Word

This has been said before, many times, in fact, but Zach Ward-Perkins and Joe Earle say it again because economists and their paymasters cannot learn from their past mistakes:

Every year thousands of economics graduates take jobs in the City, thinktanks and at the heart of government itself. Economics is highly technical and often mathematical, and this elevates economists to a position of expertise from which they mediate economic analysis to the British public. They are the guardians of our economy, charged with its upkeep, and they play an important role in shaping political narratives around economics. Yet British universities are producing economics graduates who are not fit for this purpose.

The financial crisis represents the ultimate failure of this education system and of the academic discipline as a whole. Economics education is dominated by neoclassical economics, which tries to understand the economy through modelling individual agents. Firms, consumers and politicians face clear choices under conditions of scarcity, and must allocate their resources in order to satisfy their preferences. Different agents meet through a market, where the mathematical formulae that characterise their behaviour interact to produce an “equilibrium”. The theory emphasises the need for micro-foundations, which is a technical term for basing your model of the whole economy on extrapolating from individual behaviour.

Economists using this mainstream economic theory failed to predict the crisis spectacularly. Even the Queen asked professors at LSE why nobody saw it coming. Now five years on, after a bank bailout costing hundreds of billions, unemployment peaking at 2.7 million and plummeting wages, economics syllabuses remain unchanged.

Catastrophes such as this are what one necessarily encounters when the mote remains in one’s eye.

Solidarity during the austere age

Aditya Chakrabortty, writing for the Guardian, considered Sweden’s recent and surprising troubles:

More than 20 cars torched in one night. School classrooms gutted by fire. Fifty far-right extremists chasing immigrants around a suburb.

You probably haven’t seen much about it in the papers, but for the past week Sweden has been racked by rioting. The violence began in a suburb of Stockholm, Husby, and spread around the capital’s edge before other cities went up in flames. Police have been pelted with stones; neighbourhoods have turned into no-go areas, even for ambulances. Such prolonged unrest is remarkable for Stockholm, as those few reporters sent to cover it have observed. Naturally enough, each article has wound up asking: why here?

It’s a good question. Don’t surveys repeatedly show Sweden as one of the happiest countries (certainly a damn sight cheerier than Britain)? Isn’t it famous for its equality, its warm welcome to immigrants? Whatever happened to Stockholm, capital of progressivism, the Mecca towards which Guardianistas face for their daily five minutes of mindfulness?

We all know the cliches, but the reality is they no longer fit the country so well. Whether it’s on the wealth gap, or welfare, or public services, Sweden is less “Swedish” than it has ever been. As in other continental capitals, the Stockholm version of the “European social model” is an increasingly tattered thing, albeit still appealed to by the political elites and still resonant in the popular culture. But the country seized by turbulence last week is becoming polarised, and is surrendering more of its public services over to private businesses (sometimes with disastrous effects). Those riot-scene correspondents ought not to be asking: why here? A better question, surely, is: if such instability can happen here, what might unfold elsewhere — including Britain?

Rioting has occurred in other OECD countries. Most notably, they took place in Austria, Britain, France, Germany, Greece, Spain and Turkey since the onset of the Great Recession. The United States also produced the peaceful Occupy Movement, which the various governmental bodies suppressed with rioting police forces. The causes of unrest are the same across Europe and in the United States: Growing inequality, social polarization, austerity and, in some instances, economic stagnation. Sweden is a special case, as Chakrabortty avers. Its welfare state was notable for its commitment to collective security and to economic growth. The Swedish economy continues to grow. But the Swedes are slowly jettisoning their commitment to collective security, to solidarity. This is when the authorities need the police to keep order. This is when the democratic class struggle becomes class warfare.

V.J. Prashad interview on the Occupy Movement’s first anniversary

Stating the obvious

Robert Reich talks to the establishment:

The 5 percent of Americans with the highest incomes now account for 37 percent of all consumer purchases, according to the latest research from Moody’s Analytics. That should come as no surprise. Our society has become more and more unequal.

When so much income goes to the top, the middle class doesn’t have enough purchasing power to keep the economy going without sinking ever more deeply into debt — which, as we’ve seen, ends badly. An economy so dependent on the spending of a few is also prone to great booms and busts. The rich splurge and speculate when their savings are doing well. But when the values of their assets tumble, they pull back. That can lead to wild gyrations. Sound familiar?

The economy won’t really bounce back until America’s surge toward inequality is reversed. Even if by some miracle President Obama gets support for a second big stimulus while Ben S. Bernanke’s Fed keeps interest rates near zero, neither will do the trick without a middle class capable of spending. Pump-priming works only when a well contains enough water.

I agree with Reich. Economic and political conditions in the United States have squeezed the middle class. Yet it is not just the middle class that lacks the economic resources needed to pull the economy out of its stagnant state. The working class also lacks these resources while the size of the underclass — composed of the permanently un- and under-employed — grows in step with the real rate of unemployment. Gross inequality, like high-unemployment and low-wages, marks the steady-state of the current economic regime. This situation ought to be a political problem. But is it? No, it is not. It clearly is not because we have seen the Washington elite respond to this steady-state by reaffirming neoliberal verities. Their response has amounted to affirming the constraints which now limit aggregate demand. The elite have chosen economic stagnation and all that that choice entails.

One might judge the elite response incompetent if, firstly, one believed a competent response would have included a large stimulus and an effort to take wealth from the rich and give that wealth to the poor and if, secondly, one believed the elite in general would affirm an effective program to increase aggregate demand. Why should we accept the second condition as true? After all, if the powerful and influential wanted to reignite the economy, that is, if a consensus among the elite had formed which affirmed a pro-growth and pro-equalization project, they would have, by definition, the means to implement this program. The lack of effort reveals something akin to a collective intent. It shows the class preference of the economic and political elite to be to remain stuck in this stagnant steady-state. They prefer this economic regime because it protects their wealth and power.

Reich, to my mind, wasted his time. The “lesser people” (Alan Simpson) will never reasonably talk the ‘greater people’ into giving up shares of the wealth and their power.