The United States and Britain have been solidly on the path of economic neo-liberalism since the regimes of Margaret Thatcher and Ronald Reagan. (Wikipedia provides a useful definition: "Neoliberalism describes a market-driven approach to economic and social policy based on neoclassical theories of economics that stresses the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the political and economic priorities of the state.")
What have been the actual results - the fruits - of neo-liberal policies over the past forty plus years? Industry in both the U.S. and Britain has been systematically looted by the financial sector; income inequality has grown to be the worst in human history according to some; the working class in both countries has been destroyed, with a male in his thirties today making near ten percent less than a working class male in the 1970s; real rates of illiteracy - if honestly measured - approaching forty percent; the worst financial crash since the First Great Depression; and an inability to simply maintain our physical infrastructure in good working order.
Yet despite this clear record of failure, elites of all types are unwilling or unable to admit the clear policy mistakes of the past four decades. This is especially a problem with professional economists. In fact, on the basis of social utility, the profession of economics has become perhaps one of the greatest dangers to the continued survival of the human species. Last week, Joseph E. Stiglitz, a Nobel Laureate in cconomics and one of the most respected economists "on the left" authored a short report on a recent International Monetary Fund conference on "Macro and Growth Policies in the Wake of the Crisis." Now perhaps I'm biased: I used to be one of a two or three dozen people who protested and picketed the annual meeting of the World Bank and the IMF back in the 1980s. As far as I'm concerned, institutions like the IMF ought be disbanded before they do any more damage, and most economists be forced at the point of the sword to renounce neo-liberalism. But Stiglitz, well, he's more polite (deferential to authority?) than I am; he's content to report that there was A Balanced Debate About Reforming Macroeconomics:
The most remarkable aspect . . . was the broad consensus that the macroeconomic models that had been relied upon in the past and had informed major aspects of monetary and macro-policy had failed. They failed to predict the crisis; standard models even said bubbles couldn't exist -- markets were efficient. Even after the bubble broke, they said the effects would be contained. Even after it was clear that the effects were not "contained," they provided limited guidance on how the economy should respond.So, you would think, given this unbelievably wretched record of failure, failure, failure, that most of the economists at the conference would have been humbled into silence. But, Stiglitz reports,
Many of those who had been advocates of the old policies, while seeing their limits, cautioned about letting the pendulum swing too far to the other side. . ."Seeing their limits"? "Seeing their limits"? "Seeing their limits"?
Sweet Jesus, restrain me. I want to hurt them.
But wait, dear reader, wait. It gets worse.
In any meeting such as this, it's worth noting what was not discussed, or only mentioned briefly. The fact that countries with central banks that were not independent performed so much better than some of those that were -- partly because the latter were "cognitively captured" by the financial markets that they were supposed to regulate -- should perhaps lead to rethinking of doctrines concerning central bank independence."Cognitively captured by the financial markets" is an economist's polite way of talking about the new predatory oligarchy that has been created, based on Wall Street's and the City of London's stranglehold on society's mechanisms for creating and allocating money and credit. And that oligarchy is damn near feudal-minded in its arrogance and contempt for those below its self-exalted station.
Now, most Americans today probably don't fully appreciate the gravity of charging that the policies and practice of neo-liberal economics has created a new, feudal-minded oligarchy, and a plutocracy. But Article Four, Section 4, Clause 1, of the United States Constitution reads:
The United States shall guarantee to every State in this Union a Republican Form of Government.Wikipedia has a good summary of the legal history of this clause, but there is much more than can be, needs to be, and will be written on this topic in the coming months, as liberals and progressives in the United States are compelled to begin pondering, discussing, and analyzing this clause. Why will they be compelled? Two reasons. First, is that the wrong-wing think tank / political association apparatus has begun discussing the nature of a republic, as in "a republic is not supposed to be a democracy." This is a veiled attack on American participatory democracy, and will be increasingly used to justify the various attempts by Republican legislators to roll back voting rights, to intimidate voting blocks seen as historically hostile to conservatives and Republicans, and to disenfranchise millions of voters.
Second, people like me and you are go to become ever louder in our demand that this clause of the Constitution be used to justify a radically new approach to the banking and financial system: that the new oligarchy and plutocracy be treated as the financial terrorists they are, because only by breaking up and destroying "too big to fail" financial institutions, and reigning in or eliminating hedge funds and the shadow banking system, will we be able to defeat the new oligarchy and restore the promise of American government of, by, and for the people.
How does economic thinking fit into all of this? I'm glad you ask, because now I can finally point you to the blather that first angered me enough to begin this post. At the recent annual meeting of the American Economics Association, Robert Shiller and Virginia Shiller presented what appears to be a half-baked history of economics, entitled Economists as Worldly Philosophers. Well, this paper angered Tiago at History of Economics Playground, which in turn angered Brad DeLong, supposedly one of the best and most prolific economists "on the left" and owner/author/manager of one of the most followed economics blogs. Reading DeLong's response to Tiago, Is Adam Smith Partly an Economist, or Wholly a Moral Philosopher?, is a useful exercise in wading through the mind-numbing complexity of modern economic thinking, which is all too often more concerned with splitting hairs than in enabling the causes of truth and justice. And democratic republicanism and self-government.
Now, DeLong is a very smart person, and he certainly knows economics, and, also, he certainly has a lot more compassion and concern coursing through him than I would credit a few dozen wrong-wingers having collectively. In other words, DeLong is a good guy, and he's usually on my side of most issues. Which is why it is so instructive to use DeLong as an example of what is fundamentally wrong with the discipline of economics today.
In his dissection of Tiago, and his discusson of Adam Smith, DeLong references a 1978 book by University of Sussex Professor Keith Tribe, Land, Labour, and Economic Discourse. Tribe's book is not important here: I'm just providing you the context for the next quote from DeLong:
The Wealth of Nations, Tribe claimed, could not be a book of economics because a book of economics had to be about the economy. And there was [no] idea of "the economy" back in 1776 for a book of economics to be about. What was there? There was the undifferentiated stuff of the mixed social-cultural-political-trading system that governed production and distribution: material life.(NOTE: I believe DeLong meant to include the "no" I placed in brackets in the quote above.)
Now, while DeLong is technically correct in so far as a technical history of the economics profession is concerned, he is making the fundamental error that almost all professional economists make: he is ignoring the fact that the subject of study of economics has to do with sustaining human life. As such, there has always been "economics" as far back as the first hominids gathered and hunted and cared for their children and elderly. I mean, jeeze, in his 1987 history of economics, Economics in Perspective, John Kenneth Galbraith didn't get around to discussing Adam Smith until Chapter 6. To claim that there was no thinking about economics before Adam Smith came along is, well, extremely misleading at best. Luca Pacioli formalized the double-entry bookkeeping system of accounting for the merchants of the Italian city-states in the fifteenth century, for crying out loud. What does DeLong think that was all about?
But, back to this idea that economics deals with how human life is sustained. This makes economics very involved in moral questions: sustaining human life, after all, has to do with life and death. You get safe food and water, adequate clothing and housing, you live. You don't, you die. The way I define economics is: The study of how a society organizes itself to procure, produce, process, and distribute the material and non-material goods and services need to sustain and reproduce human life. That this focus on sustaining human life must be the bedrock moral foundation of economics is seen by noting what is missing in this next quote from DeLong:
It was, indeed, only with Ricardo that the operation of what we now say is the economy--the production, exchange, and distribution of goods and services all mediated through market exchange--was seen as something that was important enough, or separate enough, or coherent enough to be something that it made sense to write books about, and, indeed, something that it made sense to be an expert in.Perhaps economists always assume that, naturally, "the production, exchange, and distribution of goods and services" is aimed at meeting human needs. But judging by the inability of economists to make moral judgments -- usury, though thoroughly condemned by the three Abrahamaic religions, with full and complete documentation of the reasons for that condemnation, is today treated by economists as a mere "dysfunction" of interest rates -- I do not think most economists make that assumption about economic activity being fundamentally concerned with human life. We have reached the point now that trading in the world's currencies amounts to four trillion dollars a day. Not a month, or a year, four trillion dollars a day. Less than one percent of that is related to actual trade in goods and services. The rest of it is speculation. Speculation, serving, what purpose? More to the point, whose purpose? If we sent 99.9 percent of the economists of the world to get suntans in Guantanamo, and worked out a new regime of fixed exchange rates, would the sudden cessation of $3.96 trillion a day in forex trading adversely impact the prospects of human life on the planet?
I would argue that getting rid of $3.96 trillion a day in forex trading would actually improve the human condition, and our chances of survival, by wiping out one of the major mechanisms by which the real economy is being looted: the fees, commissions, and other charges generated by so much trading.
And what about "mediated through market exchange"? Why does it have to be market exchange? Were the decisions to build the Erie Canal and the Illinois & Michigan Canals done through market exchange? Yet these decisions, and their implementation, fundamentally altered the American strategic posture in the mid 1800s by providing a link of inland water communications and transport between New York City and New Orleans, and massively increased the productive potential of the American economy, including the creation of the city of Chicago. Similarly, the decision to build the trans-continental railroads were not done through market exchange, yet they fundamentally altered the conditions of American life, not least by helping to introduce modern business practices that had been taken directly from the experience of Army quarter masters outfitting large units of men and animals for long, overland marches, expeditions, and military campaigns.
But now I want to return to my definition of economics, and the issue of oligarchy and plutocracy. Because, clearly, the historical record shows that the ability of humans to sustain themselves increases dramatically when the predations of oligarchs and plutocrats are held in check. So, let me add something to my definition of economics: The study of how a society organizes itself to procure, produce, process, and distribute the material and non-material goods and services need to sustain and reproduce human life, and at ever higher levels of intellectual, cultural and political development.
Adding that last phrase about "higher levels of intellectual, cultural and political development" allows us to include the question of oligarchy and plutocracy as a crucial moral consideration for economists. This, of course, resurrects many old ideas of political economy. It was something that Americans were quite sensitive to in the first century of the nation's existence. The need to crush the South in the Civil War arose as much from the need to annihilate the southern planters aristocracy, as from the need to terminate the shameful practice of human bondage. As John G. Nicolay, private secretary to President Lincoln, noted near the beginning of his 1881 history, The Outbreak of Rebellion:
The State of South Carolina, in addition, had been little else than a school of treason for thirty years. She was, moreover, peculiarly adapted to become the hotbed of conspiracy by the fact that of all the States she was least republican in both the character of her people and the form of her institutions. She was exclusive, aristocratic, reactionary; had a narrow distrust of popular participation in government, and longed for the distinctions of caste and privilege in society.And so, we can now take up the question of cultural warfare, by looking at one last quote from DeLong:
Adam Smith is the founder of economics because he has a great and extraordinary insight: that the competitive market system is a remarkably powerful social calculating and organizing mechanism, and that the sophisticated division of labor to which a competitive market system backed up by secure and honest enforcement of property rights give rise is the key to the wealth of nations.I don't have as much of a problem with mistakenly identifying the founder of economics, as I do with the veneration of Adam Smith by DeLong and almost all other economists. Simply put, Smith was a factotum for the British oligarchy, and as such, was fundamentally hostile to the United States and its grand experiment in self-government. Is it just coincidence that a "science" of economics that holds as its guiding light an oligarchical apologist should give us a body of economic thinking that has ruined our economy, impoverished our working people, and debased our public finances? Was that the intent of "classical economics" based on Smith and Ricardo, and its ugly step-child, neo-liberalism, all along? If you get your economic thinking from oligarchs, perhaps you should expect that thinking, when put into practice, to result in the creation of an oligarchy. "By their fruits ye shall know them."
In 1834, there was published in Boston a little book entitled Tracts on Sundry Topics of Political Economy, written by Oliver Putnam, a sickly but wealthy merchant of Newburyport, Massachusetts. To preserve his health, Putnam retired in his thirties, but busied himself with an intense study of political economy. Putnam's ideas were informed by his travels throughout the U.S. and Europe, travels he had undertaken in search of a cure for his ailments. The second part of the book is entitled "Observations on Smith's Wealth of Nations," and I venture to assert they were typical of American views of Smith, and British political economy in general, in the mid-1800s.
In the following remarks, the writer's aim has been briefly to expose the fallacy, not of every thing in the Inquiry, which is open to exception ; but chiefly of doctrines, which, he conceives, are of tendency injurious to the welfare of his country. Adam Smith has founded a school in political economy, who, like the school of Quesnay and his fellow economists in France, are too plausible in the defence and too zealous in the advancement of their favorite theory, not to have gained a host of proselytes. What influence they may obtain abroad, is of little consequence to us; or certain it is, rather, that the more influence they do exert in Europe, the better they will promote the interests of America. But it is time for us to be vigilant and circumspect, when men and men of letters among us, who deservedly possess great credit in the public mind, profess themselves emulous to pin their faith on the infallibility of Adam Smith. When this becomes apparent, it is evidently time to exhibit the proofs of his fallibility, and of the pernicious effects arising from injudicious application of his theories to practice. . . .
As Americans, also, we are all bound to take exception to his illiberal reflections on the dispute, which led to the revolutionary war, and on our causes of complaint against the mother country.— We have not been sufficiently awake to the mischievous effects of introducing many English writings into our seminaries of education, and of giving credence to their authors on subjects of political economy and politics. —It is a truism to say that our institutions are radically different from the English. Ours are throughout republican, theirs are substantially monarchical. Theirs are the oft-changed remnants of feudal barbarism ; ours are a great political invention, which undergoes its first trial in this country.—And yet we have Blackstone and Paley for our text books in politics, who, whatever may be their excellencies on other accounts, are certainly the bigoted advocates, the courtly apologists, of whatever, in the system of the British government, is corrupt in itself, and most adverse to the genius and principles of our own government.
And so also we take Smith as our magnus Apollo in political economy, the basis of whose theory is, that the country gentlemen, that is, the landed aristocracy, of Britain, are the only class for whose benefit government is instituted, laws enacted, or who deserve the regard of the statesman, and that all the other productive classes, the mechanical, the manufacturing, the mercantile, are a set of sharpers, who have been constantly engaged, ever since the Conquest, in a conspiracy to defraud the simple, innocent, and defenceless country gentlemen, and to impoverish and ruin the country. [AKW: Is this not exactly the Republican / conservative argument in America today, aimed at every social and economic program designed and intended to assist and aid any other than the richest amongst us?] These are strong terms, but they are not stronger than the text warrants. . . Surely it is not for our interest to allow the opinions of our national enemy to acquire a kind of prescriptive authority in the country.—It is not for our interest to place the writings of our national enemy in the hands of our youth, and thus administer, ourselves, poisoned aliment to the lips of the rising generation.
Many persons are accustomed to attribute a sort of oracular authority to Adam Smith, who never attentively perused the Inquiry.—It may not be generally known, therefore, that he takes pains to ridicule our colonial legislatures as little knots of factious rebels; that he sneers at the high minded men, who composed our continental congress, as being upstart shopkeepers and attorneys, animated only with the little pride of becoming provincial dukes and marquises ; and that he stigmatises, with the grossest terms of opprobrium, the master spirits of seventy-six, Washington and Adams, Franklin and Jefferson and their compeers, whose glorious names are and will be the watchword of millions, who shall never dream of the learned Glasgow sage's existence. Americans may not be apprised of these things; but they ought to be, ere they determine to repose implicit reliance upon the opinions of Adam Smith.
The opinions of Adam Smith on this subject, are introduced here, not for the purpose of refuting them, for they do not deserve so much attention; but only to hold them up to the reprobation and indignation of an insulted people.
Let it be holden in remembrance then, that, in treating of colonies, he traduces, in good set phrases, the whole American people.
Let it be remembered, further, that he invidiously represents the metropolis as having sustained wars and heavy expenses for our defence.—Kind mother country ! Ungrateful child !—The colonists come hither as exiles driven by oppression from their native land, the government of which, so far from assisting them to establish settlements here, would scarcely grant half the colonies even the poor boon of a charter. Most of the New England colonies founded their governments without any legal authority so to do.—They fought their own way into consequence, unaided by the metropolis, although but a handful themselves, in the midst of warlike savages.— England took little notice of us until she found out we were thriving and industrious, and rapidly increasing in numbers. Then she graciously condescended to remodel our government, to appoint officers over us, and to receive the monopoly of our trade, authorising us to buy of her, and at her price, any commodity which we had means to buy withal, and to sell our own produce to her at such prices as she chose to give, provided we took especial care to produce nothing which she produced, or which could interfere with her manufactures, and provided we did not attempt to sell to any body else. . . .
Let it be remembered, finally, that [Smith] attributes the war of independence to the intrigues of a few ambitious factionaries, and not to its true cause, the spontaneous throes of a nation resolved to be free.