by geezer in Paris
Fri Sep 25th, 2009 at 06:04:25 AM EST
I admire Krugman as a halfway house for those still suffering from Uncle Miltie withdrawal. I quote this piece to note, however, the careful wording he uses to poke holes in the Chicago boys, and also to note the apparent limits to his own willingness to accept the failure of Market Capialism, as well as his unwillingness to see it as a system of predation, rather than efficient production and distribution.
Perhaps he's keeping his head down?
Diary bump by afew
What happened to the economics profession? And where does it go from here?
As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. Until the Great Depression, most economists clung to a vision of capitalism as a perfect or nearly perfect system. That vision wasn't sustainable in the face of mass unemployment, but as memories of the Depression faded, economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations. The renewed romance with the idealized market was, to be sure, partly a response to shifting political winds, partly a response to financial incentives. But while sabbaticals at the Hoover Institution and job opportunities on Wall Street are nothing to sneeze at, the central cause of the profession's failure was the desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess.
Economists sell a product, and their market is the tiny social group who hang out in the rarefied atmosphere of the banking industry and wall street's highest peaks. They also sell to themselves--each other.
They are rewarded for producing a product that pleases, and penalized for heresy or obscenity, such as suggesting that, when dealing with human needs markets fail as often as they work, or that the complexity of human society and needs dwarfs their most ambitious theorizing. The longer this process goes on, the more self-contained and insular becomes this circular process, the more divorced from human realities it becomes, until it just floats off and becomes a fantasy world, like the Chicago School.
Any analysis of the many examples of the times when the chicago-style market doctrine has been allowed to be the base for real-world policy shows it's disastrous consequences. Clearly, the bubble has slipped it's tether, in a way so fundamental that even the reasonable suggestions of Paul Krugman are, in the medium run, mere band-aids. Krugman steps gingerly on this sore spot:
Unfortunately, this romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong. They turned a blind eye to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets -- especially financial markets -- that can cause the economy's operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don't believe in regulation.
Nowhere in these remarks is there a hint of the stark reality of the system as a technology of predation, or the role of economists in enabling this. Nowhere does Krugman even mention the clear relationship between the increasing maldistribution of wealth and a host of social and technical ills- a relationship that reveals the real nature of--or perhaps the results of-- the profession as of late.
It's much harder to say where the economics profession goes from here. But what's almost certain is that economists will have to learn to live with messiness.
So ---that's IT, paul? Messiness. The world will indeed be "messier"-- what a prissy way to describe it.
That is, they will have to acknowledge the importance of irrational and often unpredictable behavior, face up to the often idiosyncratic imperfections of markets and accept that an elegant economic "theory of everything" is a long way off. In practical terms, this will translate into more cautious policy advice -- and a reduced willingness to dismantle economic safeguards in the faith that markets will solve all problems.
Pouf, Paul. The safeguards are gone already. There is no willingness to build more, yet. Witness the total disappearance of "banking reform" from the agenda, or the new round of mind-boggling bonuses about to be bestowed on the faithful.
Trust the market. Yes, economists admitted that there were cases in which markets might fail, of which the most important was the case of "externalities" -- costs that people impose on others without paying the price, like traffic congestion or pollution. But the basic presumption of "neoclassical" economics (named after the late-19th-century theorists who elaborated on the concepts of their "classical" predecessors) was that we should have faith in the market system.
This faith was, however, shattered by the Great Depression.Actually, even in the face of total collapse some economists insisted that whatever happens in a market economy must be right: "Depressions are not simply evils," declared Joseph Schumpeter in 1934 -- 1934! They are, he added, "forms of something which has to be done."
I think this event will hardly alter the fundamental beliefs and pronouncements of the academic economists. After all, a good case can be made that from the point of view of the top predators, this system worked very well--they got the dough and the power, which was, after all, the whole point, n'est pas?
Here's the the key thing that I think the boys in the towers and penthouses don't want to face:
Globalized markets and neoliberal economic policy has, since the supremacy of Uncle Miltie's ideas, actually shrunk the world economic pie, when viewed per-capita, and decimated the resource base as well as introducing environmental changes that loom over us all like a wolf outside the burrow of a rabbit. Yes- they got the dough,---for now. But, like any predator who strips the game from the range, they are in for a nasty surprise.