Griffin and Paxton: The Best We Can Do?

The 2016 US presidential election brought into sharp relief the state of fascist studies in the early 21st century. Coming to the fore were British scholars Roger Griffin and Robert O. Paxton. The former's 1991 The Nature of Fascism sets forth a definition of fascism based on ideology. The latter's 2004 The Anatomy of Fascism seeks to jettison ideology, which fascists lie about anyway, and opts for an approach highlighting the actions of fascist movements. Thus, Griffin was able to diagnose Trump as a fascist while Paxton was not. I find both of these definitions of fascism wanting for their own reasons, and I see emerging a new direction built upon their work.

#tbt Matias Vernengo 2006 Technology, Finance, and Dependency: Latin American Radical Political Economy in Retrospect

Through my odd traverse through economics education, I admittedly haven't gotten into Dependency Theory. This past weekend, I decided to finally look into it. In general, I'm rather impressed. As an anarchist, I generally appreciate any theory which takes as its foundation relationships of power in thinking through social and political relations.

This paper by Matias Vernengo provides a great introduction to dependency theory. Vernengo, who maintains the blog Naked Keynesianism, outlines the development of Dependency Theory through the scholarship of primarily Latin American and US American neo-Marxist and structuralist thought.

Download the paper here

#tbt ICPH 2013 An Election Primer on New York City’s Homeless Families: The Public Policies of Four Mayors, 1978–2013

So in preparing for a job interview today, I am reading this report by the Institute for Children, Poverty & Homelessness. It's a fascinating tale of the increasingly terrible policies for homeless families since the Reagan counterrevolution. Prior to the mayorship of Ed Koch, New York City had no official emergency shelter system, and relied on a loose network of private landlords and non-profits to fill the gap. Koch implemented a more formalized public shelter system that often found itself underfunded, overcrowded, and in violation of the law. As the wave of privatization and means testing kicked in in the 90's, the shelter system was drawn down by contracting services and refusing requests for housing. When Bloomberg took office, he did everything in his power to take the burden of solving homelessness off of the city government by outsourcing services to private for-profit companies, most without any sort of contract.

The report does a really great job with telling the story of the Department of Housing Services and the city's battle with the law requiring that the homeless be taken care of. It does, in my opinion have two blind spots. The first is that it largely fails to present these events in the political and social context of their time. As such, it often presents the actions taken by certain mayors as merely bad decisions rather than ideologically driven decisions. Second, in its narrow scope to focus on just the provision of housing (and just emergency family housing at that), it fails to take into account the effect that policies around policing, public transfers, and public employment programs had on exacerbating the crisis of homelessness that the city has faced for at least the past 45 years.

Download the full report here

#tbt Robert Hale 1923 Coercion and Distribution in a Supposedly Non-Coercive State

Okay, so admittedly this sort of strays from the realm of "economics" proper, but I think economists would do well to read it. In 1923, lawyer and economist (it was once possible to be both) Robert Hale argued that, despite platitudes to the contrary, the institution of property ownership itself is a coercive system.

Hale argues that the institution of private property is not so much about one's freedom to use particular objects, but rather one's ability to exclude their use by others with the backing of the violence of the state. Throughout the paper, Hale goes through several different iterations of potential conflicts of ownership and use to demonstrate precisely how coercive the supposedly non-coercive institution of capitalism is.

Download the paper here

#tbt Gary Becker 1962 Irrational Behavior and Economic Theory

Gary Becker is often known for his penchant for the hyper-rational. The large body of his work attempts to tease individualistic rationality out of seemingly irrational behavior. In this pursuit, he sought to include all sorts of moral values into the "utility function" to explain things like monogamy, addiction, and suicide. Thus, it might come as a surprise to most to learn that one of his earlier papers made the case that one didn't need any sort of utility function at all in order to derive normal economic behavior.

According to one of my mentors, this paper is the best thing Becker ever wrote. In the 1962 article in the Journal of Political Economy, Becker shows how it is possible to derive normal aggregate demand behavior - all that a market needs to function properly - from any sort of budget maximization. Becker shows that even with completely irrational and inconsistent actors, overall behavior will be consistent enough for firms to react to market demand. What this shows, among other things, is that it's entirely possible (and perhaps likely) that what determines economic behavior is not preference at all, but rather structural constraints on behavior. Of course, for a Chicago economist in the heart of the microfoundations (counter)revolution, such conclusions are unacceptable. So instead, we got Superfreakonomics.

Download the paper here

#tbt Shapley & Shubik 1964 Ownership and the Production Function

Before the modern era of competitive game theory -- what one of my mentors refers to as the "neoclassical bicycle repair shop" -- game theory was a tool with which to challenge neoclassical dogma about how individuals behaved at the microeconomic level. Lloyd Shapley, in particular, revolutionized cooperative game theory with what came to be known as the Shapley value -- a quantitative measure of whether or not to take a particular role in a game. This form of game theory -- what might by today's standards of competitive game theory resemble a sort of meta-game theory -- sought to investigate the structural outcomes of certain incentive structures and resource constraints.

This paper by Shapley and Martin Shubik builds upon this by calling into question ownership structures themselves. Drawing in part on stylized facts about certain modes of production and resource distribution, Shapley and Shubik derive explanations for emergent ownership structures from tribal communism, feudalism, industrialism, etc. on the basis of labor and capital productivity. It's a really clever model, and provides some pretty decent inspiration with regards to modeling alternative economic systems outside of the paradigm of competition.

Download the paper here

#tbt A.W. Phillips 1958 The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957

Perhaps one of the most misremembered paper in macroeconomic theory is that which gave birth to the famous Phillips Curve. The original paper, which drew upon nearly a century's worth of UK data, demonstrated an empirical relationship between the rate of unemployment and the change in nominal wages (commonly referred to as wage inflation). The result - that money wages increase more rapidly with less unemployment - opens a few potential theoretical interpretations.

The Marxian interpretation would have it that larger pools of unemployed workers would make the overall workforce more disposable, hence reducing worker power to secure higher wages. This is largely the position that Phillips himself took although I don't believe he labelled it Marxian.

Another interpretation embraced by the mainstream of economics asserts that this relationship indicates the tendency for programs geared towards "artificially" reducing unemployment ultimately results in inflation. The underlying presumption here is that any sort of policy intervention to boost employment will necessarily be less productive than the private sector. Thus, additional workers employed at the going wage but producing less value will lead to more money chasing fewer goods. With a larger supply of money in the hands of workers but not as much to spend it on, these wage earners will simply bid up prices, leading to inflation.

Here, we have the recipe for the bastardization of the Phillips Curve by the likes of Ned Phelps and Milton Friedman. These two reinterpreted the Phillips Curve to be a relationship between unemployment and price inflation. This version of the model broke down soon after it was developed during the oil price shocks of the early 70s. Hence, a new breed of economists, led by the likes of Robert Lucas, Finn Kydland, and Edward Prescott, proclaimed that discretionary economic policy could not work because the model that economists had (over)developed failed to predict inflation due to structural changes. These economists attributed this to reactions to policy pronouncements by economic actors on the basis of their expectations. Hence, this later breed recommended policy rules that would set incentives for individuals to work around.

Anwar Shaikh has shown, however, that although the later versions of the Phillips curve don't hold, the original model still holds.

Download the article here

#tbt Ben Fine and Anwar Shaikh at the 2015 NSER Journal Launch

#tbt Joan Robinson 1972 The Second Crisis of Economic Theory

More often than not I find my curmudgeonly self channeling the snark of Joan Robinson. To me, Robinson was the best economist to ever live.

First, Robinson, unlike many (dare I say most?) economists is actually concerned with economic history and the history of economic thought. To her, a theory was only as good as it was able to explain a particular situation that actually happens in the real world.

Second, Robinson rarely, if ever used math. The distinct advantage to this approach is that she actually talks about real things. So focused was Robinson on real things instead of math, that she led the charge on the UK side of the Capital Controversy which ultimately demonstrated the folly of neoclassical production functions theoretically, mathematically and empirically.

In this particular piece, she takes on the economic orthodoxy's response to the "Second Crisis" - that of increasing inflation coupled with economic stagnation. To her both crises - that of the great depression and that of the great stagflation - evidence a fundamental failure to seriously consider the questions Keynes tried to evoke: How do we maintain near-full employment, and what is employment for?

Download the article here

#tbt John Hicks 1980 "IS-LM": An Explanation

Nearly every intermediate macroeconomics class teaches the IS-LM model. I have to admit it never really made sense to me until grad school. To be technical, it never made sense to me, but I learned how the assumptions of the model worked.

This model, originally created by John Hicks as a pedagogical tool, became an analytical monster. This article was an attempt to correct this misapplication.

It didn't work.

Download the article here

#tbt Michał Kalecki 1943 Political Aspects of Full Employment

In the 72 years since its publication, Michał Kalecki's Political Aspects of Full Employment has received little in the way of faithful formalization. The currency it has found has been mostly in grave departures from its premises and conclusions. For the most part, the paper has been treated as if it were a theory of the business cycle. Perhaps the most notable of these endeavors was William Nordhaus' 1975 paper, although a nod to this direction was recognized by Joan Robinson in her 1972 speech at Cambridge. This view generally sees Kalecki's theory as saying that political power determines macroeconomic outcomes.

To be sure, the theory does derive from the realization of a consequence of part of what may be considered the business cycle – widespread unemployment. However, the meat of Kalecki's argument is not (necessarily) about what causes economic downturns per se so much as the curious way in which large business interests react to them.

In my reading, the curiosity motivating Kalecki is not one of what causes widespread unemployment, but rather why businesses would have an interest in seeing it persist. In this model, Kalecki takes rampant unemployment as a prior condition to his model, and is interested in why business interests would oppose a full employment program even when such a program is to their own benefit.

What Kalecki argues instead is that the very fact of full employment itself gives workers the leverage to bargain for higher wages. For Kalecki, lack of job security acts as a discipline device. With a larger pool of unemployed, workers are easily replaced, and they know it. Thus, any attempt to bargain for higher wages, better working conditions, etc. can be easily remedied by businesses with the sack. Thus, any attempt to take this discipline tool from the capitalist class is viciously opposed in spite of the fact that they stand to make higher profits.

Download the Article Here

#tbt Richard M. Goodwin 1967 A Growth Cycle

One of my mentors says that the best articles are short articles, and holds this one up as the shining example. At seven pages, "A Growth Cycle" breaks the boundaries of dynamic systems theory and develops a Marxian theory of economic growth and crisis.

It's important to note that the Goodwin model is a pedagogical tool. The model is designed to provide a mathematical and graphical example of the political and economic tension of class struggle. In representing the dynamics of class struggle, Goodwin borrows a model from evolutionary biology to explain the population dynamics between predators and prey.

Download the article here

#tbt Anwar Shaikh 1974 Laws of Production and Laws of Algebra: The Humbug Production Function

The cornerstone of New Classical economics is the production function. The function was largely an ex-post explanation of a phenomenon of labor and capital quantity indices over short periods, commonly referred to as the Cobb-Douglas. Despite the interventions by Joan Robinson, Pierangelo Garegnani, Luigi Pasinetti, and others, the New Classical economists defended the functional form of the Cobb-Douglas on the basis of its empirical consistency. This evidence, such as the 1957 paper by Robert Solow in the Review of Economics Statistics, was held up as proof positive that the Cobb-Douglas form was the iron law of production.

Then Anwar Shaikh wrote his Humbug paper, and all that changed. Okay, well actually nothing changed. Solow was then editor of the Review of Economic Statistics in which his 1957 article appeared. In order to respond to Solow's seminal work in the same venue in which it appear, Shaikh agreed to a railroading. Shaikh had to agreed to allow Solow to reply to the article and not write a followup rejoinder. As with the rest of the Capital Controversy, the Humbug paper was ignored into oblivion.

What the Humbug paper showed was quite damning for the burgeoning New Classical school of economics. It showed that the Cobb-Douglas form equation did not arise as the result of some iron law of how the factors of production convert raw materials into output. Instead, the functional form was the necessary algebraic result of accounting identities themselves. The Cobb-Douglas function, rather than describing production, actually described income distribution.

To drive this point home, Shaikh created per capita income and capital data that spelled out the word "HUMBUG" on a coordinate plane. Using this nonsensical - and frankly impossible - data, Anwar showed that the same empirical results could be derived from ANY data, so long as it conformed to a proper aggregate accounting framework. Thus, Shaikh showed that the very notion that marginal productivity determined the composition of factor inputs was weak at best. So long as all income distribution is accounted for, any index numbers for labor and capital out of wages and profit will yield results in the form of a Cobb-Douglas function. The residual, rather than being total factor productivity as interpreted by New Classical economists and their descendents, was actually the geometric mean of the wage and profit rate each weighted by the wage and profit shares, respectively.

Download the Article Here

#tbt Luigi Pasinetti 1966 Changes in the Rate of Profit and Switches of Technique

So the Cambridge capital controversy is currently my favorite thing in straight economic theory. One of my favorites is this one by LL Cool J L. L. Pasinetti. In it, he tests the theoretical underpinnings of the Solow growth model.

Pasinetti builds a two-sector economic model with two available technologies: one with relative capital intensity in one sector, one in the other. He shows that the demand for capital is not monotonically downward-sloping across industries, as maintained by neoclassical theory. Either each industry responds to unique rates of interest which are uncorrelated with any sort of leading market rate (e.g., interbank lending rate), or some industries genuinely do exhibit Giffen-like behavior with respect to capital. In either case, this approach demolishes the notion that you can aggregate or disaggregate factor demand in any meaningful way. Any generalizations derived from macroeconomic data says nothing about underlying microeconomic phenomena.

Unfortunately, the capital critique has been ignored into oblivion in most corners of the economics profession, but I know I'm not the only one trying to bring it back.

Download the article here

#tbt Herbert Simon 1951 A Formal Theory of the Employment Relationship

Today, I'm thinking about Herbert Simon on labor. In Simon's view, an important and often overlooked characteristic of the employment relationship is the degree of authority granted the employer over the behavior of the employee. In the extreme, a sales contract - the standard economic approach - would have employers paying merely for the product of labor. However, in practice, the employment relationship is one in which employees would likely prefer to do less work while employers would prefer they do more.

Simon used game theoretic notions of bounded rationality to explain the various situations in the labor market that would result in either sale contracts or employment contracts would arise. According to Simon's model, employment contracts will be preferred to wage contracts as information asymmetry about effort expenditure increases and as labor disutility decreases.

I find his approach interesting, mostly for its relative abandonment of supply and demand curve in favor of satisfaction functions. Rather than simply proving the existing of a point of intersection, Simon proposes that a bounded set of wage-behavior pairs could exist that would be acceptable to both the worker and the employer.

Simon proposes an extension to explain the existence and persistence of unions as well. Unlike mainstream economic models, it does not rely on supply and demand, and hence on so-called "market imperfections." Rather, Simon shows that union administration functions as a shift in authority, reducing uncertainty for all parties involved. I wonder what extensions can be made for public assistance or a reserve army.

Download the article here