviations, they are purely random, “stochastic” and therefore unpredictable, temporary, and, ultimately, insignificant. In any case, rational actors will quickly step in to sweep up any undervalued stocks. Skidelsky drily remarks:
There is a paradox here. On the one hand, the theory says that there is no point in trying to profit from speculation, because shares are always correctly priced and their movements cannot be predicted. But on the other hand, if investors did not try to profit, the market would not be efficient because there would be no self-correcting mechanism….
Secondly, if shares are always correctly priced, bubbles and crises cannot be generated by the market….
This attitude leached into policy: “government officials, starting with [Federal Reserve Chairman] Alan Greenspan, were unwilling to burst the bubble precisely because they were unwilling to even judge that it was a bubble.” The EMH made the identification of bubbles impossible because it ruled them out a priori.
If there is an answer to the queen’s famous question of why no one saw the crash coming, this would be it.
At this point, we have come full circle. After such a catastrophic embarrassment, orthodox economists fell back on their strong suit—academic politics and institutional power. In the UK, one of the first moves of the new Conservative-Liberal Democratic Coalition in 2010 was to reform the higher education system by tripling tuition and instituting an American-style regime of student loans. Common sense might have suggested that if the education system was performing successfully (for all its foibles, the British university system was considered one of the best in the world), while the financial system was operating so badly that it had nearly destroyed the global economy, the sensible thing might be to reform the financial system to be a bit more like the educational system, rather than the other way around. An aggressive effort to do the opposite could only be an ideological move. It was a full-on assault on the very idea that knowledge could be anything other than an economic good.
Similar moves were made to solidify control over the institutional structure. The BBC, a once proudly independent body, under the Tories has increasingly come to resemble a state broadcasting network, their political commentators often reciting almost verbatim the latest talking points of the ruling party—which, at least economically, were premised on the very theories that had just been discredited. Political debate simply assumed that the usual “harsh medicine” and Gladstonian “fiscal probity” were the only solution; at the same time, the Bank of England began printing money like mad and, effectively, handing it out to the one percent in an unsuccessful attempt to kick-start inflation. The practical results were, to put it mildly, uninspiring. Even at the height of the eventual recovery, in the fifth-richest country in the world, something like one British citizen in twelve experienced hunger, up to and including going entire days without food. If an “economy” is to be defined as the means by which a human population provides itself with its material needs, the British economy is increasingly dysfunctional. Frenetic efforts on the part of the British political class to change the subject (Brexit) can hardly go on forever. Eventually, real issues will have to be addressed.
Economic theory as it exists increasingly resembles a shed full of broken tools. This is not to say there are no useful insights here, but fundamentally the existing discipline is designed to solve another century’s problems. The problem of how to determine the optimal distribution of work and resources to create high levels of economic growth is simply not the same problem we are now facing: i.e., how to deal with increasing technological productivity, decreasing real demand for labor, and the effective management of care work, without also destroying the Earth. This demands a different science. The “microfoundations” of current economics are precisely what is standing in the way of this. Any new, viable science will either have to draw on the accumulated knowledge of feminism, behavioral economics, psychology, and even anthropology to come up with theories based on how people actually behave, or once again embrace the notion of emergent levels of complexity—or, most likely, both.
Intellectually, this won’t be easy. Politically, it will be even more difficult. Breaking through neoclassical economics’ lock on major institutions, and its near-theological hold over the media—not to mention all the subtle ways it has come to define our conceptions of human motivations and the horizons of human possibility—is a daunting prospect. Presumably, some kind of shock would be required. What might it take? Another 2008-style collapse? Some radical political shift in a major world government? A global youth rebellion? However it will come about, books like this—and quite possibly this book—will play a crucial part.