After neoliberalism?

My journey back yesterday from the Royal Economic Society annual conference in Manchester was delayed for ages because some poor soul had thrown themselves under a train along the line. At least I managed to finish The Rise and Fall of Neoliberal Capitalism by David Kotz.

I’m a bit allergic to the word ‘neoliberal’, probably because it’s so often used as generic and blanket abuse of (among other things) all of economics. I’ve been accused of neoliberalism myself (to which the only sensible response is that the accuser needs to get out more if they think I’m an ideologue…..)

Certainly Kotz signals his own ideological views by using the term as his descriptor of American capitalism, but he does have a far more precise and meaningful definition than is the norm. He defines it as a specific “social structure of accumulation”, a “particular configuration of economic and political institutions, as well as dominant economic theories and ideas.” This is interesting, and I buy the general approach – it’s similar to (for example) Michael Best’s use of the concept of “production systems” in The New Competitive Advantage, but ranging wider beyond the economic institutions of production.

Kotz sees the 1950s and 60s as a golden age of ‘regulated capitalism’ with strong unions and well-paid jobs for (male) breadwinners. He accepts that it had its own crisis, with sustained declines in profitability through the 1970s. Hence the scope for the arrival of ‘neoliberal capitalism’ from 1979/81 with Thatcher and Reagan.

Much of the book describes the development of the ‘neoliberal’ system after that turning point in terms of the broad outlines of the US economy – profit rates and shares, declining union membership, stagnant median real wages, the rise in household indebtedness etc. It does not cover globalisation to any great extent, which seems an important omission, nor does it mention technology or environmental sustainability at all, so the prism is quite narrow. Deindustrialisation is described more in terms of an attack on organised labour than the consequence of several deeper economic trends. However, the book’s analysis of the 2008 crisis in terms of the preceding financial bubble, and the way consumption was supported by debt, is surely not controversial.

Kotz does mention the role of ideas in economic theory and – more important in the long term – political received wisdom (the theory has moved on, but the policy world view far less so). He describes neoliberal ideology as “very strong” – clear, simple, apparently logical. Daniel Stedman-Jones’s Masters of the Universe gives a much fuller account of the effort it took to cement the ideology over a number of decades prior to 1979, and highlights how much organisation it will take to change the prevailing world view. For I think this is a question of political and social organisation more than one of economic or political theorising.

Kotz argues here that the US and by extension the western economic system is in a state of crisis that will give way to a new “social structure of accumulation” whose shape is yet to be determined – it could be a revived neoliberal system. It will not be his preferred socialist system without a broad social movement, as at moments of crisis in the past such as 1945.

I would agree with Kotz that the prevailing production system or social structure is in crisis, but would emphasise more the fundamental role of technology and globalization. Not that a class-based perspective isn’t important. He concludes: “The path that will be followed in the years ahead cannot be predicted …. The economic changes – or lack of changes – that lie ahead will be the outcome of struggles among various groups and classes in the coming years, which will occur in the realm of ideas, politics and culture.” And surely the realm of the work place, public space and policy corridors too?

So all in all, I agreed with quite a lot of the analysis here while thinking it an incomplete picture. Still, the book irked me, no doubt because of my allergy to ‘neoliberalism’, along with its slightly plodding style. Reading it did feel a bit like being in a political meeting where you are washed over by a wave of abstract nouns. I know economists are on average pretty clunky writers so one should be used to it, but I did nod off over the book as my train trundled veeeery slowly through the countryside.

I wonder what Professor Kotz would have thought of the arrangement at dinner at the Royal Economic Society conference. There were two options for each course, and staff served each one to alternating places at the table. If you preferred the other, you had to exchange. Perfectly efficient and logical – surely only an economist could have thought of it? I’m tempted to do this every time I invite people round for a meal in future, unless that would be a bit neoliberal.

Instructions at the bottom - side payments not ruled out.

Instructions at the bottom – side payments not ruled out.

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Economists? Hubris? Surely not?

The title of Meghnad Desai’s new book, Hubris, had led me to expect a jeremiad about the failings of economics, with a faint feeling of resignation. Not that the charges are (all) undeserved, just that it’s become rather familiar. However, my expectations were confounded. The book is a very accessible and clear history of macroeconomic thought, seen from the perspective of what economists have done over the decades – what ideas, what models they have used. It makes an excellent follow-on companion to Tim Harford’s The Undercover Economist Strikes Back, being a bit less general, and introducing more economic terminology and verbal (largely) descriptions of models.

A lot of the material covers territory that will be familiar to professional economists, but it is set in the context of how macroeconomics got itself into the position of being not only unsuccessful at predicting the financial crisis but literally unable to do so. Macro models excluded the logical possibility of sustained and serious disequilibrium. Desai also includes some economists who are not part of the usual story, for reasons that become apparent in the final section of the book. Marx and Hayek of course, but also Kondratiev, Wicksell, Richard Goodwin. (I’d never heard of Goodwin – he provided a mathematical, ecology-inspired model of the wage share.)The book explains how alternative views came to be not even attacked, simply ignored, in modern macro. It includes a section on Keynes and the reinterpretation and reinvention and finally co-opting of ‘Keynes’ over the years

The final section sets out briefly Lord Desai’s own framework for macroeconomics. He sees the evolution of the economy in the aggregate as the outcome of a disequilibrium process, with Kondratiev cycles driven by demography and technology and shorter “class struggle” cycles of changing labour and profit shares superimposed, in the context of a globalised economy. This is clearly more realistic than some of the DSGE macro models that are clinging on to life, albeit less useful for forecasting.

The long wave perspective is quite interesting and plausible. One other point that I wholly agree with is the narrowness of traditional macro models in their nation by nation focus: “National income data began to be estimated and published in a small way in the 1930s. After the war and thanks to the Keynesian revolution, national income measurement became a pivotal tool of policy making … This has shaped the themes and strategies of research in macroeconomics. New classical macroeconomics has been very much concerned with analyzing US time series. … The older tradition had less accurate data but it’s vision was systematically global rather than inter-country.”

The book also, rather gloomily, sees the world as being at the start of a long wave downturn, in for a structural version of secular stagnation, with decades of falling prices ahead. “Could the global economy  repeat the 19th century’s experience of the Great Depression of 1873-96.”

I’m not so gloomy but this might be possible. It would anyway make enormous sense for macroeconomists to link their work with growth theory and thinking about innovation, including work on long cycles such as Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlotta Perez. Mind you there are lots of things it would be sensible for macroeconomists to do, but the hubris lingers on.

The man of the system

I’ve started reading Hubris: Why economists failed to predict the crisis and how to avoid the next one, by Meghnad Desai. It has this great quotation I’d forgotten (some time since I read it) from Adam Smith’s Theory of Moral Sentiments:

“The man of the system …. seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it.”

Echoes, too, of the fabulous Seeing Like A State by James Scott.

   

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Not-so-green economics

I’ve been mulling over some statements in The Container Principle by Alexander Klose. He says logistics has become the “third largest sector of the economy”. That in Germany 10% of energy use is accounted for by data centres – and that there are more than 5 million worldwide, whose CO2 emissions (from their production and use) is approaching those of global air traffic.

A modest amount of rooting around online hasn’t enabled me to verify these rather eye-opening facts, if they’re correct. Does anybody know of sources for such figures? (This Scientific American article reports some signs of decoupling of CO2 emissions from growth in the aggregate; prior to 2000, the energy-intensity of GDP growth had apparently been declining.)

 

Shipping containers redux

Regular readers will know of my interest in shipping containers. It pre-dated Marc Levinson’s excellent The Box.In fact it must date back a long way – one of my favourite TV series when young was The Onedin Line.

Recently I’ve been following these Postcards from a Supply Chain, and also read Rose George’s Deep Sea and Foreign Going (which I reviewed here). The latest in this genre is The Container Principle: How a Box Changes the Way We Think by Alexander Klose.

A collection of essays, this touches on the history of the industry and the economics of transportation and trade. But it is more concerned with the wider question of the cultural impact of containerisation. “Containers play as decisive a role in the organization of people, programs, and information as they do in that of goods,” writes Klose. “They not only physically appear in every imaginable place in the city (such as subway stops and airports) and in rural areas, they also appear in such cultural domains as architecture and urban planning, psychology, philosophy, pedagogy, business administration, communications and information, film, television, theatre and art.”

And cliches. Thinking outside the box, anyone?

There are chapters that riff on various aspects of containers, of which my favourite was the one about logistics, which is largely historical. Klose argues that modernity has a logistical logical structure, making the shipping container its “most successful material object to date…. Containerization is a prevailing cultural technology of the 20th and early 21st century.” I think I buy that argument. The book has lots of fantastic illustrations. It suffers a little from critical/media studies-speak but only a little, and more than makes up for it by bringing a different lens to this very familiar object.