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Snotty Economists, Housing & Socialism

June 9, 2012

Notice this cartoon emphasizes the “Free” in market capitalism. There are, of course, at least two distinct arguments we are having about capitalism. One is the argument between some kind of better “managed” capitalism versus unrestrained “free” markets. Sadly, it seems to me that the more extreme position of Neo-Liberal Free Market-ism is winning that argument… But the bigger argument is about whether capitalism as we know it works at all. That is a less often heard argument nowadays, but the implications seem clear – most obviously to the free-marketeers, who seemingly believe the options are unrestrained markets or “socialism.” As crazy as that position seems – and it is the crazy position – I actually think they are bringing the stark contrast into focus with their insistence on absolutist dogma. Maybe the conversation needs to happen.

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Some whining from economists who feel they aren’t being treated fairly, and ummm, waaah, people just don’t know how smart they really are, so stop criticizing them unless you are actually an economist, only then don’t criticize them neither. Poopy heads.

I have soooo many problems with this sentiment that I don’t really know where to begin. First off, those of us (or at least let me speak for myself) who are criticizing economics from outside of economics actually have both more than a passing familiarity with Economics and more than a passing interest in economists. That is to say that I am both informed by the history and subject matter of economics and deeply interested in the conversation amongst economists. I do not believe that economics is worthless or that the practitioners are stupid. Far from it. However, there appear to be some deep structural problems with what I call “Neo-Classical, Orthodox & Mainstream” economics interchangeably. You can quibble about the last term and try to convince me that the mainstream is incorporating heterodox challenges, and that may be true for so-called “practicing” economists, but it doesn’t seem to be penetrating the worldview, and that is where people like me generally are finding fault.

Let me expand on that for a second. We had a financial crash of enormous magnitude. We might rightly say that there was the Great Depression, then roughly 12 business cycle downturns and then this second event that has the potential to shake the foundations of capitalism as we know it. I don’t believe that to be exaggeration at all. What becomes clear (and maybe I need to do a post with slides and kind of detail the evidence) is that we have made a substantial shift in how we do capitalism over the last 30 odd years. We call this “Neo-Liberal” and it includes all kinds of familiar words: Globalization, Deregulation, Financialization, Privatization, Inequality… The problem we face is that economics is deeply divided – right along party lines. So it is not like saying that a handful of quack physicists don’t believe in the Standard Model, rather it is a problem of a very different order. Now, after having examined as many arguments as I can and availing myself of logic, rationality and evidence, I would say that one side in this current debate has more credibility than the other. That is to say that I do not believe that Austerity is the right prescription for what ails us. In fact, I take it one further and say that the people who seem to be winning the policy debates are the ones who continue pushing Neo-Liberal, Unrestrained Free-Marketism to its most rightward, logical conclusion. And this despite a chorus of very intelligent voices from the “left.” Paul Krugman comes to mind. But here is what I would call a center-right, not radical, but rather libertarian leaning economist who sums it up quite nicely: “So, basically, the recommendation is “the exact same bunch of policies that Republicans have been pushing on America without pause since the days when people listened to 8-track tapes.” Cut taxes, cut spending, deregulate. Cut taxes, cut spending, deregulate. Cut taxes, cut spending, deregulate. Cut taxes, cut spending, deregulate. We get it!”

So there is no consensus within the field of economics. That is already deeply disconcerting in a crisis. One party seems to want to press onward in the same direction we have been going for 30 years more quickly, while the other party would like to continue at a more leisurely pace. And anyone who says different is a socialist! A commie, by god! Well, since they want to open that particular box, let’s see what we have inside… But I’ll come back to that. My point is simply that I see better arguments for a different course of action, but certainly there is a deep divide amongst policy prescriptions and that alone calls economics into question on the “scientific” front. Now maybe more “mainstream” economists do agree than not, but if they do then policy has been hijacked by a minority perspective without a general revolt by the profession?

But, having been disappointed that economists don’t seem to share a common understanding of the world, we look deeper. And there we find all kinds of inconsistencies. There are no such things as “free-markets,” humans are not “rational actors,” power imbalances between capital and worker and between buyer and seller do distort markets (as the rule, not the exception), markets are not magically efficient, competition tends towards monopoly like structures, we can’t ignore bio-physical inputs and outputs, energy drives productivity and growth more than comparative advantage efficiencies, exponential growth is impossible (physically impossible), not only is information not instantaneous and available to everyone equally, but people make mad money using their advantages to extract wealth from the market, and on and on and on… All of these things are pillars of Neo-Classical, Orthodox, Mainstream economics and they are deeply flawed ideas. Now it isn’t that some non-economists can simply find things that everyone else missed – well somebody could, but likely everybody wouldn’t with such ease – but rather it seems that despite economists being aware of these things, there has been no reform movement that has displaced the orthodox grip on academia and policy. That gets people’s conspiracy engines running. Anyway, a commenter on the above blog said it best when faced with the complaint that non-economists (many of whom have formal training and a deep scientific background) are being unfair and mean and criticizing a discipline that, with few exceptions, has gotten this entire crisis and recovery dead wrong:

As someone who has been abducted by aliens , it bugs me when people who haven’t been abducted profess expertise on the subject, and then try to make me out as some sort of quack.

Chris Hayes and the Heterodox Dilemma. See, this is where it gets interesting… There are numerous economists following the data where it leads and conducting original (dare we say unorthodox) research. But they are marginalized. This makes it a worldview issue. If good ideas from good economists are being excluded from the debate because what they find doesn’t match what Orthodox economists “know to be true,” then we have inverted the scientific process. Instead of going from the evidence to the models (perceptual confirmation) we are going from the idea or model and trying to force fit reality to our preconceived notions (conceptual confirmation). We are seeing a global failure of neo-liberal ideas – 30 odd years worth of fail coming due – and the “mainstream” wants to double down and is excluding talk that might challenge fundamentals from being given serious consideration. If that isn’t worthy of deep and sustained criticism, I don’t know what is.

{{INSERT SNARK}}

Now let’s refocus our conceptual understanding a bit and look at just one issue. I had a little trouble validating these numbers, but they are kinda-sorta in the ballpark, and certainly not deliberately misleading –

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I did some back of the envelope calculations. 643,067 homeless is what percentage of the total US population (313,704,108)? Roughly 0.2% which I take to be closer to 1 in 500 Americans, right? 1% would be 1 in 100, so 1/5th of that is 1 in 500. Still, bad enough. Housing was trickier. I found this in the 2010 census:

According to the 2010 Census,
there were 131.7 million housing
units in the United States. Of these
housing units, 116.7 million had
people living in them (88.6 percent)
on Census Day. The remaining 15.0
million units (11.4 percent) were
vacant.

The problem is that some large number of these vacant properties are second or vacation homes, and that number seems too difficult for me to parse on a Saturday morning. This article seems to indicate that amongst the highest proportion of vacation homes (by state) came to 2/3… For the sake of way overshooting on the numbers, let us assume that 2/3 of all the vacant homes are vacation homes. (Notice how vacant and vacate are virtually identical words?) Anyway, that leaves us with an easy to calculate 5 Million vacant homes. With just 650,000 total homeless people which gives me roughly 8 homes per homeless person, not the 24 from above, but I did truncate the numbers to err on the side of extreme caution. If they failed to factor out the outrageously high 2/3 that I removed as vacation homes, you would get roughly the 24 homes number they got. All in all, pretty damning numbers.

So, that gets me questioning the entire system, whether economists want to be snotty about it or not.

Here is some Richard Wolff talking housing, kind of… This guy is a socialist economist. I’m not too familiar with his work, but he gives an impassioned speech here. He tells one anecdotal story about Cleveland that was a little mind blowing. First the foreclosure mess boots record numbers of people from their homes. Then the vacant homes start being used by kids and drug addicts and people complain about crime and housing devaluation. So the solution? Federal taxpayer money to solve it… by tearing down the vacant homes!?!?! I’m sorry, but that is a profound indication of an economic system at the cross-roads.

Is it really “Capitalism” if we are decapitalizing? There is this reflexive recoil from challenging capitalism as such. I feel it too. I prefer to talk “fixes” to capitalism than “alternatives.” But the purists insistence and the depth of the problem, and the evidence of 30 odd years is forcing us to have this conversation. But are we truly a capitalist society anyway? And in what sense?

These two graphs show clearly show the decline in capital investment in manufacturing.

But if these were adjusted to a per capita basis, the trend would be even worse, because of growing population. This is important, because it means that as a nation, the United States is becoming less capital intense. It is becoming, in other words, less capitalistic. This is a symptom, as well as a function, of the U.S. economy coming to be dominated by rentiers and usurers, rather than producers. On these grounds is the most devastating critique of Mitt Romney’s Bain Capital: their private equity operations, forcing companies to borrow money to pay out fees and dividends to Bain, actually de-capitalize those victim companies. But President Obama and Democratic Party elites are unable and unwilling to attack Romney and Bain on these grounds. The reason, of course, is that the Democratic Party is as much in thrall to rentiers and usurers as the Republican Party is.

There is a sense that this is all a sham. Many people – myself included – entered into an educated, but not academic nor full time, investigation of the state of economics following the crash. What many people have found (and many others on the inside have found, and even a few had told us ahead of time, before we were listening at all) is quite frankly shocking. Now I don’t have all the answers, nor do I pretend to do arm-chair policy prescriptions… But there is more than enough evidence available to build a case for some real profession-wide soul searching. But it runs deeper than that, even. I know we don’t want to consider it – I certainly didn’t when I started my part-time puzzle solving – but the entire system may need an overhaul. And by god we are going to need some top-notch economists then, although I want to see a collective “coming to Jesus” moment first. Until then, I am going to keep building my little puzzle in obscurity. It has become it’s own weird monomania for me. Perhaps next time I will sketch a brief overview of where my ideas have led me so far? That sounds useful. Ho hum. The News Makes Me Crazy.

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