Moving Beyond the Status Quo: The Case for Ecofeminism

Back in 2002, economists Shane Frederick, George Lowenstein, and Ted O’Donoghue found that people generally value the present over the future—something they called a time preference. While this seemed intuitive for most people, economists Marcus Dittrich and Kristina Leipold later showed that this time preference is not necessarily uniform across gender lines. Following an online experiment with 1019 subjects, they found that men were more impatient than women, choosing to receive rewards immediately, while “women are better able than men to delay gratification and tend to be more self-disciplined.” In a county like the United States—which is mostly controlled by men—it is not surprising that policymakers have continually privileged the present over the future.

Despite the fact that 97 percent of all climate scientists believe that climate change is real, many Republican leaders (Donald Trump, for instance) still argue it is some fictional conspiracy, while many others who do recognize the reality of climate change, still privilege economic growth over environmental protection. There is a deeply embedded culture of masculinity in the United States that is problematic for those who want to create constructive solutions for mitigating climate change. Researchers Aaron R. Brough, James E.B. Wilkie, and their colleagues conducted a series of experiments with over 2,000 participants and found a “psychological link between eco-friendliness and perceptions of femininity” and that “men may shun eco-friendly behavior because of what it conveys about their masculinity.”

Perhaps what is needed is a more feminist approach to climate change. As journalist Maria Laurino writes, “Contemporary American feminism has primarily come to mean championing women’s autonomy and challenging the privileging of male over female.” In other words, it means that feminists do not privilege men over women—who are equal in every capacity and therefore should have equal opportunity. If you are a man, being a feminist does not mean you are somehow feminine or unmanly, it simply means that you don’t believe that men are somehow exceptional and that women are equally competent to take leadership positions.

Do more women in leadership roles translate into more environmental protection? Sociologists Kari Norgaard and Richard York surveyed women policymakers in 19 countries that hold 92 percent of the world’s population and found that “nations with higher proportions of women in Parliament are more prone to ratify environmental treaties than are other nations.” If women are more likely than men to delay gratification, pursue environmental protection, and cooperate internationally, doesn’t it make sense that they should have greater authority over environmental research and policy?

What about those who guide policymakers, such as economists? Researchers Ann Mari May, Mary McGarvey, and David Kucera surveyed economists in universities across 18 nations in the European Union and found that male economists not only prefer market solutions over government intervention, they are more skeptical of environmental protection than women economists. Isn’t economics supposed to be an objective science? As economist Duncan Foley wrote in 2016, economics is not an objective science because it is guided by values — which determines which research questions to pursue and which kinds of economic policies economist will support and legitimize.

In addition, May, McGarvey, and Kucera also found that male economists were two times more likely to become full professors. “Despite an increase in the number of women entering economics from the 1970s to the 1990s,” the researchers wrote, “the profession remains predominantly male.” Even the former chairman of the Federal Reserve, Ben Bernanke, acknowledged that the field of economics favors men over women. Despite the evidence that suggest the economics profession discriminates against women, Ben Casselman and Jim Tankersley of the New York Times, report that some male economists dismiss the notion of a gender bias, “arguing [instead] that gender disparities must reflect differences in preference or ability.” As this article has shown, this is clearly not the case.

Given the data that suggests that female economists and policymakers are more open to responding to environmental issues (see also here, here, and here), it seems pretty clear that we need a more feminist approach to alleviating climate change. A greater representation of women in senior economics positions, as researchers May, McGarvey, and Kucera show, would lead to a more diverse set research questions — widening the range of discussion about climate change and creating a more diverse set of conclusions and policy outcomes.

 

About the Author: Johnny Fulfer received a B.S. in Economics and a B.S. in History from Eastern Oregon University. He is currently pursuing an M.A. in History at the University of South Florida and has an interest in political economy, the history of economic thought, intellectual and cultural history, and the history of the human sciences and their relation to the power in society. 

Ecological Theory for a Green New Deal

When then Representative-elect Alexandria Ocasio-Cortez (D-N.Y.) joined the Sunrise Movement’s protest in the office of incoming speaker Nancy Pelosi, she catapulted a radical climate policy into public consciousness. Known as the Green New Deal, the policy would enable a just transition away from the high-carbon production that exacerbates climate change. Given this renewed interest in the potential of transformational federal spending, including on programs like the federal job guarantee, which many have argued will be one of the central components of a Green New Deal, it is necessary to reexamine the state of ecological theory in order to provide a philosophical foundation for our era’s new, centralized approach to ecology.

By Maxximilian Seijo

Since the first Earth Day, on April 22, 1970, ecological theory has favored a theoretical approach which is skeptical of centralized authorities. Most evident in the path-breaking work of the Norwegian philosopher Arne Næss, his “deep ecology” movement, among other things, prioritized “local autonomy and decentralization” over any centralized mediation of ecological relations. This perspective is based on a philosophical approach that reduces abstract relations with legal and political authorities unto immediate material connections. Such a reduction creates a limited ecological theory, which in Næss’ own words asserts that “the vulnerability of a form of life is roughly proportional to the weight of influences from afar.” Næss’ view that distanced relations introduce a metaphorical weight upon ecologies is anathema to a Green New Deal, which aims to utilize centralized and abstract monetary issuances or legal decrees to create more just, egalitarian relations between humans and the environment. In this essay, I offer an alternative to Næss’ deep ecology which accords to the centralization and collectivity needed to achieve such transformative socialist goals.

Næss’ philosophy can be traced to the works of Spinoza, Whitehead, and Heidegger. Where Spinoza and Whitehead seem to reinforce, in varying degrees, Næss’ decentralized ontological materiality, Heidegger offers a more capacious ecology which, while still problematic in some ways, I argue must nevertheless be the foundation for an alternative ecology of just centralization.

In his 1946 essay, “What Are Poets For?” Heidegger offers one particularly prescient formulation of his approach to ecology. “Plant, animal, and man—insofar as they are beings…are ventured,” Heidegger writes. (100) Ventured, for Heidegger, is the state of being thrown into a shared and egalitarian ecology, what he simply dubs “being.” In addition to establishing equality for ecological beings, Heidegger also articulates some form of innate ecological centralization. “Being, which holds all beings in the balance, thus always, draws particular beings toward itself—toward itself as a center,” he argues. (101) After formulating ecological equality and some form of centralization, Heidegger laments that the presence of this center has not been recognized. He calls this all-mediating center, “an-unheard of center,” and with it, further obscures the legal relationship between governance and ecological relations which persists even when it is not avowed.

At this point, the reader might be thinking, “what does this have to do with a Green New Deal?” To explain why these arcane philosophical conceptions of centralization are relevant, we must go to the word ecology itself. Ecology, from the Greek oikos, means “dwelling.” (145-147) One of the central tasks of human production is to establish such a “dwelling” of our own, from the planetary to the household scale. We produce to afford such dwellings. This production, as the constitutional and neochartalist theories of money and law have demonstrated, is always undergirded by centralized legal authorities, whether through legal currency issuance, property rights, or taxes and fines. This means that our ecologies, whether human-to-human, human-to-environment, or environment-to-environment, are mediated by governance. Despite what Næss would suggest, I argue that this is a good thing, as it means that we can collectively reorganize ecological relations through centralized legal authorities, through democracy.

From this standpoint, I will approach a later Heidegger essay, entitled, “The Question Concerning Technology,” which points to a similar conclusion. In the essay, Heidegger attempts to establish the causal mechanisms of production. He writes, “wherever ends are pursued and means are employed, wherever instrumentality reigns, there reigns causality.” (5) He breaks this productive causality into four categories: the material, the form or category, the end goal, and the means of bringing the production into being. Further, Heidegger suggests that these four causal mechanisms of production depend on each other, and that “in this connection, [they] bring about means to obtain results, effects.” (3) What Heidegger has done in this essay is establish that production itself is dependent upon a lubricating abstract “connection.” I claim that this abstract ecological relationality is law. It is the centralized legal medium of money that enables all exchange.

Approaching the question of ecological theory on these legal terms leads to the question of Bitcoin. Bitcoin represents the fantasy of ecological decentralization on money’s terms. Dangerously reminiscent of Næss’ philosophical commitment to the weight of abstract influence, Bitcoin is a commodified abstraction that must be mined, as it was designed as materially finite. As a result of both its decentralized network design and this artificial finitude, Bitcoin is contributing to immense environmental damage across the world. In other words, offering the inherent centrality of ecological relations in the legal mediation of production is not merely an arbitrary theoretical path forward, but a specific affront to the theoretical frameworks that are accelerating our abandonment of ecological justice.

Grounding ecology in the legal mediation of money is not what contemporary ecological theorists do. For example, in his recent book, noted ecological theorist Sean Cubitt writes that “ecological crisis, it is argued here, is not the fault of individuals but of the communicative systems, most of all the tyranny of the economy, of money as the dominant medium of twenty-first century intercourse between humans and our world.” (7) I understand why Cubitt takes this position. The issuance of money has incentivized extractive economic production for generations, but allowing that trend to solidify into a determined truth is not how we fix our ecological quandaries. Rather than fetishize money’s historical limitations, we need to embrace its democratic potential, we need to use its full legal power in the name of a Green New Deal, for all our sakes.

About the Author: 
Maxximilian Seijo is a graduate student at the University of South Florida. He is the co-host of @moneyontheleft (a podcast that mobilizes Modern Monetary Theory to reclaim money’s collective possibilities for leftist politics and culture) and Digital Media Fellow at the Modern Money Network.

 

The financial crisis was a Minsky moment but we live in Strange times

This is the story of Susan Strange and Hyman Minsky, two renegade economists who spent a lifetime warning of a global financial crisis. When it hit in 2008, a decade after their deaths, only one rocketed to stardom.  

By Nat Dyer.  

When Lehman Brothers went belly up and the world’s financial markets froze in the great crash of 2008, the profession of economics was thrown into crisis along with the economy. Mainstream, neo-classical economists had largely left finance and debt out of their models. They had assumed that Western financial systems were too sophisticated to fail. It was a catastrophic mistake. The rare economists who had studied financial instability suddenly became gurus. None more so than Hyman Minsky.

Minsky died in 1996 a relatively obscure post-Keynesian academic. He was only mentioned once by The Economist in his lifetime. After 2008, his writings were pored over by economists and included in the standard economics textbooks. Although not a household name, Minsky is today an economic rockstar named checked by the Chair of the Federal Reserve and Governors of the Bank of England. One economist summed it up when he said, “We’re all Minskites now”. The global financial crisis itself is often called a “Minsky moment”. But not all radical economic thinkers were lifted by the same tide.

Susan Strange was more well-known than Minsky in her lifetime (see Google ngram graph below). One of the founders of the field of international political economy, she taught for decades at the London School of Economics. Alongside her academic work, she raised six children and wrote books for the general public warning of the growing systemic risks in financial markets. When she died in 1998 The Times, The Guardian and The Independent all published an obituary for this “world-leading thinker”.

The two renegade economic thinkers, although working in different disciplines, had much in common. They both gleefully swam against the tide their entire careers by studying financial instability. They were both outspoken outsiders who preferred to teach economics with words rather than equations and were skeptical of the elegant economic models of the day. They were big thinkers haunted by the shadow of the 1930s Great Depression. They both died a decade before being vindicated by the 2008 financial crisis. And, they read each other’s work.

The New York Times called Susan Strange’s 1986 Casino Capitalism “a polemic in the best sense of the word.” Calling attention to financial innovation and the boom in derivatives, the book argued that, “The Western financial system is rapidly coming to resemble nothing as much as a vast casino.” Minsky, in his review, said that the title was an “apt label” for Western economies. Strange provided a much-needed antidote, he said, to economists “comfortable wearing the blinders of neoclassical theory” by showing that markets cannot work without political authority. He probably liked the part where Strange praised his ideas too.

Casino Capitalism hailed Minsky’s ‘Financial Instability Hypothesis’ way before it was fashionable. Strange singled out Minsky as one of a “rare few who have spent a lifetime trying to teach students about the working of the financial and banking system” and whose ideas might allow us to anticipate and moderate a future financial crisis. Minsky’s concept of ‘money manager capitalism’ has been compared to ‘casino capitalism’.

But, put Susan Strange’s name into Google News today or ask participants at meetings on economics about her and you don’t get much back. They will sometimes recognise her name but not much more. Outside a small group, she’s a historical footnote, better remembered for helping to create a new field than the force or originality of her ideas. It is as if two people tipped the police off about a criminal on the run but only one of them got the reward money.

So, why did Strange’s reputation sink after the global financial crisis when Minsky’s soared?

Professor Anastasia Nesvetailova of City, University of London, one of the few academics who has studied both thinkers, believes it is due, in part, to their academic departments. “Minsky may have been a critical economist but he was still an economist,” she told me. Strange studied economics, but then worked as a financial journalist before helping to create the field of international political economy, now considered – against Strange’s wishes – a sub-discipline of international relations. Economics is simply a more prestigious field in politics, the media and on university campuses, Nesvetailova said, and Minsky benefited from that. “Unfortunately, [Strange] remains that kind of dot in between different places.”

As we live through a political backlash to the 2008 crisis and the IMF warns another one might be on the way, Strange’s broader global political perspective is a bonus. In States and Markets, she sets outs a model for global structural power which brings in finance, production, security and knowledge. Her writings predicted the network of international currency swaps set up by the Federal Reserve after the global financial crisis, according to the only book written about Strange since 2008. Her work foreshadowed the global financial crime wave. And, she argued repeatedly that volatile financial markets and a growing gap between rich and poor would lead to volatile politics and resurgent nationalism, which is embarrassingly relevant today. The financial crisis may have been a ‘Minsky moment’ but we live in Strange times.

This global political economic view explains why Strange criticised Minsky and other post-Keynesians for thinking in “single economy terms”. Most of their models look at the workings of one economy, usually the United States, not how economies are woven together across the world. This allows Strange to consider “contagion”: how financial crises can flow across borders. It’s a more real-world vision of what happens with global finance and national regulation. Her greatest strength, however, also reduced her appeal in some quarters as it means Strange’s work is less easy to model and express in mathematics.

Minsky found fault in Strange too. She should have more squarely based her analysis on Keynes, he said and showed the trade-off between speculation and investment. Tellingly, his critique is at its weakest when engaging with global politics. Strange unfairly blamed the United States for the global financial mess, Minsky wrote, even though it was no longer the premier world power. Minsky was only repeating the conventional view when he wrote that in 1987 but it was bad timing: two years later the Berlin Wall fell ushering in unprecedented US dominance.

In her last, unfinished paper in 1998 Strange was still banging the drum for Minsky’s “nearly-forgotten elaboration of [John Maynard] Keynes’ analysis”. Now it’s her rich and insightful work that is nearly forgotten outside international relations courses. A jewel trodden into the mud. Just as Minsky is read to understand how “economic stability breeds instability”, let’s also read Strange to appreciate her core message that while financial markets are good servants, they are bad masters.

 

About the author

Nat Dyer is a freelance writer based in London. He has an MSc in International and European Politics from Edinburgh University. He was previously a campaigner with Global Witness, an anti-corruption group. He tweets at @natjdyer.

 

Google Ngram showing the frequency of references to Susan Strange (red) and Hyman Minsky (blue) from 1940 to 2008

Strange was more referenced in her lifetime than Hyman Minsky. Google Ngram’s search only goes up to 2008. After 2008, we would likely see a hockey stick spike for Minsky and Strange continuing to fall.

Why Inflation Targeting?

By Juan Ianni.  Why does mainstream economics recommend the application of Inflation Targeting (IT) regimes? Is it because of its sophistication? Are there other ways of addressing inflation? Perhaps a historical analysis of the roots of what is now the dominant stabilization regime can shed light on these questions.

Although the concept “financialization” is still up to debate, some economists like Chesnais (2001) argue that, since 1970, capitalism has mutated toward a “financialized” model of accumulation. According to Fine (2013), financialization is the derivation of the use of money as a credit other than the use of money as capital. Other authors believe that financialization is the determining structure of other (political, social, economic) structures. Long story short, this would mean that changes in social relationships produce new economic (and non-economic) structures, which replicate the mode of production (or “the dominant structure”). But what does that mean?

The French school of regulation can answer that question. According to the theory they developed, every accumulation pattern (for instance, “financialized” capitalism) needs a mode of regulation. The latter consist of a set of institutions (or policies), which enable social and economic reproduction by solving conflicts (inherent to every accumulation pattern) between agents of the society. Therefore, institutions will appear, disappear and relate in a non-random way, structuring a certain institutional configuration related to the accumulation pattern.

Boyer and Saillard are two of the most influential theorist of the French school of regulation. In one of their articles (Boyer and Saillard, 2005), they identify five core conflicts between agents in every accumulation pattern. Nevertheless, two are enough to understand the emergence of Inflation Targeting regimes: the “wage-labor nexus” and the “valorization of wealth”. While the first conflict refers to the dispute over the economic surplus between the worker and the capitalist, the latter refers to the prevailing mode of accumulation and valorization of wealth.

In their opinion, financialized capitalism is characterized for having the “valorization of wealth” as the central conflict to solve (or stabilize) within a particular set of institutions. In the contrary, the “wage-labor nexus” is the “adjustment” conflict. This means that accumulation will no longer be led by an equal distribution of the production surplus between workers and entrepreneurs. On the contrary, financialized capitalism will ensure a way for wealth to be valued related to credit (and not capital), no matter how damaging that could be to workers.

With the gestation of financialized capitalism (along with its respective institutional configuration process) and the centrality of the “valorisation of wealth” conflict, the New Macroeconomic Consensus was established as a theoretical paradigm. In order to legitimize and deepen this institutional configuration, it propiated the emergence and propagation of Inflation Targeting regimes as a conceptual apparatus regarding anti-inflationary policy-mix.

As these regimes consider inflation as an exclusive consequence of an excess in aggregate demand, contractive monetary policies are “always needed”. In the case of IT, they must constantly ensure a positive real interest rate, which fits perfectly with the need of a way to value wealth. What is more, it decreases inflation by incrementing unemployment, which shows how the “wage-labour nexus” is the adjustment conflict.

However, it is well known that inflation is a multi-faceted problem. Empirical research shows that in addition to an excess in aggregate demand, inflation can be the consequence of the distributive conflict, international prices, inflationary inertia, etc. The way IT address this phenomena (setting a high real interest rate, increasing unemployment, and letting the exchange rate float) shows how it is the perfect piece for the financialized capitalism puzzle. However, since the existence of very close interconnections between the international monetary systems and the national financial markets (what Chesnais call the “financial globalization”), IT’s effectiveness has lowered.

In addition, when the main cause of inflation is not related to an excess in aggregate demand, IT’s efficiency falls. Vera (2014) argues that using IT demands a strong reliance on the unemployment channel (that is to say, to stop inflation, unemployment needs to increase), which has adverse side effects on both employment and income distribution.

Given these drawbacks, some economic schools have developed other tools to tackle inflation, which may be both more efficient and effective. To that end, a different policy mix in which real exchange rate targeting is combined with income distribution targeting can be structured. In this case, the nominal exchange rate could be set to sustain a balanced external sector, whilst income policies could preserve a more equitable distribution of income. Consequently, a low level of inflation is sustained while the “disciplinary effect” of unemployment is avoided.

In conclusion, Inflation Targeting is not the mainstream policy instrument because of its results or theoretical coherence; after all, it has needless consequences regarding employment and income distribution. The main cause of IT’s popularity is that it assures the reproduction of an institutional configuration related to the “dominant structure”: financialized capitalism. Explaining this process, in addition to noting alternative stabilization regimes, should motivate the design and application of economic policies more consistent with increasing employment and a more equitable income distribution.

About the Author: Juan Ianni just completed a bachelor’s degree in Economics, and has a an interest in political economy and macroeconomics. He is currently studying alternative political schemes to tackle inflation, which is a big challenge for his home country, Argentina.

Central Banks and the Folk Tales of Money

By Pierre Ortlieb.

On June 10th, 2018, Swiss voters participated in a referendum on the very nature of money creation in their small alpine republic. The so-called “Vollgeld Initiative,” or “sovereign money initiative,” on their ballots would have required Swiss commercial banks to fully back their “demand deposits” in central bank money, effectively stripping private banks of their power to create money through loans in the current fractional reserve banking system.

In the build-up to this poll, the Swiss National Bank (SNB) tailored their statements on credit creation based on their audience: when speaking to the public, the SNB chose to promulgate an outdated “loanable funds” model of money creation, while it adopted an endogenous theory of credit creation when speaking to market participants. This served to mollify both audiences, reassuring them of the ability and sophistication of the SNB. Yet the contradicting stories offered by the SNB are part of a broader trend that has emerged as central banks have expended tremendous effort on trying to communicate their operations, with different banks offering different explanations for how money is
created. This risks damaging public trust in money far more than any referendum could.

***

At the SNB annual General Shareholders Meeting in April 2018, Governor Thomas Jordan was verbally confronted by two members of the audience who demanded Jordan explain how money is created – Jordan’s understanding of credit, they argued, was flawed and antiquated. Faced with this line of questioning, Jordan rebutted that banks use sight deposits from other customers to create loans and credit. The audience members pushed back in disagreement, but Jordan did not waver.

On the surface, Jordan’s claim on money creation is an explanation one would find in most economics textbooks. In this common story, banks act as mere intermediaries in a credit creation process that transforms savings into productive investment.

However, only months earlier, Governor Jordan told a different story in a speech delivered to the Zürich Macroeconomics Association. Facing an audience of economists and market professionals, Jordan had embraced a portrayal of money creation that is more modern but starkly opposed to the more folk-theoretical, or “textbook” view. Jordan described how “deposits at commercial banks” are created: In the present-day financial system, when a bank creates a loan, “an individual bank increases deposits in the banking system and hence also the overall money supply.” This is the antithesis of the folk theory offered to the public, presenting a glaring contradiction. Yet the SNB’s duplicity is part of a broader trend: central banks are unable to provide a unified message on credit creation, both internally and among themselves.

For instance, in 2014, the Bank of England published a short, plainly-written paper that described in detail how commercial banks create money essentially out of nothing, by issuing loans to their customers. The Bank author’s noted that “the reality of how money is created today differs from the description found in some economics textbooks,” and sought to correct what they perceived as a popular misinterpretation of the credit creation process. Norges Bank, Norway’s monetary authority, has made a similar push to clarify that credit creation is driven by commercial banks, rather than by printing presses in the basement of the central bank. Nonetheless, other central banks, such as the Bundesbank, have gone to great lengths to stress that monetary authorities have strict control the money supply. As economist Rüdiger Dornbusch notes, the German saving public “have been brought up to trust in the simple quantity theory” of money, “and they are not ready to believe in a new institution and new operating instructions.”

***

While this debate over the mechanics of money creation may seem arcane, it has crucial implication for central bank legitimacy. During normal times, trust in money is built through commonplace uses of money; money works best when it can be taken for granted. As the sociologist Benjamin Braun notes, a central bank’s legitimacy depends in part on it acting in line with a dominant, textbook theory of money that is familiar to its constituents.

Yet this is no longer the case. Since the financial crisis, this trust has been shaken, as exemplified by Switzerland’s referendum on sovereign money in June 2018. Faced with political pressures and uncertain macroeconomic environments, some central banks have had to be much more proactive about their communications, and much more frank about the murky nature of money. As quantitative easing has stoked public fears of price instability, monetary authorities including the Bank of England have sought to clarify who really produces money. In this sense, taking steps to inform the public on the real source of money – bank loans – is a worthwhile step, as it provides constraints on what a central bank can be reasonably expected to do, and reduces informational asymmetries between technical experts and lay citizens.

On the other hand, a number of central banks have taken the dangerous approach of simply tailoring their message based on their audience: when speaking to technical experts, say one thing, and when speaking to the public, say another. The janus-faced SNB is a case in point. This rhetorical duplicity is important as it allows central banks to both assuage popular concerns over the stability of money, by fostering the illusion that they maintain control over price stability and monetary conditions, while similarly soothing markets with the impression that they possess a nuanced and empirically accurate framework of how credit creation works. For both audiences, this produces a sense of institutional commitment which sustains both public and market trust in money under conditions of uncertainty.

Yet this newfound duplicity in central bank communications is perilous, and risks further undermining public trust in money should they not succeed in straddling this fine line. Continuing to play into folk theories of money as these drift further and further away from the reality of credit creation will inevitably have unsettling ramifications. For example, it might lead to the election of politicians keen to exploit and pressure central banks, or the production of crises in the form of bank runs.

Germany’s far-right Alternative für Deutschland, for instance, was founded and achieved its initial popularity as a party opposed to the allegedly inflationary policies of the European Central Bank, which failed to adequately communicate the purpose of its expansionary post-crisis monetary program. Once a central bank’s strategies and the public’s understanding of money become discordant, they lose the ability to assure their constituents of the continued functioning of money, placing their own standing at risk.

Central banks would be better off engaging in a clear, concise, and careful communications program to inform the public of how credit actually works, even if they might not really want to know how the sausage gets made. Otherwise, they risk further shaking public trust in critical monetary institutions.

About the Author: Pierre Ortlieb is a graduate student, writer, and researcher based in London. He is interested in political economy and central banks, and currently works at a public investment think tank (the views expressed herein do not represent those of his employer).

‘In Praise of Idleness’: the shorter working week is so much more than just a business fix

The January blues are a harsh reminder of the value of doing nothing. Bertrand Russell’s wistful paean to the redundancy of work shows that while this radical thinking is not new, it carries fresh challenges for today’s proponents a shorter working week.

By Robert Magowan

A four day week is back on the political menu. It’s about time. Despite global advances in technology and productivity, most countries have seen the overall number of hours worked go up, not down. It’s been over sixty years since most countries introduced a full weekend and we ‘gained a day’.

Among this current renewed chatter, one thinker above all tends to receive the deferent nod to history. John Maynard Keynes predicted in his 1932 Economic Possibilities for our Grandchildren that the march of technology would reduce the necessary working week to just 15 hours – and even that would only be to “satisfy the old Adam in most of us”.

It is worth remembering though, that Keynes was far from alone. Bertrand Russell’s In Praise of Idleness from two years earlier mounts in a few short pages a resolute defence of idleness and an ambitious course for progress: “I think that there is far too much work done in the world, that immense harm is caused by the belief that work is virtuous, and that what needs to be preached in modern industrial countries is quite different to what has always been preached.”

Our attachment to work, Russell argues, stems originally and naturally from the necessity for sustenance that pre-industrial society entailed. Modern technology has severed the need for such an attachment, yet it sustains itself in a sense of morality – “the morality of slaves”. “The conception of duty, speaking historically, has been used by the holders of power to induce others to live for the interests of their masters rather than for their own”.

Thus Russell fumes at the reverence of labour, or as he calls it, “moving matter about” (hardly a conception that needs much revision in the service economy of cursor and email). For him, the work ethic is an instrument of the aristocratic class to help maintain their own avoidance of work. Like Keynes’ Economic Possibilities, which lamented the “growing-pains of over-rapid changes” of the time, the piece is in many ways embarrassingly relevant today. The line, “that the poor should have leisure has always been shocking to the rich”, for example, rings too true in a political environment almost totally eclipsed by the ‘strivers’ vs ‘skivers’ debate just a few years ago. Modern methods of production should be sufficient to provide the “necessities and elementary comforts of life”, argues Russell, and the rest of our time to do with as we see fit.

To recall these utopian predictions is to recall just how far we have failed to realise what was once a central element of progress, indeed, how we fail now to even recognise it as such. Even major policy advances in the area, such as the EU’s Working Time Directive (with its focus on safety and productivity), have neglected any radical element of change. Idleness remains a vice, feared not just economically in terms of lost productive potential but even on the political left as a “lonely and unfulfilling vision”.

In this context, radical proposals for a four day week risk being reduced to little more than a business fix. Can employee motivation and concentration be improved sufficiently to increase marginal output? The boss of one of the most publicised recent trials, at an insurance firm in New Zealand, articulated this approach neatly in laying out his focus: “it’s productivity, productivity, productivity!”. Whilst this thinking may be helpful in establishing a sense of existing economic viability for the policy, it excludes its most crucial aspect – what we gain in our newfound free time.

Because of course, at this time of year more than ever, we know that doing nothing never means doing nothing. To recognise the true value of leisure and idleness means subverting material ideas about what it means to be productive. Most of us will have just returned from a Christmas break where jokes were made, opinions discussed, housework shared, books read, games invented, ideas pondered, friendships rejuvenated, attachments forged. No doubt for a brave few muscles were exercised and sports contested. This output isn’t the product of the invisible hand. This is the natural fruit of a shared indulgence in idleness safe in the knowledge that one’s security is guaranteed and one’s basic needs are met. As Bobby Kennedy argued in his critique of GDP as a measure of progress, it is this mass of economically ignored value that makes life worthwhile.

The modern economic challenges of working less

In Praise of Idleness also points to two major societal changes which make the task of delivering a shorter working week, if it is to be accepted, all the more challenging. Firstly, the remnants of a leisure class have largely disappeared. It is no longer just America whose “men work long hours even when they are well off” as Russell writes. Britain’s highest earners today work very long hours. Secondly, in Russell’s 1930s Britain, while earning is morally laudable, spending is deemed “frivolous”. Today, on the other hand, consumption – when based on ‘earned’ income – is not only culturally acceptable, but economically virtuous. Indeed the potential for material consumption to increase under a four day week is a convincing argument for it for some. Henry Ford, of course, was an early pioneer of this mantra, unilaterally granting workers a five day week in 1914 in the knowledge it would allow more time for weekend ‘leisure driving’.

The combined lesson of these two crucial differences is that long working hours are today more than just a moral kink underpinned by historical power. They have been fundamentally subsumed into our economic system.

Sixty years before Keynes and Russell, economist William Stanley Jevons discovered that the Watt steam engine, which greatly improved the efficiency of coal use, had actually increased overall coal consumption, as a result of heightened demand. The widespread tendency of the efficiency gains of technological progress to increase resource use rather than reduce it became known as the Jevons Paradox – and to this day it refuses to go away. The same has occurred with work. The slickest offices have delivered not shorter weeks but both higher output and bored staff. And perhaps worst of all, we are all in on the act. No longer can we simply decide to wrench the moral lauding of work from Russell’s leisure class who sustained it for their own benefit. As Aeron Davis has written, today’s elites are increasingly mere reckless opportunists, lacking the coherence and control to operate this system for theirs or anyone else’s benefit. Russell’s “morality of slaves” is preserved not in service to a dominant people but to the sovereign blob that is ‘the economy’. Hegemony – cultural and economic – is what now sustains the work ethic. This is why it is so hard to imagine a world with less of it.

In Praise of Idleness is, therefore, a timely reminder that a shorter working week is a much more fundamental challenge than simply delivering the same for less – just another efficiency gain, another productivity drive. It is part of a wider reckoning, a revaluation of the purpose of work and progress – the makings of an ideological basis for a post-capitalist economy.

At this time of year In Praise of Idleness is also a reminder of something more obvious. Leisure – “its ease and security”, and the indulgence in learning, good nature and “active energies” that it allows for – was once among the ultimate goals of civilisation. Reading Russell, it seems only right it should return.

About the author
Robert Magowan is an MSc Economics and Governance student at Leiden University in The Netherlands. He is active in the Green Party of England and Wales and is currently researching the socioeconomic implications of a shorter working week.

Brexinomics

In analyzing the consequences of Brexit, economists have relied heavily on ‘scenario testing.’ But this tool may not be fit for purpose.

As the UK embarked on Brexit, economists were given a range of opportunities in which to provide some guidance as to how the tricky process of Brexit was going to go. A sub-discipline was entitled ‘Brexinomics’. This article looks at a tool used by economists, known as scenario testing and questions the reliance on this tool to navigate us through Brexit.

On June 23rd 2016, the UK decided to travel on the unknown road ahead known as Brexit. Economists were called on to provide some navigation for policy makers, the markets and businesses. The task was (and still is) to provide policy makers with how the economy will react  either a ‘hard Brexit’, ‘soft Brexit’, or any kind of new rearrangement with the EU.

The Treasury and Bank of England have the most influential roles when it comes to acting as an economic advisor to the government. One of the methods that has been particularly relied on by these organisations is referred to generically as scenario testing.

What is scenario testing and what can it actually tell us?

Scenario testing is a broad term given to the use of economic modelling to predict how a certain event is going to impact the rest of the economy. Analysts aim to predict the future impact on the economy arising from any-one number of things. Scenario tests are predominantly conducted using a global econometric model that contains large amount of data and equations that aim to describe the behaviour of the economy. These models are used by governments and central banks alike.

Since the announcement of the Brexit Referendum, scenario tests have been frequently referred to in news articles and senior politicians alike to provide a picture of what a post-Brexit world might look like.  In 2016, the HMT published a document titled ‘HMT analysis: The immediate economic impact of leaving the EU’.  In this document, they published the table below in which they outline the response of the economy to a leave vote in the referendum.

(Source: HM Treasury)

There are two shock scenario responses listed. These refer to a moderate and severe response of the economy to a leave vote in the referendum. The table shows that in the year following a leave vote 17/18, the economy is expected to contract by around 3.6%. In the severe case it is listed as -6% which would have been worse that the financial crisis of 2009 in the UK which saw a peak decline of -4.2%. In 2017, year growth on change was actually 1.7% (Office of National Statistics). That is a marked difference from the projected values.

This reveals that scenario tests are not suitable to handle something like Brexit, and their poor performance in outlining the economic effects of a leave EU vote is unsurprising.

A better use of scenario tests is to look at the overall impact on the economy of specific one-off economic events or policy changes, like a change in oil prices. A change in oil prices would typically start with changes in the income for oil-exporting countries and rises in costs for oil-importing countries. For the oil importing countries, the initial increase in oil prices would then lead to an increase in inflation as the cost of production increases. These different impacts can be modelled by scenario tests and they can provide a scale of the final economic impact owing to an initial increase in oil prices.

However, the number and scale of policy unknowns in Brexit means that a scenario test is always under-identified. We are dealing with infinite number of policy unknowns.

This leads on to the second issue with scenario tests is that they work under the assumption of ceteris paribus. This assumption is that all other things will remain equal during and after the specific economic event that is being analysed has occurred. With something like Brexit, there is no ceteris paribus, as all other things will not necessarily remain equal.

Brexit has the possibility of creating restrictions on migration, along with restrictions on trade and restrictions on capital flows. These could all happen simultaneously. Even if a scenario test could adequately model each of these events on their own, it is not able to consider interactions between different simultaneous policy changes. It seems unlikely that previous data could be used to show us what would happen in the event of all three of these policy changes simultaneously occurring given that this is not something that has occurred before.

Despite all these shortcomings, there is still often reference in the media to results of scenario tests conducted by key organisations. Scenario tests still seem to be providing some comfort in predicting what a post-Brexit world might look like.

There are two amendments that economists need to make. The first is to limit the scope and expectations of what previous data can tell us. Given the unprecedented nature of Brexit, it seems that historical data might not have the information to show us what could happen in the event of any kind of Brexit deal. It unlikely to accurately provide a percentage point increase/decrease in GDP in the case of any type of new arrangement with the EU.

The second amendment, is to move on from the empirical macroeconomic models and look at methods that will provide a truer reflection of how individuals might behave in response to the new arrangement with the EU.

What are the alternatives?

There have been already a number of surveys conducted that ask individuals and businesses alike, what they would do in ‘Brexit-like’ events i.e. a restriction on migration leading to labour shortages. Piecing together information from macroeconomic surveys is more likely to provide a truer picture as it will give us actual behavioural responses from economic agents.


About the Author
Kanya Paramaguru is a PhD student at Brunel University London. Her current research focuses on using empirical time-series methods in Macroeconomics.

10 years after the financial crisis and its lasting effects on Americans

This year marks the 10th anniversary of the 2008 financial crisis. Although the crisis is remembered for foreclosures, bank failures and bailouts, many American citizens are still unaware of what caused it.

By Breshay Moore.

This year marks the 10th anniversary of the 2008 financial crisis. Although the crisis is remembered for foreclosures, bank failures and bailouts, many American citizens are still unaware of what caused it. Understanding this is important to prevent future crises and think about what kind of financial system we want to have: one that serves people and invests in communities, or one that enriches a handful of wealthy bankers and money managers while making our economy less fair and safe for the rest of us.

In simple terms, the financial crisis was a result of deregulation of the financial sector, and reckless and predatory practices by greedy financial players all across the board, from mortgage lenders to Wall Street traders to the largest credit rating agencies.

In the lead-up to the crisis, mortgage lenders were engaging in fraudulent and deceptive sales practices to make toxic mortgage loans to home buyers, which they knew the borrowers could not afford. Predatory lenders particularly targeted people of color, especially women of color, for these higher-rate loans. Meanwhile, these risky mortgages were packaged and sold to investors around the world, becoming implanted throughout the financial system. The economy went into a recession in late 2007, defaults on mortgage payments increased and housing prices plummeted, resulting in billions of dollars in mortgage losses. This had a chain reaction in the financial system because of the number of financial institutions that had stakes in the housing market. These string of events shook the entire economy, fueling the worst recession in the US since the Great Depression.

Millions of families lost their homes or jobs. Median wealth among households fell tremendously: From 2005 to 2009, median wealth among Hispanic households fell by 66 percent, by 53 percent among Black households, by 31 percent among Asian households, and by 16 percent among white households. Millions of people also suffered major drops in income, property values, retirement savings, and general economic well-being. The crisis produced lasting effects. Families are still struggling economically, especially in communities of color.

After all the damage was done, no one was held accountable. Financial players made billions of dollars in bonuses and profits. Instead of helping the communities that were most affected, Congress and The Federal Reserve began bailing out big banks with public money. We recently learned that 30 percent of the lawmakers and 40 percent of the top staffers involved in the congressional response to the crisis have since gone to work for Wall Street.

In 2010 President Barack Obama introduced legislation containing important reform measures in response to the crisis. The Dodd–Frank Wall Street Reform and Consumer Protection Act created rules to protect consumers and regulate the financial industry. This law created the Consumer Financial Protection Bureau (CFPB) to promote transparency and fairness in the consumer-finance industry, and to holding financial institutions accountable for engaging in predatory and discriminatory practices. This independent agency has done a lot for consumers, and has returned more than $12 billion in relief to more than 29 million cheated consumers.

In return for all the money that Wall Street has poured into political campaigns and lobbying, President Trump and Congress have been working hard to undo rules that  regulate the financial sector. Countless bills have been introduced and passed in Congress to deregulate banks and lenders. One of these bills, S. 2155, which became law in May, not only increases the risk of future financial disasters and bank bailouts, but makes it easier for mortgage lenders to discriminate on the basis of race, ethnicity and gender. Sixteen Democrats and an Independent supported the GOP in pushing this deregulatory bill. The vote did not go unnoticed and public sentiment is not on their side.  In fact, 88 percent of all likely voters — across party  lines — support holding financial companies accountable if they discriminate against people because of their race or ethnicity. And 64 percent of voters think big banks and finance companies continue to require tough oversight to avoid another financial crisis.  

The lack of restrictions on banks and other financial institutions put consumers and the economy at risk. The 10th anniversary of the financial crisis should encourage us to redouble our efforts to push for changes to our financial system so that it works for us not just for Wall Street.

 

Breshay Moore is a Senior at Towson University, studying Advertising and Public Relations. She was recently a Communications and Campaign intern for Americans for Financial Reform.