Sunday, July 30, 2017

Globalisation: the rise and fall of a truly terrible idea

There is a certain beauty and nobility about the idea that we are the world and wonderful things happen when we think of the rest of humanity as our brothers and sisters. Unfortunately, some very cynical people can take this beautiful idea and turn it into empire building. The sun never sets on the greatest civilization, you know.

Of course, the Roman or British Empires were harmless play-actors compared to the ruthless plunder available to those who can control the hydraulics of electronic money. And to keep the looting of the electronic money boys on track, the world needed some philosopher-pundits to convince the suckers that usury was harmless and the "structural adjustments" that threw whole classes of people into abject poverty were necessary for growth and prosperity. And to give the practitioners of empire building with electronic money a patina of beauty and respectability, they named their wickedness "Globalization" and "Free Trade" and "Reform."

In spite of the fact that none of these schemes benefitted very many people, the Globalists kept at it because the very few it did benefit became rich beyond the dreams of avarice. But pretty predictions advanced by the expensive think tanks couldn't cover the fact that these global schemes never work.
  • Big mass markets simply cannot work without a giant middle class with money to spend. Unfortunately, the primary goal of the money plunderers is to reduce the size and income of the middle classes.
  • The money boys tend to lack all respect for manufacturing and other forms of useful work. Ship those factories to China or Bangladesh where desperate brown folks will work for $10 a day. The de-industrialization of the formerly industrial countries has triggered some of the greatest calamities in human history. These moves were deliberately undertaken by hopelessly thoughtless people.
  • While we may all be brothers and sisters sharing a big blue marble in space, the realities of life are dramatically different from one region to another. One of the things builders quickly realize is that construction practices often don't travel very far. A house built for the blazing heat of the USA Southwest will be damn near worthless during a North Dakota blizzard. In macroeconomics, the same economic scheme that works well in Sweden may not work nearly as well in India or Egypt. Yet the money boys used their institutions to enforce economic orthodoxy from Ecuador to Korea and dozens of stops in between.
So now we are seeing some of the philosopher-pundits of Globalization coming ever so slowly to the realization that they have been selling some aromatic bullshit. Not all of them, mind you. The economics profession is mostly made up of very conventional people so they have no tendency to abandon their conventional wisdom. But some, apparently with the capacity to feel shame, have recognized that the vast majority of Globalization's major theses are just plain wrong and have formulated critiques. What follows is a damn fine article written by someone who has at least seen a brief flash of light.

Globalisation: the rise and fall of an idea that swept the world

It�s not just a populist backlash � many economists who once swore by free trade have changed their minds, too. How had they got it so wrong?

By Nikil Saval, 14 July 2017

The annual January gathering of the World Economic Forum in Davos is usually a placid affair: a place for well-heeled participants to exchange notes on global business opportunities, or powder conditions on the local ski slopes, while cradling champagne and canapes. This January, the ultra-rich and the sparkling wine returned, but by all reports the mood was one of anxiety, defensiveness and self-reproach.

The future of economic globalisation, for which the Davos men and women see themselves as caretakers, had been shaken by a series of political earthquakes. �Globalisation� can mean many things, but what lay in particular doubt was the long-advanced project of increasing free trade in goods across borders. The previous summer, Britain had voted to leave the largest trading bloc in the world. In November, the unexpected victory of Donald Trump, who vowed to withdraw from major trade deals, appeared to jeopardise the trading relationships of the world�s richest country. Forthcoming elections in France and Germany suddenly seemed to bear the possibility of anti-globalisation parties garnering better results than ever before. The barbarians weren�t at the gates to the ski-lifts yet � but they weren�t very far.

In a panel titled Governing Globalisation, the economist Dambisa Moyo, otherwise a well-known supporter of free trade, forthrightly asked the audience to accept that �there have been significant losses� from globalisation. �It is not clear to me that we are going to be able to remedy them under the current infrastructure,� she added. Christine Lagarde, the head of the International Monetary Fund, called for a policy hitherto foreign to the World Economic Forum: �more redistribution�. After years of hedging or discounting the malign effects of free trade, it was time to face facts: globalisation caused job losses and depressed wages, and the usual Davos proposals � such as instructing affected populations to accept the new reality � weren�t going to work. Unless something changed, the political consequences were likely to get worse.

The backlash to globalisation has helped fuel the extraordinary political shifts of the past 18 months. During the close race to become the Democratic party candidate, senator Bernie Sanders relentlessly attacked Hillary Clinton on her support for free trade. On the campaign trail, Donald Trump openly proposed tilting the terms of trade in favour of American industry. �Americanism, not globalism, shall be our creed,� he bellowed at the Republican national convention last July. The vote for Brexit was strongest in the regions of the UK devastated by the flight of manufacturing. At Davos in January, British prime minister Theresa May, the leader of the party of capital and inherited wealth, improbably picked up the theme, warning that, for many, �talk of greater globalisation � means their jobs being outsourced and wages undercut.� Meanwhile, the European far right has been warning against free movement of people as well as goods. Following her qualifying victory in the first round of France�s presidential election, Marine Le Pen warned darkly that �the main thing at stake in this election is the rampant globalisation that is endangering our civilisation.�

It was only a few decades ago that globalisation was held by many, even by some critics, to be an inevitable, unstoppable force. �Rejecting globalisation,� the American journalist George Packer has written, �was like rejecting the sunrise.� Globalisation could take place in services, capital and ideas, making it a notoriously imprecise term; but what it meant most often was making it cheaper to trade across borders � something that seemed to many at the time to be an unquestionable good. In practice, this often meant that industry would move from rich countries, where labour was expensive, to poor countries, where labour was cheaper. People in the rich countries would either have to accept lower wages to compete, or lose their jobs. But no matter what, the goods they formerly produced would now be imported, and be even cheaper. And the unemployed could get new, higher-skilled jobs (if they got the requisite training). Mainstream economists and politicians upheld the consensus about the merits of globalisation, with little concern that there might be political consequences.

Back then, economists could calmly chalk up anti-globalisation sentiment to a marginal group of delusional protesters, or disgruntled stragglers still toiling uselessly in �sunset industries�. These days, as sizable constituencies have voted in country after country for anti-free-trade policies, or candidates that promise to limit them, the old self-assurance is gone. Millions have rejected, with uncertain results, the punishing logic that globalisation could not be stopped. The backlash has swelled a wave of soul-searching among economists, one that had already begun to roll ashore with the financial crisis. How did they fail to foresee the repercussions?

In the heyday of the globalisation consensus, few economists questioned its merits in public. But in 1997, the Harvard economist Dani Rodrik published a slim book that created a stir. Appearing just as the US was about to enter a historic economic boom, Rodrik�s book, Has Globalization Gone Too Far?, sounded an unusual note of alarm.

Rodrik pointed to a series of dramatic recent events that challenged the idea that growing free trade would be peacefully accepted. In 1995, France had adopted a programme of fiscal austerity in order to prepare for entry into the eurozone; trade unions responded with the largest wave of strikes since 1968. In 1996, only five years after the end of the Soviet Union � with Russia�s once-protected markets having been forcibly opened, leading to a sudden decline in living standards � a communist won 40% of the vote in Russia�s presidential elections. That same year, two years after the passing of the North American Free Trade Agreement (Nafta), one of the most ambitious multinational deals ever accomplished, a white nationalist running on an �America first� programme of economic protectionism did surprisingly well in the presidential primaries of the Republican party.

What was the pathology of which all of these disturbing events were symptoms? For Rodrik, it was �the process that has come to be called �globalisation��. Since the 1980s, and especially following the collapse of the Soviet Union, lowering barriers to international trade had become the axiom of countries everywhere. Tariffs had to be slashed and regulations spiked. Trade unions, which kept wages high and made it harder to fire people, had to be crushed. Governments vied with each other to make their country more hospitable � more �competitive� � for businesses. That meant making labour cheaper and regulations looser, often in countries that had once tried their hand at socialism, or had spent years protecting �homegrown� industries with tariffs.

These moves were generally applauded by economists. After all, their profession had long embraced the principle of comparative advantage � simply put, the idea countries will trade with each other in order to gain what each lacks, thereby benefiting both. In theory, then, the globalisation of trade in goods and services would benefit consumers in rich countries by giving them access to inexpensive goods produced by cheaper labour in poorer countries, and this demand, in turn, would help grow the economies of those poorer countries.

But the social cost, in Rodrik�s dissenting view, was high � and consistently underestimated by economists. He noted that since the 1970s, lower-skilled European and American workers had endured a major fall in the real value of their wages, which dropped by more than 20%. Workers were suffering more spells of unemployment, more volatility in the hours they were expected to work.

While many economists attributed much of the insecurity to technological change � sophisticated new machines displacing low-skilled workers � Rodrik suggested that the process of globalisation should shoulder more of the blame. It was, in particular, the competition between workers in developing and developed countries that helped drive down wages and job security for workers in developed countries. Over and over, they would be held hostage to the possibility that their business would up and leave, in order to find cheap labour in other parts of the world; they had to accept restraints on their salaries � or else. Opinion polls registered their strong levels of anxiety and insecurity, and the political effects were becoming more visible. Rodrik foresaw that the cost of greater �economic integration� would be greater �social disintegration�. The inevitable result would be a huge political backlash.

As Rodrik would later recall, other economists tended to dismiss his arguments � or fear them. Paul Krugman, who would win the Nobel prize in 2008 for his earlier work in trade theory and economic geography, privately warned Rodrik that his work would give �ammunition to the barbarians�.

It was a tacit acknowledgment that pro-globalisation economists, journalists and politicians had come under growing pressure from a new movement on the left, who were raising concerns very similar to Rodrik�s. Over the course of the 1990s, an unwieldy international coalition had begun to contest the notion that globalisation was good. Called �anti-globalisation� by the media, and the �alter-globalisation� or �global justice� movement by its participants, it tried to draw attention to the devastating effect that free trade policies were having, especially in the developing world, where globalisation was supposed to be having its most beneficial effect. This was a time when figures such as the New York Times columnist Thomas Friedman had given the topic a glitzy prominence by documenting his time among what he gratingly called �globalutionaries�: chatting amiably with the CEO of Monsanto one day, gawking at lingerie manufacturers in Sri Lanka the next. Activists were intent on showing a much darker picture, revealing how the record of globalisation consisted mostly of farmers pushed off their land and the rampant proliferation of sweatshops. They also implicated the highest world bodies in their critique: the G7, World Bank and IMF. In 1999, the movement reached a high point when a unique coalition of trade unions and environmentalists managed to shut down the meeting of the World Trade Organization in Seattle.

In a state of panic, economists responded with a flood of columns and books that defended the necessity of a more open global market economy, in tones ranging from grandiose to sarcastic. In January 2000, Krugman used his first piece as a New York Times columnist to denounce the �trashing� of the WTO, calling it �a sad irony that the cause that has finally awakened the long-dormant American left is that of � yes! � denying opportunity to third-world workers�.

Where Krugman was derisive, others were solemn, putting the contemporary fight against the �anti-globalisation� left in a continuum of struggles for liberty. �Liberals, social democrats and moderate conservatives are on the same side in the great battles against religious fanatics, obscurantists, extreme environmentalists, fascists, Marxists and, of course, contemporary anti-globalisers,� wrote the Financial Times columnist and former World Bank economist Martin Wolf in his book Why Globalization Works. Language like this lent the fight for globalisation the air of an epochal struggle. More common was the rhetoric of figures such as Friedman, who in his book The World is Flat mocked the �pampered American college kids� who, �wearing their branded clothing, began to get interested in sweatshops as a way of expiating their guilt�.

Arguments against the global justice movement rested on the idea that the ultimate benefits of a more open and integrated economy would outweigh the downsides. �Freer trade is associated with higher growth and � higher growth is associated with reduced poverty,� wrote the Columbia University economist Jagdish Bhagwati in his book In Defense of Globalization. �Hence, growth reduces poverty.� No matter how troubling some of the local effects, the implication went, globalisation promised a greater good.

The fact that proponents of globalisation now felt compelled to spend much of their time defending it indicates how much visibility the global justice movement had achieved by the early 2000s. Still, over time, the movement lost ground, as a policy consensus settled in favour of globalisation. The proponents of globalisation were determined never to let another gathering be interrupted. They stopped meeting in major cities, and security everywhere was tightened. By the time of the invasion of Iraq, the world�s attention had turned from free trade to George Bush and the �war on terror,� leaving the globalisation consensus intact.

Above all, there was a widespread perception that globalisation was working as it was supposed to. The local adverse effects that activists pointed to � sweatshop labour, starving farmers � were increasingly obscured by the staggering GDP numbers and fantastical images of gleaming skylines coming out of China. With some lonely exceptions � such as Rodrik and the former World Bank chief and Columbia University professor Joseph Stiglitz � the pursuit of freer trade became a consensus position for economists, commentators and the vast majority of mainstream politicians, to the point where the benefits of free trade seemed to command blind adherence. In a 2006 TV interview, Thomas Friedman was asked whether there was any free trade deal he would not support. He replied that there wasn�t, admitting, �I wrote a column supporting the Cafta, the Caribbean Free Trade initiative. I didn�t even know what was in it. I just knew two words: free trade.�

In the wake of the financial crisis, the cracks began to show in the consensus on globalisation, to the point that, today, there may no longer be a consensus. Economists who were once ardent proponents of globalisation have become some of its most prominent critics. Erstwhile supporters now concede, at least in part, that it has produced inequality, unemployment and downward pressure on wages. Nuances and criticisms that economists only used to raise in private seminars are finally coming out in the open.

A few months before the financial crisis hit, Krugman was already confessing to a �guilty conscience�. In the 1990s, he had been very influential in arguing that global trade with poor countries had only a small effect on workers� wages in rich countries. By 2008, he was having doubts: the data seemed to suggest that the effect was much larger than he had suspected.

In the years that followed, the crash, the crisis of the eurozone and the worldwide drop in the price of oil and other commodities combined to put a huge dent in global trade. Since 2012, the IMF reported in its World Economic Outlook for October 2016, trade was growing at 3% a year � less than half the average of the previous three decades. That month, Martin Wolf argued in a column that globalisation had �lost dynamism�, due to a slackening of the world economy, the �exhaustion� of new markets to exploit and a rise in protectionist policies around the world. In an interview earlier this year, Wolf suggested to me that, though he remained convinced globalisation had not been the decisive factor in rising inequality, he had nonetheless not fully foreseen when he was writing Why Globalization Works how �radical the implications� of worsening inequality �might be for the US, and therefore the world�. Among these implications appears to be a rising distrust of the establishment that is blamed for the inequality. �We have a very big political problem in many of our countries,� he said. �The elites � the policymaking business and financial elites � are increasingly disliked. You need to make policy which brings people to think again that their societies are run in a decent and civilised way.�

That distrust of the establishment has had highly visible political consequences: Farage, Trump, and Le Pen on the right; but also in new parties on the left, such as Spain�s Podemos, and curious populist hybrids, such as Italy�s Five Star Movement. As in 1997, but to an even greater degree, the volatile political scene reflects public anxiety over �the process that has come to be called �globalisation��. If the critics of globalisation could be dismissed before because of their lack of economics training, or ignored because they were in distant countries, or kept out of sight by a wall of police, their sudden political ascendancy in the rich countries of the west cannot be so easily discounted today.

Over the past year, the opinion pages of prestigious newspapers have been filled with belated, rueful comments from the high priests of globalisation � the men who appeared to have defeated the anti-globalisers two decades earlier. Perhaps the most surprising such transformation has been that of Larry Summers. Possessed of a panoply of elite titles � former chief economist of the World Bank, former Treasury secretary, president emeritus of Harvard, former economic adviser to President Barack Obama � Summers was renowned in the 1990s and 2000s for being a blustery proponent of globalisation. For Summers, it seemed, market logic was so inexorable that its dictates prevailed over every social concern. In an infamous World Bank memo from 1991, he held that the cheapest way to dispose of toxic waste in rich countries was to dump it in poor countries, since it was financially cheaper for them to manage it. �The laws of economics, it�s often forgotten, are like the laws of engineering,� he said in a speech that year at a World Bank-IMF meeting in Bangkok. �There�s only one set of laws and they work everywhere. One of the things I�ve learned in my short time at the World Bank is that whenever anybody says, �But economics works differently here,� they�re about to say something dumb.�

Over the last two years, a different, in some ways unrecognizable Larry Summers has been appearing in newspaper editorial pages. More circumspect in tone, this humbler Summers has been arguing that economic opportunities in the developing world are slowing, and that the already rich economies are finding it hard to get out of the crisis. Barring some kind of breakthrough, Summers says, an era of slow growth is here to stay.

In Summers�s recent writings, this sombre conclusion has often been paired with a surprising political goal: advocating for a �responsible nationalism�. Now he argues that politicians must recognise that �the basic responsibility of government is to maximise the welfare of citizens, not to pursue some abstract concept of the global good�.

One curious thing about the pro-globalisation consensus of the 1990s and 2000s, and its collapse in recent years, is how closely the cycle resembles a previous era. Pursuing free trade has always produced displacement and inequality � and political chaos, populism and retrenchment to go with it. Every time the social consequences of free trade are overlooked, political backlash follows. But free trade is only one of many forms that economic integration can take. History seems to suggest, however, that it might be the most destabilising one.

Nearly all economists and scholars of globalisation like to point to the fact that the economy was rather globalised by the early 20th century. As European countries colonised Asia and sub-Saharan Africa, they turned their colonies into suppliers of raw materials for European manufacturers, as well as markets for European goods. Meanwhile, the economies of the colonisers were also becoming free-trade zones for each other. �The opening years of the 20th century were the closest thing the world had ever seen to a free world market for goods, capital and labour,� writes the Harvard professor of government Jeffry Frieden in his standard account, Global Capitalism: Its Fall and Rise in the 20th Century. �It would be a hundred years before the world returned to that level of globalisation.�

In addition to military force, what underpinned this convenient arrangement for imperial nations was the gold standard. Under this system, each national currency had an established gold value: the British pound sterling was backed by 113 grains of pure gold; the US dollar by 23.22 grains, and so on. This entailed that exchange rates were also fixed: a British pound was always equal to 4.87 dollars. The stability of exchange rates meant that the cost of doing business across borders was predictable. Just like the eurozone today, you could count on the value of the currency staying the same, so long as the storehouse of gold remained more or less the same.

When there were gold shortages � as there were in the 1870s � the system stopped working. To protect the sanctity of the standard under conditions of stress, central bankers across the Europe and the US tightened access to credit and deflated prices. This left financiers in a decent position, but crushed farmers and the rural poor, for whom falling prices meant starvation. Then as now, economists and mainstream politicians largely overlooked the darker side of the economic picture.

In the US, this fuelled one of the world�s first self-described �populist� revolts, leading to the nomination of William Jennings Bryan as the Democratic party candidate in 1896. At his nominating convention, he gave a famous speech lambasting gold backers: �You shall not press down upon the brow of labour this crown of thorns, you shall not crucify mankind upon a cross of gold.� Then as now, financial elites and their supporters in the press were horrified. �There has been an upheaval of the political crust,� the Times of London reported, �and strange creatures have come forth.�

Businessmen were so distressed by Bryan that they backed the Republican candidate, William McKinley, who won partly by outspending Bryan five to one. Meanwhile, gold was bolstered by the discovery of new reserves in colonial South Africa. But the gold standard could not survive the first world war and the Great Depression. By the 1930s, unionisation had spread to more industries and there was a growing worldwide socialist movement. Protecting gold would mean mass unemployment and social unrest. Britain went off the gold standard in 1931, while Franklin Roosevelt took the US off it in 1933; France and several other countries would follow in 1936.

The prioritisation of finance and trade over the welfare of people had come momentarily to an end. But this wasn�t the end of the global economic system.

The trade system that followed was global, too, with high levels of trade � but it took place on terms that often allowed developing countries to protect their industries. Because, from the perspective of free traders, protectionism is always seen as bad, the success of this postwar system has been largely under-recognised.

Over the course of the 1930s and 40s, liberals � John Maynard Keynes among them � who had previously regarded departures from free trade as �an imbecility and an outrage� began to lose their religion. �The decadent international but individualistic capitalism, in the hands of which we found ourselves after the war, is not a success,� Keynes found himself writing in 1933. �It is not intelligent, it is not beautiful, it is not just, it is not virtuous � and it doesn�t deliver the goods. In short, we dislike it, and we are beginning to despise it.� He claimed sympathies �with those who would minimise, rather than with those who would maximise, economic entanglement among nations,� and argued that goods �be homespun whenever it is reasonably and conveniently possible�.

The international systems that chastened figures such as Keynes helped produce in the next few years � especially the Bretton Woods agreement and the General Agreement on Tariffs and Trade (Gatt) � set the terms under which the new wave of globalisation would take place.

The key to the system�s viability, in Rodrik�s view, was its flexibility � something absent from contemporary globalisation, with its one-size-fits-all model of capitalism. Bretton Woods stabilised exchange rates by pegging the dollar loosely to gold, and other currencies to the dollar. Gatt consisted of rules governing free trade � negotiated by participating countries in a series of multinational �rounds� � that left many areas of the world economy, such as agriculture, untouched or unaddressed. �Gatt�s purpose was never to maximise free trade,� Rodrik writes. �It was to achieve the maximum amount of trade compatible with different nations doing their own thing. In that respect, the institution proved spectacularly successful.�

Partly because Gatt was not always dogmatic about free trade, it allowed most countries to figure out their own economic objectives, within a somewhat international ambit. When nations contravened the agreement�s terms on specific areas of national interest, they found that it �contained loopholes wide enough for an elephant to pass�, in Rodrik�s words. If a nation wanted to protect its steel industry, for example, it could claim �injury� under the rules of Gatt and raise tariffs to discourage steel imports: �an abomination from the standpoint of free trade�. These were useful for countries that were recovering from the war and needed to build up their own industries via tariffs � duties imposed on particular imports. Meanwhile, from 1948 to 1990, world trade grew at an annual average of nearly 7% � faster than the post-communist years, which we think of as the high point of globalisation. �If there was a golden era of globalisation,� Rodrik has written, �this was it.�

Gatt, however, failed to cover many of the countries in the developing world. These countries eventually created their own system, the United Nations conference on trade and development (UNCTAD). Under this rubric, many countries � especially in Latin America, the Middle East, Africa and Asia � adopted a policy of protecting homegrown industries by replacing imports with domestically produced goods. It worked poorly in some places � India and Argentina, for example, where the trade barriers were too high, resulting in factories that cost more to set up than the value of the goods they produced � but remarkably well in others, such as east Asia, much of Latin America and parts of sub-Saharan Africa, where homegrown industries did spring up. Though many later economists and commentators would dismiss the achievements of this model, it theoretically fit Larry Summers�s recent rubric on globalisation: �the basic responsibility of government is to maximise the welfare of citizens, not to pursue some abstract concept of the global good.�

The critical turning point � away from this system of trade balanced against national protections � came in the 1980s. Flagging growth and high inflation in the west, along with growing competition from Japan, opened the way for a political transformation. The elections of Margaret Thatcher and Ronald Reagan were seminal, putting free-market radicals in charge of two of the world�s five biggest economies and ushering in an era of �hyperglobalisation�. In the new political climate, economies with large public sectors and strong governments within the global capitalist system were no longer seen as aids to the system�s functioning, but impediments to it.

Not only did these ideologies take hold in the US and the UK; they seized international institutions as well. Gatt renamed itself as the World Trade Organization (WTO), and the new rules the body negotiated began to cut more deeply into national policies. Its international trade rules sometimes undermined national legislation. The WTO�s appellate court intervened relentlessly in member nations� tax, environmental and regulatory policies, including those of the United States: the US�s fuel emissions standards were judged to discriminate against imported gasoline, and its ban on imported shrimp caught without turtle-excluding devices was overturned. If national health and safety regulations were stricter than WTO rules necessitated, they could only remain in place if they were shown to have �scientific justification�.

The purest version of hyperglobalisation was tried out in Latin America in the 1980s. Known as the �Washington consensus�, this model usually involved loans from the IMF that were contingent on those countries lowering trade barriers and privatising many of their nationally held industries. Well into the 1990s, economists were proclaiming the indisputable benefits of openness. In an influential 1995 paper, Jeffrey Sachs and Andrew Warner wrote: �We find no cases to support the frequent worry that a country might open and yet fail to grow.�

But the Washington consensus was bad for business: most countries did worse than before. Growth faltered, and citizens across Latin America revolted against attempted privatisations of water and gas. In Argentina, which followed the Washington consensus to the letter, a grave crisis resulted in 2002, precipitating an economic collapse and massive street protests that forced out the government that had pursued privatising reforms. Argentina�s revolt presaged a left-populist upsurge across the continent: from 1999 to 2007, leftwing leaders and parties took power in Brazil, Venezuela, Bolivia and Ecuador, all of them campaigning against the Washington consensus on globalisation. These revolts were a preview of the backlash of today.

Rodrik � perhaps the contemporary economist whose views have been most amply vindicated by recent events � was himself a beneficiary of protectionism in Turkey. His father�s ballpoint pen company was sheltered under tariffs, and achieved enough success to allow Rodrik to attend Harvard in the 1970s as an undergraduate. This personal understanding of the mixed nature of economic success may be one of the reasons why his work runs against the broad consensus of mainstream economics writing on globalisation.

�I never felt that my ideas were out of the mainstream,� Rodrik told me recently. Instead, it was that the mainstream had lost touch with the diversity of opinions and methods that already existed within economics. �The economics profession is strange in that the more you move away from the seminar room to the public domain, the more the nuances get lost, especially on issues of trade.� He lamented the fact that while, in the classroom, the models of trade discuss losers and winners, and, as a result, the necessity of policies of redistribution, in practice, an �arrogance and hubris� had led many economists to ignore these implications. �Rather than speaking truth to power, so to speak, many economists became cheerleaders for globalisation.�

In his 2011 book The Globalization Paradox, Rodrik concluded that �we cannot simultaneously pursue democracy, national determination, and economic globalisation.� The results of the 2016 elections and referendums provide ample testimony of the justness of the thesis, with millions voting to push back, for better or for worse, against the campaigns and institutions that promised more globalisation. �I�m not at all surprised by the backlash,� Rodrik told me. �Really, nobody should have been surprised.�

But what, in any case, would �more globalisation� look like? For the same economists and writers who have started to rethink their commitments to greater integration, it doesn�t mean quite what it did in the early 2000s. It�s not only the discourse that�s changed: globalisation itself has changed, developing into a more chaotic and unequal system than many economists predicted. The benefits of globalisation have been largely concentrated in a handful of Asian countries. And even in those countries, the good times may be running out.

Statistics from Global Inequality, a 2016 book by the development economist Branko Milanovic, indicate that in relative terms the greatest benefits of globalisation have accrued to a rising �emerging middle class�, based preponderantly in China. But the cons are there, too: in absolute terms, the largest gains have gone to what is commonly called �the 1%� � half of whom are based in the US. Economist Richard Baldwin has shown in his recent book, The Great Convergence, that nearly all of the gains from globalisation have been concentrated in six countries.

Barring some political catastrophe, in which rightwing populism continued to gain, and in which globalisation would be the least of our problems � Wolf admitted that he was �not at all sure� that this could be ruled out � globalisation was always going to slow; in fact, it already has. One reason, says Wolf, was that �a very, very large proportion of the gains from globalisation � by no means all � have been exploited. We have a more open world economy to trade than we�ve ever had before.� Citing The Great Convergence, Wolf noted that supply chains have already expanded, and that future developments, such as automation and the use of robots, looked to undermine the promise of a growing industrial workforce. Today, the political priorities were less about trade and more about the challenge of retraining workers, as technology renders old jobs obsolete and transforms the world of work.

Rodrik, too, believes that globalisation, whether reduced or increased, is unlikely to produce the kind of economic effects it once did. For him, this slowdown has something to do with what he calls �premature deindustrialisation�. In the past, the simplest model of globalisation suggested that rich countries would gradually become �service economies�, while emerging economies picked up the industrial burden. Yet recent statistics show the world as a whole is deindustrialising. Countries that one would have expected to have more industrial potential are going through the stages of automation more quickly than previously developed countries did, and thereby failing to develop the broad industrial workforce seen as a key to shared prosperity.

For both Rodrik and Wolf, the political reaction to globalisation bore possibilities of deep uncertainty. �I really have found it very difficult to decide whether what we�re living through is a blip, or a fundamental and profound transformation of the world � at least as significant as that one brought about the first world war and the Russian revolution,� Wolf told me. He cited his agreement with economists such as Summers that shifting away from the earlier emphasis on globalisation had now become a political priority; that to pursue still greater liberalisation was like showing �a red rag to a bull� in terms of what it might do to the already compromised political stability of the western world.

Rodrik pointed to a belated emphasis, both among political figures and economists, on the necessity of compensating those displaced by globalisation with retraining and more robust welfare states. But pro-free-traders had a history of cutting compensation: Bill Clinton passed Nafta, but failed to expand safety nets. �The issue is that the people are rightly not trusting the centrists who are now promising compensation,� Rodrik said. �One reason that Hillary Clinton didn�t get any traction with those people is that she didn�t have any credibility.�

Rodrik felt that economics commentary failed to register the gravity of the situation: that there were increasingly few avenues for global growth, and that much of the damage done by globalisation � economic and political � is irreversible. �There is a sense that we�re at a turning point,� he said. �There�s a lot more thinking about what can be done. There�s a renewed emphasis on compensation � which, you know, I think has come rather late.� more

Sunday, July 23, 2017

The economics of waste

There is no particular reason to believe that Charles H. Smith is a Veblen scholar or that he has even read The Theory of the Leisure Class (TOLC). Nevertheless, if someone had been assigned to summarize TOLC, the following would rate an A+ because these are exactly the points Veblen was trying to make. For example, Veblen includes a whole chapter on why the Leisure Classes believe that waste enhances their status, entitled Conspicuous Waste.

This essay is short and sweet, and the reader isn't required to learn a bunch of arcane terms as is the case with a reading of TOLC. Several times in my life I have been asked to "translate" TOLC into modern English. Because I am terrible at such tasks, I have begged off. But I DO think it is a good idea. And however Smith came to write the following, it will be an excellent substitute until someone actually reworks Veblen's classic.



Humanity appears to default to magical thinking when faced with untenable situations that demand systemic change.

How would extraterrestrial anthropologists characterize Earth's dominant socio-economic system? It's not difficult to imagine their dismaying report:

"Earth's economy glorifies waste. Its economists rejoice when a product is disposed as waste and replaced with a new product. This waste is perversely labeled 'growth.'

Aimless wandering that consumes fossil fuels is likewise rejoiced as 'growth.'

The stripping of the planet's oceans for a few favored species of edible fish is also considered 'growth' as the process of destroying the ocean ecosystem generates sales of the desired seafood.

Even more perversely, the resulting shortages are also causes of rejoicing by the planet's elites, as their ability to purchase the now-scarce resources boosts their social status and grandiose sense of self-worth.

This glorification of waste is the same dynamic that destroyed the civilization on Zork.

Earth's economy also glorifies exploitation, as this maximizes profits, which appears to be the planetary equivalent of a secular religion that everyone believes as a Natural Law.

Thus slavery and monopoly are highly valued as the most reliable sources of profits. If ethical concerns limit the actual ownership of humans, Earth's economy incentivizes feudal arrangements that share characteristics of servitude and bondage. In the current era, the favored mechanisms are over-indebtedness (debt-serfdom) and taxation by the state, which extracts approximately 40% of all labor via threat of imprisonment.

Earth's elites exhibit a pathological preference for micro-managing the commoners via criminalizing much of everyday life and imposing extremely harsh punishments for any dissent or resistance to elite domination.

This is the same dynamic that doomed planetary civilizations in the Blug system.

Earth's economy is currently dependent on depleting fossil fuels and borrowing from the future to fund consumption in the present, i.e. debt. Rather than face the reality that this is not sustainable and pursue other arrangements, Earth's elites have chosen expediency, responding to the inevitable crises caused by depletion and dependence on debt with expedient but ultimately destructive policies that paper over the crises but at the cost of generating greater crises in the next iteration.

Humanity appears to default to magical thinking when faced with untenable situations that demand systemic change. This is eerily parallel to the now-lost civilization of Frum.

It seems Earth's dominant species has selected the most destructive policies and mindsets to glorify and worship. Earth's current civilization is doomed, with near-zero prospects for the necessary transition to a more sustainable, less exploitive arrangement.

Earth's decline is a tragi-comedy, much like the one on Ononon that entertained our home planet audiences for a time." more

Friday, July 21, 2017

Re-upping my Producer Class credentials (again)

The main reason for do-it-yourself home repair is that you can have something in your life that is unaffordable any other way. Pictured here is my new rest-and-towel-off area built on the site of one of the nastier basement bathrooms ever seen or imagined. Among its many features it has an ADA-approved low-slip tile floor, knurled, high-grip, stainless-steel grab bars, an ergonomically excellent bench, and an LED lighting system that delivers almost 100 lumens / sq. ft. It is safe, comfortable, and aesthetically quite pleasant. And best of all, it was built with some of the lowest-cost materials sold in the big-box building supply store in my little town�for example the ceramic wall tile only cost $1.52 / sq. ft. ($16.36 / sq. meter).

But for me, this sort of building is also (and probably mainly) an epistemological exercise. Building teaches many important lessons including:
  • Careful and extensive planning is essential.
  • There is absolutely no substitute for getting it right the first time
  • Inexpensive materials can be made to look spectacular if used with imagination
  • The instinct of workmanship works best with good tools
  • Nothing disrupts a time schedule like a non-standard design or application
No one changes the world quite like the builders. And when the builders got really serious about their applied art, they produced the Industrial Revolution. The greatest errors in economics stem directly from a deep ignorance of the tool-users and what their role in society really is. So I build because I never want to lose touch with these people. It is what separates the economic thinking of this blog from virtually every other economics site on the internet. Unless one categorizes Ben Franklin and Peter Cooper as economists, there are no historical examples of economists who were graceful tool-users. Of course the greatest political economist of them all, Thorstein Veblen, built simple things�which mostly proves my point about how rare it is for the tool-users to be even mentioned in economic debates.

Even so, I look at my rebuilt bathroom and am filled with the calm assurance that very likely no other political economist in history could have built it. And this fact alone significantly explains why so many got so much horribly and disastrously wrong. It is impossible to accurately explain human society without accounting for the tool-users. Moreover, tool-using constitutes a knowledge that is rarely found in books�this is something you must do.

I must admit that most of these lessons had been learned long ago. But this time around, I thought a lot about the intersection between competence and honesty (mostly inspired by the hilarious debate in the movie The Big Short over whether it was fraud or stupidity that drove the housing bubble that crashed in 2007-8). Besides cost containment, my main goal was to have a well-made outcome. Like any such project, there were many jobs I had not done before. When that never-been-done-before job appears, the most important assignment is to take an honest and thorough inventory of the possible assets that can bring this task to a successful conclusion.
  • Is there a Youtube of someone doing the same thing? 
  • Do I have the right tools for fabrication? 
  • Can I purchase suitable raw materials? 
  • Is the planned method within my skill set? etc.
Of course, when there isn't a relevant example to copy, you are thrown into the world of invention where all these steps must be repeated with a lot less help. In these situations where outcomes are less certain, the margin for dishonest self assessment drops to ZERO. Turns out, once again, that the most important core ingredient of competency is honesty.

Unfortunately, this will be my last such project. I recently turned 68 and physically I cannot do it anymore. Especially if only to prove an epistemological point. This project was conducted in a cellar which means everything had to be hauled down a flight of stairs. Some construction materials are pretty damn heavy and clumsy. But I DO enjoy my repaired bathroom. The details of how it was done can be found by clicking the Read more button below.

The nastiest surprises our 1958 house presented were the bathrooms. The upstair bathroom had been basically leaking since it was built because of an improperly-leveled bathtub. There had been several attempts over the years to fix the leak but the root problem was never addressed. My guess is that it wasn't even recognized. Worse, because the bathroom was absolutely vital to the family, any attempted fix had been by definition, quick and messy. The account of our fix was posted back in July of 2015.

The basement bathroom was another disaster. It had several major flaws including:

1) It was impossible to clean. The floor was poured concrete that had been painted a couple of times over the years. Even so, mistargeted emissions around the toilet bowl over time had actually removed the paint. The shower stall floor was infected with all sorts of molds and mildews growing in soap scum and accumulated dead skin. These were impossible to remove because the floor never dried out. Most of the walls were constructed of a cheap fiberboard that would destroy itself if it ever got wet�it was also ugly and printed to look like someone's idea of marble. From the time I would enter that room until I started to sneeze was usually less than a minute.

2) The slope to the shower drain was dangerously steep. The concrete was well-laid and cured�in over 50 years it has sprouted NO hairline (or worse) cracks anywhere I could see. Unfortunately, The floor's contour was not well done. The floor slopes from the center of the house to the outside walls. The result is that there was too much concrete near where the shower's floor drain was attached to the main stack. So rather than move around a lot of concrete, the original finishers just troweled a round edge from the floor down to the drain�a drop of over three inches. So in the middle of the shower was an over seven inch diameter "pothole" deep enough so a misstep could do some serious damage to an ankle or foot.

The basic floor slope was the wrong direction so the original cement finishers troweled a half-round kerb to keep the water contained in the shower area. It was soon discovered that this was not enough so someone had installed a 2 x 4 to raise its height. I thought this board across the shower door dangerous and ugly and removed it. It took only one shower to realize that board really was necessary because without it, water escaped the shower area, ran across the floor, and out the door.

3) The entrance to the shower area was so narrow as to make access nearly impossible�and other problems that came from cramming a washbasin into a too-small room. A bathroom needed a place to wash up, went the logic, so a sink was installed that was not plumbed into the waste stack. Instead the drain just ran out onto the shower floor. Worse the sink shrunk the shower opening by half which meant stepping over a 2 x 4 set on edge onto a wet floor with a major hole in the middle through an opening roughly 18" wide. Trying to clean that floor meant working through the same reduced opening. Even crazier, there is a perfectly good laundry tub less than four feet from the bathroom door. If all you needed to do is wash your hands, this was perfectly fine.

4) The lighting was dismal. There were two (mismatched) light fixtures above the washbasin. The shower itself was quite dark when the curtain was pulled and the light in the toilet area was very weak. Not only was this darkness a sanitation issue, but what good is a toilet if it is so dark you cannot read while using it.

5) The whole room was so small it was almost impossible to towel off. The "logic" of small bathrooms totally escapes me. Considering how much time is actually spent in bathrooms, making them too small seems almost insane�especially in a house that has a "dining room" that gets used about twice a year. I am 6"2" and to towel off my back, I was forced to go out into the hall. To save a few square feet in a basement that has lots of unused space can only be explained by some 1950s dictate of fashion.

So the problems to fix were obvious:
  • Make the shower floor safe to walk on without looking and make sure all water in the room at least ran towards the drain.
  • Make the surfaces durable and easy to clean.
  • Get some serious light in the space.
  • Get rid of the systems that kept the shower floor wet.
  • Push back the walls by small amounts to relieve the claustrophobia-inducing space. (In the end, the floor area would expand by 14.8 sq. ft (1.37 sq. m)�doesn't seem like much but it completely changed the character of the room).
  • Install plenty of grab bars, use high-traction floor tiles, widen the door to make it wheelchair-friendly, install a taller toilet, and do whatever else made it safer.
Since the original bathroom actually functioned, after a fashion, as a toilet and shower, we intended to keep the concrete stub walls, the water supply, and the over-sized drain attached to the main waste stack. So in theory it was supposed to be a matter of simply replacing surfaces and fixtures�how hard could this be? Plenty difficult as it turned out.

Re-contouring the floor

With a low ceiling and excess concrete surrounding the shower drain, the "obvious" solution to the drainage problems would be to remove material from the floor. This decision turned into one of the bigger construction mistakes of my life. Yes a diamond wheel can pretty easily grind away 50+ y.o. concrete. The problem is that the resulting dust is almost impossible to control. We tried to drape off the work area. We tried to put a vacuum attachment on the grinder. We tried wetting down the concrete. All attempts at dust control were laughable in the face of the choking clouds of dust a grinder could create in an enclosed space. Our dust masks were clogged in minutes. Eye protection was soon caked with a blinding layer of dust. After a few hours (and some progress) we concluded we had to try another way.

The kerb has been removed and layers of filthy concrete and paint have been ground away. This is a picture taken AFTER most of the dust has settled. And for all the mess that was made, this grinding was probably less than 5% of what was needed to properly reshape the floor

The new framing goes up. At least the floor contour problems have been surrounded and defined. This new wall was not going to absorb water from a wet floor�it was framed on a base of solid PVC (the white line underneath the sole plate which itself is treated wood.)

The dust flew just everywhere. I was finding new hiding places for this fine dust for weeks. Here it highlights cobwebs in a ceiling area behind the furnace�a dark place not really seen by human eyes since the house was first finished.

If you cannot subtract�add

Wanting all parts of the floor to eventually drain to the shower was difficult to understand conceptually because the room was not a rectangle and the drain (yellow) was not in the middle. So I constructed sloping floor parts in my favorite 3d illustration program and pushed and rotated them until I had some understanding of how they would intersect. This proved enormously helpful and I determined that all surfaces should be on some line between the new drain opening and a level line surrounding the perimeter of the room.

A friend loaned me this fabulous laser level, a German-designed jewel of a tool called a Stabila LAX300. In less than 20 minutes, I had every vertical surface marked in relation to each other (see the red laser lines on the studs). It only took a few seconds for me to want one of these devices.

The new drain height had to be defined first. A 6" PVC splice would serve as the form for the new concrete. The top mark corresponds to the mark from the laser level. The second mark down was the maximum height of the existing floor (upper left corner) or the maximum height of the new floor. The lower mark represented the recommended slope for shower drainage�or the new drain cover height. The copper pipe would be connected to the furnace's drainage system.

Once the drain height was determined, the PVC was cut down to size and set in pure silicone caulk. Note that ledger boards have been installed at the height determined by the laser. (My Denver friend flew in to help and redefined diligence and determination. He also understood what I was trying to accomplish�which was no small matter.)

A screed board that spans the distance between the wall's perimeter and the drain height extension has been fabricated using a PVC "hook" that could be adjusted with some pretty high precision. The new floor height would be determined by the underside of this screed.

A much longer screed would be necessary to re-contour the rest of the room, Note how far out of level the old floor was�no wonder the water that escaped the shower stall just kept running across the floor.

It required 640 lbs (290 kg) of sand mix to reshape the floor. Spent a lot of time fretting about my contour decisions but once they were set in concrete, there was little I could do about them anyway.

The floor might require a slight slope but the platform for the toilet had to be level. Here the new level base is checked against the rest of the floor to ensure that the floor tiles could accommodate the difference.

Time to tile

The whole goal was to tile without trim. This meant, among other things, carefully cutting small porcelain tiles to fit around a drain cover and set them on a curved and sloping surface. My friend and I worked pretty well together because our skill sets complimented each other's. I have almost no hand skills so over the years, I have become a systems guy. For me accuracy is always a function of tools and fixtures. My friend has incredibly skilled hands�he can play Beethoven on the piano. So I cut the tiles and he pushed them into place.

Once the floor tiles had been set, the ledger boards were screwed back into place for the wall tile. Same laser lines were used.

We used over 900 wall tiles. For a couple of old amateurs, that was a LOT of work. And yes, the new LEDs can be dimmed to this color and intensity.

The structure that hid some pipes had to be tiled. This job included tiling a little "ceiling." I had never done this before so I watched a couple of Youtubes on the subject. They acted like there was nothing to it. I was skeptical. As you can see, my Plan B includes room on the side where I could attach some sort of scaffolding to keep the tiles in place until dry. Well, we pushed the tiles into place and they stayed there without problem. After cleanup, it dawned on me why we should have never doubted this would work so long as there was enough thinset to completely seal the tile's edges. Do the math. On a 6" x 6" tile there are 36 square inches of surface. At standard atmospheric pressure (14.7 p.s.i or 1,013.25 � 10 3 dynes per square centimeter) there are 529 pounds of pressure holding the tile in place and less than one pound of gravity trying to drop it to the floor.

Some caulk for the corners and this tile job is DONE!

Other jobs

Lighting was easily the most exciting part of this venture. LEDs have come a long way. Six 800 lumen (11 watt) light fixtures would be installed�giving me 4800 lumens in less than 48 sq. ft. This isn't watch-assembly levels but it is above the minimums for SAD lighting. There will be no excuses for not getting things clean.

With so much light, the need to dim things down was pretty obvious. Because my local big-box building store put them on sale for less than $5, I bought six bulbs that changed color from 3000k (slightly whiter than incandescent) to 2100k (the official color of candlelight) when dimmed. Bathing is also about relaxing so this is a very nice touch.

I wasn't very excited about installing a vent fan. There wasn't an obvious place for one in the crowded ceiling. They make quite a bit of noise so one is tempted not to use them. This was a basement, after all, with plenty of air movement. It had to be installed over one's head with all the problems that entails. Installation is MUCH harder than it looks because a good one would consider airflow management and straight connections with the outside.

But the partner insisted, a Panasonic FV-11VQ5 WhisperCeiling 110 CFM Fan was found on Amazon for less than $125 with a solid-state timer, and a spot was found with a straight shot to the outside wall.

A 10' hunk of 4" PVC would connect to the outside cover. There was NO way to maneuver such a pipe into the crowded ceiling space so it was cut into three pieces and joined in progress.

The water supply pipes of the old bathroom were in the way. So they were cut off and replaced by some shut-off valves. This was fine as long as construction was underway. But the concrete stub walls needed to be extended to provide maximum headroom in the shower area. When this was done, the supply stubs were quite obviously in the way. So either the water supply would have to be exposed or those stubs would have to move.

The solution was actually pretty simple. The supply pipes were cut and rotated. A 5' (1.5 m) braided stainless steel line was attached. These were attached to a well-located block and dropped straight down to the new shower faucet.

The pipe from the furnace gets a more permanent hookup. The copper pipe had to be small enough to be buried in the tile's substrate.

This pipe maze was for the hot water heater. The furnace had long ago been replaced with a positive ventilation system so only the water heater needed a chimney at all. It lowered the ceiling height over the toilet to less than 6'3" (1.9 m). So the decision was made to replace the water heater with a positive ventilation system. Wish I had made this decision at the beginning of the project because framing around this mess was a major headache.

Finishing up

This is the ceiling without the chimney. Still some ductwork in the way but a MAJOR improvement anyway.

Parts for suspended ceilings are widely available, extremely versatile, and remarkably inexpensive. Good thing because my ceiling was a mess with pipes and wires, lights and fans, and needed something to cover up that ball of confusion. The grid parts are all plastic so there is nothing to rust. The mounted piece here has been installed using teflon-coated screws set in plastic anchors. Bathrooms get wet, you know. All the ceiling parts cost less than $100.

A square plastic grid was chosen for the drop-in panels. There are dozens of diffuser panels to choose from but these let the room breathe and allowed the vent to work properly.

The new laser level made it easier to place the row of diffuser panels between the ducts at the same level as the shower ceiling.

When those ducts get painted to match the walls, it will look even more unified.

The grab bars were attached to the concrete block walls using stainless steel Tapcons. The ones around the shower may look a bit random, but were placed after a LOT of thought. They work amazingly well. I now joke that if I fall in this shower, someone should call the cops because I have obviously been pushed.

I think these grab bars are extremely well designed. There are no hard corners, the space between the bar and wall is too small to trap an arm, and the knurled surfaces prevent slippage even if one's hands are soapy.

New tools and products

For years, I have avoided buying (or even renting) a proper hammer drill.  I put holes in concrete so seldom I had always made do with some carbide bits, a conventional drill, and diligence. This project would involve a bunch of holes in concrete so I finally bought a 1/2" corded example which worked better than I ever imagined. Apparently I waited long enough because my big-box supply store sold me this one for $17.99. The small bit made the pilot holes for the SPAX screws used to mount the shower fixture, the medium bit made the pilot holes for the Tapcon screws used to mount the grab bars, and the big bit made holes for anchors.

This is the laser level I bought. It is not nearly so capable as the Stabila LAX300 used to recontour the floor, but it was plenty good enough to get all the wall tiles to line up and the ceiling to be mounted straight with the world. $90.

The original framing was done with an impact driver that came with my friend from Denver. His was a DeWalt and with batteries and a charger, I could have one for about $300. The Hammerhead below had nowhere near the power of his but could drive 2.75" #9 construction screws and did a fine job with those 1/4" Tapcons. It just couldn't do very many and when it needed to be recharged, the whole tool had to be plugged in. It also had an an attachment that operated as a small hammer that was useful for wire staples. Absolutely loved my little $60 Hammerhead. Could not have done this job without it.

Way more work was done on my knees than I could have survived without modern kneepads. These had gel inserts and cost only $25. I may have had problems standing back up after working on my knees for awhile, but my knees themselves never hurt thanks to these things.

Showering with elbow room, no-slip flooring, a wider door, and plenty of light is a giant step in the right direction. Goals were met but damn was it a lot of work. Love my new bathroom / shower. It should serve me well for a long time.

Wednesday, July 19, 2017

According to the Guardian, "How economics became a religion"

If there is one position I have maintained for as long as I have been writing this blog it is that, "Far from being a science, conventional economics is just bad theology."

I grew up in a parsonage. I had religion crammed up my nose from before I could remember. I fell in love with science because it offered a refuge from that sort of thinking. In my old age, I have made peace with much religious practice�SOMEONE has to bury the dead, after all, and this is something religious practitioners do fairly well. But I certainly do NOT want religious thinking around questions that are not religious. I consider someone who would pray that their god would heal their broken brakes to be crazy.

Theological thinking applied to economics is just as crazy. And yet, we see it all the time. And this article shows that the problem has become so obvious, even The Guardian can see it. Of course, as the "left" house organ of neoliberalism, they probably aren't about to do anything meaningful about their new point of view. This probably isn't even much of a start. But as someone who has taken a great deal of flak in life for questioning the "scientific" claims of the economics profession, I do find their new awareness oddly pleasant.

How economics became a religion

Its moral code promises salvation, its high priests uphold their orthodoxy. But perhaps too many of its doctrines are taken on faith.

John Rapley, 11 July 2017

Although Britain has an established church, few of us today pay it much mind. We follow an even more powerful religion, around which we have oriented our lives: economics. Think about it. Economics offers a comprehensive doctrine with a moral code promising adherents salvation in this world; an ideology so compelling that the faithful remake whole societies to conform to its demands. It has its gnostics, mystics and magicians who conjure money out of thin air, using spells such as �derivative� or �structured investment vehicle�. And, like the old religions it has displaced, it has its prophets, reformists, moralists and above all, its high priests who uphold orthodoxy in the face of heresy.

Over time, successive economists slid into the role we had removed from the churchmen: giving us guidance on how to reach a promised land of material abundance and endless contentment. For a long time, they seemed to deliver on that promise, succeeding in a way few other religions had ever done, our incomes rising thousands of times over and delivering a cornucopia bursting with new inventions, cures and delights.

This was our heaven, and richly did we reward the economic priesthood, with status, wealth and power to shape our societies according to their vision. At the end of the 20th century, amid an economic boom that saw the western economies become richer than humanity had ever known, economics seemed to have conquered the globe. With nearly every country on the planet adhering to the same free-market playbook, and with university students flocking to do degrees in the subject, economics seemed to be attaining the goal that had eluded every other religious doctrine in history: converting the entire planet to its creed.

Yet if history teaches anything, it�s that whenever economists feel certain that they have found the holy grail of endless peace and prosperity, the end of the present regime is nigh. On the eve of the 1929 Wall Street crash, the American economist Irving Fisher advised people to go out and buy shares; in the 1960s, Keynesian economists said there would never be another recession because they had perfected the tools of demand management.

The 2008 crash was no different. Five years earlier, on 4 January 2003, the Nobel laureate Robert Lucas had delivered a triumphal presidential address to the American Economics Association. Reminding his colleagues that macroeconomics had been born in the depression precisely to try to prevent another such disaster ever recurring, he declared that he and his colleagues had reached their own end of history: �Macroeconomics in this original sense has succeeded,� he instructed the conclave. �Its central problem of depression prevention has been solved.�

No sooner do we persuade ourselves that the economic priesthood has finally broken the old curse than it comes back to haunt us all: pride always goes before a fall. Since the crash of 2008, most of us have watched our living standards decline. Meanwhile, the priesthood seemed to withdraw to the cloisters, bickering over who got it wrong. Not surprisingly, our faith in the �experts� has dissipated.

Hubris, never a particularly good thing, can be especially dangerous in economics, because its scholars don�t just observe the laws of nature; they help make them. If the government, guided by its priesthood, changes the incentive-structure of society to align with the assumption that people behave selfishly, for instance, then lo and behold, people will start to do just that. They are rewarded for doing so and penalised for doing otherwise. If you are educated to believe greed is good, then you will be more likely to live accordingly.

The hubris in economics came not from a moral failing among economists, but from a false conviction: the belief that theirs was a science. It neither is nor can be one, and has always operated more like a church. You just have to look at its history to realise that.

The American Economic Association, to which Robert Lucas gave his address, was created in 1885, just when economics was starting to define itself as a distinct discipline. At its first meeting, the association�s founders proposed a platform that declared: �The conflict of labour and capital has brought to the front a vast number of social problems whose solution is impossible without the united efforts of church, state and science.� It would be a long path from that beginning to the market evangelism of recent decades.

Yet even at that time, such social activism provoked controversy. One of the AEA�s founders, Henry Carter Adams, subsequently delivered an address at Cornell University in which he defended free speech for radicals and accused industrialists of stoking xenophobia to distract workers from their mistreatment. Unknown to him, the New York lumber king and Cornell benefactor Henry Sage was in the audience. As soon as the lecture was done, Sage stormed into the university president�s office and insisted: �This man must go; he is sapping the foundations of our society.� When Adams�s tenure was subsequently blocked, he agreed to moderate his views. Accordingly, the final draft of the AEA platform expunged the reference to laissez-faire economics as being �unsafe in politics and unsound in morals�.

So was set a pattern that has persisted to this day. Powerful political interests � which historically have included not only rich industrialists, but electorates as well � helped to shape the canon of economics, which was then enforced by its scholarly community.

Once a principle is established as orthodox, its observance is enforced in much the same way that a religious doctrine maintains its integrity: by repressing or simply eschewing heresies. In Purity and Danger, the anthropologist Mary Douglas observed the way taboos functioned to help humans impose order on a seemingly disordered, chaotic world. The premises of conventional economics haven�t functioned all that differently. Robert Lucas once noted approvingly that by the late 20th century, economics had so effectively purged itself of Keynesianism that �the audience start(ed) to whisper and giggle to one another� when anyone expressed a Keynesian idea at a seminar. Such responses served to remind practitioners of the taboos of economics: a gentle nudge to a young academic that such shibboleths might not sound so good before a tenure committee. This preoccupation with order and coherence may be less a function of the method than of its practitioners. Studies of personality traits common to various disciplines have discovered that economics, like engineering, tends to attract people with an unusually strong preference for order, and a distaste for ambiguity.

The irony is that, in its determination to make itself a science that can reach hard and fast conclusions, economics has had to dispense with scientific method at times. For starters, it rests on a set of premises about the world not as it is, but as economists would like it to be. Just as any religious service includes a profession of faith, membership in the priesthood of economics entails certain core convictions about human nature. Among other things, most economists believe that we humans are self-interested, rational, essentially individualistic, and prefer more money to less. These articles of faith are taken as self-evident. Back in the 1930s, the great economist Lionel Robbins described his profession in a way that has stood ever since as a cardinal rule for millions of economists. The field�s basic premises came from �deduction from simple assumptions reflecting very elementary facts of general experience� and as such were �as universal as the laws of mathematics or mechanics, and as little capable of �suspension��.

Deducing laws from premises deemed eternal and beyond question is a time-honoured method. For thousands of years, monks in medieval monasteries built a vast corpus of scholarship doing just that, using a method perfected by Thomas Aquinas known as scholasticism. However, this is not the method used by scientists, who tend to require assumptions to be tested empirically before a theory can be built out of them.

But, economists will maintain, this is precisely what they themselves do � what sets them apart from the monks is that they must still test their hypotheses against the evidence. Well, yes, but this statement is actually more problematic than many mainstream economists may realise. Physicists resolve their debates by looking at the data, upon which they by and large agree. The data used by economists, however, is much more disputed. When, for example, Robert Lucas insisted that Eugene Fama�s efficient-markets hypothesis � which maintains that since a free market collates all available information to traders, the prices it yields can never be wrong � held true despite �a flood of criticism�, he did so with as much conviction and supporting evidence as his fellow economist Robert Shiller had mustered in rejecting the hypothesis. When the Swedish central bank had to decide who would win the 2013 Nobel prize in economics, it was torn between Shiller�s claim that markets frequently got the price wrong and Fama�s insistence that markets always got the price right. Thus it opted to split the difference and gave both men the medal � a bit of Solomonic wisdom that would have elicited howls of laughter had it been a science prize. In economic theory, very often, you believe what you want to believe � and as with any act of faith, your choice of heads or tails will as likely reflect sentimental predisposition as scientific assessment.

It�s no mystery why the data used by economists and other social scientists so rarely throws up incontestable answers: it is human data. Unlike people, subatomic particles don�t lie on opinion surveys or change their minds about things. Mindful of that difference, at his own presidential address to the American Economic Association nearly a half-century ago, another Nobel laureate, Wassily Leontief, struck a modest tone. He reminded his audience that the data used by economists differed greatly from that used by physicists or biologists. For the latter, he cautioned, �the magnitude of most parameters is practically constant�, whereas the observations in economics were constantly changing. Data sets had to be regularly updated to remain useful. Some data was just simply bad. Collecting and analysing the data requires civil servants with a high degree of skill and a good deal of time, which less economically developed countries may not have in abundance. So, for example, in 2010 alone, Ghana�s government � which probably has one of the better data-gathering capacities in Africa � recalculated its economic output by 60%. Testing your hypothesis before and after that kind of revision would lead to entirely different results. �

Leontief wanted economists to spend more time getting to know their data, and less time in mathematical modelling. However, as he ruefully admitted, the trend was already going in the opposite direction. Today, the economist who wanders into a village to get a deeper sense of what the data reveals is a rare creature. Once an economic model is ready to be tested, number-crunching ends up being done largely at computers plugged into large databases. It�s not a method that fully satisfies a sceptic. For, just as you can find a quotation in the Bible that will justify almost any behaviour, you can find human data to support almost any statement you want to make about the way the world works.

That�s why ideas in economics can go in and out of fashion. The progress of science is generally linear. As new research confirms or replaces existing theories, one generation builds upon the next. Economics, however, moves in cycles. A given doctrine can rise, fall and then later rise again. That�s because economists don�t confirm their theories in quite the same way physicists do, by just looking at the evidence. Instead, much as happens with preachers who gather a congregation, a school rises by building a following � among both politicians and the wider public.

For example, Milton Friedman was one of the most influential economists of the late 20th century. But he had been around for decades before he got much of a hearing. He might well have remained a marginal figure had it not been that politicians such as Margaret Thatcher and Ronald Reagan were sold on his belief in the virtue of a free market. They sold that idea to the public, got elected, then remade society according to those designs. An economist who gets a following gets a pulpit. Although scientists, in contrast, might appeal to public opinion to boost their careers or attract research funds, outside of pseudo-sciences, they don�t win support for their theories in this way.

However, if you think describing economics as a religion debunks it, you�re wrong. We need economics. It can be � it has been � a force for tremendous good. But only if we keep its purpose in mind, and always remember what it can and can�t do.

The Irish have been known to describe their notionally Catholic land as one where a thin Christian veneer was painted over an ancient paganism. The same might be said of our own adherence to today�s neoliberal orthodoxy, which stresses individual liberty, limited government and the free market. Despite outward observance of a well-entrenched doctrine, we haven�t fully transformed into the economic animals we are meant to be. Like the Christian who attends church but doesn�t always keep the commandments, we behave as economic theory predicts only when it suits us. Contrary to the tenets of orthodox economists, contemporary research suggests that, rather than seeking always to maximise our personal gain, humans still remain reasonably altruistic and selfless. Nor is it clear that the endless accumulation of wealth always makes us happier. And when we do make decisions, especially those to do with matters of principle, we seem not to engage in the sort of rational �utility-maximizing� calculus that orthodox economic models take as a given. The truth is, in much of our daily life we don�t fit the model all that well.

Economists work best when they take the stories we have given them, and advise us on how we can help them to come true
For decades, neoliberal evangelists replied to such objections by saying it was incumbent on us all to adapt to the model, which was held to be immutable � one recalls Bill Clinton�s depiction of neoliberal globalisation, for instance, as a �force of nature�. And yet, in the wake of the 2008 financial crisis and the consequent recession, there has been a turn against globalisation across much of the west. More broadly, there has been a wide repudiation of the �experts�, most notably in the 2016 US election and Brexit referendum.

It would be tempting for anyone who belongs to the �expert� class, and to the priesthood of economics, to dismiss such behaviour as a clash between faith and facts, in which the facts are bound to win in the end. In truth, the clash was between two rival faiths � in effect, two distinct moral tales. So enamoured had the so-called experts become with their scientific authority that they blinded themselves to the fact that their own narrative of scientific progress was embedded in a moral tale. It happened to be a narrative that had a happy ending for those who told it, for it perpetuated the story of their own relatively comfortable position as the reward of life in a meritocratic society that blessed people for their skills and flexibility. That narrative made no room for the losers of this order, whose resentments were derided as being a reflection of their boorish and retrograde character � which is to say, their fundamental vice. The best this moral tale could offer everyone else was incremental adaptation to an order whose caste system had become calcified. For an audience yearning for a happy ending, this was bound to be a tale of woe.

The failure of this grand narrative is not, however, a reason for students of economics to dispense with narratives altogether. Narratives will remain an inescapable part of the human sciences for the simple reason that they are inescapable for humans. It�s funny that so few economists get this, because businesses do. As the Nobel laureates George Akerlof and Robert Shiller write in their recent book, Phishing for Phools, marketers use them all the time, weaving stories in the hopes that we will place ourselves in them and be persuaded to buy what they are selling. Akerlof and Shiller contend that the idea that free markets work perfectly, and the idea that big government is the cause of so many of our problems, are part of a story that is actually misleading people into adjusting their behaviour in order to fit the plot. They thus believe storytelling is a �new variable� for economics, since �the mental frames that underlie people�s decisions� are shaped by the stories they tell themselves.

Economists arguably do their best work when they take the stories we have given them, and advise us on how we can help them to come true. Such agnosticism demands a humility that was lacking in economic orthodoxy in recent years. Nevertheless, economists don�t have to abandon their traditions if they are to overcome the failings of a narrative that has been rejected. Rather they can look within their own history to find a method that avoids the evangelical certainty of orthodoxy.

In his 1971 presidential address to the American Economic Association, Wassily Leontief counselled against the dangers of self-satisfaction. He noted that although economics was starting to ride �the crest of intellectual respectability � an uneasy feeling about the present state of our discipline has been growing in some of us who have watched its unprecedented development over the last three decades�.

The cult of the expert � and how it collapsed

Noting that pure theory was making economics more remote from day-to-day reality, he said the problem lay in �the palpable inadequacy of the scientific means� of using mathematical approaches to address mundane concerns. So much time went into model-construction that the assumptions on which the models were based became an afterthought. �But,� he warned � a warning that the sub-prime boom�s fascination with mathematical models, and the bust�s subsequent revelation of their flaws, now reveals to have been prophetic � �it is precisely the empirical validity of these assumptions on which the usefulness of the entire exercise depends.�

Leontief thought that economics departments were increasingly hiring and promoting young economists who wanted to build pure models with little empirical relevance. Even when they did empirical analysis, Leontief said economists seldom took any interest in the meaning or value of their data. He thus called for economists to explore their assumptions and data by conducting social, demographic and anthropological work, and said economics needed to work more closely with other disciplines.

Leontief�s call for humility some 40 years ago stands as a reminder that the same religions that can speak up for human freedom and dignity when in opposition, can become obsessed with their rightness and the need to purge others of their wickedness once they attain power. When the church retains its distance from power, and a modest expectation about what it can achieve, it can stir our minds to envision new possibilities and even new worlds. Once economists apply this kind of sceptical scientific method to a human realm in which ultimate reality may never be fully discernible, they will probably find themselves retreating from dogmatism in their claims.

Paradoxically, therefore, as economics becomes more truly scientific, it will become less of a science. Acknowledging these limitations will free it to serve us once more. more

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