Philip Pilkington points to a key problem: utopian abstraction as policy solution

Policymakers have become reductionists to a Utopian abstraction--policy failures and human misery follow accordingly:

Thomas Carlyle famously called economics the “dismal science” but the reason why he bestowed upon the discipline this title is less well-known. In hisOccasional Discourse on the Negro Question he wrote of economics:

The social science – not a “gay science”, but a rueful – which finds the secret of this universe in “supply and demand”, and reduces the duty of human governors to that of letting men alone, is also wonderful. Not a “gay science”, I should say, like some we have heard of; no, a dreary, desolate and, indeed, quite abject and distressing one; what we might call, by way of eminence, the dismal science.

Carlyle had it basically correct. What makes economics so dismal is indeed that it reduces all human activity to the so-called ‘laws’ of supply and demand. What makes it so dangerous is that it tells those in power that the best policy is to simply leave people to engage in market transactions without any interference and utopia will result. While one can make a convincing case that supply and demand are extremely important facets of human activity, proceeding from there to reducing all human behaviour to market transactions is sheer nonsense. But unfortunately this is the direction that economics has taken since the turn of the 19^th century.

Daniel Kahneman, in conversation with Cass Sunstein

Kahneman's Thinking Fast and Thinking Slow is currently one of the favorite books I'm reading at the moment.  You can get it for 2.99 on Kindle at the moment.

Knowledge is Power; so go read some...

I'm terribly busy today but here are a few must reads worth your time.

Guards, Workers, Machines :: Peter Frase 

The Rich Aren't Rich Because They Work Harder. They Work Harder Because They're Rich! | naked capitalism

Noam Chomsky Breaks Down the Zombie Apocalypse 

How To Make Higher Education Free Without New Taxes Or More Government Spending | naked capitalism 

After Chattanooga | Jacobin 

Is Hillary Clinton Stunting the Democratic Party's Development? - Alex Seitz-Wald - The Atlantic   (yes she is. --Jim)

BITCOIN: A flawed currency blueprint with a potentially useful application for the Eurozone | Yanis Varoufakis

“The person who loves their dream of community will destroy community, but the person who loves those around them will create community.” 
― Dietrich Bonhoeffer

So tell me what'd I miss on the #mustRead list?  Tweet them to me @JimNichols

Mark Thoma reminds us models are tools to think about problems not Truth creators

One of the biggest challenges we face in the public debate over policy is the number of people who accept neoclassical economic models as Truth; usually in the end these are people fighting for the interest of the powerful over those without power.  This framework of neoclassical Truth can connect us back to all the policy calamities of the past 30 years if one wishes to do the legwork.  There are no correct answers in economics.  Economist began as moral philosophers and its time they return to their original goals of question seeking about social policy rather than truth makers of reality.

Mark Thoma does a good job reminding us the models are tools we use to think about problems--nothing more nothing less...

Economist's View: 'Microfoundations and Mephistopheles'

My view is that micro-founded models are useful for answering some questions, but other types of models are best for other questions. There is no one model that is best in every situation, the model that should be used depends upon the question being asked. I've made this point many times, most recently in this column, an also in this post from September 2011 that repeats arguments from September 2009:

New Old Keynesians?: Tyler Cowen uses the term "New Old Keynesian" to describe "Paul Krugman, Brad DeLong, Justin Wolfers and others." I don't know if I am part of the "and others" or not, but in any case I resist a being assigned a particular label.

Why? Because I believe the model we use depends upon the questions we ask (this is a point emphasized by Peter Diamond at the recent Nobel Meetings in Lindau, Germany, and echoed by other speakers who followed him). If I want to know how monetary authorities should respond to relatively mild shocks in the presence of price rigidities, the standard New Keynesian model is a good choice. But if I want to understand the implications of a breakdown in financial intermediation and the possible policy responses to it, those models aren't very informative. They weren't built to answer this question (some variations do get at this, but not in a fully satisfactory way).

Here's a discussion of this point from a post written two years ago:

There is no grand, unifying theoretical structure in economics. We do not have one model that rules them all. Instead, what we have are models that are good at answering some questions - the ones they were built to answer - and not so good at answering others.

If I want to think about inflation in the very long run, the classical model and the quantity theory is a very good guide. But the model is not very good at looking at the short-run. For questions about how output and other variables move over the business cycle and for advice on what to do about it, I find the Keynesian model in its modern form (i.e. the New Keynesian model) to be much more informative than other models that are presently available.

But the New Keynesian model has its limits. It was built to capture "ordinary" business cycles driven by pricesluggishness of the sort that can be captured by the Calvo model model of price rigidity. The standard versions of this model do not explain how financial collapse of the type we just witnessed come about, hence they have little to say about what to do about them (which makes me suspicious of the results touted by people using multipliers derived from DSGE models based upon ordinary price rigidities). For these types of disturbances, we need some other type of model, but it is not clear what model is needed. There is no generally accepted model of financial catastrophe that captures the variety of financial market failures we have seen in the past.

But what model do we use? Do we go back to old Keynes, to the 1978 model that Robert Gordon likes, do we take some of the variations of the New Keynesian model that include effects such as financial accelerators and try to enhance those, is that the right direction to proceed? Are the Austrians right? Do we focus on Minsky? Or do we need a model that we haven't discovered yet?

We don't know, and until we do, I will continue to use the model I think gives the best answer to the question being asked. The reason that many of us looked backward for a model to help us understand the present crisis is that none of the current models were capable of explaining what we were going through. The models were largely constructed to analyze policy is the context of a Great Moderation, i.e. within a fairly stable environment. They had little to say about financial meltdown. My first reaction was to ask if the New Keynesian model had any derivative forms that would allow us to gain insight into the crisis and what to do about it and, while there were some attempts in that direction, the work was somewhat isolated and had not gone through the type of thorough analysis needed to develop robust policy prescriptions. There was something to learn from these models, but they really weren't up to the task of delivering specific answers. That may come, but we aren't there yet.

So, if nothing in the present is adequate, you begin to look to the past. The Keynesian model was constructed to look at exactly the kinds of questions we needed to answer, and as long as you are aware of the limitations of this framework - the ones that modern theory has discovered - it does provide you with a means of thinking about how economies operate when they are running at less than full employment. This model had already worried about fiscal policy at the zero interest rate bound, it had already thought about Says law, the paradox of thrift, monetary versus fiscal policy, changing interest and investment elasticities in a  crisis, etc., etc., etc. We were in the middle of a crisis and didn't have time to wait for new theory to be developed, we needed answers, answers that the elegant models that had been constructed over the last few decades simply could not provide. The Keyneisan model did provide answers. We knew the answers had limitations - we were aware of the theoretical developments in modern macro and what they implied about the old Keynesian model - but it also provided guidance at a time when guidance was needed, and it did so within a theoretical structure that was built to be useful at times like we were facing. I wish we had better answers, but we didn't, so we did the best we could. And the best we could involved at least asking what the Keynesian model would tell us, and then asking if that advice has any relevance today. Sometimes if didn't, but that was no reason to ignore the answers when it did.

Clive Hamilton's Growth Fetish

So for the bad weather/time off I bought Clive Hamilton's book Growth Fetish (its 13 bucks on kindle you'll be reading in two seconds...)

Do consider picking it up.  It is excellent. A post-growth, environmentally stable society is something we must be thinking about and trying to create in the here and now.  Here is a talk from Hamilton I'm watching as we speak...

Ann Pettifor on breaking the despotic power of finance

What does Income Inequality mean for Americans?

Trans-Pacific Partnership, Fast Track Authority, and YOU

Two of my personal favorites--Dean Baker and Yves Smith--spoke to Bill Moyers recently about the Trans-Pacific Partnership or TPP for short,

Basically this is NAFTA on steroids, a trade deal by and for the 1% which would devastate working people across this country.

Today my union had a national day of action so here I am calling my Congressman David Scott, to let him know I oppose granting Fast Track authority to Obama. (I also emailed his primary opposition to let him know my position as well).  [Here sign this]

Fast Track authority allows Obama to negotiate in secret, then cram through Congress with just an up or down vote, approval of the TPP.

The Founding Fathers provided Congress with the authority to approve trade deals and not allowing amendments which protect environmental and labor standards would destroy any hope of rebuilding the middle class or protecting our environment from calamity.

Its time Congress stand up to the 1%.  The fact that Obama is pushing a trade deal written by and for the 1% tells you all you need to know about the sorry state of leadership within the Democratic Party.  Both parties are dominated by Wall Street interests--only grassroots action from the people themselves can stop this trainwreck of an oligarchy.

So take action.

We outsourced our manufacturing and pollution; but it still comes back around to us

A post I just came across on China's pollution that is reaching US shores struck me with this line:

“We’ve outsourced our manufacturing and much of our pollution, but some of it is blowing back across the Pacific to haunt us,” Davis said. “Given the complaints about how Chinese pollution is corrupting other countries’ air, this paper shows that there may be plenty of blame to go around.”

 Go read the whole thing and remember that the horrid pollution in China?--yeah we helped build that. China's Off-The-Charts Air Pollution Is Making Its Way To The U.S. 

It reminds me that an increasing focus towards Internationalism has to occur over the next few years here in America--its one of the reasons why I'm a DSA'er.  The challenges we face, be they economic or environmental are going to require increased cooperation across the globe because equitable distribution of resources and a healthy sustainable environment are the only options for us over the long term.

[As a random aside, one of the reasons I enjoy Dani Rodrik's book  The Globalization Paradox: Democracy and the Future of the World Economy is because it deals with the question and challenges of balancing democracy and trade quite helpfully, in my opinion.]

The GOP efforts to create more poverty continue; what we need are real solutions.

Ezra Klein has the details: A simple test for conservative poverty proposals: 

There’s a simple way to tell whether the Republican Party’s newfound commitment to fighting poverty is more than rhetoric: Follow the money.   Follow the trail in the party’s recent budgets and what you find, hidden between appendix tables, are deep cuts to programs for the poor. That’s the inevitable consequence of Republican commitments to favored constituencies. The party promised its anti-tax wing no tax increases and lower tax rates. It promised older voters that Medicare and Social Security would not change for those over age 55. It promised defense hawks that sequestration cuts to military spending would be reversed. And it promised its tea party allies that it would cut trillions from government spending and balance the federal budget.

 The GOP can't openly embrace their own agenda:

In recent years, Republicans have backed themselves into a corner; virtually everything they’ve proposed entails deep cuts to programs for the poor. They’ve tried to escape this trap -- and allegations by opponents that they are indifferent to suffering -- by arguing that various reforms, such as turning federal programs over to the states, will unleash such miraculous efficiencies that meager budgets will stretch to cover existing needs.

They won’t.

The model they cite is welfare reform, which was enacted in 1996 during the highest-growth economy since the 1960s. Welfare cuts didn’t make the fight against poverty magically more efficient; they simply made it stingier. In 1996, 68 of 100 families living in poverty with children received welfare benefits. In 2010, two years after the worst economic shock since the Great Depression, only 27 of 100 such families were receiving benefits. The assistance once provided by welfare is now supplied by tax credits such as the earned income tax credit, which the government has vastly expanded.

Taking poverty and joblessness seriously doesn’t mean the government needs to spend more forever. But it does mean the government needs to spend more now -- when poor people are squeezed by high unemployment and low growth. That spending could be reallocated from other programs, or it could be offset by future tax increases or spending cuts. But there is no getting around it: Any policy that sharply reduces government spending to alleviate poverty is a policy that will lead to more poverty.

The labor force participation rate is at a 35 year low.

We have a jobs crisis and we need real solutions like a jobs program.  

A Job Guarantee would improve the labor market, not only for the unemployed, and underemployed who want to work, but create upward pressures on wages and incentives to improve the quality of the work enviornment.  A Federal Job Guarantee would take power out of the hands of the employers--who like keeping workers desperate and willing to take whatever scraps they are thrown--and shift it to some of the most at-risk vulnerable populations within our economy who want to work.