ASSA 2020 – part one: inclusive economics

ASSA 2020 is the annual conference of the American Economics Association, which brings together all the various economics associations in America. This year’s conference in San Diego, California was attended by over 13,000 economists, lecturers and students not just from the US but all over the world.  It’s the biggest event in mainstream economics, but also includes heterodox and Marxist presentations.

You could tell the main themes of this year’s ASSA from the live webcasts transmitted over the three days.  So let’s start with those. One big meeting was organised by Economics for Inclusive Prosperity (EfIP), which is a new network of ‘progressive’ mainstream economists with some big names like Dani Rodrick or Gabriel Zucman. Their stated aim is show that “the tools of mainstream economists not only lend themselves to, but are critical to, the development of a policy framework for what we call “inclusive prosperity.” While prosperity is the traditional concern of economists, the “inclusive” modifier demands both that we consider the interest of all people, not simply the average person, and that we consider prosperity broadly, including non-pecuniary sources of well-being, from health to climate change to political rights.”

So economics and economic policy should be for all.  Sounds progressive, right?  Suresh Naidu of Columbia University told the audience that “Our societies confront serious challenges arising from uneven technological progress, globalization shocks, and climate change. We discuss the extent to which the contemporary practice of economics is conducive to generating solutions to these problems. We are cautiously optimistic that economics can be an ally of inclusive prosperity, but emphasize that economists must combine their analytical and empirical tools with institutional imagination and creativity.”

Samuel Bowles, from the Santa Fe Institute spoke.  Bowles used to consider himself a Marxist.  But those days are long gone.  In a recent article for Vox, he wrote on the legacy of Marx’s economic ideas in order to dismiss them.  In that article, he agreed with Keynes’ view that Capital is “an obsolete economic textbook [that is] not only scientifically erroneous but without interest or application to the modern world” (Keynes 1925). And he agreed with the judgement of 1960s mainstream economic guru, Paul Samuelson that “From the viewpoint of pure economic theory, Karl Marx can be regarded as a minor post-Ricardian…and who in turn was “the most overrated of economists” (Samuelson 1962).  Bowles reckons that mainstream economics, in particular neoclassical marginalism, went on to sort out Marx’s failures by replacing his value theory.  And this has also led to dropping the idea of social ownership of the means of production to replace the capitalist mode. “Modern public economics, mechanism design and public choice theory has also challenged the notion – common among many latter-day Marxists, though not originating with Marx himself – that economic governance without private property and markets could be a viable system of economic governance.”

Apparently, all that is left of Marx’s legacy is what Bowles calls “despotism in the workplace”, or the exploitive nature of capitalist production; which is not due to the exploitation of labour power for surplus value; but due to the ‘power structure’ where moguls and managers rule the roost over the worker serfs.

And Bowles presented this ‘power’ theme to the ASSA audience again.  You see, free market economics is at one pole and Keynesian-style government management economics is at the other – but we need a third way.  We should “explore the normative, modeling and policy challenges arising if we locate policies and institutions in a two-dimensional space by adding a third pole: community, based in important respects on social norms rather than state-imposed laws or contractual exchanges.”  For Bowles, inclusive economics means turning to the community….

Then came Luigi Zingales from the neo-classical heartland of the University of Chicago.  He showed that quite often economists come up with theory and policy that people don’t like and politicians won’t implement even though it may be right.  To overcome these political limits to the great ideas of mainstream economics, “Economists should help design a system that conforms to people’s preferences.”  The use of the neoclassical concept of consumer preference was telling.  Policy based on democratic planning for social need was not Zingales’ way. ThePoliticalLimitsOfEconomics_preview (2)

The second livestream meeting was on the future of capitalism.  Nobel prize winner and poverty expert, Angus Deaton from Princeton University introduced a galaxy of stars including Raghuram Rajan from the University of Chicago and former head Reserve Bank of India; and Kenneth Rogoff from Harvard. Rajan is famous for warning about the risk of ‘financial engineering’ causing a credit crunch at a meeting of central bankers in the early 2000s, where he was dismissed by the likes of Keynesian Larry Summers, former Treasury secretary under Clinton. Rajan also written a book with Zingales called Saving Capitalism from the Capitalists: Unleashing the Power of Financial Markets to Create Wealth and Spread Opportunity.

In that book, the authors reckon that the free market is the form of economic organization most beneficial to human society and for improving the human condition.  But free markets can flourish over the long run only when government plays a visible role in determining the rules that govern the market and supporting it with the proper infrastructure. Government, however, is subject to influence by organized private interests.  Incumbent private interests, therefore, may be able to leverage the power of governmental regulation to protect their own economic position at the expense of the public interest by repressing the same free market through which they originally achieved success. Thus, society must act to “save capitalism from the capitalists”—i.e. take appropriate steps to protect the free market from powerful private interests who would seek to impede the efficient function of free markets, entrench themselves, and thereby reduce the overall level of economic opportunity in society.

The authors offer the following recommendations: Reduce incumbent capitalists’ incentives to oppose markets, especially by limiting the concentration of ownership of productive assets. Provide a social safety net for the economically distressed to help maintain broad political support for free markets. Keep the borders of the economy open to support free trade and maintain a high level of competitive pressure on incumbent firms. Educate the public regarding the benefits of free markets to build political support for free market policies, or more specifically, oppose governmental interventions in the market designed to protect incumbents at the expense of overall economic opportunity.  This was broadly what Rajan told the ASSA audience.

Such was the progressive wing of mainstream economics at ASSA. It aims at ‘inclusive economics’, based on the assumption that market and capitalism are best, but require management and the involvement of people, so that they can recognise the expertise of economists in solving social problems.

Of course, added to these presentations were many on the inequality of wealth and income in modern capitalist economies and what to do about it.  There was a session on how GDP is no proper measure of social welfare and how to revise it with economic and social indicators that would make national output more ‘inclusive’.  And in another session, Gabriel Zucman and Emmanuel Saez presented the results of the latest measures of wealth inequality in the US, as published in their recent book.

Their main message is that progressive taxation and a wealth tax could make real inroads on inequality.  But as I said in my review of their book, these excellent progressive economists are seeking to redress unequal distributions created by capitalist exploitation and financial power with tax measures.  There is no policy for removing the ‘market’ causes of inequality.

Even those who profess to be more heterodox and radical than the mainstream progressives look only at tax and redistribution measures to reduce inequality.  In giving the David Gordon Memorial Lecture at ASSA, Heather Boushey reckoned that  “economic inequality—in all its forms—is obstructing, subverting, and distorting the pathways to strong, stable, and broadly shared growth”.  It’s just inequality that’s in the way of making capitalism work.

The problem is that the innovative power of capitalism has been distorted by monopoly.  This was the message from progressive Nobel prize winner Angus Deaton that “we should especially pay attention when makers of public benefit (innovators etc.) become rich and turn from makers into destroyers of public benefit (via politics etc)”  This was a reference to the rise of the big tech and online firms that have turned into super star companies that dominate their markets and the economy.

But is inequality the product of monopoly market power distorting competition?  Top economist mainstream John Van Reenen in a presentation claimed that it was.  His empirical work “shows that across-firm inequality has increased in line with rising concentration levels within all industries (even sectors) as well as higher aggregate markups in US since 1980s.”  But another group of economists saw it differently: For while “growth has fallen in the U.S., and firm concentration and profits have risen and labor’s share of national income is down, this is due to accelerating IT advances. the most efficient firms (with higher markups) spread into new markets, thereby generating a temporary burst of growth. Because their efficiency is difficult to imitate, less efficient firms find markets more difficult to enter profitably and therefore innovate less. Eventually, due to greater competition from efficient firms, within-firm markups actually fall. Despite the increase in the aggregate markup and rents, firm incentives to innovate decline—lowering the long run growth rate.”

So profit ‘mark-ups’ are really due to more efficient firms gaining advantage over less efficient.  Another paper argued that it was both technological competition and market power that led to higher mark-ups.  “Both technological change and a change in market structure are necessary to explain the observed change in markups between 1980 and 2016. We find that 2016 welfare would be 19% higher with 1980 market power.”

Is inequality of income and wealth rising because AI and robots are replacing workers? One group of economists reckon that: “AI-related invention is far more pervasive than previous analyses have suggested.  We find that AI-related innovations are positively associated with firm growth as firms with AI-related innovations have 25% faster employment growth and 40% faster revenue growth than a comparative set of firms.  We also find evidence that AI-related innovations appear to raise output per worker and increase within-firm wage inequality.” This sounds very much like Marx’s view of technological competition driving down overall profitability and eventually bringing a stop to growth in investment. Indeed has the labour share in national income fallen across the globe? BoE’s Sophie Piton argued that correcting for housing + self-employment, labour’s share was stable in all major economies bar the US.

Inclusive economics aims to make modern capitalist economies less unequal, but it is the very process of accumulation and investment in technological competition and the concentration of economic power in a few firms that is creating inequality.  So making capitalism much fairer through redistribution of taxation is a pipe dream.

In part two on ASSA 2020, I’ll cover the big mainstream issues of why the major economies are stuck in a low growth, low interest rate state and what to do about it if another recession should rear its head.  And in part three, I’ll cover the issues discussed by more radical economists.

8 Responses to “ASSA 2020 – part one: inclusive economics”

  1. ucanbpolitical Says:

    Sounds like people trying to darn their tattered parachutes after the pane engines failed with the ground rushing up.

  2. vk Says:

    “In that book, the authors reckon that the free market is the form of economic organization most beneficial to human society and for improving the human condition. But free markets can flourish over the long run only when government plays a visible role in determining the rules that govern the market and supporting it with the proper infrastructure.”

    Well, if it needs the government, then it is not a free market…

    “But another group of economists saw it differently: For while “growth has fallen in the U.S., and firm concentration and profits have risen and labor’s share of national income is down, this is due to accelerating IT advances. the most efficient firms (with higher markups) spread into new markets, thereby generating a temporary burst of growth. Because their efficiency is difficult to imitate, less efficient firms find markets more difficult to enter profitably and therefore innovate less. Eventually, due to greater competition from efficient firms, within-firm markups actually fall. Despite the increase in the aggregate markup and rents, firm incentives to innovate decline—lowering the long run growth rate.””

    This group of economists are asking the wrong question.

    Substitution of human labor with machines (rising labor productivity) is a feature of every economic system ever. Humans don’t like to work, so they seek to work less and this is human nature since the dawn of times.

    Automation, therefore, is not a unique feature of capitalism and thus not a factor of capitalist sociometabolic reproduction.

    The correct question is: in which way does capitalism incorporates automation? How is automation molded to fit the capitalist mode of production?

  3. Libertas Absentia Says:

    For starters, I greatly appreciate these blogs.
    That being said……..

    Private, small business owner here.

    I laugh anytime I hear the words like “free market” used to describe the current U.S. economic model.
    And when “capitalism” and “free market economics” are used interchangeably.

    I argue there is absolutely no semblance of “free markets” in the U.S. economy.
    Given that one of the primary tenets of socialism is central planning, and that the “privately owned” Federal Reserve is one of the largest central banks in the world, run by and tasked with primarily preserving/increasing the profits of its large national banks.
    The Fed implements public policy to determine everything from interest rates (a foundation of most all U.S. economic activity), to employment rates, to money supply (via reserve capital ratio requirements).

    Pretty much every aspect of the U.S. economy is centrally planned, by the “haves”, and planned to benefit only a few (the same system which has historically been the downfall of many socialist economies)..

    So many people tend to believe that “socialism” means equity, equality, via redistribution of wealth to the poorer.
    Yet, centrally-planned economics (a main tenet of “socialism”) is a basis & foundation of contemporary U.S. economics.
    But, that central planning is currently being performed by, or highly influenced by the ultra-wealthy, in order to create inequality and direct ever-more wealth their way.

    The U.S. is socialism for the ultra-wealthy elite.

    From the hundreds of billions of public-monies being pumped into the “private” banking system (both QE and “not QE”, and primarily enriching only the elite), to the Treasure investing in the bonds & stocks of certain industries and companies, to government/bureaucratic regulation that seeks to protect industries/companies from competition (yes, capitalists love regulation that provides them protectionism, as long as that regulation doesn’t inhibits their further profiteering).

    Firms like JP Morgan like to brag that one of their most profitable market segments is “social welfare”.

    ANY system can be manipulated.

    Social welfare” has been manipulated to mean corporate welfare.
    “Social welfare” is being controlled simply to send more profits to the firms owned by the neo-feudal corporate Lords.
    But only enough is granted through “social welfare” to the poorer to ensure more profits to the ultra-wealthy (upwards redistribution), whilst ensuring continued reliance on those policies by those poorer, without giving them advantage to break out of that system of reliance.

    Prior to running my own businesses, I spent time as a Legislative Aide, watching powerful, well-paid Lobbyists work to influence public policy for the sake of their clients, the mega-corps run by the neo-feudal Lords.
    I was shocked to see that corporate giants were often the biggest proponents/defenders of governmental regulation (just attend some legislative committee hearings for proof).

    “Capitalism” is quite simply the accumulation and hoarding of wealth.
    “Capitalism” and “free markets” are NOT synonymous.

    There are capitalists in socialist Russia, communist China, socialist, India, socialist Vietnam, socialist N Korea (The donju), and other countries.
    The commonality?
    The wealthy elite in each have learned to influence, manipulate and direct public policy for their own gains, to redirect more wealth their way.

    In truth, most capitalists don’t like free markets.
    Their main advantage is in using their accumulated wealth (read works by Plutarch, A.Smith, Einstein, Vilfredo Paretto {the 80/20 rule}, et al about the seeming natural tendency for wealth to accumulate into the hands of a few) to buy & influence public policy, to eliminate true competition (i.e. free markets).
    Yet they belt out the “free market” war cry.
    This is called SPIN, it is a form of propaganda.

    Much like the high-degree of wealth, capital and asset concentrations in the U.S. in the early 1900’s, wherein a few multi-millionaires and their corporations were able to dominate the economy, the current U.S. market is extremely tough for true competition.

    That inequality is not only destroying opportunity & competition, but also true innovation (having a few large corps, which are largely owned by the same largest institutional shareholders, forming virtual monopolies, present slight variations of the same technologies/products/services is NOT true innovation).
    Can you hear me, Siri, Google Assistant, Alexa, Portal?

    Interestingly, one can read Albert Einstein’s 1949 essay titled “Why Socialism?”, yet swap out the words “socialism” for “capitalism”, and see it still rings true.
    Capitalists are using socialist policies (centrally-planned, redistributive policies) to gain & hoard ever-more capital.

    They decry “socialism” when it truly benefits others, yet cheer it (but spun as “free market” “capitalism”) when it benefits them.
    How many hundreds of millions have the “Libertarian” Koch brothers gained from influencing public policy?

    Turns out, “capitalism” (the hoarding of wealth amongst a few) is the true enemy of free markets and economic growth.
    Economies require the continual flow of capital back into those economies for sustainability and growth (perhaps especially in our fractional-reserve system).
    Yet, the more a few have & hoard, the less in injected back, leading to reduced activity & true growth (the increased indebtness of the masses to benefit only the few is not true economic growth).

    With the current rush and quest to become the first Trillionaire by the ultra-wealthy, more money is being hoarded & withheld, leading to less real economic growth.

    Interestingly, the works of John Trenchard and Thomas Gordon (in their Cato’s Letters, first published from 1720 to 1723) pointed to the failures of the British Monarchy and its control by the wealthy elite in destroying not only asset/capital equity, but also equity of liberty, freedoms, and justice.
    We have come full-circle back to that whence we sought to escape (Cato’s Letters are often cited as among the most influential writings/ideas of America’s Founders).
    Freedoms, liberties and justice are innately equal among all humans, not just those that can afford to buy them.

    ———————————————————————————–

    “Private capital tends to become concentrated in few hands, partly because of competition among the capitalists, and partly because technological development and the increasing division of labor encourage the formation of larger units of production at the expense of smaller ones. The result of these developments is an oligarchy of private capital the enormous power of which cannot be effectively checked even by a democratically organized political society. This is true since the members of legislative bodies are selected by political parties, largely financed or otherwise influenced by private capitalists who, for all practical purposes, separate the electorate from the legislature. The consequence is that the representatives of the people do not in fact sufficiently protect the interests of the underprivileged sections of the population. Moreover, under existing conditions, private capitalists inevitably control, directly or indirectly, the main sources of information (press, radio, education). It is thus extremely difficult, and indeed in most cases quite impossible, for the individual citizen to come to objective conclusions and to make intelligent use of his political rights.”

    -Albert Einstein- Why Socialism?

    Whilst this rings quite truthful, problem is “public” capital also tends to become concentrated into the hands of a few.

    It’s interesting that lack of public policy leads to wealth & power concentrations, yet public policy (even with good intents) will ALSO eventually lead to wealth & power concentrations.
    Both eventually destroy liberties, justice, equality, and economies.

    Yet BOTH sides (“socialism” vs. “capitalism”, “socialism” vs. “free markets”, or whatever one chooses to call them) seem to completely miss this fact.
    It causes too much cognitive dissonance.

    Mere systems or systematic policies are not the solution.

    ANY system can be manipulated & controlled.
    Mere phraseology cannot change that….
    (“The last thing abandoned by a party is its phraseology, because among political parties, as elsewhere, the vulgar make the language, and the vulgar abandon more easily the ideas that have been instilled into it than the words that it has learnt. -Alexis de Tocqueville-).

    This is the current state, and failure, of the contemporary U.S. economic model.

    Before humans and their economies can truly progress, we must first abandon the tired old marketing labels and merely fadish brandings of terms like “capitalism”, “socialism”, and “free markets”.

    Much like all the establishment “liberals”, “conservatives”, “Dems”, “GOP”, Libertarians”, and “Progressives” have each abandoned their true founding ideologies, so have the “socialists”, “capitalists” and “free marketers”.

    It’s all now just vulgar branding & spin.

    • Antonio Says:

      ’’ It’s interesting that lack of public policy leads to wealth & power concentrations, yet public policy (even with good intents) will ALSO eventually lead to wealth & power concentrations. ’’
      Both eventually destroy liberties, justice, equality, and economies.
      Yet ’Yet BOTH sides (“ socialism ”vs.“ capitalism ”,“ socialism ”vs.“ free markets ”, or whatever one chooses to call them) seem to completely miss this fact’ ’
      Your criticism of socialism that exists until today (and capitalism) is of quality and fair but you should take into account the following. In his next impulse (the modes of production are created, so far, by impulses / revolutions. Capitalism I need three of them) the sociliasm that will be created is quite likely to come with a ‘gift’ under the arm: command, dominance and control (including their ownership) of workers over the means of production and over the State itself. That is, it will be a democracy of workers and associated producers. With that gift, the problem of the concentration of power and wealth in a few that you mention (that is the concentration of capital-subject) will disappear under socialism, and forever. In desirable socialism, the essence is not the necessary planning, but the common property of wealth. Property is the problem, from Platon in his Republic and Thomas Moro in Utopia.
       

  4. Boom Says:

    All systems require a large degree of central control. In capitalism, if you don’t have large financial entities to control input and output, or large quantities of precious metal, you won’t be able to set prices. Socialism take the control from private entities to public ones, while forbidding “hoarding”.

  5. Gregory Meyerson Says:

    Michael: could you post a link to your Saez review?

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