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Tag Archives: heterodox economics

Economist Dr. Richard Wolff On Basic Economic Theory from a Comparative Perspective, as a Corrective for the Intellectual Dishonesty Built Into Most American Economics Curricula

24 Fri Feb 2017

Posted by ztnh in Anti-Capitalism, Critical Pedagogy, Critical Pedagogy, Critical Theory, Dr. Karl Marx (1818-1883), Education, Global Labour Movement, History of Economic Theory, Marxian Theory (Marxism), Philosophy of Education, Political Economy, Worker Self-Directed Enterprises

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Dr. Richard David Wolff (b. 1942), Economic Update, heterodox economics, Keynesian economics, KPFA, laissez faire, Lord John Maynard Keynes 1st Baron Keynes CB FBA (1883–1946), Lord Robert Skidelsky (b. 1939), Marxian economics, MMT, neoclassical economics, Pacifica Radio Network, Post-Keynesian economics, Robert Jacob Alexander Baron Skidelsky FBA (b. 1939), transcript, UMKC heterodox economics

usdayofrageLUMPENPROLETARIAT—On free speech radio’s Economic Update, host and heterodox economist, Dr. Richard D. Wolff discussed various economics topics, as he does every week.  And, this week, Dr. Wolff devoted the second half hour of the broadcast to breaking us out of the dominant ruling class/Wall Street paradigm of economics, which we are all force-fed in most economics textbooks in most American schools, colleges, and universities, and which permeates our newspapers, our radio, TV, and internet news reports.  Thankfully, there is more than one way to approach the economy and questions of economics.

The dominant version of economic theory (dominant, in terms of geographic footprint, not intellectual superiority), which saturates, at least, the English-speaking (and Western) world is known as neoclassical economics, which is merely one theoretical approach to economics.  By contrast, heterodox economics considers alternative approaches to economic theory and practice from a comparative perspective.  The New School (where Dr. Richard Wolff currently teaches) and the UMKC Department of Economics at the University of Missouri-Kansas City (where your author studied) are two examples of the few heterodox economics departments in the USA, which offer a comparative approach to economics.  Most economics departments around the nation are modeled after the conservative/neoclassical Chicago school of economics.  Indeed, the Chicago school has essentially colonised most economics departments around the nation and stifled alternative perspectives, such as Marxian economics (which has been suppressed and even criminalised), Keynesian economics (which has been co-opted by neoclassical economics), Post-Keynesian economics (which has sought to remain true to the original spirit of Keynes‘ work), and institutional economics (which has sought alternative ways of viewing the economy, from broader perspectives beyond simply money, business, finance, and trade).

As a result of the stifling hegemony of neoclassical economics, the field of economics has been rendered deliberately abstruse, opaque, dull and uninteresting, and completely removed from all human/social context by an overly mathematised and rigid adherence to neoclassical assumptions.  The interesting professors of economics employ a comparative approach and make real-world connections, such as Dr. John Henry, who taught us at UMKC, among other things, about the History of Economic Theory (or, somewhat derogatorily, the History of Economic Thought) as well as microeconomic analysis.  Another interesting, indeed awesome, UMKC professor of economics was Dr. Fred Lee, who was respected for his level of knowledge and vast reading.  Dr. Fred Lee was always one of my favorite participants at UMKC economics presentations because he didn’t mince words and he always called it like he saw it.  He was very outspoken and very passionate about heterodox economics and socioeconomic justice.  Indeed, if memory serves me, Dr. Lee coined the name heterodox economics.  For economics professors, who are not confined within neoclassical dogma, economic theory must always be first and foremost descriptive before prescriptive.  Notably, Dr. Henry also taught Post-Keynesian economist Dr. Stephanie Kelton, who continues to teach the world, as do other MMT advocates, how our money system works and why the government can afford to spend for public purpose, such as effectively ending involuntary unemployment through an MMT-based job guarantee programme.

It’s a shame that the American people are not taught to understand their own economy and economic system, or how the two-party system of Democrats and Republicans locks in place a capitalist system, which is misunderstood and confounded by myths, perpetuated by bad, or narrow and dogmatic, economics curricula.  But our U.S. Constitution encourages us to speak freely and for each one to teach one, and to help our neighbors survive and prosper.  That’s where the politics of education come in, which might involve base human drives, such as ego and greed, but also altruism and a deeper underlying philosophy of education.  Even Pope Francis uttered a few years ago, “Injustice is not invincible.”  To help us better understand our world, Dr. Richard Wolff disabuses us of many harmful myths regarding our economy, economics and economic theory, and how those economic myths harm our working class lives. [1]  Listen (and/or download) here. [2]

Messina

***

[Working draft transcript of actual radio broadcast by Messina for Lumpenproletariat and Economic Update.]

Economic UpdateECONOMIC UPDATE—[24 FEB 2017]

[A critique of the working conditions and pay scales of so-called ‘adjunct’ professors at post-secondary educational institutions.]

[KPFA paid-staff member Mitch Jeserich appeals for KPFA listener-sponsorship, membership, and support in the context of KPFA’s Winter Fund Drive (February 2017).]

[A brief comparative analysis of wealth inequality around the world.]

[KPFA paid-staff member Mitch Jeserich appeals for KPFA listener-sponsorship, membership, and support in the context of KPFA’s Winter Fund Drive (February 2017).]  (c. 31:51)

On basic economic theory, from a comparative perspective.

DR. RICHARD WOLFF:  “Okay.  Much of the time, that remains for me today, is going to be used to talk about economic theory.  Don’t worry.  This is not gonna be an abstruse lesson of the sort you might get in a bad class in a bad school.  I’m gonna try to make it clear.  And I’m gonna try to make it interesting.  But we have to deal with this.  (c. 31:58)

“Economics is not like fixing a car.  If you wanna fix a car, you go to a place where they teach you:

This is the carburetor. This is the engine. This is how it works. This is how it breaks down. And this is how you fix it, when it breaks down, so that it works again.

“Things are kind of understood.  They’re fairly universal, car engines being what they are.  And, so, you can become a mechanic and a skilled worker by learning how the engine is put together, what goes wrong, and how to fix it.  Economics is not like that.  (c. 32:56)

“What do I mean?  The economy is part of the mystery of how human beings interact with one another.  You know other parts of that mystery because we all confront those mysteries.

Why do I find that person attractive, rather than the other one?

Why did I marry him, or her, rather than that other one?

Why am I friends with this person, but not with the other one?

“These are mysteries of relationships.  And we spend much of our time trying to figure them out.  And we make progress.  We learn how or why, at least part of how or why we [for example] marry the way we do, and we have friendships the way we do, and this job works for us, and that one doesn’t, and this neighborhood is attractive, and that one isn’t, etcetera.  (c. 33:47)

“Well, the economy is like that.  We don’t experience the economy in the same way.  If you are the head of a big corporation, you do not experience the economy in the same way, that a person does, who drives a truck.  If you’re a farmer, you do not experience the economy the way you do, if you’re an office worker.  You don’t.  And that’s not a fault or a failure.  That’s the way the world is.

“But it’s even more complicated.  If you were educated in certain ways, you were taught to think about the economy in certain ways.  And if someone else taught you with a very different approach, then you learned that approach.  It turns out that economic systems are understood, and experienced, differently by different people.  And it has always been that way, just like human beings understand love, sex, friendship, and all the other relationships in life in very different ways.  And, indeed, one of the fascinating and interesting things about life is to encounter, to discover other ways of looking at the world.  It will change us.

“If I look at it one way, and I encounter a person, who looks at it in a different [way], my perspective will be changed.  I will now be more sensitive.  I will understand, even if I don’t agree with other ways of thinking about the world.  It’s a little bit like discovering that there are other kinds of food preparation, than the one you grew up with.  You don’t have to like them as well; but they’re interesting; they’re tasty.  From time to time, you would like to taste it again.  So, here in New York, one restaurant offers sushi and one restaurant Tex-Mex and another restaurant Chinese food and so on.  And people in New York love that about this city, that you can literally go to a different corner of the world whenever you want to taste how differently human beings have understood the relationship between us and the food we eat.  (c. 36:08)

“So, let’s do the economics.  How do we get into it?  Well, I give that a lot of thought because, when I teach economics, I teach it in what we call a comparative perspective.  I don’t teach economics as if it were carburetor or car engine studies.  The economy isn’t a thing, that it works in this and this way, that we can learn and figure out how to fix.  That makes economics boring, mechanical, and technical, when what is exciting about it is precisely how differently [for example] people eat.  Imagine, if I gave you a course about food, and all I talked about was how you cook the hamburger, here’s how you cook the french fries, and, therefore, here’s how you make food.  Eventually, you’d figure out that that isn’t about food.  That’s about one kind of food.  And you don’t want to be limited to just that kind.  You want to, at least, know what the other ones are. (c. 37:19)

“It would be as if I taught you a course on religion, but the only religion I told you about was, let’s say, uh, Unitarian Universalist religion.  After a while, you’d say to me:  Look, I’m perfectly happy learning about Unitarians and Universalists. But aren’t there other religions, too? Like Roman Catholicism or Muslim religion or Jewish religion? Or and-so-on-and-so-on?  You want to understand that people engage with divinity, God, the spiritual, if you like, in different ways, just like they engage with food in different ways.  Well, friends, your education is narrow, stunted, and inadequate, if you think economics is one way to go.  (c. 38:10)

“Now, why do I stress that?  Because that’s how it’s taught in the United States.  And that’s how it’s been taught for most of the last 50 years.  We do not admit to most of our students in most of our colleges and universities that there are alternative ways of understanding what an economy is, how it works, what’s wrong with it, and how to fix it.  There are multiple ways of doing that, just like there are multiple ways of dancing or singing or eating or dressing or praying or anything else, particularly anything else that really matters in life.  And our economy matters, just like our eating matters and our religions matter and so on.  (c. 38:57)

“So, I am now, in the time that I have, going to try to address the different ways you can understand the economy.  One last reason, before I do it, why: because economics has been so narrowly taught in the United States, because only one way of thinking about it dominates almost to the exclusion—not quite, but almost to the exclusion—of other ways.  Our economic leadership in companies, in the government, has been poor.

“We have had, for example, [an economic] crash in 1929, a terrible [economic] crash, that gave us [an economic] depression—that’s what it’s called—that lasted eleven years, roughly, from ’29 to ’41.  One of the reasons we had that terrible crash is we didn’t have the insight, the understanding, to see it coming.  We didn’t understand, once it came, why it was there.  And we didn’t understand real well what to do about it, which is why it lasted eleven horrible years.

“And did we, at least, learn after that?  Not really very well. [3]  The narrowness of our economics prevented us from asking, and answering, crucial questions.  And that’s part of the reason why, in 2008, capitalism in the United States and beyond crashed again.  And, once again, the profession didn’t see it coming. [4]  And, once again, when it hit, they didn’t understand why.  And, once again, they couldn’t fix it, which is why here we are, eight years, nine years later, in 2017, a crash that happened in 2008, and we’re still, most of us, living with the consequences, the terribly damaging consequences.  That should have been more than enough evidence to suggest that the way we were teaching, studying, learning, and using economics was inadequate, was too narrow, missed too much.  But it didn’t.

“It didn’t.  And that’s because there are reasons why we teach what we teach, even though it doesn’t work very well.  A dangerous way to run your society.  But it’s the one, that has dominated in our society.”  (c. 41:38)

[KPFA paid-staff member Mitch Jeserich appeals for KPFA listener-sponsorship, membership, and support in the context of KPFA’s Winter Fund Drive (February 2017).] (c. 43:18)

DR. RICHARD WOLFF:  “So, what is that way?  [What is that single, narrow, way in which economics is taught at most schools, colleges, and universities in the United States?]  It’s called neoclassical economics.  We don’t have enough time to go into why it has this funny name.  But it does.  That’s a matter of the history of how it arose.  And, in this view, capitalism is a magnificent economic system.  Neoclassical economics is not neutral about capitalism.  It loves capitalism.  It doesn’t just love capitalism.  But it loves a particular kind of capitalism; it’s the kind with very little government intervention in the economy. [5]  Indeed, from a neoclassical perspective:

All we want from the government is to make sure that nobody interferes with this beautiful system called capitalism, a system, which is perfect, which rewards everybody in proportion to what they contribute.  If you’re rich it’s ‘cos you contributed a lot.  If you’re poor, it’s because you haven’t.

“It’s very morally loaded this way.

It’s a system, in which what gets produced is what everybody wants.  So, it’s kind of fair.  It’s kind of responsive.  It’s consumer-oriented, if you like that language.  It’s a system, that’s self-healing.  If anything goes wrong, it fixes itself.  You don’t need the government to come in.  You just let it be. [6]  Let the private individual buy and sell—buy the goods and services, that he or she wants—sell whatever they have to contribute to production, their labour (if that’s all they have) or some capital (if they have some wealth) or their land (if they own some).  You contribute what you wish and have.  And you get in proportion to what you contribute.  Fairsies, you might call it.  A wonderful system, that is the best way to organise an economy, that the world has ever achieved.  And, therefore, it should be celebrated, which is what neoclassical economics does.  And it should not be interfered with, which is the message, that neoclassical economics gives to the journalists, who write about the economy, to the politicians, that run the government, and to the leaders, who own and operate the enterprise.  (c. 45:50)

Neoclassical teaches: The private economy is what should dominate, is the best thing, that could happen, should be left alone, and works perfectly.  Nobody has anything to complain about.  Your income is your reward for what you contribute.  Don’t complain.  If you want more, contribute more.  And, if you don’t have more to contribute—you don’t have more labour you could do; if you don’t have more capital, you could offer; if you don’t have more land, you could make available—then, it’s your fault.  And you have to live with whatever rewards you get for what contribution you make.  (c. 46:26)

“This [i.e., neoclassical economics, or pro-capitalist dogma] is a celebratory system.  This is what is taught in American colleges and universities 95% of the time.  5%, not quite.  I’m gonna get to that in a minute.  But this is what is taught.  Therefore, you shouldn’t be surprised that journalists, when they write about economics, write as if we live in this wonderful system, that works really beautifully; and that the government should keep its hands off; and nobody should break the rules; and, if there’s a problem, the market, the system will solve it itself.

“And you shouldn’t be surprised if corporate leaders love this because it says they’re in charge of an enterprise, which can do everything it wants.  The government is not gonna interfere because that would only make things bad.  This is what the people, who run the society, want.  Politicians are told to think like this.  That’s why you can hear politicians so often saying these weird things, like:

Let the market decide.

Let the private enterprise system work its way out.

“These [neoclassicals or capitalists] are people, who believe this [economic mythology].  And, after all, they were taught it over and over again.  They got it from their newspapers and TV.  They get it from their political leaders.  Of course, they believe it.  (c. 47:47)

“But is this the only way to look at the economy?  And the answer is an absolute, unqualified, no, no, no.

“To imagine that this is the only way to understand an economy is the same thing as imagining that the only way to have a meal is to eat hamburgers and french fries, or the only way to pray is in the manner of the Unitarians and Universalists.  It is to misunderstand a part of the story for the whole story.  And that does you no service and is no complement to your smarts.  (c. 48:26)

GrantKeynes“So, here we go.  Here’s the first alternative [to neoclassical economic theory or capitalist ideology].  The first alternative is called Keynesian economics [7], named after John Maynard Keynes, a British economics professor at Cambridge University, who in the depths of the Great Depression of the 1930s looked around him and said:

I see a quarter of the people unemployed.  I see poverty and misery all around me.  Don’t tell me capitalism is a wonderful system, that works beautifully, that produces wealth, prosperity, economic growth, that gives everybody what they deserve.  Stop it!  You’re describing an economy, that may be a utopian dream you may have.  But it does not describe and, therefore, it is not gonna help us fix an economy, that is clearly not working well.

“This was a bombshell for many.  This was a man, John Maynard Keynes, who had been an accomplished practitioner of neoclassical economics, but who was realistic about what he saw in the Britain of his time, which was as devastated by the Great Depression as the United States was.  And he said:

Capitalism, private enterprise, markets, left to themselves can and, here, clearly have produced social and economic disasters, crashes, poverty, unemployment, misery, inequality, economic instability.

“Should I go on?  And Mr. Keynes didn’t waste a minute.  He developed an explanation for how private enterprise capitalism can produce these disasters and what should be done about it.  And, to make a long story short, he said there were mechanisms, normal and natural to capitalism, that could and regularly would produce economic horror stories, disasters, failures, miseries, inefficiencies, depressions.  And the solution, he said, was for the government to step in.  Systematically, the government should pump money into the economy when it turned down to build it up again, that the government should, when the private sector wasn’t spending enough money to keep people in their jobs working and producing, well, then, the government should step in.  It didn’t even matter to Keynes.  (c. 51:15)

Buy anything you want.  Take in each other’s laundry.  Build national parks.  Do whatever it is, that has to be done.  Keep people working by having the government buy whatever it thinks might be useful to build.  But the government has to come in, otherwise capitalism self-destructs.

“This is a very different economic theory.  Most schools in the United States don’t teach it.  And, if they do teach it, they have one or two faculty doing that, everybody else is parroting the old neoclassical song and dance.  But is Keynesian the only alternative?  Not at all.  (c. 51:58)

marx_and_engels“The third big one: Marxian economics.  And here’s the big difference about it.  Neoclassical economics celebrates private capitalism.  Keynesian economics says private capitalism is good, but only if it’s controlled, regulated, supplemented by government intervention.  Otherwise, the bad parts of it drown out the good parts of it.  But Keynesian economics likes capitalism.  It just likes it with a heavy dose of government involvement, which freaks out the neoclassicals, who don’t want any government.  And, so, that’s been the debate between them—more or less government, more or less government intervention.  (c. 52:35)

“Marxian economics: completely different.  For Marxian economics, the problem isn’t more or less government.  The problem is capitalism, itself.  This system of organising production, so that a tiny group of people at the top, the board of directors, make all the decisions; and the mass of employees do what their told.  That, for Marxists, is the problem.  You have an undemocratic economic system.  And it undermines democracy everywhere else.  You have a system, that gives a small number of people the dominant say.  They’ll make the system work for them and not for everybody else.  And that’s why you get the inequality, that we talked about in the first half of today’s programme. (c. 53:24)

“No, no, no.  The Marxian argument is:

You have to change the economic system at the foundation. You have to, finally, bring democracy to the workplace.  All the workers together, collectively and democratically, decide what happens in the enterprise, not a handful of shareholders, not a handful of board of directors elected by the shareholders.  No, no, no.

The autocracy, the non-representative nature of the leadership of enterprises, that’s the core problem.  And that has to be fixed.  Otherwise, you will have recessions and depressions and crashes.  The government coming in, as Mr. Keynes proposed, wasn’t enough to stop us from having another crash in 2008, not having learned what the Marxists want us to see, which is the Crash of the 1930s was also a problem of the underlying system.

“Why would a country like ours be this way?  Why would we continue to teach one way of thinking, when it hasn’t worked real well and the alternatives are obvious?  And the answer is: fear.

“For 50 years, the Cold War between the United States and the Soviet Union made Americans fearful about the Soviet Union.  It talked about Marxism.  So, they [i.e., the Americans] didn’t want to talk about that at all.  If you talked about it, you lost your career; you lost your job; you were in trouble.  A little bit like James Joyce trying to write his novel.  He was censored.  You were pushed away.  It’s a tragedy.  It’s intellectually dishonest.  It’s a tragedy for our country.  We need all the insights and all the theoretical avenues available to our people to solve our problems.  Shutting us out of two of the three major theories in the world today is self-destructive.  It’s only done to fearfully support the status quo, what the corporations now like.

They are not the problem.  It’s the government intervention.  It’s this.  It’s something else.  It’s immigrants.  But it’s not the system, itself.

“Thank you for your attention.  Thank you for your partnership.  I look forward to speaking with you again next week.”  (c. 55:53)

[Economic Update theme music comes in momentarily]

[KPFA paid-staff member Mitch Jeserich, then, closed out the broadcast with appeals for KPFA listener-sponsorship, membership, and support in the context of KPFA’s Winter Fund Drive (February 2017).]

[snip] (c. 59:59)

Learn more at ECONOMIC UPDATE.

***

[1]  Unfortunately, Dr. Richard Wolff seems to perpetuate at least one myth, the myth that federal taxes pay for federal government spending.  Dr. Wolff seems to deliberately avoid informing the public about MMT.

[2]  Terrestrial radio transmission, 94.1 FM (KPFA, Berkeley, CA) with online simulcast and digital archiving:  Economic Update, this one-hour broadcast hosted by Dr. Richard Wolff, Friday, 24 FEB 2017, 10:00 PST.

[3]  After the Great Depression of the 1930s, which was triggered by the economic crash of 1929, Keynesian policies prevailed, which involved increased government interventions to attempt to stabilise the economy.  These economic reforms, however, meant reductions in the extreme wealth accumulation of the ruling classes.  In other words economic reforms, in the context of economic collapse, invariably mean restraints on unbridled financial, business, and labour relations; and such restraints are restraints on capitalism, which are restraints on profit motive.  The ruling classes prefer inequality because obscene wealth depends on obscene poverty.  As the celebrated abolitionist (and former slave) Frederick Douglass presciently articulated:

Power concedes nothing without a demand.  It never did and it never will.  Find out just what any people will quietly submit to and you have found out the exact measure of injustice and wrong which will be imposed upon them, and these will continue till they are resisted with either words or blows, or with both.

During the mid-20th century, ruling class elites, with their well-funded think tanks and connections, eventually managed to undermine Keynesian reforms and usher in a conservative backlash to progressive politics.  By the late 1970s, neoclassical economics struck back in the forms of right-wing elections of President Ronald Reagan (in the USA) and Prime Minister Margaret Thatcher (in the UK).  Then, we saw the rise of Wall Street, reflected in Oliver Stone’s 1987 blockbuster movie.  At the same time as neoclassical economics was restoring and galvanising its stifling hegemony over the discipline of economics, the ostensibly liberal, or progressive, Democratic Party (USA) was effectively co-opting labour unions and turning them into ‘Gomperist’ business unions.  Such unions today, which are most unions, narrowly focus on individual work site issues, shirk their working class solidarity, and ignore broader societal and political issues, whilst remaining predominantly loyal to the Democratic Party, despite the Democratic Party’s unresponsiveness to working class issues.  Indeed, unions have even lost their legal right to engage in wildcat strikes or general strikes, especially since the passage of the anti-labour Taft-Hartley Act, which labour leaders called the “slave labour bill“.  Even President Truman had to admit that the anti-labour Taft-Hartley Act was a “dangerous intrusion on free speech”, which would “conflict with important principles of our democratic society.”

Today, the fire of organised labour is almost entirely extinguished in the USA; and it poses no political resistance to the anti-working class abuses of capitalism.  And heterodox economics has lost almost all influence in American government and institutions.  Dr. Stephanie Kelton (former chair of the Economics Department at the University of Missouri-Kansas City, or UMKC, and one of your author’s former economics professors) is an exception, as she was hired by Senator Bernie Sanders to work as chief economist, first, in the Senate Minority Budget Committee, then, on his campaign trail.  Unfortunately, Bernie Sanders wasn’t as courageous as FDR was in backing economic reforms to remedy the economic hazards of capitalism.  If Bernie Sanders had been courageous, he would have allowed Dr. Stephanie Kelton to lend her expertise on the campaign trail to explain to the American people, for example, how an MMT-based job guarantee programme could provide real jobs to a faltering economy, stimulate a depressed economy, and even end involuntary unemployment as we know it.  The ideas are out there, only they are being suppressed, not only by the corporate media, but even, apparently, by the cowardice of our ostensible political heroes.  (Even Dr. Richard Wolff seems to refuse to speak honestly about MMT, or even mention it.  He continues, for example, to perpetuate the economic myth that taxes pay for federal government spending, as if the USA’s monetary system (or money system) were still on the gold standard.  It’s impossible to imagine that Dr. Wolff isn’t informed about MMT, as he is personal friends with faculty members at UMKC.  But, then, who knows?  We’ll have to reach out to him and ask.)

As far as economists not having had the foresight to see the Global Financial Crisis of 2007/2008 coming down the pike, as Dr. Richard Wolff points out, we observe that heterodox economists, such as Dr. Hyman Minsky, did provide very cogent analyses and clear warnings of the cyclical economic disasters, which are produced by capitalist modes of production.  For example, see Dr. Minsky’s financial instability hypothesis, in which Minsky argued that a key mechanism, which pushes an economy towards crisis is the accumulation of debt by the non-government sector.  Minsky identified three types of borrowers, which contribute to the accumulation of insolvent debt: hedge borrowers, speculative borrowers, and Ponzi borrowers.  As one of my UMKC economics professors, Dr. L. Randall Wray (himself, a graduate student of Dr. Hyman Minsky) taught us, the only thing, which prevented Dr. Minsky from a more accurate prediction of the Global Financial Crisis, was that nobody counted on such a high degree of creativity, which the financial sector would engage in to extend the Ponzi phase of the so-called business cycle.

We can also look back to the work of heterodox economist Dr. Abba Lerner and his theory of functional finance, which is based on effective demand principles and chartalism.  It states that government should finance itself to meet explicit goals, such as taming the so-called business cycle, achieving full employment, ensuring economic growth, and low inflation.

Lerner’s ideas were most heavily in use during the Post-World War II economic expansion, when they became the basis for most textbook presentations of Keynesian economics and the basis for policy.  Thus, when Keynesian policy came under fire in the late ’60s and early ’70s, it was Lerner’s idea of functional finance, which most people were attacking.  During the post-war period, U.S. unemployment reached a low of 2.9% in 1953 when the inflation rate averaged at 1.1%.

Other economists, such as Dr. L. Randall Wray (UMKC), Dr. Michael Hudson (UMKC), and others have also written critically about the inevitable economic boom-and-crash cycles, which result in widening inequality and worsened economic instability.  What all economists, left of center, agree on is the fact that capitalism demands, at the very least, strong government interventions to prevent mass unemployment and economic misery.  That is the opposite of the laissez faire, or let it be, approach of neoclassical, or free market fundamentalist, economics.  The more radical economists admit, as Dr. Michael Hudson often does, that all economies are planned.  That means that capitalist economic crises are expected and allowed to happen, such as the USA’s subprime mortgage crisis, which caused millions of people to lose their homes, their jobs, and their life savings, but which allowed bankers and profiteers to capture a greater share of wealth.  It’s true, all economies are planned, as Dr. Hudson reminds us, the only questions are:  Will the economy be planned by private for-profit banks and Wall Street for ruling class interests?  Or will the economy be planned by Main Street for working class interests?

[4]  Again, we recall exceptions to the general rule that economists didn’t see the Global Financial Crisis coming, such as Dr. Hyman Minsky and the relevance of his work around financial theory.  In the wake of the subprime mortgage crisis of the late 2000s, The New Yorker labelled the subprime mortgage crisis “the Minsky Moment“.

[5]  Again, here we come to the neoclassical economic principle of laissez-faire economics, which ostensibly argues for very little government intervention in the economy.  Of course, this is only a symbolic principle on the part of neoclassical economists.  They don’t really mean laissez-faire.

To wave the banner of laissez-faire economics, or free market economics, is to make it easier for neoclassical economics to saturate the minds of the public and popular notions about economics.  The unassuming non-economist will readily associate popular buzz words, such as free market and the invisible hand and laissez faire capitalism, with notions of liberty and freedom, if only freedom to choose what one can afford.  But, in actuality, this politically conservative economic principle of laissez-faire economics, where the government is supposed to stay out of the economy, really, is only meant to apply to government interventions, which may help or improve working class interests.  As we saw with the huge government bail-outs of Wall Street interests in the wake of the Global Financial Crisis, making insolvent institutions whole again, resuscitating them to life as zombie banks.  So, what is actually meant by laissez-faire economics is: no government interventions on behalf of the working classes, only for the capitalist asset-owning classes.

It’s important to keep in mind that, when we hear pro-capitalist arguments about keeping the government out of the economy, we cannot overlook the many ways in which government intervenes to safeguard the interests of the ruling capitalist classes.

[6]  Dr. Richard Wolff uses the words, let it be, which is a common American translation of laissez-faire, as in laissez-faire economics, or neoclassical economics.  Laissez-faire is an alternative spelling of the French, laissez faire, which means let it be or leave it be, or which literally translates to let do.

[7]  Students of economics will find, today, that Keynesian economics has been largely supplanted by Post-Keynesian economics, at least at the leading edge of heterodox economics.  As economic historian Lord Robert Skidelsky (whom your author has met occasionally around the UMKC campus as well as attended his presentations) argues, the post-Keynesian school has remained closest to the spirit of Keynes’ original work.  Lord Skidelsky, a British economic historian of Russian origin, is the author of a major, award-winning, three-volume biography of British economist John Maynard Keynes (1883–1946).  Lord Skidelsky is, perhaps, the most authoritative biographer of Keynes.

***

[1 MAR 2017]

[Last modified at 07:41 PST on 8 MAR 2017]

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Sociologist Dr. Erik Olin Wright On A Guaranteed Income For All

05 Tue Apr 2016

Posted by ztnh in Anti-Capitalism, collective bargaining, Global Labour Movement, Modern Monetary Theory (MMT), Sociology

≈ 2 Comments

Tags

Against the Grain, basic income guarantee, C.S. Soong, Civilian Conservation Corps (CCC), Dr. Erik Olin Wright, Dr. John Henry, Dr. L. Randall Wray, Dr. Philippe Van Parijs, Dr. Stephanie Kelton, employer of last resort (ELR), federal job guarantee program, Goldfrapp, guaranteed income, heterodox economics, KPFA, MMT, Modern Monetary Theory, Modern Money Theory, New Deal, New Economic Perspectives, Pacifica Radio Network, taxation, transcript, UMKC, UMKC heterodox economics, unconditional basic income (UBI), University of Missouri-Kansas City, University of Wisconsin-Madison, Utopia, utopian socialism, Works Progress Administration (WPA)

319px-ErikOlinWright.2013LUMPENPROLETARIAT—One of the more inspiring and important developments in modern economic theory is modern monetary theory, or modern money theory.  Understanding how modern money works today in a post-gold standard world, when sovereign currency issuers, such as the USA, can employ modern money for public purpose, we come to find that such a federal government can never go broke. [1]

Along similar lines, Dr. Erik Olin Wright has joined free speech radio’s Against the Grain to discuss the concept of a basic income guarantee. [2] Listen (or download) here. [3]

Messina

***

[Programme summary from KPFA.org archive page]

AGAINST THE GRAIN—[5 APR 2016]  A number of thinkers and activists on the left have embraced the notion of a basic income paid to all without means testing or a work requirement. Erik Olin Wright argues that a generous basic income would contribute to revitalizing a socialist challenge to capitalism. He also distinguishes the version of UBI that he supports from that pushed by some on the right.

Erik Olin Wright
https://www.ssc.wisc.edu/~wright/

Learn more at AGAINST THE GRAIN.

***

[Working draft transcript of actual radio broadcast by Messina for Lumpenproletariat and Against the Grain]

AGAINST THE GRAIN—[5 APR 2016]  “Today on Against the Grain, what if everyone was entitled to, was guaranteed, a basic income, so they didn’t have to work to live?

“I’m C.S. Soong.  Erik Olin Wright, a sociologist and leading radical thinker, makes a case for an unconditional basic income—after these news headlines with Mark Mericle.”  (c. 1:06)

[KPFA News Headlines omitted by scribe]  (c. 5:45)

“From the studios of KPFA in Berkeley, California this is Against the Grain on Pacifica Radio.  My name is C.S. Soong.

“It may sound weird.  It may sound utopian.  But an unconditional basic income is what many people have been advocating for years.  You would not have to work to get this income.  Everyone would be entitled to it.  And, in some scenarios, it’s enough to live on.

“So, what explains the appeal to many on the Left of the basic income?  Why have some conservatives and libertarians embraced the idea?  Would the economy collapse because most people would stop working?  And to what extent would the adoption of an unconditional basic income facilitate or fuel a transition away from capitalism?

“Erik Olin Wright is a leading proponent of a basic income and a prominent radical scholar.  He’s a professor of sociology at the University of Wisconsin-Madison.  And his books include:  Understanding Class; Alternatives to Capitalism; and Envisioning Real Utopias.

“When Erik Olin Wright joined me in KPFA’s Berkeley studios, I asked him when the notion of a basic income first caught his attention.”  (c. 7:03)

DR. ERIK OLIN WRIGHT:  ”    [SNIP]  ”  (c. 8:30)

C. S. SOONG:  “So, in titling their paper The Capitalist Road to Communism, were they suggesting, then, that something could be done within the framework of capitalism to move society in a communist direction?”  (c. 8:46)

DR. ERIK OLIN WRIGHT:  ”    [SNIP]  ” (c. 10:00)

C. S. SOONG:  “So, what would an unconditional basic income, what would it, basically, entail?”

DR. ERIK OLIN WRIGHT:  “Alright.  Well, the first thing to note is that the idea of unconditional basic income comes in a variety of flavours.  And, depending upon which flavour, it means different things.

“For some people, an unconditional basic income is really a bare minimum survival income.  You know?  To use a kind of metaphor, you don’t starve if you have a basic income.

“Most progressives, who embrace the idea, think of it as a more generous idea, that a true unconditional basic income enables you to live at a culturally-acceptable decent standard of living, which would include, therefore, enough income to have recreation, but a kind of no frills version.  So, you can perfectly, comfortably, get by with it.  But, if you really want to live a more extravagant lifestyle, then you have to earn additional income one way or another.

“So, that’s how I like to think of it.  Certainly, for the purposes that I defend an unconditional basic income, it’s above a survival level.” (c. 11:14)

C. S. SOONG:  “And who, in your idea of a basic income, who provides this income and how often?”

DR. ERIK OLIN WRIGHT:  “Well, income means it’s a flow.  So, it’s more of a practical than a principled question of whether it’s providing it, so to speak, on a weekly or monthly basis.  Some versions give you an annual lump sum.  I think that’s probably not prudent, just because of people’s incapacity to budget well.

“So, [chuckles] you know, you think of it as a paycheck.  So, paychecks typically come on biweekly or monthly bases.  It would be a flow of income along those lines.  (c. 11:49)

“It’s provided by the state.  And it’s paid for through taxation. [2]  Everybody gets it, everybody.  Bill Gates gets an unconditional basic income.”

C. S. SOONG:  “It doesn’t depend on whether you work or any other criterion.”

DR. ERIK OLIN WRIGHT:  “Right.  Crucially, it doesn’t depend on how much money, how rich you are.  The unconditionality has, both, a moral component—you don’t have to be a good person to get it—and it has an economic component—it’s not means tested.

“Now, of course, the taxes needed to pay for an unconditional basic income for Bill Gates are gonna go up by many orders of magnitude, more than the basic income he receives.  So, Bill Gates would be a net contributor.  And there’s lots of details about how that works.

“One should think of it in the same way we think of unconditional, or used to think, perhaps, of unconditional basic education.  Everybody gets it.  Some people are net contributors.  That is, their taxes go up in order to pay for public education by more than they receive in public education.  But that’s seen as okay because it’s a public good; and it makes for a better society, if everybody gets a basic education.

“Well, a basic income has a bit of that character.  Everybody benefits from it, even if you’re a net contributor because it creates a different kind of society, a society in which everybody has enough to live a morally decent, or culturally acceptable, standard of living.”  (c. 13:20)

C. S. SOONG:  “So, what impact would an unconditional basic income have on people’s ability and inclination, really, to take a job, to go into the labour market and work for money?”  (c. 13:37)

DR. ERIK OLIN WRIGHT:  “Well, let me first clarify one other detail about the design.  And that is who gets it.  So, we said it’s unconditional on means testing or on virtue.  There is still the question of whether, for example, it’s a citizen’s income or a resident’s income.  That is, anybody who lives in a country, anyone under the jurisdiction of a state should get it.  And, if it’s a resident’s income, does it include undocumented workers?

“Now, to some extent these are practical questions, rather than principled questions.  I mean practical in the political sense.  It’s pretty hard to imagine an unconditional basic income ever passing, you know, even in pretty progressive places, that would include illegal residents.  Everybody agrees that tourists shouldn’t get it.  [chuckles]  You know?  [SNIP]

“I think, on principle, it should go to everybody who’s in the economy, in the labour market, in the labour force.  That the question of how you deal with the illegal migrants is a separate question, which needs resolution.  We need ways of dealing with that.  But that the moral principle of an unconditional basic income is precisely that anybody who is on your territory participating in the economic life of your society should unconditionally have their basic needs met.

In the most fundamental sense, I think an unconditional basic income should be for everybody in the world.  I mean I think you should have a goal of a basic income.” (c. 15:18)

C. S. SOONG:  “Mm.  M-hm.  Yeah.”

DR. ERIK OLIN WRIGHT:  “And it should be globally distributed.  Well, that’s certainly not on as a practical political move.”  (c. 15:25)

C. S. SOONG:  “Erik Olin Wright joins us in studio.  He is professor of sociology at the University of Wisconsin-Madison and a leading radical thinker.  I’m C.S.  And this is Against the Grain on Pacifica Radio.  And we are talking, today, about unconditional basic income, which Erik has written a lot about and thought a lot about.

“So, yeah, back to this question of jobs and the necessity of having a job.  So, if the basic income, the unconditional basic income gives you, provides you with, kind of, a culturally-acceptable no frills existence, then is the whole idea that people would no longer need to go out onto the labour market?”  (c. 16:11)

DR. ERIK OLIN WRIGHT:  “The idea is that you don’t need to go into the labour market to get your basic necessities.  So, in the United States, roughly speaking—and, you know, it varies from place to place because of cost-of-living—but think of an unconditional basic income as being in the $12- to $15-thousand-dollars-a-year range, roughly speaking, which would mean if, um, two adults live together, they have a household income of $30,000.  You’d have to think through the details of children.  You know?  Do you get a partial income?  How do you do it?  Again, those are important details. You can put those to the side.

“So, just take a couple.  $30,000 dollars in most places in the United States, you can live okay.

“But most people probably want more income than $30,000.  So, there’ll be at least some reason why many—I think most people—will want to gain additional earnings.

“With an unconditional basic income, as soon as you earn additional income, you start paying taxes on the additional.  There’s no, the unconditional basic income isn’t taxed.  It’d be, kind of, directly.  If all you live on is the basic income, you don’t pay taxes, income taxes, on that.  But you start paying taxes on any earnings above your basic income.

“The tax rates will be higher.  You have to figure out exactly where the cut point is, where you become a net contributor, rather than a net beneficiary.

“But there’s no disincentive to work.  That is you’re not—the first $10,000 you earn above your basic income is not gonna be taxed at 80%.  You know, it’ll probably have a 15% or 20% income tax rate on the first $10,000 you earn above a basic income.

“So, the first thing to note is there is not a disincentive to work.

“And it’s only people whose life plans are consistent with $15- or $30 thousand, in a couple, whose life plans are consistent with that level of earnings who will say:  That’s all I want.

“Now, there will be people, certainly, for whom that’s true.”  (c. 18:15)

C.S. SOONG:  “But, if they think that way, that is a disincentive to work.  I mean a lot of people are worried that so many people will take themselves out of the labour market that the economy might even collapse.”

DR. ERIK OLIN WRIGHT:  “So, just to be kind of technically precise, a disincentive means you’re punished if you work.  This would—”

C.S. SOONG:  “Gotcha.”

DR. ERIK OLIN WRIGHT:  “—mean a lack of an incentive to work for them.  Right?  So, they don’t feel any incentive to work ‘cos they feel no need to work.  But there’s no disincentive to work.

“With means tested anti-poverty programmes there’s an actual disincentive to work because you lose your benefits if you work.”

C.S. SOONG:  “Right.”

DR. ERIK OLIN WRIGHT:  “Okay.  Well, there’s no disincentive, then, to work.

“Yeah, so a basic income is an unworkable plan if it’s the case that the large majority of people really have as their deepest longings to be couch potatoes.

“So, you know, if the human spirit, contrary to what many of us believe, is really profoundly lazy, in the sense that we don’t care about creativity—we don’t care about making a contribution to our world and leaving our stamp in some way or other, we really just wanna watch soap operas—so, if that is what we are at our essence—you give people $15,000 dollars and everybody stops working—the system collapses.

“Well, I’m being sarcastic.  You know?”

C.S. SOONG:  “Sure.”

DR. ERIK OLIN WRIGHT:  “This is a caricature.  There will be some people, though, that will absolutely live a life of leisurely indulgence.

“Philippe Van Parijs, one of his earliest and terrific pieces on this is called ‘Should Surfers Be Fed?’  ‘Should Surfers Be Fed?’  And it’s basically raising the standard big objection to basic income that it will mean that people who work hard and generate the income that gets taxed for a basic income will be subsidising beach bums.”  (c. 20:13)

C.S. SOONG:  “But you could, certainly, maybe, with a basic income you could be a beach bum; but you could also be productive in a way, that’s not profitable to you—right?—that doesn’t involve working for money.

“So, for example, you talk about, you’ve written about care-giving labour.  And the fact is that many care-givers are not compensated at all.  Well, this will allow them to do work.  And, you know, this is not couch potato work.  So, they’ll do work.  That kind of work, they won’t have a job for money, for pay.  And, so, how does that work in the context of basic income and to what extent is that a positive thing in your eyes?”  (c. 20:53)

DR. ERIK OLIN WRIGHT:  “Of course, it’s an absolutely positive thing.  [SNIP]  And it would lead to an absolute expansion and enrichment of the arts.”  (c. 23:46)

C.S. SOONG:  “What about the situation of paid workers?  [SNIP]  ” (c. 23:47)

DR. ERIK OLIN WRIGHT:  ”    [SNIP]  “(c. 26:01)

C.S. SOONG:  “I’m C.S.  This is Against the Grain on Pacifica Radio.  Erik Olin Wright joins me.  He is Vilas Distinguished Professor of Sociology at the University of Wisconsin-Madison.  And he’s author of many books, including Understanding Class, Envisioning Real Utopias, and Alternatives to Capitalism: proposals for a democratic economy with Robin Hahnel.

“And I, and Erik, want you to know that many of Erik’s books are available for free online.  We’ve put a link on our web page at KPFA.org.  Just go to KPFA.org/programs and click on Against the Grain; and you’ll find a link to Erik’s website, where you’ll find PDF links to many of his publications.

“So, essentially, what you’re saying is that workers have more power, they have greater leverage in relation to employers under a system with unconditional basic income.  And is that part of the reason?  Well, how big a part of the reason that you support unconditional basic income is this?  That there are unequal power relations in society and that an important goal of movement for social justice ought to be to adjust and transform those power relations.”  (c. 27:22)

DR. ERIK OLIN WRIGHT:  “Yes, certainly.  [SNIP]  ” (c. 29:10)

C. S. SOONG:  ” [SNIP]

DR. ERIK OLIN WRIGHT:  ”    [SNIP]  ” (c. 30:14)

C. S. SOONG:  ” [SNIP]

DR. ERIK OLIN WRIGHT:  ”    [SNIP]  ” (c. 32:11)

C. S. SOONG:  ” [SNIP]

DR. ERIK OLIN WRIGHT:  ”    [SNIP]  ” (c. 33:38)

C. S. SOONG:  ” [SNIP]

DR. ERIK OLIN WRIGHT:  ”    [SNIP]  ” (c. 37:29)

C. S. SOONG:  ” [SNIP]

DR. ERIK OLIN WRIGHT:  ”    [SNIP]  ” (c. 38:39)

C. S. SOONG:  ” [SNIP]

DR. ERIK OLIN WRIGHT:  ”    [SNIP]  ” (c. 43:42)

C. S. SOONG:  ” [SNIP]

DR. ERIK OLIN WRIGHT:  ”    [SNIP]  ” (c. 51:44)

C. S. SOONG:  ” [SNIP]

DR. ERIK OLIN WRIGHT:  ”    [SNIP]  ” (c. 53:25)

C. S. SOONG:  ” [SNIP]

DR. ERIK OLIN WRIGHT:  ”    [SNIP]  ” (c. 56:38)

C. S. SOONG:  ” [SNIP]

[SNIP] (c. 59:59)

Learn more at AGAINST THE GRAIN.

[This transcript will be expanded as time constraints, and/or demand or resources, allow.]

*

“Utopia” (2000) by Goldfrapp

***

NEW ECONOMIC PERSPECTIVES—[7 JUN 2016]  NEP’s Pavlina Tcherneva speaks with Bloomberg’s Joe Weisenthal about Basic Income Guarantees.  You can view the segment here. [5]

Learn more at NEW ECONOMIC PERSPECTIVES.

***

[1]  The topic of Modern Monetary Theory (MMT), or Modern Money Theory, is something, which we’ve been lagging to present on Lumpenproletariat.org.  (Your author has published some articles on MMT at MediaRoots.org some years ago.)

MMT presents many emancipatory implications for the working class, such as the use of modern money for public purpose, or beneficial public spending at the federal level, which is conducive to full employment, such as a job guarantee programme, and more.  Technically speaking, if President Obama (or any administration) understood, or acknowledged, MMT, we could implement a job guarantee (or an income guarantee), which could end involuntary unemployment today.  As heterodox economist Dr. L. Randall Wray, a former UMKC professor of mine, teaches us, it’s not a lack of economic options, which prevents full employment, it’s a lack of political will.

As another of my UMKC professors, heterodox economist Dr. Stephanie Kelton, teaches us:  There are no fiscal constraints.  The only constraints are real resource constraints.  Dr. Kelton is a Chief Economist for Bernie Sanders’ 2016 presidential campaign and priorly served as the Chief Economist for the Senate Minority Budget Committee under Bernie Sanders. [4]

In the following video, Dr. Stephanie Kelton discusses MMT, mainly as it applies to the national budget deficits, debunking the myth that budget deficits are necessarily bad for the USA’s economy.  But Dr. Kelton also discussed the job guarantee programme and the basic income guarantee, among other things, which could be addressed by MMT (as emphasised by the transcript excerpt below).

“The Angry Birds Approach to Understanding Deficits in the Modern Economy” by heterodox economist Dr. Stephanie Kelton (University of Missouri-Kansas City), November 2014

[Transcript excerpt by Messina for Lumpenproletariat, Dr. Stephanie Kelton, and Dr. John Henry, who taught Dr. Kelton as well as your author]

DR. STEPHANIE KELTON:  (c. 56:48)  “We could be doing useful things [with an understanding of modern money].  Right?  We’ve got infrastructure, that’s dilapidated, falling down.  The civil engineers tell us we need to spend $3.6 trillion dollars to repair ports, bridges, water treatment facilities, schools, hospitals, national parks.  The whole of our national infrastructure is given a grade of D+ by the American Society of Civil Engineers. And we’re told we ought to spend $3.6 trillion to get it up to snuff.  We could do that.  We have tons of people who are out of work, mechanical skills, construction, and so forth.  We could do that.

“We could enhance retirement schemes, instead of attacking them, undermining them, and trying to weaken them, to cut benefits, and so forth.  We could make it safer, more secure, more generous.  We could do that.

“We could deal with climate change.

“But the question, now, is always:  How are you gonna pay for it?  We’ve answered that question[—by understanding how money works in a modern economy].

“We could help students cope with student debt.  Many people believe there’s a crisis with student debt in this country.  Now, student debt is surpassing credit card debt.  There’s over a trillion dollars of student loan debt out there.  There are lots of politicians who—well, not lots.  There are some politicians who are working to promote legislation to help alleviate student debt burdens.  There’s even a movement to strike the debt.

“There are ways to help young people, who are struggling with student debt, who, as a result of all that student debt, are postponing household formation.  They’re living at home longer, so they don’t get their first apartment.  They don’t marry.  There’s so many starting everything later.  And it’s delaying a lot of spending in the economy.  It’s got a lot of hedge fund managers, quite frankly, and others quite worried about future consumption and how robust the economy’s going to be going forward because of the student debt.  (c. 58:52)

[Addressing Inequality]

“We’re hearing a lot about inequality.  Right?  Since 2009, when the U.S. officially left recession and went into recovery—okay, we’re in recovery mode; output is growing, income is growing—90% of all the income gains over that period of time since 2009, 90% has gone to the top 10%.  Within that category, to the top 1%.  Within that category, to the top point-one percent [i.e., 0.1%].  And within that category, to the top point-zero-one percent [i.e., 0.01%].

“If we continue to distribute income gains in this way, where the income gains are going to those least likely to—”

AUDIENCE:  “—spend it—”

DR. STEPHANIE KELTON:  “—and most likely to—”

AUDIENCE:  “—save—”

DR. STEPHANIE KELTON:  “—and, especially, save in the form of—”

AUDIENCE:  “—[inaudible].”

DR. STEPHANIE KELTON:  “Well, no.  They like real estate and stocks and stuff like that.  Right?  And, so, they buy assets.  And this tends to push asset prices higher, which has a lot of folks, including Janet Yellen, worried that we are, the Fed has been creating bubbles, asset price bubbles.  (c. 1:00:03)

“And the problem with bubbles is, it’s nice to ride a bubble up.  But when the bubble pops, there’s a lot of collateral damage.  Okay?  So you’re hearing a lot.

“We could address income inequality.

“We could institute a federally-funded job guarantee programme modelled on the WPA, the CCC, the National Youth Administration, the New Deal programmes, raise incomes from the bottom up, that address inequality.

“People talk about a basic income guarantee.  You hear a lot about that now.  Just give everybody money.  Right?  No matter how much money you have, we’ll give you money, too.  Everybody gets a check.  It’s Oprah.  You get a check.  And you get a check.  And you get a check.  But Bill Gates gets a check.  Everybody gets a check.”

AUDIENCE:  “[laughter]“

DR. STEPHANIE KELTON:  “The problem with that scheme is that, while it gives more income to those at the bottom, it gives the same amount to everyone else.  So, it’s a ratcheting up of everyone, which does nothing, of course, to deal with inequality.

“But, if you focus on those at the bottom, the unemployed, the least skilled and so forth, and you guarantee employment with benefits and so forth, you’re lifting incomes for those at the bottom and reducing inequality.  So, there are just lots and lots of things, that we could do.

“But if we don’t do them, if we don’t do them and we continue to have government pull back its contribution, the only way that we’re gonna keep this economy going, the only way the game is gonna continue and the pieces are gonna go around the board is if we have bubbles—because bubbles work for a while; the problem is that eventually they pop—debt—we can have the private sector leverage back up.  They did this in the late ’90s, the mid-to-late ’90s and into the 2000s.  We borrowed like crazy.  We took the equity out of our homes.  We borrowed against perceived increases in wealth because stocks were booming and so forth.

“We can drive this thing with private-sector debt for a while.  The trouble is that, too, tends to end badly.

“We can focus on trade with the rest of the world.  Well, we’re just gonna dig ourselves out of this by reversing our trade deficits.  We just need a weaker currency here at home.

“You can try all this sort of stuff.  These are not good solutions.  There’s a better way to do this.  But we’ve gotta get the thinking right.  We gotta get the thinking right.

“And, so, it’s okay to have differences.  It’s okay to have parties, who disagree about the proper role for government, priorities, spending versus taxes.  But we want the disagreements to move in the right direction.  We don’t want them to say:  We need higher taxes and less spending.  We want them to fight over whether to have lower taxes or more spending.  That would be, at least, a debate, that is moving in the right direction.

“So, it’s not that we all have to think exactly the same way.  But, if we get the thinking right, somewhere in the middle, we might end up okay.  (c. 1:03:06)  [SNIP] “

[SNIP] (c. 1:18:37)

Learn more at NEW ECONOMIC PERSPECTIVES.

*

“L. Randall Wray: Time for a New Approach for Unemployment” (2013) (University of Missouri-Kansas City)

*

Also see, among others, economist Dr. L. Randall Wray on modern monetary theory:

  • Understanding Modern Money: The Key to Full Employment (26 JUN 2006) by Dr. L. Randall Wray (UMKC)
  • Modern Monetary Theory: A Primer On Macroeconomics for Sovereign Monetary Systems (2012) by Dr. L. Randall Wray (UMKC)
  • Employment Guarantee Schemes: Job Creation and Policy in Developing Countries and Emerging Markets (2013) edited by John J. Murray and Dr. Matthew Forstater (UMKC)
  • The Job Guarantee: Toward True Full Employment (2013) edited by John J. Murray and Dr. Matthew Forstater (UMKC)

Also see related Marxian concepts, relevant to understanding modern money, such as:

  • value-form
  • use value

Also see NewEconomicPerspectives.org.

On the costs of capitalist imperialism

“Part #1: Dr. John Henry is a UMKC professor of economics focusing on the history of economic thought. He is the author of two books and numerous articles. He had taught at California State University-Sacramento, and at Cambridge and Staffordshire, England. John shared the view of the inadequacy of economics to quantify the costs of war.

“On March 19, 2012, the ninth anniversary of the start of the Iraq war the American Friends Service Committee organized the community forum “Legacies of the Iraq War /Lessons for U.S.’s Iran Policy” at UMKC, Kansas City, MO. Panel members commented on the human, economic and political impacts of the Iraq war on Iraq and the U.S. They offered an analysis of U.S.- Iran relations, shared comment on how Iranians view the conflict and how identified lessons the U.S. should take from Iraq to guide U.S.- Iran policy.”

“Part #2”

[2]  Sociologist Dr. Erik Olin Wright, as a utopian visionary, offers welcome alternatives to the current capitalist modes of production hurting the working classes the world over.  Unfortunately, Dr. Wright’s analysis doesn’t reflect an interdisciplinary approach utilising literature in the field of economics, so he errs in his understanding of taxation and public spending.

Apparently, Dr. Wright lacks crucial knowledge of Modern Monetary Theory, or Modern Money Theory, which is relevant to his utopian work because it would correct some of his misguided economic assumptions, such as Dr. Wright’s assertion that a guaranteed income for all would have to be funded through taxation.  As heterodox economist Dr. Stephanie Kelton teaches her students and audiences around the world:

Taxes don’t pay for anything.  All modern money exists as an IOU.  When the government prints a US dollar, it essentially prints an IOU, which—since the USA has gone off the gold standard—entitles its holder to get another US dollar or pay one dollar’s worth of tax liability.  Dollars are no longer backed by gold, so one cannot hand in dollars and convert them to gold.  So, when taxes are paid, those IOUs used to pay those taxes are, effectively, extinguished.  Indeed, when US dollars return to the USA’s system of central banks, they’re shredded.  So, taxes don’t pay for government spending.  What actually pays for government spending is a sovereign currency issuer’s ability, such as that of the USA, to create its own currency out of thin air and use it for socially beneficial purposes.

Outside of Dr. Wright’s lack of knowledge of modern monetary theory, a survey of which would greatly benefit his analyses, he contributes welcome and radical concepts capable of shifting conventional wisdom.

Ultimately, Dr. Erik Olin Wright, essentially, advocates for society adopting the rules of the Monopoly board game, as an ideal for society.  Everyone who passes Go gets an income allowance to allow them to keep playing the game of life within a capitalist mode of production until the wealth concentrates in such few hands that all but one player is driven into destitution.  But Dr. Wright argues that a guaranteed income, within a capitalist mode of production, would only be a part of a longer-term process of building alternative structures to capitalist relations, which could be capable of gradually undermining capitalism.

Dr. Wright seems to follow the logic of a guaranteed income along moral and ethical lines.  Unfortunately, his lack of knowledge of modern monetary theory leads him to fall prey to the conventional understanding of public spending, i.e. the myth that the federal government needs to collect taxes in order to spend the money it creates out of thin air.  Citing MMT, Dr. Wright’s argument would be stronger.  But nobody told Dr. Wright that taxes don’t pay for anything.

[3]  Terrestrial radio transmission, 94.1 FM (KPFA, Berkeley, CA) with online simulcast and digital archiving:  Against the Grain, this episode hosted by C.S. Soong, for Tuesday, 5 APR 2016, 12:00 PDT.

[4]  See media reports, such as:

  • “Bernie Sanders’ connections with two UMKC economists runs deep“, by Mark Davis, Kansas City Star, 29 MAR 2016
  • “MMT and Bernie Sanders” by L. Randall Wray, New Economic Perspectives, 20 NOV 2015
  • “Sanders adviser talks econ policy, politics” by Natalina Lopez, Yale Daily News, 17 NOV 2015  [N.B.:  This campus and its journalism completely obfuscated the most revolutionary aspects of MMT.  In fact, somehow, no mention is made of MMT at all.]
  • “Watch Out, MMT’s About, As Bernie Sanders Hires Stephanie Kelton” by Tim Worstall, Forbes, 12 JAN 2015  [N.B.:  This journalist seems, however, to have never read of any of the literature on modern monetary theory (MMT), for he confuses and distorts the concepts, creating strawmen to attack and make possible his empty critiques of MMT.]

[5]  Link to Bloomberg video clip, “The Argument Against Basic Income”, 7 JUN 2016, http://www.bloomberg.com/news/videos/2016-06-07/the-argument-against-basic-income

***

[Image “EricOlinWright.2013” by Aliona Lyasheva used via Wikimedia Commons, CC BY-SA 3.0]

[6 APR 2016]

[Last modified  20:32 PDT  7 JUN 2016]

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Debunking Neoclassical Economics: The Myth of the Barter Economy

28 Sun Feb 2016

Posted by ztnh in Anti-Capitalism, History of Hip Hop, Marxian Theory (Marxism), Music, Political Economy

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Adam Smith, anthropology, C.R.E.A.M., Encyclopedia, heterodox economics, Ilana E. Strauss, money, neoclassical economics, social formation, The Atlantic, The Myth of the Barter Economy, The Wealth of Nations, Wu-Tang Clan

619px-Barter-Chickens_for_SubscriptionLUMPENPROLETARIAT—Cash rules everything around me/C.R.E.A.M. get the money/dolla, dolla bill ya’ll, was the popular refrain from the Wu-Tang Clan, as many others before and since.  Such an observation conveys a sentiment borne from an awareness that there’s a certain cutthroat reality about how money permeates contemporary human existence.  As long as one has money, however it may have been obtained, one can take comfort in life’s comforts and pleasures.  Without money, regardless of the lack of jobs or opportunities, one very quickly becomes persona non grata.

“C.R.E.A.M.” by Wu-Tang Clan

Money is a peculiar convention, which conceals complex social relations imbedded within our money-based society.  Looking at the nature and origins of money from an academic perspective, we’ve likely been taught that money developed as an alternative to the inconvenience of barter, which, we are told by uncritical economics textbooks and uncritical educators, preceded the use of money for people to exchange the daily necessaries of life.  But, as anthropologists, such as David Graeber, point out, this narrative of barter preceding money is proving to be a myth.  And it seems to be more than an innocent mistake of a crude pedagogical device or tautological simplification, as David Graeber argues in Debt: The First 5,000 Years, because this myth “makes it possible to imagine a world that is nothing more than a series of cold-blooded calculations.”

In a new article for The Atlantic, which explores actual anthropological evidence of various indigenous societies toward sussing out pre-money social formations [1], Ilana E. Strauss writes [2]:

“But the harm may go deeper than a mistaken view of human psychology.  According to Graeber, once one assigns specific values to objects, as one does in a money-based economy, it becomes all too easy to assign value to people, perhaps not creating but at least enabling institutions such as slavery (in which people can be bought) and imperialism (which is made possible by a system that can feed and pay soldiers fighting far from their homes).”

Messina

***

THE ATLANTIC—[26 FEB 2016]  The Myth of the Barter Economy

Adam Smith said that quid-pro-quo exchange systems preceded economies based on currency, but there’s no evidence that he was right.

Imagine life before money. Say, you made bread but you needed meat.

But what if the town butcher didn’t want your bread? You’d have to find someone who did, trading until you eventually got some meat.

You can see how this gets incredibly complicated and inefficient, which is why humans invented money: to make it easier to exchange goods. Right?

This historical world of barter sounds quite inconvenient. It also may be completely made up.

The man who arguably founded modern economic theory, the 18th-century Scottish philosopher Adam Smith, popularized the idea that barter was a precursor to money. In The Wealth of Nations, he describes an imaginary scenario in which a baker living before the invention of money wanted a butcher’s meat but had nothing the butcher wanted.“No exchange can, in this case, be made between them,” Smith wrote.

This sort of scenario was so undesirable that societies must have created money to facilitate trade, argues Smith. Aristotle had similar ideas, and they’re by now a fixture in just about every introductory economics textbook. “In simple, early economies, people engaged in barter,” reads one. (“The American Indian with a pony to dispose of had to wait until he met another Indian who wanted a pony and at the same time was able and willing to give for it a blanket or other commodity that he himself desired,” read an earlier one.)

But various anthropologists have pointed out that this barter economy has never been witnessed as researchers have traveled to undeveloped parts of the globe. “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money,” wrote the Cambridge anthropology professor Caroline Humphrey in a 1985 paper. “All available ethnography suggests that there never has been such a thing.”

Humphrey isn’t alone. Other academics, including the French sociologist Marcel Mauss, and the Cambridge political economist Geoffrey Ingham have long espoused similar arguments.

When barter has appeared, it wasn’t as part of a purely barter economy, and money didn’t emerge from it—rather, it emerged from money. After Rome fell, for instance, Europeans used barter as a substitute for the Roman currency people had gotten used to. “In most of the cases we know about, [barter] takes place between people who are familiar with the use of money, but for one reason or another, don’t have a lot of it around,” explains David Graeber, an anthropology professor at the London School of Economics.

So if barter never existed, what did? Anthropologists describe a wide variety of methods of exchange—none of which are of the “two-cows-for-10-bushels-of-wheat” variety.

Communities of Iroquois Native Americans, for instance, stockpiled their goods in longhouses. Female councils then allocated the goods, explains Graeber. Other indigenous communities relied on “gift economies,” which went something like this: If you were a baker who needed meat, you didn’t offer your bagels for the butcher’s steaks. Instead, you got your wife to hint to the butcher’s wife that you two were low on iron, and she’d say something like “Oh really? Have a hamburger, we’ve got plenty!” Down the line, the butcher might want a birthday cake, or help moving to a new apartment, and you’d help him out.

Learn more at THE ATLANTIC.

***

[1]  For a useful article on the Marxian concept of social formation, see:

ENCYCLOPEDIA—Social formation is a Marxist concept referring to the concrete, historical articulation between the capitalist mode of production, persisting precapitalist modes of production, and the institutional context of the economy. The theory of the capitalist mode of production—its elements, functioning at the enterprise level and the level of market relations among enterprises (e.g., processes of competition, concentration, and centralization), and its contradictions, tendencies, and laws of motion—can be found in

Karl Marx’s Capital ([1867] 1967) The capitalist mode of production as such is an abstraction, accessible to research only through social formations; that is, through its concrete, historically specific manifestations in nation states, regions within nations (e.g., the South), or regions encompassing nations (e.g., the European Union). Though Marx (1818–1883) did not define this concept, its meaning and significance can be inferred from his work, particularly from this statement:

The specific economic form, in which unpaid surplus-labor is pumped out of direct producers, determines the relationship of rulers and ruled … and, in turn, reacts upon it as a determining element. Upon this, however, is founded the entire foundation of the economic community which grows out of the production relations themselves, thereby simultaneously its specific political form. It is always the direct relationship between the owners of the conditions of production to the direct producers.… which reveals the innermost secret, the hidden basis of the entire social structure, and … the corresponding specific form of the state. This does not prevent the same economic basis—the same from the standpoint of its main conditions—due to innumerable different empirical circumstances, natural environment, racial relations, external historical influences, etc., from showing infinite variations and gradations in appearance, which can be ascertained only by analysis of the empirically given circumstances. (Marx [1867] 1967, vol. 3, pp. 791–792)

Marx postulates here a necessary, dialectical interrelation between relations of exploitation and political relations, between economic and social systems, a point previously made as follows: “The totality of these relations of production constitutes the economic structure of society, the real foundation, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness” (Marx [1859] 1970, p. 20). The historical specificity of the relations of production is crucial for understanding the social formation in its universality (i.e., as a capitalist social formation) and in its particularity because, empirically, “the same economic basis” (i.e., the capitalist mode of production) will show “infinite variations” due to a social formation’s unique characteristics among which, the presence and persistence of precapitalist modes of production are of key importance. This is why the study of social formations entails the investigation of the articulation of modes of production; that is, the specific ways in which the capitalist mode of production affects precapitalist modes of production, altering them, modifying them, and even destroying them (Wolpe 1980, p. 2).

RECENT INTERPRETATIONS

The relationship between the capitalist mode of production, social formations, and social change has been interpreted in determinist and dialectical ways. Literal, atheoretical readings of the work of Marx and Friedrich Engels (1820–1895) reduce their views to technological and economic determinism, a result produced also by sophisticated but undialectical readings (e.g., Cohen 1978) that ignore the dialectical nature of Marx’s thought. Marxist concepts are essentially material and social; for example, a machine, in itself, is a physical object that becomes a means of production or a productive force when it enters the production process in the context of historically specific relations of production. Changes in the forces of production occur, it follows, always in the context of political struggles. Cohen, on the other hand, attributes to the productive forces a primary, determinant role in historical change, and he radically divides the social (e.g., relations of production) from the material or extrasocial (i.e., nature, humans, forces of production). Cohen’s undialectical materialism and determinism has to rely, unavoidably, upon transhistorical sources of change: a universal tendency of the productive forces to develop and a “somewhat rational” human nature capable of coping with scarcity (Cohen 1978, pp. 132–160). From this standpoint, then, historical changes are the effect of changes in the forces of production, undialectically understood as mere technological change. Class struggles play no role in historical change for political actors are reduced to rationally adapting to the effects of changing circumstances.

A determinist understanding of Marx would lead social scientists to expect that the penetration of the capitalist mode of production in social formations where precapitalist modes of production are widespread would soon produce qualitative changes in their economic system (e.g., modification or destruction of the precapitalist modes of production) and their superstructure (e.g., culture, legal, and political institutions). Determinist perspectives, however, underestimate the resilience of the noneconomic characteristics of social formations and the extent to which production is a thoroughly social activity that requires social and cultural conditions of possibility that cannot be instituted by decree. Despite appearances, for example, the drastic economic changes introduced in Russia after 1917 and in Eastern Europe after World War II (1939–1945) were, to some extent, superficial, for those countries quickly reverted to capitalism. There are many complex economic and political reasons why revolutionary change did not produce deep and qualitative superstructural changes, but reliance on the determinant and automatic effects of changing the mode of production must have contributed in important ways.

The literature on social formations subject to the penetration of the capitalist mode of production through gradual, nonrevolutionary processes indicates that forms of articulation between the capitalist mode of production and precapitalist modes of production cannot be logically deduced from Marx’s theory of the capitalist mode of production. The notion of articulation refers to “the relationship between the reproduction of the capitalist economy on the one hand and the reproduction of productive units organized according to pre-capitalist relations and forces of production on the other” (Wolpe 1980, p. 41). How these processes actually interact varies a great deal from one social formation to another, thus leading to the construction of conflicting perspectives about the nature of social formations: (1) Social formations lack a necessary structure; one mode of production may dominate or several modes of production may be articulated with or without one dominant mode; (2) A social formation’s necessary structure may be formed by a dominant mode of production and its conditions of existence, which might include elements of precapitalist modes of production, or it may simply be the effect of the articulation of any number of modes and their respective conditions of existence; (3) Given a dominant mode (e.g., the capitalist mode of production) in any social formation, all other modes will be subordinate to its structures and processes so that they are reduced to mere “forms of existence” of the dominant mode (Wolpe 1980, p. 34).

These and other perspectives entail different implications depending on whether the mode of production is defined in a restricted sense, as a combination of relations and forces of production, or in an extended sense, encompassing linkages among enterprises as well as other economic and political/cultural elements constitutive of the mode of production and conducive to its reproduction over time (e.g., distribution, circulation, exchange, the state) (Wolpe 1980, p. 40; Marx [1859] 1970, pp. 188–199). Because modes of articulation are unique to specific social formations (e.g., in South Africa, racial ideology reproduced and sustained capitalist relations of production [Wolpe 1980, p. 317]; in Peru, agrarian reform contributed to the proletarianization of Indian communities [Bradby 1980, p. 120]), it could be erroneously concluded that social formation and articulation are useless concepts, for their use in research is unlikely to yield testable empirical generalizations.

These concepts are exceedingly important, for they contribute to the adjudication of an important issue in Marxist theory: the extent to which Marx is or is not an economic determinist. The historical and empirical variability in the conditions of reproduction of the capitalist mode of production that is documented through research in social formations and modes of articulation demonstrates the nondeterminist nature of Marx’s theories.

While the structure, processes, contradictions, and tendencies of the capitalist mode of production remain the same, thus constituting the “innermost secret” of the economic and political structures in social formations where the capitalist mode of production is dominant, the historical conditions for the reproduction of the capitalist mode of production vary historically and cross-culturally in the terrain of social formations, where political struggles carried under a variety of banners (class, race, religion, and nationalism) shape the different and spacialized outcomes of capitalism’s never-ending expansionary tendencies.

Dialectically considered, social formations are the unity between the universal (the capitalist mode of production) and the particular, the concrete conditions within which the capitalist mode of production operates. The concept of social formation, unlike the abstract non-Marxist concept of “society,” opens up the possibility of a realistic and historical understanding of social reality, based not on inferences from transhistorical tendencies, functional prerequisites, or concepts of human nature, but upon the historical specificity of the social formations within which capitalism operates.

“Formation, Social.” International Encyclopedia of the Social Sciences. 2008. Retrieved March 03, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3045300847.html

Learn more at ENCYCLOPEDIA.

[2] “The Myth of the Barter Economy” by Ilana E. Strauss, The Atlantic, 26 FEB 2016:  http://www.theatlantic.com/business/archive/2016/02/barter-society-myth/471051/

Published (online) by The Atlantic

***

[3 MAR 2016]

[Last modified 3 MAR 2016  14:45 PDT]

[Thanks to Dr. John Henry for running Dr. Lee’s UMKC-LEE ECONGRAD Announcement List.]

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