Tag Archives: Social economy

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>

Instability, Not Productivity, Is The Economic Problem

By Gerald Holtham – If slow growth is real, what causes it?

I don’t claim to know but it is noticeable that periods of slow productivity growth often follow large macroeconomic shocks. Quite possibly productivity will pick up again as the global economy settles down, just as it did before.

But there’s the rub. The economy needs to avoid another shock. The real concern is that whether it is growing fast or slow the economy has become dangerously unstable and a succession of recessions is quite likely.

The world has found a solution of sorts: make credit cheap. After the dot.com crash and recession of the early 2000s easy money led to an inflation of property prices and massive equity withdrawal that allowed households to increase their spending despite static wages. This was particularly marked in the “Anglosphere” countries. But the property bubble led to a crash of the housing market eventually and a worse recession in 2008/9.

In a world of deficient demand and shortage of “jobs”, all countries want to run an export surplus. Easy money everywhere eliminates the possibility of competitive devaluation – everyone is trying it so no-one can do it. The country that expands its fiscal deficit quickly ends up with a current account deficit. Calls on surplus countries to take their share of the burden of raising demand fall on deaf ears. more>

Online giants must accept responsibility for impacts on the physical world

By Mark Muro, Jacob Whiton, and Sifan Liu – Despite record profits, these are tough times for Big Tech. In 2017, the industry and society each began to realize the full ambiguity of tech’s transformations of the wider world.

To be sure, many of the era’s disconcerting tech-related mega-trends have tangled origins and predate the current “digitalization of everything” quantified in our recent report.

Yet as tech columnist Farhad Manjoo has noted, the rise of the giant tech platforms has now been linked to a long list of troubling developments (along with the creation of much value).

These developments range from such online concerns as fake news, online echo chambers, and addictive product design to broader analog challenges such as the rise of inequality, the hollowing out of the job distribution, and the spread of the gig economy and automation.

Last year, Elise Giannone demonstrated that the divergence of cities’ wages since 1980—after decades of convergence—reflects a mix of technology’s increased rewards to highly skilled tech workers and local industry clustering. 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>

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>

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>

Related>

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>

How Europe became so rich

BOOK REVIEW

A Culture of Growth: Origins of the Modern Economy, Author: Joel Mokyr.
The History of the Decline and Fall of the Roman Empire, Author: Edward Gibbon.

In a time of great powers and empires, just one region of the world experienced extraordinary economic growth. How?
By Joel Mokyr – How and why did the modern world and its unprecedented prosperity begin?

One of the oldest and most persuasive explanations is the long political fragmentation of Europe. For centuries, no ruler had ever been able to unite Europe the way the Mongols and the Mings had united China.

It should be emphasized that Europe’s success was not the result of any inherent superiority of European (much less Christian) culture.

It was rather what is known as a classical emergent property, a complex and unintended outcome of simpler interactions on the whole. The modern European economic miracle was the result of contingent institutional outcomes. It was neither designed nor planned. But it happened, and once it began, it generated a self-reinforcing dynamic of economic progress that made knowledge-driven growth both possible and sustainable.

How did this work? In brief, Europe’s political fragmentation spurred productive competition. It meant that European rulers found themselves competing for the best and most productive intellectuals and artisans. The economic historian Eric L Jones called this ‘the States system’.

The costs of European political division into multiple competing states were substantial: they included almost incessant warfare, protectionism, and other coordination failures. Many scholars now believe, however, that in the long run the benefits of competing states might have been larger than the costs. In particular, the existence of multiple competing states encouraged scientific and technological innovation. more>