Posts Tagged Pieria

Pieria: The Rise and Fall of Piketty Critiques

I’ve been dragged back into the Piketty melee by a review of Piketty from ‘New Institutional’ superstars Daren Acemoglu & James Robinson. Unsurprisingly, they focus on the institutional aspects of Piketty’s work, charging that his framework doesn’t pay much attention to institutions. I disagree:

The claim that Piketty’s work is ahistorical and ainstitutional is an odd one which is easily belied. For a start, Piketty states that the truth of r > g “depends, however, on the shocks to which capital is subject, as well as on what public policies and institutions are put in place to regulate the relationship between capital and labor.” Piketty’s obvious awareness of institutions is presumably the reason he spends four chapters documenting the kinds of political institutions that might be put in place to counteract a rise in inequality.

They dispute Piketty’s use of ‘general laws’, but they misinterpret the laws in numerous ways – the biggest mistake is the idea they are even supposed to be ‘general laws’, rather than empirically established tendencies:

[Piketty] is simply not seeking to uncover general laws of capitalism. What he is doing is identifying the conditions under which inequality will tend to increase, asking whether they are empirically reasonable, and making predictions based on this framework. His first law is just an identity; his second law is an “asymptotic law”, subject to a number of qualifiers, which describes the direction in which the capital/income ratio will evolve at any one time. As for r > g, he himself states that it “is a contingent historical proposition, which is true in some periods and political contexts and not in others.”

I’ve been a vocal critic of people who do not read Piketty or read him poorly, and I don’t want to be a hypocrite with AR’s book Why Nations Fail, which I have not yet read. But I am pessimistic that it follows the theme of their review: posit a theory in which institutions take centre stage; repeat a superficial history of a series of countries in turn, interpreted from that viewpoint; stick some econometrics in. Or, as Branko Milanovic called it, “Wikipedia entries with regressions”. I’m genuinely asking people who’ve read the book to persuade me that this is not the case.

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Pieria: The Ethics of Inequality

New post on Pieria, discussing why inequality could be ethically ‘wrong’:

What is inequality?

Inequality is a situation where certain people have access to things – places, goods, services – which others do not. Historically, inequalities have often been enforced by fiat, such as aristocracies and guilds, or perhaps based on group characteristics, such as apartheid or slavery. In capitalist societies, we typically use property rights to restrict peoples’ access to resources. A poor man who walks into a store and tries to take something without paying will be prevented from doing so by security or the police, while a rich man who pays will not. The same applies to private schools, expensive social clubs or fine works of art. Unless you have a sufficient number of vouchers (money), you are legally and socially restricted from access to the overwhelming majority of resources in society.

Justifying inequality therefore entails arguing why some deserve more of these vouchers, and hence greater access to places, to goods and services, to social opportunities, than others. Defenders of inequality typically rely on one of 3 ethical arguments: just deserts, voluntarism, and grow the pie. I will consider each of these arguments in turn.

As I said on twitter, the article was definitely influenced by Matt Bruenig, but for balance here’s me saying similar things quite a while ago. The point is that contemporary debate often has it backwards: it is asked why exactly we should reduce inequality, as if that is some sort of natural baseline. But if you accept that people are born equal (which most do, even if they don’t like to say it out loud), then the question is why some are more restricted from pieces of the world than others. Defenders of inequality sometimes proceed as if the 3 ethical arguments above override any other concerns.

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Pieria: Perverting Piketty

I have a new post on Piketty on Pieria, pointing out potential problems interpreting his premises and propositions (sorry, it started organically):

I recently wrote about the numerous misconceptions over Thomas Piketty’s use and definition of capital in his book Capital in the 21st Century. Sadly, it seems there are a number of other common, equally important mischaracterisations of Piketty’s model floating around. Here I will consider 5 of the most widespread and show, using direct quotes from Piketty himself, why they are off the mark. The first 3 are simple errors of interpretation with regards to Piketty’s theoretical framework, while the latter 2 are problems with how people have responded to Piketty in general. Although the latter 2 are inevitably more subjective, they are still important for trying to understand and reframe the debate between Piketty and his critics.

Each point gives the common misinterpretation of Piketty’s work, and counters it. For example, one of the most important points (IMO) is this one:

2. ‘Fundamental laws’ of capitalism?

The claim: Piketty’s ‘fundamental laws of capitalism’ are not fundamental at all.

The reality: Although calling them ‘laws’ is misleading, at no point does Piketty claim that his laws are inviolable. They are instead tendencies (with the exception of the first law, which is just an accounting identity) which push capital’s share of income in a certain direction over time, but can be counteracted by any number of things, and only take hold over a long timespan.

Hopefully this will be a useful resource for when people who haven’t read the book (or worse, have read it but clearly either rushed or lack reading comprehension) repeat silly canards about it.

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Pieria: Capital in Piketty’s ‘Capital’

I have a new post on Pieria, where I finally get round to commenting on Thomas Piketty’s Capital in the 21st Century. My focus is on capital itself, how Piketty defines this and whether or not critics such as Jamie Galbraith are right to attack him for his choice of definition:

An important but perhaps under-discussed aspect of Thomas Piketty’s Capital in the 21st Century is Piketty’s definition of capital itself, and the implications this has for his thesis and its critics. Capital is a notoriously tricky to define concept, and many have taken issue with Piketty’s definition and the framework he builds around it. Typically, the implication is that a more Correct understanding of capital leads to vastly different conclusions to Piketty’s, especially with regards to his conclusions on inequality.

The verdict is that Piketty’s definition of capital is a lot more nuanced than critics make out, and typically (though not always) their critique just reflects a pet peeve of theirs, whether this is human capital, the CCCs or what have you. It’s not that Piketty’s definition is ‘correct’, or that it chimes well with other historical usages of the term (such as Marx’s); it’s merely that Piketty’s own definition is sufficient for showing what he wants to show: the dynamics of inequality under capitalism.

I’m also not really sure about Paul Krugman’s contention that Piketty “relies mainly on conventional, mainstream economics” – sure, he uses some mainstream concepts, but begrudgingly, and only as one angle of support for his broader historical, political and statistical analysis. This analysis stands or falls apart from frameworks like the production function, marginal productivity theory or the Solow Growth Model, even if some economists are eager to interpret it entirely within such frameworks. The fact is that while Piketty’s work cannot be construed as purely ‘heterodox’ or ‘mainstream’, it’s definitely far closer to how economics should look in the future: holistic, empirical, and using mathematics only when needed. Hopefully economists of all stripes can recognise this instead of focusing too much on unimportant details.

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Pieria: Unlearning the History of Capitalism

I have a new, long overdue post on Pieria, following up on the argument over capitalism and communism which was recently reignited by Jesse Myerson:

Imagine if every time somebody expressed support for capitalism, they were immediately screamed down with death tolls from Colonial India, the Transatlantic Slave Trade and the worst of US foreign policy. Those who argued against them, rather than engaging any of their arguments directly, informed them that they were “psychotic“, heartless apologists for some of the worst crimes in history, then proceeded to catalogue these crimes as if that settled the debate. Perhaps the incredulous anti-capitalists would go so far as to tell the capitalist that they were insulting the victims of these crimes, and even that if they ever met those victims, they’d probably get beaten up or something. Sound stupid? Well, this is where debates about communism lie today.

…it is entirely possible for somebody to support communism or socialism as an idea but not support specific governments or movements that carry its banner. Which supporter of capitalism supports every (or any) capitalist politician, country, business leader, political party or other major capitalist institution? Presumably none, and for good reason: there are significant differences within movements and systems as well as between them; there are bad policies or mistakes; there are harsh historical circumstances from which we should be careful of drawing general inferences about a system. Endorsing an idea doesn’t mean you endorse any interpretation of it, or everything done in its name, under any circumstance. People understand this when they’re talking about capitalism: we have social democracy, both left and right neoliberalism, anarcho-capitalism, minarchist libertarianism, European union-business alliance capitalism, and many more specific iterations of these. Yet when Myerson defended communism in general, he was immediately accused of arguing the USSR was a “utopia”, despite doing nothing of the sort.

As you might expect, I go on to discuss the history of capitalism – in particular US foreign policy – and respond briefly to Mark Harrison on the history of communism. (FWIW, I also responded to him at the time in the comments, saying much the same thing and also highlighting some of the other points he made, most of which I considered pretty weak, such as responding to the charge that McCarthyism was ridiculous by saying “no. McCarthyism was ridiculous”).

The further I get into this debate, the further I realise how specious the whole obsession with Stalin and Mao actually is, and also how well obfuscated the history of our own countries is. Sadly, since Myerson’s critics are the kind of people who actually think the Vietnam War should have continued, I doubt there’ll be much progress with this debate any time soon. Still, it’s good to have a narrative that is neither Stalinist nor ‘true communism’, as both of those require a lot of hand waving and have resulted in the self-destructive left we see today. The historical context argument allows us to acknowledge the obvious failings of existing communist regimes, but still endorse the ideas behind socialism and understand how they could work under different circumstances. I sincerely hope that this – rather than accusations of Stalin apologetics – is what people will take away from the piece.

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Pieria: How Conservative is Mainstream Economics?

I have a new article in Pieria, arguing that the image of mainstream economists as rabid free-marketeers is not entirely without foundation:

There is quite a disconnect between mainstream economics as seen in the public eye and as seen by economists themselves. A lot of media criticism of economics – and the Guardianseems to be going mad on this recently  – paints mainstream economic theory as supporting a ‘free market’ or ‘neoliberal’ worldview, possibly in cahoots with the elites, and largely unconcerned with human welfare. Economists tend to switch off in the face of such criticisms, arguing that the majority of them, along with their theories, do not support such policies…

…Yet I think there is a good  argument to be made, not that mainstream economics necessarily implies particular policies, but that it is easily utilised to push a certain worldview, based on which questions it asks and how the answers are modeled and presented. This worldview is what the public and journalists all too frequently encounter as ‘economics’, which is why they often conflate neoclassical with neoliberal ideas.

An interesting question – which I do not explore in the article, but have written about before, as has Peter Dorman – is the disparity between ‘econ101’ rhetoric and what economics actually implies. ‘Economics’ in the public image is generally used to justify counterintuitive or unpalatable ideas like the minimum wage and austerity, even though arguing unambiguously for them – particularly the latter – is a position that is actually quite ignorant of ‘economics’ as a field.

Do I blame economists for this? Partly: I think economists should be more worried about their public image, whereas you often get the impression they are more concerned with being enlightened technocrats than anything else. However, politicisation isn’t unique to economics (consider climate change denial or evolution/religion), so it’s a bit unfair to single out economists in that sense. Having said that, 99% of scientists in the former fields are united against the pseudo-scientific caricatures of them in the media, whereas economists are far less able to convey a clear message to the public. In short, perhaps economists should figure things out amongst themselves before they rattle off lists of policy proposals based on their models.

Anyway, enjoy the piece!

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Pieria: Straw Men and Marxism

I’m in Pieria again, with a post that tries to outline Marxist theories and defend them from some common but clearly misplaced criticisms:

For many, Marxist theories should be laid to rest. His labour theory of value is often referred to as “discredited”, superseded by the subjective theory of value, while historical materialism and its lofty ideals about changing human nature are held to be equally fallacious. His purported views on colonialism (and their Leninist children), while not entirely wrong, are held to be incomplete as they fail to include non-capitalist instances of these phenomena. Finally, his historical ideas about the ‘inevitable’ overthrow of class war and victory of socialism are seen as naive and deterministic, and, to a degree, ethnocentric.

However, as I will show, such crude caricatures have been around for over a century, and were often repudiated by Marx (and his collaborator, Friedrich Engels) themselves.

I talk about the Labour Theory of Value (not price!), which I’ve defended before, as well as the Marxist view of colonialism and imperialism; finally, I refute the absurd idea that Marx supported a strong form of historical materialism.

As a brief conjecture, I think one of the main problems people have with accepting Marxism – aside from the difficult political implications – is that it is such a comprehensive ‘theory of everything’. While, as I argue, Marxism gives birth to many falsifiable hypotheses, it also acts as a lens through which to view the world. Hence, embracing it fully is a big step for a most people, because they (a) lose the ‘individuality’ of their views and (b) have to master an entirely different method of communication. (To this end, I would advise Marxists to refrain from using terminology quite as much as they do – it alienates (!) people).

Anyway, ‘read the whole thing’, as they say.

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Pieria: Introducing Post-Keynesian Economics

My newest article at Pieria provides an overview of the post-Keynesian theories of consumers, producers, money/banking and trade:

A common charge directed at heterodox economics is that it is defined as a negative and has little to offer in the way of an alternative to mainstream economics (at least, if we ignore the ‘extremes’ of Austrianism and Marxism). It’s true that heterodox economists, including myself, often spend more time criticising mainstream economics than we do offering alternative theories. Yet there is in fact a large amount of work on alternative theories of pricing, distribution, finance and trade. Below I will sketch out what is known as the ‘Post-Keynesian’ (PK) approach to economic theory….

The summary echoes what I’ve said before about the difference between mainstream and heterodox economics:

First, post-Keynesians tend to emphasise that key variables (wages, the rate of interest) are monetary, not real phenomena. This doesn’t mean the notion of the real is unimportant – far from it – but it does mean that it is often a poor starting point for analysis. Second, there is generally no special status accorded to particular variables. Consumers and producers are not ‘optimising’; trade between countries can be imbalanced for long periods of time; the economy can remain in a state of depressed demand and no adjustment of prices will save it. Third, there is a lot of emphasis on institutional considerations. Since prices, demand and trade depend somewhat on social norms and agreements, and since agents tend to fix their decisions for long periods of time to maintain a degree of certainty, different economic trends can persist based on historical path dependence, and there is no ‘one size fits all’ model.

I have to say that I’m not sure why post-Keynesians don’t spend more time on this stuff. I find the theories pretty comprehensive and quite obviously more grounded in reality than the neoclassical approach.

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On Pieria: What’s Wrong With Economics?

My latest article, trying to sum up the problems with economist’s approach – in 3 words, “it’s too narrow”:

The question of whether mainstream (neoclassical) economics as a discipline is fit for purpose is well-trodden ground…

….[I think] economic theory is flawed, not necessarily because it is simply ‘wrong’, but because it is based on quite a rigid core framework that can restrict economists and blind them to certain problems. In my opinion, neoclassical economics has useful insights and appropriate applications, but it is not the only worthwhile framework out there, and economist’s toolkit is massively incomplete as long as they shy away from alternative economic theories, as well as relevant political and moral questions.

As Yanis Varoufakis noted, it is strange how remarkably resilient the neoclassical framework is in the presence of many coherent alternatives and a large number of empirical/logical problems. However, I actually think this is quite normal in science – after all, it is done by humans, not robots. Hopefully things will change eventually and economics will become more comprehensive/pluralistic, as I call for in the article.

It’s good to sum up my overall position, but I think I’ll probably lean more (though not entirely) towards positive approaches from now on, some of which I mention in the article. Though I strongly disagree with Jonathan Catalan that heterodox economists are “more often wrong than right”, I agree with his sentiment that it’s probably better to “sell [one’s] ideas” that to endlessly repeat oneself about methodology and so forth. So maybe expect a shift from general criticisms of economics to more positive and targeted approaches!

PS Having said that, my next post definitely doesn’t fit this description.

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Pieria Article Against NGDP Targeting

I’ve got a new article in Pieria, arguing against NGDPT:

However, I believe – as in the bottom right section of the table – that NGDPT would actually be completely ineffective. It is tautologically true that a given level of nominal income will correspond to a certain stock of money M, turned over at a rate V, and therefore MV = PY. However, much like the Savings = Investment confusion, it does not follow that there is an arrow from the left hand side of the equation to the right hand side. It may simply not be the case that an increase in the ‘available’ stock of money translates into an increase in income at all.

I also note that the empirical evidence suggests RGDP moved first in the recent crisis, before NGDP and before NGDP expectations. I don’t really know how market monetarists can square that fact with their framework.

I temper my criticisms of market monetarism in the piece, but to be honest I find the whole thing pretty worthless. Market monetarists continually evade pertinent criticisms from MMTers and endogenous money theorists, who point out that things simply do not work the way they think they do. Any attempt at a serious discussion of transmission mechanisms is met with ‘expectations!‘ as if expectations are a magic wand and not simply a reflection of the actual behaviour of the economy. Scott Sumner in particular refuses to discuss transmission mechanisms or engage the Lucas Critique, and seems to be more concerned with making out he is an oppressed minority than actual arguments.

Anyway, I’ll end my rant here – the actual piece has the important points.

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