An Economics For The Left

What would an economics for the left look like? It seems to me that it requires two things. First, it needs an economic theory derived from a close observation of the way the US economy actually behaves, and which creates a framework in which society can choose its goals and implement them effectively and as efficiently as possible. Second, it requires a leftist program, one clearly differentiable from the program of the conservatives and neoliberals which has so miserably failed millions of us, and one that people can understand and can see how it would make for a better world.

Theory

At the beginning of the 20th Century, the productive sector was dominated by a small group of capitalists who were primarily industrialists and financiers. Their control was secured by both federal and state governments in the name of protecting property rights and preventing Socialism. The interests of the rest of the people were for the most part ignored by the government. On the rare occasions when some piece of protective legislation was passed the courts struck it down. When a strike threatened the profits of the capitalists, the courts were quick to legitimate the use of force by governments. Eventually there was a small but effective Socialist Party. The capitalists responded by conflating Socialism with Anarchism and Communism, leading to the Palmer Raids, the jailing of the Socialist leader Eugene Debs, and other actions to crush all opposition to the dominant capitalist ideology.

Socialism came back in a milder form during the Depression, leading to the New Deal under FDR. Many of the major changes were made possible by fear of the Communists, particularly their support of the rights of African-Americans. That fear became stronger during WWII, and the Democrats purged Socialists from their party, starting with Henry Wallace, and the labor unions purged every last Communist and Socialist after the War. That left economics to a temporarily chastened breed of capitalists. By the 1950s there was no effective left opposition to capitalism. What C. Wright Mills called the Capitalist Celebration took over all economic discourse, and with no opposition, it was easy for a new breed of capitalists to push for the Gilded Age form of capitalism which we now call Neoliberalism.

The economic theory underlying this ideology had its roots in the 19th Century. William Stanley Jevons, one of the inventors of the theory of marginal utility and one of the first people to use the mathematical method in economics, wrote in The Theory of Political Economy, § 1.29 (1871).

I wish to say a few words, in this place, upon the relation of Economics to Moral Science. The theory which follows is entirely based on a calculus of pleasure and pain; and the object of Economics is to maximise happiness by purchasing pleasure, as it were, at the lowest cost of pain.

At the very core of neoclassical economics there is a moral judgment about humans and their behavior. Mainstream economics retains that core, and adds a number of other moral judgments. We are selfish utility maximizing creatures, we are purely rational creatures, able to make complex calculations about our utility on the fly. We are rewarded by the market for our skills, so that failure is our own fault, and success is due to our excellence. Economists use terms like moral hazard, and those preaching austerity claim that recessions and depressions are the result of our moral failures and we must be punished for those failures. Citizens acting through government neither can nor should do anything to make things better. Only the free market can save us.

A sensible leftist economic theory would not be grounded in an archaic philosophical theory about the nature of humanity or the nature of individual humans. It should to the maximum extent possible be non-judgmental about humans, and it should be as impervious as possible to the addition of moral overtones. We should look for a descriptive theory based on close observation of the way things work. Modern Money Theory is certainly a model for this kind of theory. Here’s how L. Randall Wray describes it in Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems, §7.10:

On one level, the MMT approach is descriptive: it explains how a sovereign currency works. When we talk about government spending by keystrokes and argue that the issuer of a sovereign currency cannot run out of them, that is descriptive. When we say that sovereign governments do not borrow their own currency, that is descriptive. Our classification of bond sales as part of monetary policy, to help the central bank hit its interest rate target, is also descriptive. And finally, when we argue that a floating exchange rate provides the most domestic policy space, that is also descriptive.

Functional finance then provides a framework for prescriptive policy.

Any respectable economic theory should lend itself to either side as a plausible framework for solving society’s problems. Here’s what Wray says about that:

However, I also believe that most of the tenets of MMT can be adopted by anyone. It does not bother me if some simply want to use the descriptive part of MMT without agreeing with the policy prescriptions. The description provides a framework for policymaking. But there is room for disagreement over what government should do. Once we understand that affordability is not an issue for a sovereign currency-issuing government, then questions about what government should do become paramount. And we can disagree on those. (Emphasis in original.)

Program

It’s easy to identify a left program for the economy. We simply pick up where Franklin Delano Roosevelt left us, with his Second Bill of Rights. This is from his State of the Union Address, January 11, 1944.

We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. “Necessitous men are not free men.” People who are hungry and out of a job are the stuff of which dictatorships are made.

In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all regardless of station, race, or creed.

Among these are:

The right to a useful and remunerative job in the industries or shops or farms or mines of the Nation;

The right to earn enough to provide adequate food and clothing and recreation;

The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;

The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;

The right of every family to a decent home;

The right to adequate medical care and the opportunity to achieve and enjoy good health;

The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;

The right to a good education.

All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.

If it was good enough for FDR, and an inspiration for Bernie Sanders, it’s good enough for me.

It’s time to start thinking about an overarching program for the left, one that enables us to respond to the lives people are living right now. The economy is just one of the issues important to the left, but it sets the framework of permitted solutions to the many other problems we have. In future posts, I plan to take up these issues in more detail.

Notre Dame undergrad (math); JD, Indiana University at Bloomington; 1st Lieutenant, US Army.; private practice in corporate and securities law; Assistant AG in Tennessee for consumer protection and securities; Blue Sky Securities Commissioner, Tennessee; private practice, bankruptcy and corporate law.

I have had a lifelong interest in economics. For most of my career, that interest was practical, focused on the problems in front of me. Lately I have been more interested in economics as a theory, especially its impact on the lives of people like those I met in my bankruptcy practice, and on the politics of money in the US. I also enjoy reading philosophers, starting in college and steadily expanding my reading ever since. I wrote at FireDogLake for a number of years.

Generally, I think the problem facing the US is the dominance of neoliberal discourse. I think it clouds the vision, and limits the kinds of problems that can be identified and solved. For example, the existence and danger of climate change can easily be identified in a scientific discussion. However, the problem does not fit the neoliberal discourse because science insists that the pursuit of individual and corporate self-interest will lead to devastation. In neoliberal discourse, the pursuit of self-interest always leads to Eden.

The neoliberal project has two prongs. One is the police function of crushing dissent and alternative views. The police function is provided by government agencies and private and institutional actors. The counterpart is the economic system , which is operated by government and by private and institutional actors. Some of these actors operate in both spheres. I focus on the second prong.

8 replies
  1. earlofhuntingdon says:

    “We are selfish utility maximizing creatures, we are purely rational creatures, able to make complex calculations about our utility on the fly. We are rewarded by the market for our skills, so that failure is our own fault, and success is due to our excellence. ”

    A generation ago, most people would have been repelled at the idea that the behaviors of business – ruthless, brutal, narrow, self-centered; relentless cost-cutting, regardless of effects; the only value honored was profit-taking – should apply to our personal, social and cultural lives. Families worked hard to keep such behaviors away from hearth and home, school, church and neighborhood. There, the aspirations were of mutual support, food and sharing its gift of life, shelter, respite from the exhaustion of factory, farm, road and office.

    The elites are intimately aware of that distinction and practice it themselves at home. Except in the most dysfunctional families, there is mutual help and support. Outside the family, there is also mutual, almost communistic support. Your son wants admission to Princeton, my daughter wants Yale. You join my board, I yours, and we each vow not to interfere with how the other does business. We both try to avoid or crush competition. We band together, spending our “shareholders'” value in supporting and opposing the same political, social and business ends. We give to each others charities, as and when we choose. Most of all, we excuse our failures and shout from the rooftops about the failures of those who oppose our interests.

    In reality, we are not selfish. We are social animals who seek support and comfort from each other, especially parent to child. We are not utility maximizing. (If that were not true, would shareholders accept such outsized compensation for their CEOs and CFOs?) Nor are we rational. The hundreds of billions spent annually on the persuasion industry – marketing, advertising, promotion, motivation, the “smile” industry – attests to that. We are creatures of emotion. Most of us, most of the time, go along to get along; roaming too far from the herd often has grazing-ending consequences.

    The idea that some anonymous “market” will reward us if we are good and put our tooth under our pillow at night is as fanciful as the grade school indoctrination that if you work hard, play by the rules, and submit to authority, you will get ahead. Failure and success are highly contingent. Much credit for “our” success depends on those who came before us and on the work of society in general. Ask the DuPonts, the Astors, the Vanderbilts, the Rockefellers.

    Only the market would condemn us to the dictates of ruthless, asocial, atomized existence.

  2. earlofhuntingdon says:

    I think your choice of FDR’s last State of the Union speech could not bettered as a place to start.

  3. Rapier says:

    Where to begin? There are so many layers of assumptions here, that as with all things Economics, it’s almost impossible to penetrate.

    So in a nutshell. Economics is BS. Classical economics hit a dead end 110 years ago and neoclassical economics is rooted in false assumptions and cloaked in false narratives. The current ascendant Economics is neoliberalism but neoliberalism transcends economics now ,although it raises the ‘market’ to the heights of God.

    There is no possible “left economics” Not by any definition which includes an understanding of Economics, big E, that includes what 99.9% of people thinks Economics is.

    Someday in the distant future this age of economics will be looked upon with wonder and disbelief. Economics does not, can not and doesn’t even try understand or explain human behavior. It does however pretend that it does.

    https://www.youtube.com/watch?v=xfbVPDNl7V4

  4. Alan says:

    There is no ‘economics’ of the Left. There might be a political economy of the Left. That is a politics that accepts that economics happens in the context of laws, relationships, politics and the messy events of the world undertaken by people with many complex motivations that no mathematical model or pretension to science will ever capture.
    *
    But the Left’s real problem, according to Foucault, is not that it lacks an economics but that it lacks a governmental rationality (see Birth of Biopolitics, pp. 91-92).

    • Ed Walker says:

      I plan to take up Foucault, first Security, Territory and then the Birth of Biopolitics, next.
      .
      For now, I want to point out that the driving force of the program I outline is to set up an opposition to neoliberalism. Until there is a comprehensive economic theory to replace neoclassical economics, there is no framework in which leftist programs can find a foothold for discussion.

    • Ed Walker says:

      Governmental rationality is a complex idea that needs to be discussed. As I see it, the left is not at all organized, but consists of many different groups each trying to solve a huge and overwhelming but fairly well-defined problem in a system that cannot cope with any change that would actually solve the problem. As an example, the environmental groups are terrified of the effects of global warming and horrified by the immoral response of the Republicans. But no government operating in the current framework of mainstream macroeconomics can see a way to solve the problem because of the cost and the horrendous dislocation. So the piecemeal solution is to do nothing. That leaves the coal miners as superfluous people, and enables a new breed of capitalists to get rich with alternative energy.
      .
      The second bill of rights is a great organizing tool for all of the main leftist groups. The MMT macroecomics part provides a theory that justifies taking action to solve the problems.
      .
      I do not know if that counts as a governmental rationality, but I do think it counts as a short-term and clear statement of a political purpose that a large number of people could rally behind. And at least it wan’t formed by the Oligarchy.

  5. jonf says:

    “The interests of the rest of the people were for the most part ignored by the government. ”
    .
    No change there – same old same old. But look what just happened with the Brexit. All the very smart people, including the Conservative and Labour parties and the millenialls supported remain. But a funny thing happened on the way to the bank. Something is happening here as well and it has something to do with what you said above.
    .
    I would say that from 1932 to around 1970 our economic world had much to do with John Maynard Keynes. And it worked relatively well. Keynes advocated government spending in recessions. Kalecki and Minsky even argued for really full employment and LBJ had a war on poverty and that regime existed until the neoliberal world – Alan Friedman- took over.
    .
    I applaud you quoting Randall Wray and MMT economics. Keynes lived in the era of gold, you know dig your wealth out of the ground (if you can). Arguably that put a limit on spending. Now we have a freely floating currency not bound to anything more than what we deem the public purpose, as Wray has said. But the elite are not likely to allow it all. Still Occupy and Sanders have started something that we can hope outlasts them.

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