By Michael Hoexter
Points of Agreement and Division (con’t)
United as they are in their critique of neoclassical economics, it would be a mistake to portray post-Keynesians as united among themselves, a further complication for the emergence of any unified message from anti-austerity economists. Post-Keynesian Thomas Palley has recently likened MMTers proposal that government institute a WPA-style “job guarantee” program to the policies of the Tory Cameron government that unemployment benefit recipients work for free. Palley’s concern is that the MMT job guarantee will undermine public sector unions but MMTers dispute that Cameron’s policy is a job guarantee program. Palley’s objections to the job guarantee and MMT were also the subject of a caustic review by Randy Wray, a prominent MMT economist. Steve Keen, who calls himself as “Monetary Circuit Theorist”, has shown an interest in finding points of commonality with MMTers while maintaining at other times a distance from it. MMT, perhaps because it has a popular following and momentum, seems to be a particular target of criticism and self-differentiation by non-MMT post-Keynesians. Perhaps this criticism is meant to be constructive but at times the disputes are often conducted in relatively heated exchanges in blogs and on Twitter, where ultimately outsiders to these disputes will remain confused and will perhaps throw up their hands.
The question then remains whether these two groups of economists can work together and fight against austerity as a loosely coordinated group, even if they themselves are not even in agreement among themselves. From the perspective of those outside of the economics profession, the prime consumers of the output of economists, a cogent and unified message against austerity would be a great help. Political movements and political actors require a unified message to achieve power. As well, to be ultimately a success if they ever achieve power, they need to have a realistic policy alternative to offer. As it stands, the voices of the Left Neoclassicals are heard much more widely, yet their vision ultimately does not offer political leaders and political activists on the ground a portable vision and argument to reshape overall policy and popular views. Post-Keynesians, in particular MMT, are working on a more realistic vision of how the economy and government work and work together that potentially is comprehensible by a wider group of people. Yet this vision, though now gaining a wider audience, has not yet achieved critical mass in the public discussion.
Political and Epistemological Choices
Ultimately it may be possible in certain circumstances for anti-austerity economists to unite against foolish government policies and the quasi-“Austrian”, quasi-neoclassical austerity impulse that is coursing through policy circles around the world. These would be largely political efforts by post-Keynesians and MMTers as well as Left Neo-Classicals to press on against the pro-austerity forces as at least a part-time commitment on the part of both camps. By “political” I mean that there is a recognition by the actors involved of relationships of power and belonging to one or a number of social groups, while ignoring or holding in abeyance intellectual differences. Some of the groundwork for this inward- and outward-looking political unity would be public conversations on blogs and via Twitter where some degree of respect for each other would be expressed. Post-Keynesian Steve Keen has for instance developed a respectful dialogue via Twitter with New Keynesian Mark Thoma, though Keen seems to reserve the right to criticize whatever he would want to criticize.
Still Keen’s, MMTers and Post-Keynesians goals are most often to uproot the illogic and falsities contained within neo-classical economics, proposing a variety of approaches that have their roots in a long historical chain of economists before, after and including Keynes. Most satisfying, from an epistemological view, would be the production of a new economic framework that is much more realistic and predictive of what actually happens in the economy, but is also amenable to the impulse to make the world a better place.
As they are not mired in the unrealistic and inconsistent assumptions of neoclassical economics, Post-Keynesians, MMTers or those strongly influenced by them, have the best shot at creating this epistemological break which would enable a new economic understanding to be elaborated. Often, left neoclassicals are rightly the targets of the scorn and critiques of MMTers and Post-Keynesians, because they pretend to represent the single anti-austerity alternative when they, in some respects, strengthen the neoclassical, “hard-money”, loanable funds framework upon which austerity is based. The non-economist progressive public sphere, such as it is, is in awe of Paul Krugman but Post-Keynesians and MMTers continue to find critical flaws in his reasoning and model of how the economy works.
An example of reality vs. unreality and stakes involved revolves around widely divergent theories of banking, debt and loaning money. Critically important in this era of politically overpowerful, mega-banks devoted to casino-like speculation on asset prices, is an understanding of what banks actually are and how they might be regulated or transformed to serve the greater good. The largely Post-Keynesian theory of endogenous money supported by a set of empirical observations of how banks and credit-creation works, suggests that banks create money by lending it and that lending occurs independent of reserves in the bank. Banks have social “license” to lend and use it when they see the potential for profit and loan amounts are not drawn on money in their accounts but the loans create money. This license is a source of political and economic power, enabling banks to drive and shape the economy and the amount of money in circulation by lending or not lending as the case may be. Neoclassicals of the Left and Right deny that this license exists and instead see lending as driven by reserves, a crude “piggybank” model of bank lending with bankers as transparent intermediaries. Krugman and other have started to equivocate on this matter but still do not accept that changes in credit/debt add to or subtract from aggregate demand overall.
The choice before post-Keynesian and MMT economists is stark and not easy to enact: on the one hand make common cause with those who would just as soon forget about post-Keynesians’ intellectual contributions and on the other hand continue to issue searing critiques of their misguided thinking about the basic building blocks of the economy.
The Stakes for Left Neoclassicals
For Left Neoclassicals there are also tough choices involved as in some sense they have based their life’s work on fallacious assumptions, even as they attempt via personal effort and some form of compassion for others, to help spread prosperity to a wider circle. Their membership in the neoclassical economic club has meant more prestigious appointments in academia and more favorable consideration by media outlets for their views. These, in turn, have led for some to lucrative consulting jobs with business and government, especially when the nominally more “Left” party is in power. They can easily perform the role of “economist” because they speak a language that is familiar to academically-educated consumers of economic analyses in both the public and private sectors. That the content of these analyses is being viewed by the public with increasing skepticism, is for the economist ensconced within the economic establishment, of secondary importance: their primary clientele, the political elite, remains captive to neoclassical and neoliberal assumptions. What has been most important to date, is the maintenance of a common paradigm shared by tens of thousands of economists worldwide as well as the tens of millions of people who have taken a neoclassically-based economics course without developing critical insights into its devastating flaws.
For epistemological reasons, i.e. ethical commitment to truth-telling as nominal “scientists”, to now dispense with familiar neoclassical assumptions about money and the economy involves great personal as well as academic risk. The economic establishment, almost more than that of any other social science, via a system of academic appointments and journal editorship, enforces fealty to central, often unrealistic concepts which provide the supports for orthodox economists’ worldview. Left neoclassicals may currently be relatively disadvantaged as compared to apolitical and right-wing fellow neoclassicals regarding these benefits but they still can claim membership in a “club” that gives them access to a portion thereof.
On the other hand, left neoclassicals, as the face of a supposedly “Left” economics in the public sphere, are subject to the constant taunts of the ignorant right-wing political operatives and Internet “trolls” who subscribe most often to laughably unrealistic “Austrian” economic philosophy. Left neoclassicals may feel reinforced in the correctness of their own belief system by this type of opposition, they might think: “surely I am right as my opponents are so wrong”. As, in some cases, left neoclassicals’ economic frameworks are inconsistent and shared with their sometimes deranged critics, they must at times draw their sense of rightness from a perception of their own “muscular” virtue for having wrestled with unwieldy economic models for the common good. It is my belief as it is with many post-Keynesians and MMTers that the muscularity of this particular type of virtue is unnecessary and overblown, if more realistic models of the economy were embraced.
Speaking and writing from a position of relative social power in relationship to heterodox economists, left neoclassicals have at times attempted to use their informal power to denigrate or distort rather than engage in dialogue with heterodox economists. For instance, Brad Delong, professor in the prestigious UC Berkeley economics department, is a prominent left-of-center neoclassical/New Keynesian economist who also served as deputy assistant secretary of the Treasury in the Clinton Administration. Delong often expresses sentiments regarding the right-wing of neoclassical economists and their political clientele with which many post-Keynesians would agree, especially as regards the foolishness of austerity.
One sees abuses of this fairly substantial academic power difference in defense of the underlying economic orthodoxy shared between Right and Left neoclassicals. Delong apparently felt free to commit an act of intellectual fraud against post-Keynesians and the reading public, when he attempted to edit the history of “economists who got it right” by falsifying who is a Minskyian and who saw the financial crisis coming in a recent article. Ludicrously, Delong includes Larry Summers, one of the architects of financial deregulation as an economist who saw the crash coming. Delong’s list bears almost no resemblance to Dirk Bezemer’s better substantiated characterization of economists who predicted the financial crisis as well as James K Galbraith’s list from 2009. Delong’s characterizations of the categories of “economists who got it right” as well as who were Minskyians were acts of intellectual fantasy. To indulge publicly in these fantasies indicates an intellectual sloppiness and suggests a casual arrogance bred within a discipline where the relationship between truth or effectiveness and academic status has been lost.
While Delong is only one left New Keynesian, another aspect of this same incident is also troubling as an example of standards of intellectual engagement and hints of a shaky intellectual edifice defended only by efforts at bullying the less well-connected and less orthodox. In the piece referenced above, notably missing on Delong’s abovementioned list of who is a Minskyan were Randall Wray who was a Ph.D. student of Minsky and Steve Keen (awarded the “Paul Revere Award” by the World Economics Association for warning of the coming financial crash) who has spent 15 years of his academic life building a mathematical model based on Minsky, for which he received a research grant from the Institute for New Economic Thinking. These were some of the glaring omissions that caused Steve Keen to write a scathing criticism of Delong on his blog and also on Twitter which Delong also regularly uses. Delong attempted to make these criticisms all about Keen’s ego and not about his own wild distortion of fact.
At one point in this exchange Delong attacked in a blog post Keen’s approach to an exercise called “The Crisis in 1000 words”. This was a dispute with some content and Keen wrote a response starting with “Brad, you’re showing your usual powers of comprehension (followed by Keen’s argument)” and sent a link via Twitter to the not-yet-approved comment on Delong’s blog. I read the comment (no longer accessible because Delong deleted it) via the link and it seemed to-the-point and other than the innocuous comment at the beginning not ad hominem. Delong never approved the comment, in some sense presiding over a “kangaroo court” where he chose to engineer an outcome that was favorable to him by simply excluding from responding the man whom he criticized in that post.
As I sometimes agree with Delong’s views on other issues and he has some understanding of Keynes, I am alarmed and dismayed by what might be called his narcissistic fragility (in which he is not alone) and intellectual dishonesty. In the same vein, the blog post mentioned earlier which was essentially an ad hominem attack on Keen, suggesting that Keen was criticizing Delong’s Minsky distortions purely out of ego, did not allow any comments.
Given the willful distortions and gamesmanship involved in this misuse of what remains of the public trust in the profession of economics, the tactics on display by the Left neoclassical establishment such as it is do not give a great deal of reason to hope for better. The recalcitrance and childishness on display is disheartening given the stakes involved for the future of society if we remain mired in our current debt-deflation. Without better economic tools, the public and political leaders are trying to row a boat without a paddle.
Anti-Austerity Action Plan
As you can gather from this account of the exchanges between Keen and Delong, it may be impossible to bring together economists who are at war with each other over fundamental issues. The battle for the future of economics will continue whether or not political activists, political leaders, and the public need clear direction as to how the economy should be shaped in the coming years. One would hope that a unifying message and better yet a unified workable theory would emerge but it appears we are headed into a time of conflict among those who are opposed to austerity.
If some prominent economists from orthodox and heterodox tendencies could agree that it would be possible to come up with a list of three to five anti-austerity principles which do not offend any “side” to this debate, this might be a way forward. These principles could then become “talking points” for economists to campaign in the media and in meetings with the powerful for an anti-austerity solution. Creating an anti-austerity “echo-chamber” would be a step in the right direction. As an independent commentator on economics not currently affiliated with an academic institution, I do not have the status to get the ball rolling on this process.
If economists, like cats, cannot be “herded” into producing a workable statement of anti-austerity principles, then the diffuse strategy of producing articles, blog posts, testimony, and media appearances becomes second best but offers a glimmer of hope that the perversity of austerity will be communicated to the broader public.
This effort, however, should not compromise or derail the long-term epistemological project to build a better social science and a better economics that can help prevent concurrent disasters like the present ones. Temporary political victories can only buy time but ultimately cannot solve the problems of governing and managing mixed economies, the type of economy in which we live and that has sorely challenged conventional wisdom.
[ Part 1 of this post is available here.]