Archive for May, 2012

The National Low Income Housing Coalition has put together the map above (h/t NYT) that underscores the real impact of inequality in our society. In a sentence, it shows the the rent is too damn high and the wages are too damn low.

In fact, there is no state in the country where a 40-hour minimum-wage worker can affordably rent a two-bedroom apartment (at fair market rent). In fact, in about half the states, even two 40-hour minimum-wage workers can barely afford that. This is why, pre-crisis, many activists focused on the fact that minimum wages are not living wages (and thus, the Democrats successfully raised the minimum wage after taking Congress in 2007). Regardless of that change, the minimum wage is worth less than it was in 1968. The value of the minimum wage over time actually captures the general stagnation of lower-class wages over the last 30-40 years.

And, one personal anecdote on this: when I was at Notre Dame, before I knew much about economics, my big cause was a living wage campaign on campus that turned into a more general pro-labor and pro-union effort. We organized and organized without getting very far, and the recession hit as I was graduating, and so little has happened since. However, what first drew me in was the simple notion that a worker at a Catholic institution (or anywhere for that matter) should be able to support their family working 40 hours. Maybe that is no longer part of the social contract, and we should just focus on employment. When the economy recovers, though, the ranks of the working poor will still be huge.

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Five years ago, Chris Hayes investigated heterodox economics, a small insurgency against a small, but powerful, institution- mainstream economics. His article (which involved an interview with David Ruccio, a frequently reblogged professor of mine) introduced me to this other side of a discipline, during the birthpangs of our economic crisis. In years that have followed, mainstream economics has been somewhat discredited, its veneer of impenetrability cracked. It is thus fitting (at least to me) that Hayes’ excellent new book, Twilight of the Elites, inserts itself into the arena of crumbling institutions, questioning how our society has been shaped from the top down, and how that has been changing.

Hayes begins the book by problematizing the idea of meritocracy, around which American political, economic, and social dialogue revolves. He shows that there is a false distinction between equality of opportunity and equality of outcome, drawing heavily from the example of his alma mater, Hunter High School. At that school, a “merit-based” test reigns, and the wealthy have the means to prepare their children and capitalize on the system. Indeed, the frame of merit serves well the elite, who can make their own opportunity. However, it leads to spiraling marginalization for those with currently poor outcomes.

It is difficult to create a counter-narrative to meritocracy when it is so entrenched in our culture. Instead, Hayes points out that our country has turned against its institutions, reacting with mistrust to the elite’s misdeeds- Enron, Iraq, steroids, and many other scandals (including the crisis) have poisoned Americans against their institutions. Problematically, this mistrust had not led to widespread and populist calls for reform, but has created a vacuum of dialogue in which the elite can more easily manipulate popular opinion.So what about those elite? Hayes’ book is at its best when it opines on the winners of our society. Hayes writes about fractal inequality in which each elite segment has another ladder up an ever-steepening curve of wealth and power, showing how the 1 %, 0.1%, and most especially 0.01% have become driven  to control our society. He draws from C.S. Lewis’ notion of the “inner ring” to show how sociological dynamics create incentives to get ahead, and get ahead, and keep getting ahead, as our rank-obsessed culture continually recreates itself in a nimble and proactive elite.

Digressing briefly, the similarities with mainstream economics are clear. In economics, rank-obsession and fractal inequality encourages seeking success within a narrow window of questions and approaches. Hayes writes about the “cult of smartness” in politics and civil dialogue,  which “can kill independent thought by subtly training people to defer to those people whom one should ‘take seriously.’” Examples like Iraq and the credit rating agencies show the corrupting influence this cult can have. The elites, inevitably, work for each other and themselves, not for society as a whole. Mainstream economics, then, is a cult of smart people using the same tools to answer the same questions, only admitting new members who play by their rules. No economist (however smart) has a real incentive to question this paradigm, even as the institution as a whole has become discredited on the outside. (Hayes also tackles economics a bit, by pointing to Charles Ferguson’s Inside Job, which delves into a very specific manifestation of this corruption.)

Problematically, these perverse sociologies exist throughout our society, and we see the resulting institutional corruption in every micro scandal, as well as in bigger institutions like the US Congress (to which others might add the New York Fed and even the Supreme Court). Our society does not self-correct, as “the people and institutions who benefit most from extreme inequality have outside power to protect their gains from egalitarian incursions.”

What is the solution to these elite conceits? First, the whole notion of “twilight” is that our current elite is too aloof for its own good, and it will naturally engender further crisis of authority. Hayes does not delve into the precise mechanisms by which inequality and and will recreate crisis- it’s beyond the scope of this book. Hayes does think this will continue to foster institutional innovation, using as examples Wikipedia, Occupy Wall Street, and the blogosphere. The book doesn’t get at the “how,” but he affirms that the resistance must directly confront each problematic institution, and continue to do so even in the face of apparent success.

Hayes understands well the slowness of this important work. Because of the secular decline in our institutions, the absence of imminent crisis mitigates but does not remove the need to continually resist them.  A weakness of this book is that it does not point to a narrative that could replace the hold of meritocracy. But, then, it may be that our problem doesn’t have a narrative solution. Instead, the book ends with, “the struggle is ours,” which seems very on point- we aren’t all going to Occupy Wall Street, but each of us has a broken institution to help resist and replace. Any solution to equalize our society will be overdetermined- a combination of blogs, marches, community organizing, cooperatives, and the like. Thus, in lieu of a specific call to action, Hayes carefully has shown that institution by institution, post-meritocratic America is broken. And it is only institution by institution that it will be reformed.

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Mark Thoma eloquently explains why he has not monetized his blogging:

As soon as I start trying to maximize monetary gains rather than maximizing education, it changes the posts  — the incentives are not well aligned. I become shriller, I find myself tempted by things that will attract lots of eyeballs even if they aren’t as solid as they might be, and so on. It changes the posts in ways I don’t want them to change, so it’s best that I leave that temptation lying on the table (though I am far from perfect).

I’ve always liked Thoma because among mainstream economists, he demonstrates an unmatched degree of openness (oh, I don’t mind the occasional link either). Kudos to him for resisting the commodification of his work.

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Rob Johnson at the Institute for New Economic Thinking asks a deep and important question: does the economist serve powerful interests or society?

The answer seems clear-cut. Economists today primarily serve the needs of powerful interests at the expense of society in general.

But why?

To answer this, Johnson peals back the surface of overt corruption to explain how the problem goes far beyond that. It was not that economists were all on the take leading up to the global financial crisis, Johnson says, but that those whose visions aligned with powerful financial interests “were used as marketing vehicles, and they were not adequately skeptical as scientists of what the flaws in their vision might be.”

“The world is always uncertain,” Johnson continues, “so when people become anxious, they want the expert to tell them what is going to happen.” The problem is that these experts don’t shoulder much of the risk of being wrong – or of selling confidence when humility is called for – and it is society that ultimately pays the full price of their deception.

Yet many economists don’t even see the problem. They don’t know – or don’t want to know – that they are selling snake oil and that the abstract precision of their finely tuned mathematical models doesn’t hold up to the many contingencies of the real world.

The solution Johnson proposes resonates with me: change the way economics is taught. Rather than use principles of economics to indoctrinate, use it so study the philosophy of economic science. Help students realize that an interesting and useful economics deals with politics and institutions and power and the good society. Ethics cannot be completely absent from the toolkit of the economist. Otherwise, they end up serving the interests of the powerful at the expense of society.

Then we can get to the real issue that the profession must confront:

Economists. What – and who – are they good for?

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When I picked up Jamie Galbraith’s new book, “Inequality and Instability,” (OUP) I was expecting something pretty simple: a pithy narrative of how inequality in the 2000s destabilized the world economy by forcing demand to grow through a credit bubble. However, Galbraith did waited until the very end to cover that argument. Instead, he spent the majority of the book using inequality as a lens to recast our economic history from the last several decades.

For those seeking a Krugman-esque polemic that weaves together narrative threads on how the crisis happened (as I was), this book may be disappointing. It offers a rich set of essays on inequality that draw from careful work of applied statistics. Galbraith develops a novel approach to dealing with income and wage data for inequality statistics, and then hops around the globe, retelling the stories of regions and countries alike in light of data on inequality. By sector, region, and year, Galbraith shows how countries from Cuba to Argentina to Norway have changed over time.

His data yields rich insights; for example, based on a careful study of US data, he concludes,

There are practically no jobs to be had in the winning sectors…the American economy became leveraged, in such a way that its performance as a whole came to depend on the possibility of a very small number of people becoming very rich in very limited lines of work.

Piketty and Saez have offered data that shows the fractal-like qualities of the entire income distribution, but Galbraith’s data, by sector and region, show that economic geography matters deeply.

Later, writing about Argentina and Brazil, Galbraith finds that

declining inequality in this part of Latin America appears directly linked to a weakening of the political forces that supported neoliberal globalization.

Galbraith’s sector-level view of the economy leads to some key conclusions about finance as well- he finds that finance drives inequality, and as it siphons more and more of total income, its cycles drive employment as well. With these insights in hand, Galbraith does eventually get around to the argument I was waiting for:

The financial crisis…was the consequence of a deliberate effort to sustain a model of economic growth based on inequality that had, in the year 2000, already ended….when the collapse came, it would utterly destroy the financial sector.

Of course, finance’s role in the economy persists heavily, and economists and politicians alike continue to debate its value. What is clear from Galbraith’s work, though, is that growth based on finance will likely not be shared, and thus, not sustained.

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Wonderful article from Colin McSwiggen [ht:eb] which I can totally justify posting on this blog too thanks to class politics:

If chairs are such a dumb idea, how did we get stuck with them? Why does our culture demand that we spend most of every day sitting on objects that hurt us? What the hell happened?

It should be no surprise to readers of Jacobin that the answer lies in class politics. Chairs are about status, power, and control. That’s why we like them. Ask any furniture historian about the origins of the chair and they’ll gleefully tell you that it all started with the throne.

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