Let me draw one example from the film I have just praised, Inside Job. There and elsewhere in the aftermath of the crisis, one heard that the neoliberals were primarily responsible for the disaster because they imprudently deregulated markets, or else because they undermined existing regulation. I witnessed this proposition rolled out repeatedly at INET, for instance, and from people in Washington. Without a doubt, there had been important alterations in regulatory structures since 1980, and I will point to some of them in this book; but in no sense were they a simple removal of strictures that could or should be reinstated in any sense. To accept the language of “deregulation” is to become ensnared in a web of concepts that serves to paralyze political action. The neoliberals have openly expressed contempt for their opponents’ easy appeals to “reregulation”; and I think the time has come to take them far more seriously.22
The nostrum of “regulation” drags with it a raft of unexamined impediments concerning the nature of markets, a dichotomy between markets and governmentality, and a muddle over intentionality, voluntarism, and spontaneity that promulgates the neoliberal creed at a subconscious level. This, I believe, has been one major symptom of the endemic failure of economic imagination on the left. Phalanxes of political theoreticians before me have repeatedly insisted that the neoliberal project primarily reregulates and institutes an alternative set of infrastructural arrangements; it never ever wipes the slate clean so that it gets closer to the tabula rasa of laissez-faire. Neoliberalism has never been especially enamored of the Eden of right-wing folklore, a paradise that never existed anywhere, anytime. I cannot exaggerate the myriad times this point has been made over the last century,23 and yet there perdures a dizzy distracted air about the culture of late modernity that keeps ignoring it, repeatedly embracing the Dumb Dichotomy every time the politics heats up. This paramnesia is far too convenient for one side of the political spectrum to chalk up to ambient Alzheimer’s or inept journalists. Appeals to “free markets” treat both freedom and markets as undefined primitives, largely by collapsing them one into another. It takes substantial theoretical sophistication to keep this fact front and center in the political disputes of the modern era; both neoclassical and Marxian economics have not proven salutary in this regard. This book aims to remind us that economics turns out to be good to forget with; one prophylactic will be recourse to a different approach to economics, one that is antithetical to core neoliberal tenets at its ontological base.
There is another way Team Regulation inadvertently capitulates to Team Greed. Team Regulation often has quipped a quick one-liner justification for its prescription: there were no financial crises (often left unstated: in the United States) from the 1940s to the mid-1980s; therefore, all we need do is reset all the dials back to that Golden Era. In subscribing to this notion, the left unconsciously accepts the key notion of the populist right and the neoclassical orthodoxy, that “nothing is substantially different between then and now.” Markets are timeless entities with timeless laws, they insist. Indeed, this is the identical premise of some of the most popular crisis books of the last few years, from Kenneth Rogoff and Carmen Reinhart’s This Time Is Different to David Graeber’s Debt: The First 5,000 Years.24 Yet that is precisely where the polemical divergence should originate on the left. Things are profoundly different about the economy, the society, and in the global political arena than they were during the Cold War: some recent neoliberal innovations have lent the current crisis its special bitter tang; understanding precisely how and where they are different is a necessary first step in developing a blueprint for a better world. The neoliberals divested themselves of their nostalgia25 for a Golden Age long ago; it is high time their opponents on the left did likewise.There is one very basic example how Team Regulation has served to betray the left, a lethal dynamic that has played out in the previous three decades. When financial crises erupted, first in peripheral countries, and then increasingly in the metropoles, technocratic economists in alliance with the neoliberals claimed they could contain it and “clean it up” by substituting sovereign state debt and rich-country guarantees for the insolvency of private actors; hence, when the Big One hit in 2007–8, responses reverted to the standard scenario. The mantra had always been to have the government in question “rescue” the collapsing sectors by shoring up their balance sheets, through the instrumentality of taking more debt onto its own accounts; and then purportedly when the worst had finally passed, subsequent efforts could be devoted to addressing any structural flaws, perhaps with more regulation. Imprimatur was sought indifferently from both Milton Friedman and John Maynard Keynes for this practice. Yet I shall argue in chapter 6 there was something new and sinister about the way the “rescue” was prosecuted, so as to prevent any return to older structures. The “level-headed” response turned out to be a shell game, with much of the mechanics of the rescue handed over to private interests, and where so much sovereign debt was being piled on over time that the backstop character of state fiscal authority was undermined; private sector insolvency had infected state solvency. In other words, recurrent banking crises revealed the basic incapacity of the Keynesian state to immobilize and rectify endemic macroeconomic crises, rendering “regulation” a hazy memory. Indeed, by 2012, people were actually forgetting that this was at base a crisis of capitalism, and only derivatively a fiscal crisis of the state. Sovereign debt looked as wobbly as private bank debt. This dynamic was avoidable because it was entirely predictable.
If you don’t have a working comprehension of how the economic system failed—and a major thesis of this book is that most economists did not understand the economy’s peculiar path prior to the crisis, and persisted in befuddlement in the aftermath—then the notion that one could impose some one-size-fits-all format of rational regulation is a vain delusion. This catastrophic intellectual failure of the economics profession at large should quash wistful evocations of Cold War versions of “regulation” on the left, and further, frame the implosion of things such as the Dodd-Frank initiative and Basel III. The intellectual wing of the neoliberal movement had actually long made this argument concerning easy appeals to regulation many times before; the difference is that they currently preach that all and sundry consequently should simply capitulate to their natural state of ignorance, and give up most (but not all—an important caveat) attempts at steering the economy. Conspicuously, the neoliberals themselves do not themselves practice what they preach; and it is incumbent upon the left to develop an alternative framework to explain that fact, as part of a project to build an economy that conforms to open advocacy of a roster of social goals.
Reusing Old Graves with Tombstones Marked “Neo”
I earlier mentioned John Quiggin’s Zombie Economics; our two books share more than a few common concerns; and it so happens that the current book will also touch upon a few of the same technical concepts found therein. Quiggin and I both propound the thesis that our culture is held in thrall to dead and rotten ideas concerning the economic crisis. Suspended in a gauzy red nightmare, it can be hard to discriminate zombies from mere bit players; I think Quiggin is also right to suggest that it is the economists who are the ambient zombies, and not the neoliberals (yet another reason it is indispensable to keep neoclassical economics and neoliberalism separate and distinct as analytical categories).26 Treating everything that moves as malignant and menacing is almost as big a mistake as treating all markets as operating alike. Quiggin provides a nice overview of the state of play of orthodox macroeconomic theory circa 2008 for the noneconomist, thus absolving me (for the most part) of having to initiate you into the intricate mysteries of the same. I will often have occasion to point to his concise and brave diagnoses of where mainstream economics has gone astray. This is one way of saying his book is indispensable collateral reading.
However, I am equally going to take that book as exemplary of the kinds of thinking that have inadvertently consigned the left to passive ineffectual resistance to neoliberalism in the cur
rent crisis. Reprising his undead trope, it seems Quiggin believes that the best way to coax a zombie back into the grave is to reason with him. If only it were so easy to recycle old graves. Quiggin has done us the favor of boiling down his basic approach to political economy to a few pithy paragraphs on the popular blog Crooked Timber:27
Although I’m clearly to the left of most people in the economics profession (including a fair number who would call themselves heterodox), I’m happy to identify myself with the mainstream research program in economics. The first reason for this is one of personal/political strategy. Starting from broadly social-democratic premises about the way the world works, I’m concerned to identify and advocate policies that will lead to better outcomes for society as a whole and particularly for the working class and the disadvantaged. Mainstream economics provides a set of tools (the theory of public goods, externality and market failure, taxation and income distribution) to do the analysis and a widely-understood language in which to express the results. No existing alternative body of thought in economics comes close to this.
By attacking the logical foundations of this simple model, heterodox economists may undermine faith in the policy conclusions derived from it. But this doesn’t get you very far. Even if you regard economic arguments for laissez-faire as worthless, this does not establish any positive case for alternative policies.
More generally, I don’t find the whole idea of orthodoxy and heterodoxy, or the related notion of schools of thought, particularly useful. It seems to me to imply a kind of intellectual ancestor-worship which is of no use to anybody. It goes with debates about what Keynes or Commons or Hayek really thought, which seem to me to be almost entirely pointless. In most cases, if their ideas were good ones, they will have been adopted by at least some people in the mainstream, and tracing their intellectual ancestry is of at most second-order interest.
This goes with a judgment that most of the concerns* that are commonly raised against simple-minded versions of economics can be addressed without throwing out the whole system and starting from scratch. If you don’t believe in the perfectly rational economic man (sic), there’s a huge body of work on behavioral economics, bounded rationality, altruism and so on. If you don’t like simplistic competitive models, the shelves are groaning with books on strategic behavior and game theory.
I am sure Quiggin didn’t intend it, but this came too perilously close to Margaret Thatcher’s “There Is No Alternative” for comfort. These notions that serious intellectual work outside well-worn paths sanctioned by the established disciplines has often proven ineffectual when it comes to political rough and tumble; that every valid critique of neoclassical economics has already been made by someone else long ago and, furthermore, has been adequately absorbed by the cognoscenti; that you must voluntarily shackle yourself to the tropes of the modern economic orthodoxy if you have pretentions to be taken seriously; and that every doctrine should be judged in a cod–John Dewey fashion by its immediate proximate uses—all constitute major impediments to understanding how the left has failed in the current crisis.
Quiggin’s book illustrates the disturbing conundrum of how difficult it can be for him, or indeed any other critic internal to the orthodoxy, to certify that he is not already infected with the zombie virus (a standard conundrum in zombie movies), and therefore deserves some culpability for their recrudescence. The first rule of nightmares is that sniping at zombies does not often stem their tide. For instance, Quiggin argues at one point, “The appealing idea that macroeconomics should develop naturally from standard microeconomic foundations has turned out to be a distraction”; but it is a distraction he himself cannot resist, relying as he does on neoclassical notions of “market failure,” natural monopoly, absence of Arrow-Debreu contingent commodities, information as a public good, and conventional definitions of risk to motivate his version of “real-world” economics. At another juncture, he admits that a relevant macroeconomics “is not simply a matter of modifying the way we model individual behavior,” but as he repeatedly conjures “behavioral economics” as the font of deliverance, he has nothing else on offer. In chapter 5 we suggest that behavioral economics has been a sink of despair. Quiggin frequently wishes for a “newer Keynesianism,” but has to concede that the neoclassical synthesis was “not particularly satisfactory at a theoretical level, but it had the huge practical merit that it worked.”28 Time and again he signals that he is aware that neoclassical economics frustrates and confounds intellectual deliverance from the morass of zombie ideas; but nevertheless, he cannot seriously countenance the possibility that the solution to logical incoherence involves its repudiation. The result is that Quiggin repeatedly contradicts himself, and perforce treats it as a virtue. This is itself a pungent symptom of zombie thought, and is widely found across the board of the “legitimate left” of the economics profession, from Paul Krugman to Joseph Stiglitz to Adair Turner to Amartya Sen to Simon Johnson. Paul Krugman, feeling secure in his status, has conveniently confessed to the derangement:
The brand of economics I use in my daily work—the brand that I still consider by far the most reasonable approach out there—was largely established by Paul Samuelson back in 1948, when he published the first edition of his classic textbook. It’s an approach that combines the grand tradition of microeconomics, with its emphasis on how the invisible hand leads to generally desirable outcomes, with Keynesian macroeconomics, which emphasizes the way the economy can develop magneto trouble, requiring policy intervention. In the Samuelsonian synthesis, one must count on the government to ensure more or less full employment; only once that can be taken as given do the usual virtues of free markets come to the fore.
It’s a deeply reasonable approach—but it’s also intellectually unstable. For it requires some strategic inconsistency in how you think about the economy. When you’re doing micro, you assume rational individuals and rapidly clearing markets; when you’re doing macro, frictions and ad hoc behavioral assumptions are essential. So what? Inconsistency in the pursuit of useful guidance is no vice.29
I do not wish to suggest one should never, ever simultaneously entertain A and Not-A. There is a grain of truth to this: quantum mechanics has been deemed inconsistent with classical mechanics and macro-scale theories such as relativity at various points in its history; it is possible for a science like physics to operate for a while with conceptual schizophrenia. Indeed, sometimes it may be a necessary prerequisite to come to understand the full nature and character of the submerged contradiction. However, the historical divergence comes with neoclassical economics in that most other sciences do not then banish their members who point out the inconsistencies and worry over their meaning. Nor do they simply expel the proponents of one side of the theory in order to maintain doctrinal purity, as happened with the rational-expectations movement and its epigones.
During the Cold War, the economics profession was growing more exclusive, but was not completely intransigently intolerant of rival doctrines, for reasons of ideological appearances. For instance, evidence from the Paul Samuelson archives suggests he really did nominate Joan Robinson for the Bank of Sweden economics “Nobel.”30 Things really ratcheted upward in terms of imposed conformity only after the Fall of the Wall, for equally obvious political reasons. However, the apogee of denial of divergent thought occurred during the Great Bubble. A very strange literature sprang up in the early 2000s, asserting that there was no such thing as neoclassical economics anymore, in the sense that the legitimate orthodox economics profession had explored every possible analytical divergence from the rigid Walrasian general equilibrium model of days past, and someone, somewhere, sometime had built formal models addressing the previously heterodox concerns.31 Rationality? Who needs it? Equilibrium? We can do without it! Maximization? We can get around it! Individual greed? Just read Amartya Sen! Supply and demand? That just gets fed to people insufficiently mathematical to grasp the latest interpretation of the Sonnenschein-Mantel-Debreu theorems! Bubbl
es? We got ’em, hot, foamy, and rational. Complexity? How much can you handle? And so on and so on. Point to anything you may not find salubrious, and we’ve got a “not-so-new” model (and maybe a bridge) to sell ya. And yet, all this putative open-minded tolerance and catholic heedfulness was accompanied by bald attack on and excommunication of any last vestige of heterodox economics in top-ranked universities throughout the world, and the redoubled exclusivity of top-ranked economics journals. History of doctrines was banished, and scattered ghettos of heterodox thought were unceremoniously leveled. Even European holdouts were vigorously routed in their national contexts. For those on the front lines, it was wrenching to witness this contradiction up close.
Never Let a Serious Crisis Go to Waste Page 3
