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Weekly Philo of Economics: the architect of neo-Liberalism (Harberger) and his theoretical critic (Khan)

Let's distinguish among three uses of "neo-Liberalism:"

1. The imposition of markets absent rule by discussion (imperfectly approximated in Liberal Democracies)--often, by way of a dictator, foreign aid institutions [IMF, World Bank, etc.], foreign experts [e.g., Post-Communist Russia]); this is generally associated with 'shock therapy' of some sort and often occurs in times of 'crisis' or 'emergency.'
2. The use of market-friendly-rhetoric within democracies to justify "privatizing" government services; the privatized entities become private (quasi-) monopolies managed by a rent-seeking, credentialed, managerial class.
3. The tendency by the financial services industry to 'privatize gain and socialize risk' at the expense of their much poorer fellow tax-payers. 

Now (2) and (3) are deplorable, but only (1) primarily involves social engineering by experts.

Of course, in practice (1-3) can be blended in all kinds of ways: often the 'privatized' industries come with various implicit government guarantees, so then an instance of (2) turns into an instance akin to (3).  There may be more uses of "neo-Liberalism" that I am overlooking, of course! But I want to distinguish between these three varities of neo-Liberalism from instances of what is known as "economic imperialism." Economic imperialism occurs when the methods and doctrines of economics are extended into domains not previously associated with economics. Gary Becker's work on the family is a paradigmatic instance of economic imperialism. (As I have pointed out "economic imperialism" predates Becker; it was probably first diagnosed by the sociologist Talcott Parsons a few generations before Becker.)

Neo-Liberalism and economic imperialism are both commonly associated with so-called "Chicago economics." But distinct aspects of economics have been brought to bear to support the varieties of neo-Liberalism. In my previous blogging I have focused quite a bit on how aspects of finance theory paved the way for (3). Below I focus on the way the economics profession became/is implicated in (1). A key figure is the "Chicago"-economist, Arnold Harberger. Harberger's entanglement with neo-Liberalism is not merely academic; he was the key mentor to the Chilean (and other Latin American) "Chicago Boys" prior to and at the time of the dictatorships of the 1970s. The understandable focus on Milton Friedman by critics of "Chicago" has made informed discussion of these matters more complicated. As I have tried to explain, there are genuine technical differences in the ways Friedman and Harberger practice economics. (This is not meant to exonerate Friedman's role(s) in (1-3) nor his attempts at defending the Chicago Boys [see my piece].)

Playing the right kind of games

So I’m not going to get into the game of thinking thoughts too many, of trying to break down the wrong of raping an unconscious person in terms of psychic discomfort at disapproval.  It’s the wrong game to play.--Jacob T. Levy at BHL.

This seems to me the right kind of response to the pseudo-philosophy [Trigger warning: the post discusses rape] of Steven Landsburg, an economist and popularizer at Rochester.

As Levy writes, Landsburg's post

demonstrates, first, the familiar problems with blunt hedonic utilitarianism that has been detached from utilitarianism’s roots as a moral theory, and, second, the selection effect about what kinds of people are attracted to that theory. Lansburg [sic] is entirely too pleased with himself for being willing to Think Challenging Thoughts (thoughts that pretty much get covered in a first semester moral philosophy class as the frosh learns why blunt hedonic utilitarianism is not a very good theory), and determined to get through his cute hypotheticals for the fun of it, regardless of whether they convey anything useful or not.

It's just a fact of the matter that economists are not trained to be philosophers (and they are no better at it [recall here and here] than we are at economics [here]). But (not unlike philosophers) they do get socialized into thinking they are really smart boys (recall this). Since the Samuelsonian, revealed preference revolution cut the link between economics and hedonic utilitarianism (utility curves are not supposed to refer to mental pleasure entities entities, they are just a ranking of choices--recall this post), Landsburg is not even bringing any of the standard economic's tools to bear on the case. He is simply out of his depth. (Of course, that's just a daily fact of life in blog-land, the problems start when one forgets this.)

Now, the interesting issues here pertain to Levy's decision to speak up about Landsburg's moral and intellectual obtuseness without giving Landsburg credibility in doing so.

Weekly Philo of Economics: Khan VS Peter Singer on the limitations of theoreticians [with notes on Rogoff vs Stiglitz]

"In the late 1980s, I once enjoyed the privilege of being in the office next to yours [Joseph Stiglitz--ES] for a semester. We young economists all looked up to you in awe. One of my favorite stories from that era is a lunch with you and our former colleague, Carl Shapiro, at which the two of you started discussing whether Paul Volcker merited your vote for a tenured appointment at Princeton. At one point, you turned to me and said, "Ken, you used to work for Volcker at the Fed. Tell me, is he really smart?" I responded something to the effect of "Well, he was arguably the greatest Federal Reserve Chairman of the twentieth century" To which you replied, "But is he smart like us?" I wasn't sure how to take it, since you were looking across at Carl, not me, when you said it. [Rogoff was a child chess-prodigy.--ES] My reason for telling this story is two-fold. First, perhaps the Fund staff who you once blanket-labeled as "third rate"—and I guess you meant to include World Bank staff in this judgment also—will feel better if they know they are in the same company as the great Paul Volcker. Second, it is emblematic of the supreme self-confidence you brought with you to Washington, where you were confronted with policy problems just a little bit more difficult than anything in our mathematical models."--From an Open Letter by Kenneth Rogoff to Joseph Stiglitz. [I thank Hülya Eraslan for calling my attention to it.]

Beyond the clash of personalities (and even institutions), this decade old letter raises several  issues of significance to economics and philosophy. There are several important issues lurking in Rogoff's letter none of which he develops: (a) the gap between the most sophisticated mathematical models and the complexities faced by policy-makers; (b) the informal/social metrics by which entry in the very top of the discipline is governed (we philosophers have similar conversation, alas); this ((b)) matters because (c) these departments are (i) both the guardians of professional journals [recall] as well as (ii)  the credentialing place for entry into the highest policy regions Stateside (and, thus, internationally); (iii) these metrics create opportunity for all kinds of biases (as we philosophers are also starting to recognize).  If (a) is not well understood, then with certain personality types, it also leads to (d) expert-0verconfidence, and (e) the use of scientific reason as a species of cultural imperialism (recall this post); philosophers are not immune to this (see below). In order to tackle these issues in a sophisticated, even philosophical fashion from within economics, one could do a lot worse than by way of engagement with the writings of the mathematical economists, Ali Khan (Hopkins). [Disclosure: I'll be speaking at a Fest in his honor in May.] This week, I'll focus on Khan's confrontation with Peter Singer's ethics. (For a good introduction to this exchange, see here.)

asshole academia?

The Chronicle of Higher Education has a nice discussion of UC Irvine philosopher Aaron James' recent Asholes: A Theory.

James argues that what is characteristic of assholes is that they systematically "act out of a deep-rooted sense of entitlement, a habitual and persistent belief that they deserve special treatment." He develops a typology of different kinds of assholes, and also theorizes about the rise of "asshole capitalism," which is where:

Changing our frame of reference from "job market" to "political economy of philosophy instruction"

Th Dec 6, 5 pm CST: I'm moving this post back up as it's received some important comments from Ed Kazarian, in response to a comment I made at Leiter Reports to a post by Amy Ferrer, the Executive Director of the APA. By the way, all of Ferrer's posts at LR deserve reading. 

----

The past month (September 2011) we've had a series of interesting and informative posts on preparing graduate students to enter what is commonly called "the job market." The presupposition here is that the job market in philosophy begins post-PhD. 

I don't want to criticize the content of the posts; as far as I can tell, the advice has been excellent. But I do want to suggest that we change our frame of reference on these matters, and specify that we have been discussing only a small segment of the complete system of employment for philosophy instruction in institutions of higher education. So I'd like to suggest we call the analysis of the complete system "the political economy of philosophy instruction." 

To hell with democracy...let the technocrats rule!

Ordinarily we ought to be rejoicing that even Berlusconi's backers realize the game is up. Since he took control of the Italian government a decade ago, Italy's economy has stagnated. No surprise there because he ran the country with the sole purpose to avoid prosecution. He rewarded the most wealthy Italians with an end to the inheritance tax, but allowed the culture of graft and silly regulations that prevents business growth to continue unimpeded. It is a classic case of an elected oligarchy that cannot bring itself to rule with enlightened self-interest, he and his cronies seemed to have believed that they can get away with legally lining their own pockets (and a few other perks). This attitude postponed much needed reform and certainly prevented anything like shared sacrifice on the Italian political scene. While Greece has no functioning state bureaucracy, the Italian state is a classic case of rent-seeking by well connected insiders (from all political parties--it has extremely generous pensions for the lucky few). Even so, we live in sad times: in moments of crisis the political establishment turns to Eurocrats (recall this post). While Mario Monti's track-record is quite decent as an anti-trust officer, the choice for him exhibits one of the core problems of European politics: elite mistrust of the populace. As a consequence the culture of deceit widens and -- as tough decisions hit the powerless worst -- the risk of European political catastrophe worsens.

Male Fantasies 3

Last in the series.

Donate to the fight to take back Wisconsin

Act Blue is the clearinghouse for online donations to the Democratic Party (I know, I know, but this is a concrete opportunity for once!). This link is for the recall efforts in Wisconsin, a key battleground in the fight against the shock doctrine neoliberal assault, the Koch brothers, ALEC, "fiscal emergency" state-of-exception bills, etc. Their pitch follows: 

We need wins in three of the six recall elections on August 9. Polling currently shows us crushing Republican Dan Kapanke and narrowly ahead of Republicans Randy Hopper and Luther Olsen. 

In the two districts where Democrats hold narrow leads, we are going to run Google Blast ads during the final 120 hours of the election. Every single person who goes online in those districts will see our ads an average of 20 times. Further, these ads will drown out any online ads run by Republicans and their corporate masters.

We need $13,596 per district to pull this off. Please, contribute using this link!

(You can also contribute to Daily Kos via PayPal, or send checks to: Daily Kos, PO Box 3327, Berkeley, CA 94703) [JP: Daily Kos is co-ordinating this effort.]

An inside view on Greek academic life during the crisis.

One of my favorite monthly philosophical Zines, The Reasoner, has an interview with the distinguished Greek General Philosopher of Science, Stathis Psillos. It ranges widely, but Stathis' comments about the impact of the crisis on Greek academic life are very sobering, even moving: "Greece is in a terrible mess and no end of the crisis is in sight. The story is complex and interesting, but my own view—or the bottom line of it—is that in Greece we live through a massive attack on the welfare state as this was built and developed after the collapse of the military junta in 1974. The standards of living of the majority of the population—which, admittedly, rose over the last two decades but mostly due to really hard work—are being squeezed; unemployment is rising beyond control (especially among the youth) and at the same time (despite, or because of, the crazy austerity programmes) the economy has gone into a deep depression. There will be philosophical lessons to be drawn from what has now been happening in Greece, I am sure. The universities suffer no less. The budget has been slashed to the extent that there is a serious chance that there won’t be enough money to see the year through; there are about 800 young academics (and some talented philosophers among them) that have been elected to junior university posts but are not being appointed by the state; there is a lot of to-ing and froing concerning the promotion and the tenure cases of many university teachers; there will be huge reductions to the temporary sta that the universities employ to do teaching; the government is about to impose a massive reform of the structure of higher education, which might lead to mergers of universities and the closing down of departments as well as to the appointment of unelected governors to run the universities; most of the research funds (including EU funded projects) are frozen. There is a real danger that the Greek universities will be devalued and that a whole academic generation—and one with better education and research profile as a rule—will be lost for good. This is the setting (not to mention the cutbacks of about 15% of our annual salary with more to come) within which we are invited to do our academic job, to ‘intensify’ our research output and to create centres of excellence. Apart from any political action anyone sees fit, I believe that the Greek academics (and philosophers in particular) who have contributed to the advancement and the rising international standing of the Greek universities have an intellectual obligation to fight against this assault, by example and intellectual mobilization."

Life after the repeal of Glass-Steagall

Its repeal was both a symptom of Zombie Ideas and a condition for future (as yet unpunished) crimes, aka the "Global Financial Crisis." Eric can correct me if my terms are wrong, but the Zombie Idea is the Efficient Markets Hypothesis, and the antidote is a renewed neo-institutionalist emphasis on a regulatory framework that changes structural possibilities and structural incentives.

We'll have to see if the damning Levin-Coburn US Senate report results in anything more than hand-wringing. Excerpts from the press release: 

“High risk lending, regulatory failures, inflated credit ratings, and Wall Street firms engaging in massive conflicts of interest, contaminated the U.S. financial system with toxic mortgages and undermined public trust in U.S. markets.  Using their own words in documents subpoenaed by the Subcommittee, the report discloses how financial firms deliberately took advantage of their clients and investors, how credit rating agencies assigned AAA ratings to high risk securities, and how regulators sat on their hands instead of reining in the unsafe and unsound practices all around them.  Rampant conflicts of interest are the threads that run through every chapter of this sordid story.” ...

The Levin-Coburn report expands on evidence gathered at four Subcommittee hearings in April 2010, examining four aspects of the crisis through detailed case studies:  high-risk mortgage lending, using the case of Washington Mutual Bank, a $300 billion thrift that became the largest bank failure in U.S. history; regulatory inaction, focusing on the Office of Thrift Supervision’s failed oversight of Washington Mutual; inflated credit ratings that misled investors, examining the actions of the nation’s two largest credit rating agencies, Moody’s and Standard & Poor’s; and the role played by investment banks, focusing primarily on Goldman Sachs, creating and selling structured finance products that foisted billions of dollars of losses on investors, while the bank itself profited from betting against the mortgage market.

Brian Massumi on media, affect, disaster, and alter-politics

An excellent essay on difficult and important topics. Excerpts: 

.... The images of the disaster will be held indefinitely in store. For as long as there is an internet, they will remain available for recirculation. It is not so much that the horror is replaced by human warmth and its accompaniments. It is rather that it "decays" in the media. The horror transmutes into a different affective element, its intensity halved, then halved again, eventually reducing to trace levels. Globally, the event settles back into a more stable range of the periodic table of collective emotion.

What is the half-life of disaster in today's global media? At most two weeks. The suffering on the ground continues, and will continue for decades. World attention quickly shifts elsewhere....

Natural disaster and terrorism define the poles of disaster. In between stretches a continuum of disaster, a plenum of frightful events of infinite variety, at every scale, coming one after the other in an endless series. The media plays its role of affective conversion with a regularity that is as predictable as each event in the series, taken separately, is shockingly unforeseen....

First the affective strike of the event is instantaneously transmitted, cutting a shocked-and-awed hole of horror into the fabric of the everyday. The ability to make sense of events is suspended in a momentary hiatus of humanly unbearable, unspeakable horror. Then comes the zoom-in to the human detail. Stories get human traction. The horror is alloyed, its impact archived. Another event has been affectively conveyed with irruptive, interruptive force, only to subside into the background of everyday life. What remains is a continuous, low-level fear....

Three points stand out:

1) Collective response does, of course, go on. But it takes the privileged form of a growing state security apparatus....

2) The periodic heartwarming return to the personal level and human scale obscures the reality that there is, in fact, a strange complicity at work between the human-caused and the naturally occurring....

3) The actual dynamics of the disaster-prone interlinking of the complex systems just described involves a third complex system: the global economy. As the crisis of 2008 illustrated once again, capitalism itself is a far-from-equilibrium system eminently capable of generating its own endemic disasters. The financialisation of the capitalist economy has taken it to a level of complexity defying logic or description – not to mention regulation. It is as if capitalism has extruded its own, dedicated threat environment, in the form of abstract financial instruments operating on the edge of chaos, permanently under the pall of the spectre of debt crisis....

The only way out is to militate for an alternate interlinkage: between global anticapitalist political contestation and a renascent environmental movement with opposition to nuclear power at its heart. A political ecology up to the task would embrace the human-nature hybridity, in all its complexity, but toward a new alliance designed to step outside the vicious circle. Also required is a realisation that the affective turn in the functioning of political legitimation that has come with the media saturation of global culture is likely irreversible. An ecological alter-politics must also be an alter-politics of affect.

Read the whole thing here. As always, skip the comments.

Matt Taibbi asks a good question

Why isn't Wall Street in jail?

Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world's wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.

The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley.

Most of these firms were directly involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling.

What's more, many of these companies had corporate chieftains whose actions cost investors billions — from AIG derivatives chief Joe Cassano, who assured investors they would not lose even "one dollar" just months before his unit imploded, to the $263 million in compensation that former Lehman chief Dick "The Gorilla" Fuld conveniently failed to disclose. Yet not one of them has faced time behind bars.

h/t: Jairus Victor Grove, who co-edits the excellent blog, The Contemporary Condition.