Tag Archives: Leadership

Can capitalism be saved from itself?

By Homi Kharas – 2018 may yet turn out to be the year when a great battle of ideas takes place between those who argue for unfettered markets and those who would try to save capitalism from itself.

The first battle is about getting prices right. Capitalism is a great engine, but the road it takes is signposted by prices.

Get the prices wrong and the engine moves fast but in the wrong direction. And, going into 2018, many prices are wrong.

A few examples: the price of carbon, the price of dumping plastic into oceans, and the price of unpaid family care. As a broad proposition, there is a paradox in our system; in most countries, labor is taxed and fossil fuels are subsidized, while politicians and citizens in these countries insist they want more jobs and less pollution. With carbon emissions rising to record levels and employment rates falling, the price distortions are taking a toll.

In 2017 alone, natural disasters cost America $306 billion—almost equal to what economic growth last year added to GDP ($364 billion).

The second battle is around competition. Capitalism delivers for society as a whole when there is strong competition. It delivers for individual companies and their shareholders when competition is weak.

Today’s economies are seeing more concentration. In the U.S., 75 percent of industries have become more concentrated over the past two decades, generating abnormal returns. With more companies enjoying economic rents from patent and copyright returns, competition is becoming harder to achieve and winner-take-all companies are emerging.

Individual countries are unlikely to drive systemic change—this is a case where collective action on a negotiated path forward is most desirable. Yet wholesale change is also the least likely scenario. more>

The real Adam Smith

By Paul Sagar – If you’ve heard of one economist, it’s likely to be Adam Smith. He’s the best-known of all economists, and is typically hailed as the founding father of the dismal science itself.

As he put it in The Wealth of Nations: ‘People of the same trade seldom meet together, even for merriment and diversion but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.’

The merchants had spent centuries securing their position of unfair advantage. In particular, they had invented and propagated the doctrine of ‘the balance of trade’, and had succeeded in elevating it into the received wisdom of the age.

The basic idea was that each nation’s wealth consisted in the amount of gold that it held. Playing on this idea, the merchants claimed that, in order to get rich, a nation had to export as much, and import as little, as possible, thus maintaining a ‘favorable’ balance. They then presented themselves as servants of the public by offering to run state-backed monopolies that would limit the inflow, and maximize the outflow, of goods, and therefore of gold.

But as Smith’s lengthy analysis showed, this was pure hokum: what were needed instead were open trading arrangements, so that productivity could increase generally, and collective wealth would grow for the benefit of all.

When he argued that markets worked remarkably efficiently – because, although each individual ‘intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention’ – this was an appeal to free individuals from the constraints imposed upon them by the monopolies that the merchants had established, and were using state power to uphold. The invisible hand was originally invoked not to draw attention to the problem of state intervention, but of state capture. more>

Inside the growing backlash against China

By Peter Marino – The strategic environment in which China’s “lay low” approach to international affairs has helped to make it the world’s second-largest economy is changing – and a broader backlash against China is beginning.

The global conditions that favored China’s rise began at the end of the Cold War. With the fall of the Soviet Union, the West in general and the United States in particular were eager to bring additional countries into the world order they felt they had created. Throughout the 1990s, faith in the liberalizing power of commerce, and in Francis Fukuyama’s thesis that the West’s triumph over Soviet socialism heralded the “End of History,” was at its height. As a consequence, concerns about China’s autocratic model were largely shelved in Western capitals.

The United States in particular pushed for China’s accession to the World Trade Organization, which ultimately served as an inflection point in China’s economic growth.

While this was happening, Beijing played its hand skillfully. Deng Xiaopin advocated avoiding flashy shows of power in order to shield Chinese efforts from outside scrutiny while the country wasn’t positioned to handle them properly.

The last five years upended nearly all of this in very short order. Indirect diplomatic suggestions have been swapped for attention-grabbing proposals, strategic ambiguity has been abandoned for international military bases, high-profile drills, showy parades and standoffs with neighboring countries. Fueled by large state-subsidized loans, large Chinese firms were sent on international buying binges.

Modern China has never faced simultaneous suspicion of its motives and objectives in both the West and the developing world. Beijing’s diplomats are more experienced at sidestepping or deflecting critics than at engaging them, and the party’s domestic politics demand a near-absolute protection of “core interests.” This does not bode well for a country that will have to start addressing legitimate diplomatic concerns around the world. more>

Economics is quantum

BOOK REVIEW

The Money Formula: Dodgy Finance, Pseudo-Science, and How Mathematicians Took Over the Markets, Author: David Orrell.
Quantum Mind and Social Science, Author: Alexander Wendt.
Laws of Media: The New Science, Author: Marshall McLuhan.

Money and brains are both quantum phenomena – so it’s not surprising that economics is overdue for a quantum revolution
By David Orrell – In recent years there have been many calls for economics to reinvent itself, most noticeably from student groups such as the Post-Crash Economics Society, and Rethinking Economics. In 2017, the United Kingdom’s Economic and Social Research Council announced that it was setting up a network of experts from outside economics whose task it would be to ‘revolutionize’ the field. And there have been countless books on the topic, including my own Economyths (2010), which called for just such an intervention by non-economists.

But progress has been slow.

One problem is that, while there have been many demands for a revolution, the exact nature of the revolution is less clear. Critics agree that the foundations of economics are rotten, but there are different views on what should be built in its place.

But what if the problems with economics run even deeper?

What if the traditional approach has hit a wall, and the field needs to be completely reinvented?

What if, as with 19th-century physics, the problem comes down to ontology – our entire way of thinking and talking about the economy? more>

Donald Trump and the Rule of Law

By Jeffrey Toobin – Richard Nixon earned eternal disgrace for keeping a list of his political enemies, but he, at least, was ashamed enough of the practice to know that he had to keep it secret. Trump, in contrast, is openly calling for the Department of Justice, which he controls, to put his political opponents in jail.

This kind of behavior is a trademark of the authoritarians he admires, like Vladimir Putin and Recep Tayyip Erdoğan.

Trump’s contempt for the rule of law infects his entire Administration, as illustrated by Jeff Sessions’s newly announced guidance on marijuana policy.

Under the new policy, in much of the country federal marijuana enforcement will be run by officials who are only accountable to Sessions and Trump, not to the broader public.

Senators have a right to ask prospective U.S. Attorneys how they plan to enforce federal law on marijuana, and, of course, the legislators have the right to vote these officials down if they don’t like their answers. But Sessions has installed acting U.S. Attorneys in much of the country—including in such high-profile locations as Manhattan and Los Angeles—and senators can’t exert any oversight of them.

This gesture of contempt for the Senate’s role in confirmations is reflected well beyond the Justice Department. Throughout the government, Trump has nominated many fewer officials to Senate-confirmed positions than his predecessors; instead, Cabinet secretaries have filled these crucial positions with acting or temporary officials who avoid scrutiny from senators. more>

Clicker Games, Capitalism, and the End of Work

By Glenn Dixon – At first, the games seem to have been designed to reward piano students who are adept at trilling on their touchpads, but automation soon takes over, as the repetitive labor of clicking is replaced by the work of bots that do the making and selling for you. These bots are often given the names of properties, as though merely owning a factory causes work to be done in it.

In Clicking Bad, for example, once you’ve clicked your way to selling $20 of meth, you can buy a Storage Shed, which cooks a batch every five seconds—without requiring you to click at all. On the distribution side, you can acquire a Drug Mule, and eventually a Drug Van—just like that, you’ve moved from labor to management. You’re a budding capitalist, making meth so you can sell it to buy the means to make even more meth. Your scrappy start-up is on its way to becoming a corporate powerhouse.

We also increasingly live under a government of Web platforms, where programmers and business-people with a laggard understanding of ethics, social responsibility, and what constitutes a desirable way of life are making unlegislated decisions about the elimination of entire industries.

Digital entrepreneurs and the coder-bots who work for them are playing their own clicker games with the world, and we are often the collateral damage in their unending quest for wealth.

Our society is allowing its wealth to concentrate in the holdings of a few powerful companies like Apple and Facebook, because the games are playing us. more>

We’re witnessing the wholesale looting of America

By Matthew Yglesias – Over the course of 2017, both in Congress and in the executive branch, we have watched the task of government devolve into the full-scale looting of America.

Politicians are making decisions to enrich their donors — and at times themselves personally — with a reckless disregard for any kind of objective policy analysis or consideration of public opinion.

Members of Congress who under other circumstances might be constrained by shame, custom, or the will of their constituents have learned from Trump’s election that you can get away with more than we used to think.

Norm erosion is real, and it matters. Economists Daron Acemoglu and Matthew Jackson of MIT and Stanford have written about how rules are only effective when they are backed up by social norms “because detection relies, at least in part, on whistle-blowing.” Their Spanish colleague Patricia Funk emphasizes that in a variety of contexts, “the strength of the social norm of ‘not committing a crime’ is shaped by social interactions.”

These scholars are all considering deep, long-lasting differences in cultural norms, but we also know from experience that norms can sometimes shift dramatically in unusual circumstances.

The country is left only to hope that it doesn’t last too long. more>

Updates from Chicago Booth

Never mind the 1 percent Let’s talk about the 0.01 percent
By Howard R. Gold – Since the Great Recession, America’s wealthiest 1 percent have been demonized as fat cats who have grown ever richer while the middle class has stagnated. While protesters have called for the 1 percent to be taxed more heavily, economists have been digging into data to develop a better understanding of who the top earners are.

These economists have been seeking to measure income inequality and wealth inequality, and to understand the nature of the 1 percent’s income and assets.

But the data also reveal disparities within the 1 percent. The 1 percent, it turns out, have their own 1 percent. more>

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21st-century Marx

By Terrell Carver – Both Stalin and Mao had helpfully provided ‘official’ accounts of Marx’s thought – with due acknowledgement to his very influential friend Friedrich Engels – and there were committed intellectuals on both sides who were more than fluent in the relevant arcana of ‘dialectical’ and ‘historical’ materialism.

Significantly, the ‘humanist Marx’ had raised the question of economics, though not in the way that 20th-century economists had made familiar, whether they were conventional micro- or macro-economists, or Marxist economists in Moscow or Cambridge. The former ‘mainstream’ economists overwhelmingly ignored Marx and dismissed Marxist economics as politically biased and lacking in rigor; meanwhile, scholars and apparatchiks well-versed in Marxist economics despised ‘mainstream’ economists as uncritical proponents of capitalism. But both sides shared many presumptions and concepts nonetheless in theorizing capitalism.

Refreshingly, the ‘humanist Marx’ had set the stage for an examination of capitalist society in ways that bypassed all these efforts in economics, of whichever opposing camp. ‘Alienation’ was neither economics nor Marxist, so it suited the New Left of the 1960s. more>

Ignoring the Will of the People

By Susan Milligan – The $1.5 trillion tax bill, hailed with glee and relief by Republicans eager to appease donors and desperate for the year’s first major legislative win, is the most unpopular major piece of legislation to pass in decades.

“It has a lot to do with money,” says Lee Miringoff, director of the nonpartisan Marist Institute for Public Opinion in Poughkeepsie, New York, pointing to the “Citizens United” Supreme Court case which allowed corporations and interest groups to spend massive amounts of money to influence elections.

“We see the tremendous impact of the lobby community in the tax bill. Lobbying interests were very much dominant in drafting and creating this approach.” And that means public opinion, so painstakingly quantified by pollsters candidates themselves hire, is often disregarded.

On several major issues in the news, the views of the public at large appear to have no effect on Congress.

As for the tax bill, “the Republicans are betting that by the time people realize what a turkey this bill is, it will be somebody else’s problem,” Stan Collender says. And that problem may be dumped onto the tax bill-hating Democrats, should they succeed in wresting control of Congress. more>