economics Archives

How to study economics and actually enjoy it.

Millions of students pursue degrees and careers in economics every year, and most start from a sense of deep curiosity. But nearly all face doubts at one point or another. Often it comes in the form of slow creeping fatigue and a gradual narrowing of interests. Other times it’s a crisis, pulling the whole field into question. Even INET’s President Rob Johnson nearly dropped out of Princeton. What’s going on?

By Gonçalo Fonseca & Heske van Doornen | It’s not the students’ fault. It is the field that is in a pickle. Economics has undergone a lot of transformation in recent decades, becoming increasingly narrow in scope, and divorcing itself from much of the ‘real world’. So if you are an econ student in a slump, questioning whether you picked the right field, this is for you.

These 8 principles show you how to approach economics without compromising your curiosity. They can help you do good work, allow you to enjoy what you are doing, and set you up to make a meaningful difference.

1. Know what to expect

Most economics programs are constructed linearly. The intro courses present a small set of basic models and the intermediate course adds more detail. Most people expect that their senior year—or at least grad school—will introduce something new. So they are disappointed when they see the same models again, just with more calculus. What to do? Do not wait for them to serve you something else. Take matters into your own hands.

2. Keep your questions front and center

Think about the questions that brought you to the field. Did you want to understand why the markets go up and down? How did inequality get so high? How businesses innovate? What AI will do to our jobs? Let those questions be your driving force. If you find that the analytical tools you are taught cannot address them, don’t blame your questions. Go looking for more tools.

3. Think for yourself, always.

Textbooks often present themselves as objective. But economics is not settled. It may be a science, but it is a human science, with inevitable faults. So it must be approached with a wider lens, and recognized as open-ended, with room for debate.

4. Stay connected to the real world

The models you learn are presented as universal. Relevant in any context and at any time. But stock market crashes and labor laws are not made in a void. They are made in a social and historical context. Economics is a topic, not a technique. So start with the questions, and let the answers come from anywhere. Sometimes, you will need your textbook model. Other times, you will need something else.

5. Don’t feel guilty about going broad

It is often said that scholars are willing to sacrifice five miles of breadth for one inch of depth, as an entire academic career can be built on that inch. But that trade-off is flawed. Real issues are intertwined, big and complicated. Exploring new areas improves your work. Five miles of breadth can lead you to excavators that will let you dig with MORE depth!

6. Take responsibility for your own learning

Chances are your textbook is dull and unconvincing. So you will have to get your nourishment somewhere else. Some teachers do a great job at this, but if yours is not one of them, it is on you. Explore courses and lectures by teachers other than your own. Go down a History of Economic Thought rabbit hole. Go beyond the model minutia and get the overview.

7. Know that economics needs you

We have a climate crisis to solve, financial markets to regulate, increasing inequality to deal with, and a host of complex issues around global markets and trade. The future of work is uncertain and gender disparities continue to loom. There is no shortage of pressing questions that need answering. So if economics feels cold, dull, and limiting, and you are tempted to turn your back on it, DON’T. Don’t leave economics to economists. The world needs people like you—the critical, the observant, the restless, to make economics BETTER.

8. Remember that you’re not alone

Students all over the world are faced with this conundrum. That sounds sad but it is not. Because all these people are linking up, supporting each other, and letting their questions lead the way. They are shaping the future of the field. The Young Scholars Initiative has 21 different working groups, each focusing on different topics. You are invited to join us and to be the change you’d like to see.

We are in this together.

About the Authors:
Gonçalo L. Fonseca is a research fellow at the Institute for New Economic Thinking and author of the History of Economic Thought Website. Heske van Doornen is Manager of the Young Scholars Initiative and co-founder of this blog. Twitter: @HeskevanDoornen

“There is no alternative” to managing the economy and the climate

Embracing industrial policy and economic planning is essential to reducing greenhouse gas emissions and environmental damage, says Kevin Cashman.

Embracing industrial policy and economic planning is essential to reducing greenhouse gas emissions and environmental damage.

By Kevin Cashman

One of Margaret Thatcher’s often-used slogans was TINA, or “there is no alternative.” There is no alternative, she meant, to the neoliberalism that became dominant in the 1970s and 1980s. After a coup led to the demise of the Soviet Union in 1991, this idea led to even more smug declarations of victory for the neoliberal order as well as the popularization of Francis Fukuyama’s articulation of the “end of history.”

With the countless failures of neoliberalism coming into focus for all sides of the political spectrum — one of those failures being climate change, which is already leading to potentially irreversible changes in ecological systems — it is worth considering different approaches to economics that could start to address these problems. These include some concepts, like industrial policy and economic planning, which have been summarily dismissed by powerful people in both major parties in the United States. In the context of a Green New Deal, these ideas provide valuable insights on what successful policy and outcomes would look like.

Industrial policy and economic planning

Industrial policy and economic planning and management are vital to reducing greenhouse gas emissions. Briefly, industrial policy is often thought of as policies that strategically supports certain industries, while economic planning involves government intervention in markets to various degrees. (Industrial policy is a type of economic planning.) Over the past 40 years, both concepts have been much maligned by Democrats and Republicans. Industrial policy is attacked as protectionism which spoils “free” trade, and economic planning is often tied to socialist and communist political and economic systems (and thus assumed to be implicitly harmful). Industrial policy is also often tied to economic planning as a way to discredit it.

The dirty secret in development is that the countries that have been most successful at raising living standards and growing their economies engage in planning that is outside what the neoliberal order considers acceptable. These include the Soviet Union, which oversaw vast improvements in living standards and transformed the country into a superpower, and China, which not only has the largest economy in the world today but has reduced poverty to a degree that can only be regarded as one of humanity’s most impressive achievements. The Soviet Union and China didn’t and don’t pretend to be guided by neoliberalism, but other countries, such as Japan and South Korea do. Their development was also characterized by industrial policy, “protectionism,” and currency management. Historically, countries like the United States and the United Kingdom, some of the most enthusiastic promoters of neoliberalism, are guilty of this as well. Simply put, government intervention in markets and industry is how the government can move the economy to solve large problems, like poverty, underdevelopment, and hopefully in the future, climate change.

Planning for the benefit of the rich

If these policies are so beneficial, why does neoliberalism eschew them? While this is perhaps an oversimplification, it’s because the interests that promote neoliberalism risk losing power and money from their adoption. The hollowing out of social welfare programs and the introduction of markets into various facets of life have led to the accrual of wealth and power for some, and those people, who might have been already rich or powerful to begin with, don’t want to lose those benefits. Neoliberalism also has different apparatuses that support it in academia, media, the state, and other institutions that give backing to its ideas. As an example, free trade in a vacuum might make sense, but “free” trade structured to benefit the rich does not. However, said apparatuses will continue to push the narrative that “free” trade is inevitable and unavoidable. Likewise, austerity — the idea the government should close budget deficits and reduce its debt — does not improve economies and makes very little sense, but it was the default policy prescription during the worst recession in 80 years, and it destroyed many lives.

That leads to another point: the United States and other countries committed to capitalism and neoliberalism actually practice industrial policy by enacting policies that largely benefit the rich. This protectionism can be found in many different parts of the economy. The supply of doctors, dentists, and lawyers is artificially restricted (thus raising wages), the Export–Import Bank subsidized large companies that had no need for subsidies, intellectual property rules allow rents to be extracted on drugs or software much longer than is necessary, the gains from government research and development are privatized, and the financial sector is largely waste — just to name a few examples.

Transportation and urbanism as examples of poor planning

Since economic planning in the United States is focused largely on extracting gains for the rich, it also means that there is inadequate planning around pressing problems, like climate change. The transportation sector illustrates these inefficiencies and coordination failures well.

The transportation sector is the largest or second-largest contributor of greenhouse gas emissions in the United States. Overwhelmingly, light-duty vehicles are responsible for most of these emissions — 60 percent — while Medium- and Heavy-Duty Trucks are 23 percent. Aircraft (9 percent), Rail (2 percent), Ships and Boats (2 percent), and everything else (4 percent) make up the rest.

In many cities in the United States, vehicles are the most common way to commute to work or get around. This is in large part due to poor and disjointed transportation policy and is also why light-duty vehicles contribute so much to emissions. Medium- and heavy-duty truck emissions are high as well (and rail, low) because trucks are the predominant way goods are transported across the country and within cities. A sensible climate policy to address this would 1) limit the emissions from vehicles and 2) shift to better ways of transporting people and goods.

Over the last thirty years, the United States has largely failed at both of these goals. Vehicle fuel efficiency has increased modestly via standards (after efficiency decreased in the 1990s), although these are undermined by states in various ways. Gasoline is by far the most common fuel, despite the availability of technology that could have supplanted it. Electric vehicles and gasoline/electric hybrid vehicles were developed and viable in the 1990s, but absent incentives to produce them or require their adoption were not produced in large numbers. Electric vehicles were clearly superior in terms of their environmental impact because they relied on electricity generation, which could be from clean sources. Instead, the United States spent significant time and money developing hydrogen, ethanol, and compressed natural gas vehicles, which had significant disadvantages (ethanol subsidies also had significant harmful effects abroad, raising the prices of food in poor countries, some of which had been encouraged to adopt trade policies that exposed themselves to this danger). This mirrors the United States’ slow recognition that wind and solar power represented the future of electricity generation, which was in part due to the promotion of natural gas as supposedly a “transition fuel” and coal as “clean.”

The United States also has questionable priorities when organizing how people get around. Cities rely on car use to an unacceptable degree, which imposes large environmental and social costs. In Ivan Illich’s Energy and Equity, Illich argues that structures like the transportation system in the United States replicate class divisions and also reproduce and justify themselves without concern for whether they make sense at all. In this, he calculates that the “true” speed of a car, taking into account all of the costs, is 3.7 miles per hour. This serves more as a thought experiment than a calculation to rely on but makes his point. Given these costs, cities should focus on the ways of getting around that have the least social costs, like walking, cycling, and public transportation, as well as designing cities better in the first place so that the average person does not need to rely on cars to get around. Instead, cities are mostly doing the opposite: expanding car use, defunding public transportation, building boondoggles like Elon Musk’s under-city single-serve tunnels, expanding in irresponsible ways, relying on ride-hailing services, and indulging in poorly thought out services like dockless bikes and scooters. In this sense, venture capital is subsidizing modes of transportation that have high social and environmental costs, with the government’s backing. The promise of self-driving cars is also influencing the government’s actions. Self-driving cars, although useful in some respects, will exacerbate environmental and social problems in cities, and should represent only a small slice of how people travel in the future. Venture capital and Silicon Valley more broadly are changing how goods are transported as well. Deliveries, both within cities and between cities, are becoming more common. There are environmental costs to these distribution models, although there is scant acknowledgment of them. Packages sent from Amazon or a grocery delivery probably have more environmental costs than the equivalent trips to the store, for example.

A sensible way to limit emissions from transportation in the United States would be to rethink how cities develop and orient them around walking, cycling, and public transportation while restricting private car use. People should live close to where they work, cities should invest in free public transportation (especially buses, which are cheap and effective), and ban or discourage ride-hailing services or other in vogue technologies that have dubious environmental or social benefits. Electric cars should be rare but the norm and autonomous technology should be embraced (although their use should be also rare and used for the same special cases that normal car use would be used for, e.g. transporting the elderly). Rail should be expanded for both passenger and freight use. These are common sense and obvious solutions that the government should support.

China: an example for the world

The United States is the country most easily positioned to address climate change but it has done likely the least out of any rich country. China, a country significantly less wealthy than the United States, has likely done the most. In fact, a recent study provides some evidence that China’s carbon dioxide emissions peaked in 2013 and are declining in large part due to changes in China’s industrial structure, which includes pilot programs for pricing carbon, among many other things. China has:

Drastically reduced its reliance on coal;
Potentially reached peak emissions in a country that’s the world’s largest economy (but also significantly less developed than its peers);
Become the largest buyer and producer of solar panels; leader in wind power installation and generation;
Undertaken massive reforestation campaigns;
A high adoption rate of electric cars.

China’s stunning progress has been called its own Green New Deal. The significance of a middle-income country enacting these policies to its short-term detriment should not be understated. Richer countries have struggled to meet modest emissions goals, and have also insisted that poorer countries undertake large reductions as a prerequisite for their own action. China nevertheless independently adopted policies that led to these achievements. In addition, it did this while continuing to pursue other goals, like poverty reduction.

How was China able to do this? China’s Communist Party undertook significant economic reforms in the 1980s and 1990s in order to grow China’s economy. These changes moved the country into a socialist market economy that introduces some elements of the market into the economy but that also gives the state significant control. The government owns significant parts of the economy and sectors deemed important. It also has more controls on private business than in the West — with agreement from those business leaders. These changes were seen as essential to China developing its productive capabilities and competing in the global economy under the current conditions but also as a step toward socialism and eventually communism.

Unlike in market socialism, economic planning is essential to China’s economy and occurs at many levels of the economy, including the top-most levels. Like other countries that have developed in the 20th century, this planning included export-oriented policies, technology transfers, support for specific industries, and management of its currency. In addition, part of the government’s planning includes the development of an internal market for China’s good and services. This planning, as well as other government policies, probably helped China avoid most of the harmful effects from the Great Recession. Indeed, China’s system seems to be able to largely avoid economic crises that are commonplace in the West, despite near-constant predictions of its economic collapse.

Integral to its more recent planning, is an emphasis on the ecological over the economic, which follows from Marx’s notion of metabolic rift and Soviet ideas about ecosocialism, that capitalism necessarily creates ecological crises and socialism must integrate the environment into the economy. Prioritizing ecological needs could lead to a slowing of the rate of exploitation of the earth’s resources, rather than just an avoidance of the most pressing ecological crisis. In China, this is the concept of an “ecological civilization,” which now has an underlying legal basis. While undoubtedly China believes that its focus on addressing environmental problems will help its long-term growth and stability, its understanding of the problems from a socialist perspective is important as well.

Despite these impressive achievements, China’s ability to set goals and achieve them has garnered little support or acknowledgment in the West. (In fact, poverty reductions from China are often misattributed to the “success” of capitalism elsewhere.) As the United States continues its slide from sole superpower to regional power, attacks on China have ramped up.

It is important to delineate the economic system in China with those of social democracies, like those in Europe. While some social democracies have had impressive achievements, their economic systems — based on exploitation historically and currently — do not fundamentally resolve the tension between classes nor give the government the power to act independently of the market to a large enough degree. Unsurprisingly, the social welfare aspects of these countries are under sustain attacks as politics have taken a turn to the right. As a different conception of neoliberalism, these countries nevertheless have austerity, anti-immigrant policies, and policies that encourage imperialism to various degrees.

Insights for climate action in the United States

China’s example provides general lessons for the United States. Capital does not naturally allocate itself to solutions that reduce environmental damage. Even if there were a price on carbon emissions, the government has tools that are needed to reach desired outcomes, which it also must set. The government also engages in research and development that would be unlikely to be conducted by the private sector, which is essential to taking action. These are examples of industrial policy and economic planning. Better management of the transportation sector, previously discussed, would have resulted in a large reduction of greenhouse gases, as would have management of other sectors of the economy. The government can also stop “wrong turns” before they happen, like the focus on developing hydrogen cars or technologies that have little practical or environmental benefits. The government should approach each sector of the economy with this mindset.

In order to use these economic approaches, international, national, and sub-national changes will need to be made. International financial institutions will need to abandon rules that limit industrial policy and economic planning, which have been baked into international financial systems. Given that the United States is probably the largest backer and enforcer of these rules, it would also have a lot of power to change them. Nationally, the United States needs to move past deficit politics and embrace the implications of Modern Monetary Theory, mainly, that taxes do not fund spending and that money is not a restraint on spending but inflation is. More simply put, the United States already has enough resources to enact ambitious policies, and taxes are a tool to keep people from getting too rich. Sub-nationally, the federal government would have to ensure that state and other jurisdictions would not undercut its policies. How cities are managed, in particular, needs to be rethought; the main economic engine of a metro area should control the policies of that area. More generally, the overarching drive toward growth, especially growth that does not take into account ecological damage, as opposed to specific policy outcomes, needs to be reevaluated.

Of course, the economic approaches discussed here and policies like the Green New Deal, in particular, will not be possible without political power. These approaches and policies are essential to taking effective action, however, so they should be integrated into the strategy to build that power as much as they should compose the solutions once that power is gained. Taking on neoliberalism is a daunting task, but it is necessary. It is a mistake to think that undertaking a transformation like that which is required to stop climate change will not require confronting capitalism, or the people who have obscured the ecological crises and contributed to it. China has already done much of the work necessary for creating an economic and political system that is able to make these changes, and there are many lessons to learn from it. Most importantly, is the realization that there is no alternative to increased management of the economy. The planet depends on it.

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.

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.

Why Left Economics is Marginalized

After the 2009 recession, Nobel Prize winner Paul Krugman wrote a New York Times article entitled “How did economists get it so wrong?” wondering why economics has such a blind spot for failure and crisis. Krugman correctly pointed out that “the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.” However, by lumping the whole economics profession into one group, Krugman perpetuates the fallacy that economics is one uniform bloc and that some economists whose work is largely ignored had indeed predicted the financial crisis. These economists were largely dismissed for not falling into what Krugman calls the “economics profession.”

So let’s acknowledge there are many types of economics, and seek to understand and apply them, before there’s another crisis.

Left economics understands power

Let’s take labor as an example. Many leftist economic thinkers view production as a social relation. The ability to gain employment is an outcome of societal structures like racism and sexism, and the distribution of earnings from production is inherently a question of power, not merely the product of a benign and objective “market” process. Labor markets are deeply intertwined with broader institutions (like the prison system), social norms (such as the gendered distribution of domestic care) and other systems (such as racist ideology) that affect employment and compensation. There is increasing evidence that the left’s view of labor is closer to reality, with research showing that many labor markets have monopsonistic qualities, which in simple terms means employees have difficulty leaving their jobs due to geography, non-compete agreements and other factors.

In contrast, mainstream economics positions labor as an input in the production process, which can be quantified and optimized, eg. maximized for productivity or minimized for cost. Wages, in widely taught models, are equal to the value of a worker’s labor. These unrealistic assumptions don’t reflect what we actually observe in the world, and this theoretical schism has important political and policy implications. For some, a job and a good wage are rights, for others, businesses should do what’s best for profits and investors. Combative policy debates like the need for stronger unions vs. anti-union right-to-work laws are rooted in this divide.

The role of government

The left believes the government has a role to play in the economy beyond simply correcting “market failures.” Prominent leftist economists like Stephanie Kelton and Mariana Mazzucato, argue for a government role in economic equity and shared prosperity through policies like guaranteed public employment and investment in innovation. The government shouldn’t merely mitigate product market failures but should use its power to end poverty.

On the other hand, mainstream economics teaches that government crowds out private investment (research shows this isn’t true), raising the wage would reduce employment (wrong) and that putting money in the hands of capital leads to more economic growth (also no). As we have seen post-Trump-cuts, tax cuts lead to the further enrichment of the already deeply unequal, equilibrium.

Limitations to left economics: public awareness and lack of resources

History and historically entrenched power determine both final outcomes but also the range of outcomes that are deemed acceptable. Structural inequalities have been ushered in by policies ranging from predatory international development (“free trade”) to domestic financial deregulation, meanwhile poverty caused by these policies is blamed on the poor.

Policy is masked by theory or beliefs (eg. about free trade), but the theory seems to be created to support opportunistic outcomes for those who hold power to decide them. The purely rational agent-based theories that undergird deregulation have been strongly advocated for by particular (mostly conservative) groups such as the Koch Network which have spent loads of money to have specific theoretical foundations taught in schools, preached in churches and legitimized by think tanks.

There have been others who question the centrality of the rational agent, the holy grail of the free market, believe in public rather than corporate welfare, and the need for government to not only regulate but to make markets and provide opportunity. This “alternative” history exists but is less present – it’s alternative-ness defined by sheer public awareness, lack of which, perhaps, stems from a lack of capital.

Financial capital is an important factor in what becomes mainstream. I went through a whole undergraduate economics program at a top university without hearing the words “union” or “redistribution,” which now feels ludicrous. Then I went to The New School for Social Research for graduate school, which has been called the University in Exile, for exiled scholars of critical theory and classical economics. In the New School economics department, we study Marxist economics, Keynesian and post-Keynesian economics, Bayesian statistics, ecological and feminist economics, among others topics. There are only a few other economics programs in the US that teach that there are different schools of thought in economics. But after finishing at the New School and thinking about doing a PhD there, I understood this problem on a personal level.

There’s barely any funding for PhDs and most have to pay their tuition, which is pretty unheard of for an economics doctorate. Why? Two reasons – 1. Because while those who treat economics like science go on to be bankers and consultants, those who study economics as a social science might not make the kind of money to fund an endowment. And 2. Perhaps because of this lack of future payout, The New School is just one of many institutions that doesn’t deem heterodox economics valuable enough to warrant the funding that goes to other programs, in this case, like Parsons.

Unfortunately, a combination of these factors leaves mainstream economics schools well funded by opportunistic benefactors, whether they’re alumni or a lobbying group, while heterodox programs struggle or fail to support their students and their research.

The horizon for economics of the left

Using elements of different schools of thought, and defining the left of the economics world, is difficult. Race, class, and power, elements that define the left, are sticky, ugly, and stressful, and don’t provide easily quantifiable building blocks like mainstream economics does. Without unifying building blocks, we’re prone to continuing to produce graduates from fancy schools who go into the world believing that economics is a hard science and that the world can be understood with existing models in which human behavior can be easily predicted.

Ultimately the mainstream and the left in economics are not so different from the mainstream and the left politically, and there is room for a stronger consensus on non-mainstream economics that would bolster the left politically. It’s worth exploring and strengthening these connections because at the heart of our economic and political divides is a fundamental difference in opinion regarding how society at large should be organized. And whether we continue to promote wealth creation within a capitalistic system, or a distributive system that holds justice as a pinnacle, will determine the extent to which we can achieve a healthy, civilized society.

Fortunately, the political left in many ways is upholding, if not the theory and empirics, the traditions and values of non-mainstream economics. Calls from the left to confront a half-century of neoliberal economic policy are more sustained and perhaps successful than other times in recent history, with some policies like the federal job guarantee making it to the mainstream. After 2008 the 99 percent, supported by mainstreamed research about inequality, began to organize.

There’s hope for change stemming from a new generation of economists, in particular, the thousands of young and aspiring economists researching and writing for groups like Rethinking Economics, the Young Scholars Initiative (YSI), Developing Economics, the Minskys (now Economic Questions), the Modern Money Network, and more. But ideas and policies are path dependent, and it will take a real progressive movement, supplemented by demands by students in schools, to bring left economics to the forefront.

By Amanda Novello.

A version of this post originally appeared on Data for Progress’ Econo-missed Q+A column, in response to a question about the marginalization of leftist voices in economics.

Amanda Novello (@NovelloAmanda) is a policy associate with the Bernard L. Schwartz Rediscovering Government Initiative at The Century Foundation. She was previously a researcher and Assistant Director at the Schwartz Center for Economic Policy Analysis at The New School for Social Research.

What Money Can’t Buy: The Moral Questions of Market Solutions

Against the backdrop of a society that rarely questions the perceived superiority of “market-based” solutions, Michael Sandel skillfully explores the intersection between markets and morality. In a six-part video series, Sandel teaches viewers a very important lesson: in practice, there is no consensus on what a free market is, and what outcomes are optimal.

The video series “What Money Can’t Buy,” produced by the Institute for New Economic Thinking, takes viewers on a journey which compels them to critically engage with a series of questions that challenge the common perception that untethered markets provide optimal solutions to all problems. While the questions cover a variety of topics, ranging from selling organs to discrimination based on looks, the common thread is to highlight this: in economic terms, what could be seen as an optimal outcome is often not a desirable outcome for society.

By watching the series, one thing becomes evident: there is no clear line that marks where markets should begin or end. Furthermore, each individual has a different understanding of what counts as an optimal outcome. As we come to terms with the lack of clear answers, the perception that unregulated markets always objectively provide a better outcome is shattered.

Economics textbooks teach students that households and firms act as if they are guided by an invisible hand that leads them to desirable market outcomes. As everyone seeks to maximize their own utility, free markets allow individuals and firms to engage in mutually beneficial exchanges, with supply and demand determining ideal price and output levels. Thus, one should simply let markets work their magic — no outside intervention necessary.

However, not even Adam Smith, to whom the “invisible hand” observation is attributed, believed that unregulated markets can lead to the best outcomes for society. As Harvard professor Amartya Sen points out, Smith was aware of the limitation of free markets. He knew resources would be drained and society’s ills would go unaccounted for in the absence of government.

Today, it is largely accepted that governments do need to play some role in setting and enforcing rules that enable markets to operate. For example, it is not controversial that property right and contract enforcement are government actions that enable markets to function, and would not be considered an intervention.

What is less acknowledged by those who oppose regulation under the guise of protecting free markets, is that the boundaries between what is considered a necessary rule and what is labeled as intervention have consistently changed throughout time, along with what our societies have deemed acceptable or not. The idea of what should and should not be sold on the market has constantly evolved.

Cambridge economist Ha-Joon Chang points this out using a simple example: child labor. In our present society, not allowing young children to work is something that seems natural. Yet, in early industrial days, this was a heated debate. Opponents called the ban an intervention in free markets and the infringement on the child’s right to sell its labor.

“What Money Can’t Buy” showcases interviews with a number of prominent academics from across the ideological spectrum, such as Joseph Stiglitz, Larry Summers, Minouche Shafik, and Greg Mankiw, as well as discussions amongst a group of students. Each episode features Sandel asking participants a sequence of questions around a specific theme, leaving it up to each of the respondents draw their own lines on what should or should not be a market good.

The interviews present a variety of responses and arguments both in favor and against allowing markets to operate in various areas of our lives, and whether allowing markets in those areas would lead to better or worse outcomes for society. There is no consensus on what counts as basic regulation, or when a market is no longer “free”.

There are no right or wrong answers to any of the questions. However, this does not mean that the responses offered by participants are not challenged. Sandel consistently asks for further elaboration on the answers, and explanations for the reasoning behind those responses. What makes the series truly thought provoking is the way in which Sandel then asks respondents if they are comfortable applying the same pro-market argument to a somewhat similar, but instinctively more morally questionable situation.

Throughout the series, it becomes clear that often the arguments in favor of having a market for something, such as kidneys, operate in a vacuum which does not take into account the large inequities and power dynamics of our society. For example, Mankiw defends the need to have a market for kidneys by claiming it would lead to more donors, and more lives saved, thus improving outcomes for society overall. Yet, as Stiglitz points out, in our unequal society, would those selling their kidneys do so as a voluntary transaction, or be coerced by their economic despair? Furthermore, selling kidneys in a market would mean the price would be too high for many people to pay, thus effectively letting poorer people die to save those who are wealthy.

What Money Can’t Buy does not provide any concrete answers to the questions discussed, and does not decide for its viewers what is right, or wrong. That is not its goal. Instead, Sandel encourages viewers to engage with the questions and critically think about the role markets play in our lives, how they are structured, and who they inherently favor. As the series makes clear, there is no objective way to define a free market or what counts as intervention, and thus it encourages us to think about morality and what type of society we wish to live in and incorporate those principles in the way markets influence our lives.

Watch the series here.

International Trade and Globalization: Are Benefits Truly Mutual?

By Aabid Firdausi.

The euphoria around international trade and the general consensus regarding capitalism’s inevitable sustenance among countries of the Global South is at least partly due to the absence of an alternative after the collapse of the Soviet Union. The politics of capitalism, with its expansionary dynamics, has assumed a truly “global” avatar by aggressively pursuing a neoliberal globalization agenda. Thus, we see much hype around the numerous trade treaties that governments around the world sign, claiming they would boost economic growth and create jobs. However, a critical examination of mainstream trade theories reveals several insights as to why there has been a hegemony of thought when it comes to attitudes around globalization.

The idea that “free” trade and globalization imply mutual benefits and prosperity for all the parties involved is simply accepted as common sense. Mainstream trade theories argue that if nations engage in international exchange, then all parties will be better off. Although this seemingly innocuous assumption is based on an unrealistic worldview, it has deep implications when translated into practice. This article provides a basic understanding of some of the areas that theories in mainstream international economics conveniently ignore.

It is pertinent that we pause and critically question what we are told, taught, and made to believe – for nothing that is promoted with such great fanfare by economic elites can be free of costs. When it comes to trade treaties, the devil often lies in the details, which often reveal policies that lead to the further immiseration of the working class and the peasantry, especially in the Global South. First, it is extremely important to understand trade in a historical perspective and how it has changed with different epochs within capitalism. The North-South trade in many instances was first a colonial tragedy (the British colonization of India, for example) and has now become a neo-colonial farce. This manifests itself in the myriad ways in how multinationals shape spheres of public and private actions from land-grabbing to a homogenization of consumption patterns.

Secondly, international trade theories blatantly disregard the asymmetric power relations that exist in the global political economy. Despite the dichotomous classification of nations on the basis of the degree of development, trade theories often assume that transactions between two unequal nations tend to benefit both. While it is naïve to discard any benefits at all from the process, it is essential that we ask who frames these trade policies and what sections of society receives the lion’s share of the benefits.

Third, mainstream theories often categorize labor and capital as homogenous and lump them together as factors of production. In reality, as it is obvious, labor and capital are far from homogenous. A critical reader looking at these flawed assumptions that most theories rest upon could easily conclude they would better suit interregional trade on an extremely local basis, than an international basis! The variations in factors on a local level would be significantly smaller than the variations and imbalances that exist on a broader scale.

Fourth, I would argue that trade theories commit a grave injustice in its treatment of labor, which shows the class nature of most theories and the subsequent policies that are influenced by it. Cheap labor is often hailed as a virtue of the Global South – and this is projected as an open invitation to set up sweatshops for global capital in the name of manufacturing competitiveness. Thus, the hegemonic narrative around the potential for trade is essentially dehumanizing in nature. Such trends that have been persistent since the vigorous promotion of mathematical economics have largely dissociated the discipline from the wider branch of social science.

Fifth, there exists a systematic misdiagnosis of the power relation between capital and labor. This is perhaps most evident in the asymmetries observed in the globalization of capital and the globalization of labor. While the former has largely been internationally mobile, the latter has not been so. Though this can be partially explained by the existence of the state and its territorial boundaries, it would be foolish to discard the class dynamics of this asymmetric transnational mobility.

Finally, the after-effects of (primitive) accumulation have largely been ignored in mainstream theories. The presence of regional endowments that creates a fertile land for foreign capital and the subsequent invitation of the so-called job-creating corporations ignore the displacement of the livelihoods of the peasantry. This dispossession that Marx referred to as the primitive accumulation has been rampant in the Global South. However, the compensation and rehabilitation provided to the dispossessed have largely been inadequate. This raises larger questions about what development actually is and whose interests it serves.

Thus, it is important that we see through the haze and understand the basis and implications of mainstream theories on trade, and who they truly favor. What is taught in classrooms shapes to a large extent convictions and the worldview of a large number of students. There is a pressing need to promote and develop alternative streams of thought that are “social” in nature amidst the contemporary backlash against capitalist globalization. It is necessary that an interdisciplinary perspective on globalization in general and international trade, in particular, is cultivated in academic institutions in the Global North and South. Only then can we undo the hegemony of the “globalization benefits all” narrative.

Aabid Firdausi is from India and is a Master’s student at the Department of Economics, University of Kerala. He is interested in understanding the socio-spatial dynamics of capitalism from an interdisciplinary perspective.

The Neoliberal Tale

“The tide of Totalitarianism which we have to counter is an international phenomenon and the liberal renaissance which is needed to meet it and of which first signs can be discerned here and there will have little chance of success unless its forces can join and succeed in making the people of all the countries of the Western World aware of what is at stake.” (Friedrich Hayek)

In the past year we’ve seen a number of mentions to the maladies that neoliberalism and globalization have brought upon Western societies (e.g., see here, here, and here). It is well known that during the past decades the levels of inequality and wealth concentration have continued to increase in capitalist economies, leading to the arrival of “outsiders” to the established political powers such as Trump in the US and Macron in France, a turn to the right all over Latin America, and Brexit.

Neoliberalism, one of the main elements to blame, is better known for the policies that defined the world economy since the 1970s. Faithful devotees like Ronald Reagan and Margaret Thatcher, in the US and UK respectively, exported a number of their neoliberal policies to low and middle income countries through the Washington Consensus under the pretense that it would bring about development.

Neoliberal policies did not exactly turn out the way their creators envisioned. They wanted to reformulate the old liberal ideas of the 19^th century in a deeper and coherent social philosophy – something that was actually never accomplished. This article will review some of the origins of neoliberalism.

The first time the term “neoliberalism” appeared, according to Horn and Mirowski (2009), was at the Colloque Walter Lippmann in Paris, in 1938. The Colloque was organized to debate the ideas presented in Lippmann’s recent book The Good Society in which he proposed an outline for government intervention in the economy, establishing the boundaries between laissez-faire – a mark of the old liberalism – and state interventionism.

Lippmann set the foundations for a renovation of the liberal philosophy and the Colloque was a first opportunity to discuss the classical liberal ideas and to first draw a line in what the new liberal movement would or should differ from the old liberalism. It was a landmark that, in subsequent years, sparked several attempts to establish institutions that would reshape liberalism, such as the Free Market Study at the University of Chicago and Friedrich Hayek’s Mont Pelerin Society (MPS).

This event announced major difficulties among the peers of liberalism. Reservations and disagreements among free market advocates were not uncommon. A notable mention is Henry Simons, of the Chicago School, whose position against monopolies and how they should be addressed was a point of disagreement with fellow libertarians such as Hayek, Lionel Robbins – both at the London School of Economics (LSE) at the time – and Ludwig von Mises.

Simons’s view that the government should nationalize and dismantle monopolies would nowadays be viewed as a leftist attack on corporations but it fits perfectly under the classical liberal basis that Simons and Frank Knight, also from the University of Chicago, were following. Under their interpretation, any concentration of power that undermines the price system and therefore threatens market – and political, individual – freedoms should be countered, even if it meant using the government for that purpose.

It becomes clear that the reformulation of liberal ideas into what we know today as neoliberalism was not a smooth and certain project. In fact, market advocates struggled to make themselves heard in a world guarded by state interventionism that dominated the Great Depression and post-war period. Keynes’s publication of The General Theory in 1936 and the wake of the Keynesian revolution, swiped economic departments all over and further undermined the libertarian view.

By the end of the 1930s and of Lippmann’s Colloque, however, the perception that neoliberalism would only thrive if there were a concerted collective effort by its representatives changed Hayek’s perception over his engagement in the normative discourse. In 1946-47, the establishment of the Chicago School and the MPS, were both results of a transnational effort to shape public policy and fit liberal ideas under a broader social philosophy. The main protagonists beyond Hayek were Simons, Aaron Director, and the liberal-conservative Harold Luhnow, then director of the William Volker Fund and responsible for devoting funds to the projects.

The condition for success, as remarked in the epigraph, was to “join and succeed in making the people of all the countries of the Western World aware of what is at stake.” What was at stake? Social and political freedom. Hayek and many early neoliberals understood that any social philosophy or praxis crippling market mechanisms would invariably lead to a “slippery slope” towards totalitarianism.

It is important to note, though, that the causation runs from market to social and political freedom and not the other way around. As Burgin (2012) indicates, while market freedom is a precondition to a free democratic society, the latter may threaten market freedom. Free market should not be subjected to popular vote, it should not be ruled over by any “populist” government (a common swear-word today), and there needs to exist mechanisms to protect that from happening.

Once we have that in mind, it is not so bugging the association that Hayek, Milton Friedman, and the Chicago School once had with authoritarian governments such as Pinochet’s in Chile, one of the most violent dictatorships in Latin American history.

Several liberal economists that occupied important public positions in the Chilean dictatorship had been trained at the Chicago School. The famously known “Chicago Boys” first experimented in Chile what later would be applied in the US and UK and then exported to the rest of the developing world through the Washington Consensus.

In brief, the adoption of some form of authoritarian control over popular sovereignty was deemed acceptable in order to guarantee market sovereignty.

Nevertheless, in the discussions within the early neoliberal groups the boundaries of disciplinary economics were trespassed, and the formulation of neoliberalism – and the Chicago School and MPS – was not grounded on any scientific analytical basis but simply on political affiliation.

The multidisciplinary character, dispersion, and incertitude are some of the reasons why it is hard to give a straightforward definition of what the term “neoliberalism” really means. In order to understand it, we have to mind the set of “dualisms” (capitalism vs. socialism; Keynesianism vs. liberalism; freedom vs. collectivism, and so on) that marked the period. Its defenders (academics, entrepreneurs, journalists, etc.) did not know what their own agenda was – they only knew what they were supposed to oppose. Neoliberalism was born out of a “negative” effort.

It wasn’t until many years later that the division between normative and positive economics came to surface with Friedman and his book Capitalism and Freedom, published in 1962. The increasing participation of economists in the MPS, and a more active public policy advocacy by Milton Friedman brought an end to Hayek’s intention to construct a new multidisciplinary social philosophy.

Economically, Friedman embraced laissez-faire; methodologically, he embraced empirical analysis and positive policy recommendations, getting ever further away from abstract notions of value and moral discussions that his earlier MPS fellows, such as Hayek, were worried about. Neoliberalism lost its path on the way to its triumph; it became a “science” that offered legitimacy to a new credo, a new “illusion”.

As the shadows of neoliberalism became more intertwined with the current neoclassical economics and Friedman’s monetarism, it not only lost its name but also gave birth to a corporate type of laissez-faire; one in which social relations are downgraded to market mechanisms; politics, education, health, employment, it all could fit under the market process in which individuals maximize their own utility. There’s nothing that the government can do that the market cannot do better and more efficiently. Monopolies, if anything, are to be blamed on government actions, while labor unions are disruptive to the economy’s wellbeing. Neoliberalism became a set of policies to be followed: privatization, deregulation, trade liberalization, tax cuts, etc. on a crusade to commoditize every single essential service – or every aspect of life itself.

Hayek believed that these ideas could spread and change the world. And they certainly did. What is worth noting is that there is no fatalistic understanding that neoliberalism was unavoidably a result of historical factors.

The rise of neoliberalism was not spontaneous but rather orchestrated and planned; it was a collective transnational movement to counteract the mainstream of the time; it was originated out of delusion in a period marked by wars, authoritarianism and economic crisis; it was grounded on political affiliations and supported by the dominant ruling class that funded its endeavors and transformed public opinion. These are the roots of what is now the mainstream economic thought.

Economics as a Science?

By Johnny Fulfer.

Is economics a science?

Could it be? Should it be? The debate is as alive today as it was in the early twentieth century. This article reviews some of the key arguments in the discussion and provides a helpful backdrop against which to rethink the purpose of economics today.

In 1906, Irving Fisher argued that economics is no less scientific than physics or biology. All three aim to discover “scientific laws,” he explained. Even though they may not always be represented in reality, scientific laws are considered fundamental truths in nature. Newton’s first law of motion, for instance, cannot be observed. Only if certain circumstances were met, a body would move uniformly in a straight line. The same holds true for economic science, Fisher concluded.

But not everyone agreed. The discipline was charged with unsound methods.

Specifically, economists were accused of using the deductive method without the necessary level of precision. Jacob Hollander addressed the charges in a 1916 essay. Scientific inquiry involves uniformity and sequence, Hollander maintained. Progression in science relies on the formation of hypotheses, which may at some point become ‘laws.’ Observation and inference are the first steps toward the creation of hypotheses. The final step in the scientific process is verification, which is required before we move from theory to law. Without verification, he argued, “speculation is an intellectual gymnastic, not a scientific process.”

Hollander’s work reveals one of the questions at the heart of this debate: Is verification required, and even possible, given the complexities of economic phenomena? Scholars have the disposition to rely on the works of previous thinkers, Hollander argued, without endeavoring to move beyond familiar perspectives.

This question lives on today.

In a 2013 opinion piece for the New York Times, Stanford economist Raj Chetty argues that science is no more than testing hypotheses with precision. Large macroeconomic questions—such as the cause of recessions or the origin of economic growth—“remain elusive.” This is no different than large questions faced by the medical field, such as the pursuit to cure cancer, he explains. The primary limitation of economics, Chetty argues, is that economists have a limited ability to run controlled experiments for theoretical macroeconomic conclusions. The high monetary cost and ethical standards make these types of controlled experiments impractical. And even if we could run a controlled experiment, it may not matter in the long run, for social changes.

In a 2016 essay, Duncan Foley added to the conversation. He argued that the distinctions between the social and natural sciences are not clear. Both come from the same scientific revolution, and both are influenced by values. The notion that scholars in the natural sciences “pursue truth” is a flawed assumption, Foley argues. Scholars in the natural and social sciences choose which problems to solve and the methodology they use.

This choice involves values since a scholar must value one research project more than another.

Examining the scientific nature of economics, John F. Henry explains that neoclassical economic theory holds a position of influence in society because of its universal and abstract nature. Henry maintains that we should reexamine this assumption of universality. If economics is based on subjective values, how can it be considered universal? Should economists continue making ‘progress toward a more scientific structure of knowledge? This leads us to ask how we define progress. There is no end to this debate.

It seems unproductive to continue asking such questions. Rather than debating whether economics is or is not a science, perhaps we should shift the discussion toward questions that ask why economics needs to be a science in the first place. Where does this desire to be ‘scientific’ come from, and why is it so important for economics to be considered scientific? Perhaps the real issue is the determination to make economics a science.

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.