Michael Roberts – Summer Economics

Michael Roberts looks at some newly published books on economics.

Michael Roberts is an Economist in the City of London and prolific blogger

Cross-posted from Michael Roberts Blog

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It’s summer in the northern hemisphere and holiday time in the year of the COVID.  So it’s an opportunity to review a few economics books published this year (but written before the pandemic and the Great Lockdown).

I am not a fan of clever, trick titles; they usually overhype the content of a book itself. We have had Freakonomics and Factfulness before, which never lived to up to their titles. Now we have Angryonomics by Eric Lonergan and Mark Blyth.

Eric Lonergan is a macro hedge-fund manager and Mark Blyth is an economics professor at Brown University.  Blyth is the author of Austerity: The History of a Dangerous Idea, a firmly Keynesian rebuttal of austerity policies after the Great Recession and his podcasts and his talks on YouTube are viewed by millions.  I have debated with Blyth on the future of the European Union (https://www.youtube.com/watch?v=8kqobP23FV0).

Conducted in the format of a dialogue between Lonergan and Blyth, Angrynomics explores the rising tide of anger against the status quo in economics and economic policy exhibited by the populace.  Blyth and Lonergan reckon some of this anger is sane and justified (say the protest in Beirut against the political elite), but some is irrational, like intensified racism (or Brexit).  So ‘populism’ is a force for change or for reaction.

The two authors engage in a series of dialogues to make sense of “what appears at first sight to be an incoherent outpouring of primitive emotion”.  For our Socratic authors, there is a distinction between tribal anger, which appeals to our primal instincts, and moral outrage, which protests against the wrongs done to us by inept and sometimes corrupt governments. Both are a reaction to the vacuum created by the failure of ‘technocratic politics’.

What to do next? How to reset the system?  Lonergan and Blyth reject the mainstream economics of ‘nudging’ the ‘technocratic’ system back to stability.  They claim something more radical that still cuts across ‘political lines’ (presumably class lines too).  And what is the big answer?  To create a national wealth fund.  Governments should borrow and then invest in productive assets that reap returns to be used to boost education and health, so sadly neglected by governments before the COVID.

So that’s it, set up government wealth fund, just as Saudi Arabia or Norway have done. Or as the authors point out, as Hong Kong did in keeping its equity market going with direct funding in the Asian crisis of 1998.  No need to tax the billionaires and cause political divide.  Other solutions offered by our Socratic authors include a data dividend in which the big technology companies, such as Amazon, Google and Apple, would be required to pay for the use of our private data. Again, no need to break up the tech giants or take them over – just tax them a little.

The naivety of these solutions really beggars belief: nothing of the existing economic structure is to be touched; except for governments to sweep a few crumbs off the table of unequal wealth to fund education and health.  I doubt this solution would curb the anger of the populace, rational or irrational.

The idea of saving capitalism from itself without hurting it too much emerges from another book, The Economics of Belonging, by Martin Sandbu, the economics commentator for the Financial Times.

The subtitle of the book is A Radical Plan to Win Back the Left Behind and Achieve Prosperity for All.  This is a worthy objective and Sandbu reckons that he has a “radical new approach to economic policy that addresses the symptoms and causes of inequality in Western society today.”

Again, the context for Sandbu, as it was for the Socratic duo above, is the ‘rise of populism’ as the disenfranchised from the capitalist system threaten the existing social order of ‘liberal capitalism’.  “Like many others, I have worried that when our societies divide economically, they also fall apart culturally and politically.”  Sandbu argues that economics remains at the heart of our widening inequality and it is only by focusing on the right policies that we can address it. He proposes a detailed, radical plan for “creating a just economy where everyone can belong.”

Sandbu reckons rising inequality and dissatisfaction is not due to globalization going too far. “Rather, technological change and flawed but avoidable domestic policies have eroded the foundations of an economy in which everyone can participate”.  Given the rising skill bias of technical change, those without the skills are left behind to stay in low-paid, precarious jobs, while others reap the benefits of their technical skills. Manufacturing jobs have and are being automated, while services remain unskilled and unrewarded.  This scenario rings the truth of Marx’s law of accumulation: more technology replacing labour power so that productivity rises but wages do not.  But inequality is not just inequality of skills within labour and so inequality of income; it is much more inequality of wealth and ownership. 

What is Sandbu’s answer to the age-old trend in capitalism and to defeat the forces of ‘populism’ that threaten liberal democracy?  It’s education, education, education, as former UK prime minister Tony Blair used to parrot.  Spend more on education, and combine it with active labour market policies, a high minimum wage, and limits on top pay.

Having grown up in Norway, Sandbu puts forward that country’s economic model as the way out: “a nice contrast presented here is between poor immigrants who manually wash cars at stoplights in the US, and the Norwegian operators of automated car washes.”  Norway arguably came as close “as any modern society to the ideal of an economy with a place for everyone. Few have ever had lower economic inequality or a shorter social distance between top and bottom and managed to combine it with high productivity and strong growth.”

Picking out the richest per capita income country in the world, with just five million people, made rich by the fossil fuel industry (but still with substantial inequality in personal wealth) is hardly a likely model for the US or Greece, let alone for the UK. How does Sandbu see us getting to the ‘success’ of Norway?  He wants higher minimum wages, a universal basic income (to be financed by a carbon tax), generous government funding for education and labour-market mobility and strict enforcement of labour standards.  And he wants a wealth tax (unlike Angrynomics).

So we have policies that every major capitalist government rejects.  Instead of a radical restructuring of ownership and control to invest in basic public services, Sandbu offers us employee representation on company boards or universal basic income for people, working or not.  As one reviewer put it: “UBI will not buy me an adequate health or education or public transport system.” But he does not want to replace capitalism.  His ‘everyone economy;’ aims to “make capitalism work for all” and so save it from ‘populism’.

Saving capitalism from its own contradictions was of course the objective of John Maynard Keynes, the hero of our current summer authors.  In a new biographical history, The Price of Peace, Zachary Carter argues that it was Blair and Clinton who ended Keynes’s dream of a fair and prosperous capitalism for all, by adopting policies of inequality.  This seems a strange charge, for surely Clinton and Blair were the epitome of Keynesian-type policies of liberal capitalism.

Carter tells us the already well-known ‘revolutionary’ contribution of Keynes in the 1930s, namely that the economy had no natural tendency toward full employment. If governments did not intervene forcefully to boost consumption demand, Keynes argued, high unemployment could persist indefinitely. Cheap money provided by the central bank would not suffice to alter the circumstances decisively.

But as I have pointed in numerous other posts on Keynes that pour doubt on his supposed revolutionary fervour, Keynes was inconsistency incarnate, even on this basic Keynesian postulate.  Zachary quotes Lloyd George. “He dashed at conclusions with acrobatic ease [and] rushed into opposite conclusions with the same agility.” Carter points out that Keynes changed the views of economists and economic policy-making.  Maybe, but did he succeed in solving the contradictions of capitalist production?  Clearly not, if the Great Recession and the Great Lockdown now are to be recorded.

All these summer authors aim to save capitalism from itself with various policies, all of which are designed to make capitalism work without threatening anything in its fundamental structure.  Marxian political economy argues that this approach cannot succeed.  For a start, ‘liberal capitalism’ is a myth.  As Marx describes towards the end of Capital,If money comes into the world with a congenital blood-stain on one cheek,” he says, then “capital comes dripping from head to toe, from every pore, with blood and dirt.”

Blood and Money is the theme of a new book by David McNally, the Marxist Professor of History at the University of Houston.  Instead of some Whiggish history of the gradual emergence of a rational democratic liberal capitalism from the anti-scientific dark ages of feudalism, Blood and Money tells the story of money (the medium of capitalist exchange) as a history of violence and human bondage.

McNally reckons money’s emergence and its transformation are intimately connected to the buying and selling of slaves and the waging of war. For example, the need to finance armies led to the rise of paper currency and banks, including the Bank of England, which was incorporated in 1694 to fund a war with France. McNally shows how the British financial system contributed to the horrors of the Atlantic slave trade, detailing the story of the slave ship Zong, whose captain ordered 133 Africans to be thrown overboard in order to collect insurance money.

McNally’s argument has the ring of historic truth, but the emergence of money must still be seen as the product of exchange. And modern capitalism without slavery (mostly) is even more exploitative of human labour power and bodies.

The Keynesians may note the anger of people and seek to find ways of improving people’s futures, but within capitalism.  Marxian political economy shows why that is not possible.  The inter-war Marxist Henryk Grossman made some of the most important contributions in explaining this. In a new publication of his works, his long-standing biographer Rick Kuhn brings together some his essential texts, many of which have been previously unpublished.

The collection pulls from monographs, articles, essays, letters, and manuscript material to assemble Grossman’s most important contributions on economic theory.  The chapters on crisis theory and imperialism are an essential read.  If you cannot afford the book and have not read Grossman’s work before, go to the Marxist internet archive for his most important works.  Much more useful summer reading.

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