Archive for July 2nd, 2009

The Real World Economics Review has just released Crash: Why It Happened and What to Do About It, an ebook of articles previously published in RWER. The collection endeavors to diagnose the current crisis and prescribe future policies. From editor Edward Fullbrooke’s introduction:

Today in many countries, especially the US and UK, the neoclassical-neoliberal mainstream is so institutionally entrenched that there exists the danger that its faithful, instead of working to disabuse themselves of the illusions that facilitated the global disaster, will put their efforts to shielding themselves from the guilt and shame that rightly they should bear.  With few exceptions, several of whom are contributors to this book, economists, no less than men-in-the-street, remained silently oblivious to the approaching financial collapse and the human loss that follows.  Even now the profession’s upper orders exhibit no inclination to subject the antecedents of the recent events to a rigorous and, most important, irreverent analysis.  But only if we, like the Chinese, can find the intellectual courage to forgo the beatitudes of Economics 101, can we hope to approach the truth of why it happened and how it can be prevented from happening again.

Definitely on target, I think. Looking through the contents and browsing the articles, I am seeing some familiar names: Dean Baker, Jamie Galbraith, even George Soros.

Nevertheless, something is a bit unsettling about this ebook, which of course I haven’t had time to read thoroughly. It seems that most of the contributors are still addressing this crisis as a financial one, not an economic one. It is an important distinction. The financial crisis arguments focus on lack of regulation, housing bubbles, and so on and so forth. Nowhere in this collection of arguments do we find the Wolff argument, which calls this an economic crisis rooted in the basic capitalist structure of the economy.

It would be unsurprising to see a mainstream/neo-classical approach to the crisis unfold on the financial terms, as outlined in this book, but I expected RWER to be more open to the Marxian and radical political economy points of view. Color me somewhat disappointed. At the same time, there are some pretty good approaches to the enabling financial aspects of the crisis, which I will certainly spend more time reading, so don’t think I’m dismissing this collection.


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Daniel Little has a post about Karl Polanyi and his view of economic and social behavior. Read the whole thing. In case you won’t, I’ll quote the key points (but not the Polanyi itself, so again, go read it):

Polanyi maintains that the concept of economic rationality is a very specific historical construct that applies chiefly to the forms of market society that emerged in Western Europe in the early modern period…

Thus Polanyi maintains that it is socially motivated behavior — behavior motivated toward the interests of one’s family, clan, or village” — rather than self-interested behavior that is “natural” for human beings; rational self-interest is rather a feature of a highly specific society: market society…

In place of economic rationality and the market mechanism providing the basis for organization of the premarket economy, Polanyi argues that communitarian patterns of organization are to be found in a range of traditional societies…

Finally, Polanyi identifies the same element of materialist rationality in common among neoclassical political economists and Marx. Polanyi argues that Marxism analyzes the historical process in terms of individual self-interest, conceived largely in terms of material well-being…

What kind of theory is this? And how should it be evaluated?

First, it is a hypothesis in historical sociology about institutions. Polanyi is asserting that history and ethnography provide a wealth of variety of fundamental economic and social institutions. Market institutions are historically specific…[and] themselves show substantial variation across time and place. That said — trade, artisanship, commodities, and production for the market appear to be activities that have very ancient roots in human societies. These kinds of economic exchanges are well documented in ancient China, Europe, and the Americas, and we can understand very well how they would emerge again and again out of ordinary human activity and interaction. So markets are surely not the nearly unique historical creation that Polanyi maintains them to be. Moreover, we can distinguish among “market” institutions (as Marx and Weber both do) according to whether they are organized around use or around accumulation; consumption or profit. (A neo-Polanyian might put forward a more limited claim: a market system aimed at accumulation is a historically recent institution.)…

Second is a hypothesis about “human nature”. Polanyi takes issue with a vulgar economism, according to which the most fundamental human motivation is rational self-interest. On the contrary, Polanyi maintains, this social psychology of “possessive individualism”…is itself a very specific historical product — not a permanent feature of human nature. In fact, Polanyi goes a step further and argues that the “social motivations” are more fundamental than rational self-interest. But here again, it seems likely that Polanyi puts his case much more absolutely than is justified…

How should Polanyi’s theory be assessed? […] So Polanyi’s black-and-white distinction between the past — communitarian and social — and the present — egoistic and market-driven — is too stark.

But at the same time, Polanyi’s guiding intuition seems correct: human social behavior is influenced by more than simple self-interest, and human institutions are more varied than the vocabulary of the market would suggest. Human deliberativeness and purposiveness goes beyond maximizing rationality; it includes a broad range of “social” motivations and emotions. And a more adequate social psychology requires that we arrive at a better understanding of the motives that underlie cooperation and reciprocity.

Obviously Little is writing from the point of view of a sociologist, not an economist. However, I still think one would be remiss to leave that last sentence I quote- about the “better understanding”- and not tie it back to Polanyi’s key idea, that of market embeddedness. For political economists, that is the key takeaway from Polanyi, that the market is embedded in society. Thus, any attempts to remove it from society (think neoloberalism) are utopian and bound for failure. While sociologists and anthropologists and others will undoubtedly find use in Little’s takeaway from Polanyi, as they should, policy makers and economists would be well served to take heed of the embeddedness concept.

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