Peter Radford on Neoclassical Economics and Ideology

This is one of the best couple of paragraphs I've read on economics (and, indeed, ideology) in a while:

In the very long run there is no doubt, or ought not to be, that a decentralized economy produces better results than a centralized one. It can adapt better. It can innovate better. And it can thus grow better. What it cannot do, necessarily, is to allocate better. Yet, and this is the truly pernicious nature of modern orthodox economics, it is precisely it allocative power that modern theory lauds.  

Why is this? 

If you are trying to build an ideological defense of a particular worldview – in this case that markets ought to be left alone to get on with it – it is prudent to defend its weakest points mostly actively. This is the brilliance of neoclassical economics. Its entire edifice is built around ideas that make it appear as if markets will always outperform alternatives in the allocation of society’s resources. It does this by inventing and deploying specialized uses for common concepts like “efficiency”, and then restricting the set of assumptions used in the theory to ensure that it achieves its goals. Outside of academia most people don’t realize the extraordinary effort needed to distort the real world into conformance with neoclassical theory, they simply accept that, somehow, economists have “proved” the superiority of markets. They accept economics as being a sort of science, and that it has intellectual sincerity or objectivity.

Spot on.  The neoclassical economy's biggest weakness is the allocation of resources.  It turns that into its biggest strength by defining 'allocation' in a way completely contrary to how it should be defined.  Thus its own weakness becomes unthinkable in its own terms.

Philip Mirowski has made similar points and in this quite brilliant lecture he argues that neoliberals too (he distinguishes them from neoclassicals quite radically) are far more smarter than the left often give them credit for.  Their incoherences are an assemblage of great power.

Habit: the flywheel of cognition

William James famously called habit 'the enormous flywheel of society.'  He could also have called it the flywheel of cognition.  Levi Bryant links to a really fascinating article in The Atlantic on a study that shows how 'poverty taxes brains' - that is, poverty deprives people of the habits that permit wealthier people the luxury of saving cognitive energy by not having to think about so many things.

For example, if you have to think (and worry) about where your next meal is going to come from then you will expend enormous cognitive and emotional resources on achieving only that goal.  A wealthier person who can breeze through the supermarket without having to stop to think whether or not they can afford what is in their basket is free to think about other things.  If they are really wealthy they needn't even set foot in the shop, they simply bark 'food!' and it appears before them!

The really important thing to realise, as James did well over a century ago, is that habits run deep.  We are plastic beings.  Our brains are plastic, our habits are plastic.  It isn't just that the rich person saves time by not having to consciously recall how much money is in their bank account and then carefully add up every item in their basket in order to ensure that they are not humiliated when they reach the checkout because they are unable to pay.  It runs much deeper than that.  No, these kinds of practices affect the way we are 'wired' at every level - the aforementioned study focuses, of course, on brains but it is a general truth.

So writes James:

What is so clearly true of the nervous apparatus of animal life can scarcely be otherwise than true of that which ministers to the automatic activity of the mind … Any sequence of mental action which has been frequently repeated tends to perpetuate itself; so that we find ourselves automatically prompted to think, feel, or do what we have been before accustomed to think, feel, or do, under like circumstances, without any consciously formed purpose, or anticipation of results.

Habit is self-perpetuating.  The more that we expend our cognitive energies on survival the less energy we have to expend on other things and, over time, the less we are capable we become of thinking about other things.  The more attuned we become to survival thinking the less attuned we become to anything else.  Habits are plastic - they have a structure that yields but not all at once, as James puts it - and so they can be reversed but only with great effort.  Human being is habitual long before it is 'rational.'  Indeed, rationalities are habitual.

This is at odds with pretty much everything economics and psychology have assumed in the last hundred years - and with the entire disciplinary logic of neoliberalism.  The Atlantic article notes that:

The design of these experiments wasn't particularly groundbreaking, which makes it all the more astounding that we’ve never previously understood this connection between cognition and poverty. “This project, there’s nothing new in it, there’s no new technology, this could have been done years ago,” Shafir says. But the work is the product of the relatively new field of behavioral economics. Previously, cognitive psychologists seldom studied the differences between different socio-economic populations (“a brain is a brain, a head is a head,” Shafir says). Meanwhile, other psychology and economics fields were studying different populations but not cognition.

Behavioural economics is only just catching up with the man who died in 1910.  It's utterly shameful, really.  A brain is not a brain, a head is not a head.  A brain without a body is a dead lump of goo.  A body without all its social accoutrements is a dead lump of flesh and bone.  A human being without its habits is moribund.

Assuming perfect, habit-less rationality of human subjects in order to make your sums add up (as this is what modern economics basically amounts to) is criminal in its absurdity.  Latour (following Callon) is right that economics is a discipline and not a science.

Niall Ferguson's incessant whinging

Niall Ferguson continues his crusade to whinge and cry foul at every left-of-far-right blogger on the Internet.  This time he's summarily swatted away by the Politics Editor of Business Inside, no less.

One final note. In the process of criticizing me, Ferguson writes: "If you are defending someone against a charge of incivility..." I'm going to stop him right there. I'm not defending anybody against a charge of incivility. Paul Krugman is often quite uncivil. I am sometimes uncivil too, for example in this blog post. 

The reason Ferguson wants to talk about civility is that he can't talk about not being full of crap. Ferguson trades on his academic credentials to write popular articles that contain misleading and false claims. His writing causes readers to come away with a worse understanding of the economy than they entered with. He is changing the world for the worse. 

My contention is not that we haven't been uncivil to Ferguson. We definitely have. My contention is that he deserves it.

Well, that's my schadenfreude fix for the day.

Niall Ferguson, the BBC's resident Austerian

Among all the malicious, self-satisfied, self-certain, smug, cretinous hacks to infect our public discourse in recent years Niall Ferguson holds his own against any.

I hesitate to write such words as this is precisely the kind of derision upon which Mr Ferguson thrives. Like all self-righteous, power hungry establishmentarians, the more widely and vehemently he is despised the more he is assured of his own profound, hardnosed acuity. Nevertheless, he truly is such a weasely, unscrupulous shit that there really is no other way of discussing him.

He was made famous by glorifying the British empire before being ushered into the American establishment by virtue of his cheerleading for neoliberal capitalism. He makes a fine living as a tweedy, professorial mouthpiece-for-hire for whatever right-wing, plutonomic, plutocratic meme is doing the rounds. Today he is the man who proves that BBC news has become little more than a cipher for naked, neoliberal, plutonomic interests.

Just as the right-wing austerity agenda is crashing and burning across Europe, both economically and politically, Ferguson has been granted BBC Reith lectures for 2012. From this platform he will preach the Austerian Gospel: government is bad, suffering is good and Europe's tens of millions of unemployed should be grateful.

And so to this article that the BBC have published:
http://www.bbc.co.uk/news/world-18456131

Bill Mitchell has written a far more surgical demolition of Ferguson's article but I will throw in my own two pence worth.

Among all the nonsensical, ignorant, fundamentally wrong ideas that Ferguson could have plucked from the plentifully undead throng of neoliberal dogma – that cornucopia of zombie economics – he has chosen the 'Oh, won't somebody please think of the children?!' meme. Or, more specifically, that we must slash public debt and embrace austerity not because tax cuts benefit the rich, or because selling off state assets for a pittance benefits the rich, or because deflating wages and creating an enormous pool of desperate labour benefits the rich, or because funneling vast quantities of public money into unaccountable bank-casinos benefits the rich, or because eviscerating the middle classes benefits the rich, or because slashing employment regulations benefits the rich, or because crippling inland revenue services benefits the rich, or because facilitating tax avoidance benefits the rich, or because crushing the state's ability to do anything against the wishes of capitalists benefits the rich – none of that, let's be clear; we must slash public debt (via austerity) today because otherwise future generations will be responsible for it instead.

The worst thing about this claim is that, intuitively, it seems correct. If the state is like a big family then if we run up debts and pass these onto our children then we are burdening our children when most of us would rather like to leave our children in credit, leave them an inheritance. Moreover, it seems intuitively correct since it portrays the whole scenario as one of collective guilt; we've all been very bad, we've all had it too good for too long and now it's time to pay the price. Naughty, naughty welfare state. The paternalists and masochists among us find themselves right at home in such a narrative.

Of course, contrary to popular belief, the state is absolutely nothing whatsoever like a big family, especially when you're dealing with a sovereign state that can issue its own currency. And the claim that it's the excesses of the welfare state that got us into this mess is just an outright lie; it's the private debt crisis and the resulting recessions that are the principle cause of the deficit/debt problems.

But let's just consider the economics of the children meme for a moment.

First of all, people forget that debt is only an outgoing expense from the debtor's point of view; from the creditor's point of view it is an income and an asset. A family in debt owes that debt to persons outside the family, therefore the family as a whole is a debtor. If the debt was owed internally, between the family members themselves, then each family member's debt would be the income of another family member and therefore the family may not be a debtor overall at all. This is much more like the situation with the state. Much of the debt is not, in fact, a liability at all; it is an asset that can be relied on for future revenue, both in terms of private income and consequent spending and in terms of taxation.

Secondly, state spending doesn't just evaporate into thin air. The children meme suggests that we're all kicking back and living it up today and having our children foot the bill, whereas what's really happening with most state spending is that it creates and maintains the very institutions and infrastructure that allow our children to have any kind of life at all. If we've borrowed from future growth to fund present day investment then all we've really done is borrowed from our children's adulthood to pay for their education, security and welfare when they're still children (and making it at least possible that they'll find jobs when they leave school). Hardly a tale of uncaring, selfish hedonism.

Thirdly, debt levels have been much higher in real terms. The British state managed to fund its twentieth-century wars with a far higher debt burden than today without turning into Weimar Germany. Of course, the kind of productive activity resulting from total warfare isn't strictly comparable to peacetime but nevertheless debts and budget deficits has been much higher in this country in real terms historically and, of course, are higher contemporaneously in other countries such as Japan too. In all cases mass unemployment and its associated miseries have been avoided. Japan, said for fifteen years to be on the brink of hyper-inflation and collapse by Ferguson and his ilk, continues to afford its citizens a very high standard of living. Not an economically perfect model but not Greece either.

There are many more economic fallacies embedded in the children meme but you get the idea.

You've got to hand it to Ferguson, he is as brass-necked as they come. To earnestly and unabashedly endorse austerity in the name of tens of millions of unemployed, young Europeans is jaw droppingly brazen. It's difficult to believe that such claims are made sincerely, although it doesn’t really matter if he honestly believes this stuff or not.

50% youth unemployment isn't just a 'hard price' that must be paid for the common good – it's a crime the social and economic destructiveness of which will be felt for generations. To not only endorse these crimes but to do so in the name of those who they harm most egregiously is not only ridiculous, it is profoundly offensive.

The brand of economics that Ferguson endorses is discredited more and more every day. The political maelstrom that their failure has inevitably lead to has barely gotten going but it has already taken down governments and brought the Euro to the brink on more than one occasion.

Ferguson begins his article by expressing concern for "Western democracy" – precisely the institution threatened by his agenda. He speaks of renewing "the social contract" between generations when really his whole ideology is about severing all social ties wheresoever they occur. The plutocratic agenda is actively hostile to democracy. When it isn’t installing technocrats in Italy it’s interfering in the Greek elections by fear mongering about the consequences of a leftist victory. It’s an agenda that shreds every kind of social tie, understands human beings as nothing but selfish individuals and justifies individual wealth and individual destitution as nothing more than the results of differing individual worth.

What Ferguson wants is a democracy where the vast majority of people consistently vote against their own interests. The only social contract Ferguson wants is the kind that justifies destroying the prospects of generations of young people all for the sake of some expansionary fiscal contraction that won’t ever happen.

Like all tyrannical regimes the neoliberal one wants everything its own way – it wants to break public institutions and then complain when they don’t work properly; it wants to act against the vast majority’s interests but still enjoy the vast majority’s support; it wants to destroy everything and be thanked for it afterwards.

We don’t need Ferguson’s zombie democracy whose citizens are so deafened by the din of wall-to-wall propaganda that they’ll vote for whichever party they despise the least. We need social democracy. We need to say that the welfare state remains both necessary and possible. We need to celebrate this, the single most productive vessel of human betterment ever conceived. We need to say that the welfare state’s best days are ahead of us, not behind.

A democracy that is not a social democracy is a contradiction in terms. There can be no meaningful political enfranchisement without social solidarity and vice-versa. Ferguson's 'social contract' is a farce; an excuse to shred society still further by playing the old and the young off against each other when, in fact, they are the ones most affected by Ferguson's agenda, when it is they who should be uniting against his clamourous, lecturing newspeak.

Taking a step back, by way of conclusion, what does the existence of this argument tell us? It tells us, firstly, that no claim is so stupid, baseless or corrupted as not to be enthusiastically expounded by our cherished media institutions if it benefits the rich and powerful. But it also tells us, secondly, that the rich and powerful need these lies. Why not just be honest? Why not just say 'We're going to shred the social safety net and claim all the power and wealth for ourselves. Why? Because we want to and don't give a damn about you or your needs.'?

This is the one weakness of the powerful: they have to maintain the pretence that the way things are is the best way for all of us. They have to do this even when all of the evidence clearly states the contrary and where the whole edifice is crumbling and collapsing all around us. They need would-be Atlases like Ferguson to prop up the un-prop-upable. If they are ever forced to admit the brutality of their naked self-interest then their rule will be exposed for what it is -- and their days just might be numbered.