Recent Discussions of Neoliberalism

People seem to have trouble defining neoliberalism adequately, and especially when it comes to labeling Hillary Clinton as a neoliberal. In a recent article at Jacobin Corey Robins gives a short history of the neoliberal version of the Democratic Party, specifically aimed at the Clinton/DLC/Third Way. Billmon discussed this article in this storify piece, in which he describes three current factions in the practice of neoliberalism, There is the Neo-Keynesian version, as with Krugman; the Monetarist version, that of Milton Friedman and his many followers;, and the Supply Side version, like Paul Ryan and his economic advisors. Each of the factions has attached itself to a political ideology. Both of these pieces should be read by anyone seeking to clarify their thinking about neoliberalism.

Underlying all of them is the broader program described by Michel Foucault, which turns in large part on the notion of governmentality, a point made by Mike Konzcal in this review of Philip Mirowski’s Never Let a Serious Crisis Go to Waste. After I read that book, I wrote several pieces at FDL trying to comprehend the idea of governmentality and make it comprehensible. Here are links to several of those posts.

1. How We Govern Our Selves and Ourselves.

2. The Panoptic Effect.

3. Discipline for the Benefit of the Rich.

4. Control of Markets in Foucault’s The Birth of Biopolitics.

5. Liberalism and the Neoliberal Reaction.

The idea of governability is present in the texts I’ve been looking at. In Polanyi, we saw the transformation of the farm-dwelling peasant into the city-dwelling factory worker. Arendt touches on it with her discussion of people who cannot find a place in the productive sector of society, the superfluous people. Veblen writes about the enormous productivity of machine culture, and the changes it demanded of the worker, about which more later. The great problem is that machine culture required a tremendous amount of self-discipline from the workers to make factories function. The principal institutions of society were remade to enforce that self-discipline, from the Army to the schools to the government. Other tools included prisons and mental institutions.

In one way or another, all of these writers on neoliberalism seem to agree that the goal of neoliberalism is to replace the notion of the self as reasonably free citizen, responsible for the self, the family, the community and the state, with the notion of the self as a buyer and seller engaged in zero-sum competition with all other buyer/sellers. We are consumers of any and all goods and services, and entrepreneurial sellers of the self seen as a bundle of skills on offer to the highest bidder. Each separate transaction, buying and selling, is an opportunity for judgment by the all-knowing market. If we are successful, it’s because we are winners. If we are losers, we are superfluous. It’s an even harsher transformation of the human being than the one from peasant to factory worker.

UPDATE: The excellent Paul Rosenberg discusses the rise of neoliberalism in the sense used by Robins in this Salon article.

The Origins of Totalitarianism: Conclusion

The point of this series was to examine the conditions which led to the rise of Fascism in the 1930s to see if there are useful insights that might guide our understanding of conditions in the US today. In introduction to this series, I suggested several points of convergence, and over the last three months I have tried to flesh out those ideas.

The book has problems. The history focuses on Europe, so it isn’t helpful in understanding the rise of totalitarianism in Russia. There is much less focus on the economic situation in post-WWI Germany and Austria than I would expect. Arendt talks about the the large number of superfluous people, the mob and the masses, but there is little discussion of how or why that happened. Fortunately we already read The Great Transformation by Karl Polanyi, so we have some idea about that. The reasons for the displacement don’t seem important to Arendt’s thesis, but the absence is jarring.

It seems to me that the most significant condition that led to the rise of fascism in Germany was the large number of displaced and unsettled people, which I think is the result of economic upheaval due to the costs of WWI and the reparations imposed on Germany. That mob was egged on by politicians and media pushing propaganda about the ideology of the Nazis and setting up scapegoats, especially the Jews. Another important factor was the lack of resistance from elites. But the Nazis would have been limited to the margins if not for the large number of people with no place in society. These are the superfluous people. They have no role in the productive sector of society, and no place or position to hold them reasonably close to the bounds of society. Here’s how Arendt explains it:

The totalitarian attempt to make men superfluous reflects the experience of modern masses of their superfluity on an overcrowded earth. The world of the dying, in which men are taught they are superfluous through a way of life in which punishment is meted out without connection with crime, in which exploitation is practiced without profit, and where work is performed without product, is a place where senselessness is daily produced anew. … P. 457.

That is true in the US and elsewhere today. People aren’t stupid. They know that they are superfluous. They know they have no power, no security and no real hope of either. They hate it. When they see people fired from long-term jobs and told they only get severance if they train foreign replacements to do their jobs, it makes them sick inside. When they are told that their jobs are going to Mexico, and it’s “strictly a business decision” but 1400 people are going to be fired, they are angry and hostile. They know that they mean nothing to their employers, and nothing to politicians. And mostly they know they mean nothing to the elites who dominate the political process and the economy, and who set the system up to screw everyone else. They know the elites despise them as the the NRO’s Kevin Williamson and David French loudly say. They know the elites and specifically the tribe of economists, knew that they would be screwed by NAFTA and other trade deals, and didn’t lift a finger to stop that from happening on the grounds that it all works out for the beset on average. So what if the rich elites took all the gains? The liberal elites will come up with incremental tweaks to fix everything, and the conservatives will resist and nothing will change, and they don’t worry because it isn’t them or their families.

Other factors work into this poisonous stew. There is an ideology: the neoliberal myth of the almighty market, the supercomputer that works out all the details as long as mere humans do not interfere with its mysterious workings. This ideology permeates every aspect of our society, from claims that markets pay what you are worth to the strange idea that businesses should operate public schools.

Liberals deny that they share the ideology, but since 1992, the liberal elites have pushed “market-oriented” solutions to every problem. We can’t use a Pigovian tax system to solve problems, especially a tax on fossil fuels or securities transactions. We need a market solution: cap and trade. Schools are a problem, but we can’t throw money at them like they do in socialist hells like Finland. We need the market solution of charter schools competing with public schools, with the public schools funded primarily by local property taxes, so rich areas get good schools and screw the poor. We can’t have single payer health insurance. We put the insurance companies and big Pharma firmly in control of which working age people get health care and cost of health care for all of us. Liberal elite theory results in the creation of new government sponsored “markets” which create opportunities for rich people and corporations to screw over consumers, like Enron did for electricity.

Then there are scapegoats. The primary targets are minorities, especially African-Americans, but recently the unemployed and the working poor. The neoliberal ideology justifies scape-goating. It tells people that if you don’t succeed, it’s your own fault because this is the best of all possible systems. The losers are labeled as leeches and takers by the winners. The ideology justifies their smugness and their sociopathic demands to cut the social safety net.

Neoliberalism is also an excuse for hating immigrants and Muslims, who are coming here to take the jobs of deserving people, so it actually works to deflect the anger of the first group of scapegoats, at least for those who take the bait.

The conservative elites, such as they are, support this neoliberal ideology, and in pursuit of winning elections add the rejection of science and the imposition of ancient religious prohibitions and standards. The liberal elites are fine with the ideology, though they continue to support Enlightenment values, and occasionally offer a patch to salvage one or two lives. But when the crunch comes, they always side with the ideology and the establishment candidate.


As I reread the posts in this series, I realized how angry I am about the way politics operates here. I am repulsed by the elites who act as if there were no alternative. I am nauseated by liberal wonks whose views of what is possible are claustrophobic. They are the descendants of the liberals who told me and my generation that nothing could be done about the murderous war in Viet Nam. I cannot stomach the conservative elites. They are the scum who think their mission on earth is to undo the New Deal; the direct spawn of the John Birchers and the McCarthyites and the rest of the fear-mongers. They are the wreckers.

Polanyi says that when a social structure imposes too much stress on too many people it has to change. We don’t know how many disaffected people there are In the US, but it is clear that there is an enormous number, in both parties and among the unaffiliated, and that change will come. The US has always prided itself on its openness to change. We believe that everything will work out for the best, because we are the exceptional people, the City on the Hill. We assume that change will be for the best. Arendt points out the sickening reality: some changes are deadly.

Index to all posts in this series

The Origins of Totalitarianism Part 7: Superfluous People

The last chapter of Hannah Arendt’s The Origins of Totalitarianism is devoted to discussion of the totalitarian regime, which comes when the totalitarian movement has taken power. Arendt says that totalitarian movements don’t offer a specific program for government. Instead, they propose to operate under a “scientific” program. For the Nazis, this was the law of nature with its eternal progress towards perfection, which Arendt thinks arises from a skewed form of Darwinism. For the Communists it was the laws of history as supposedly discovered by Marx. Once in power, the totalitarian regime becomes an instrument for the will of the leader, who in turn is an instrument for imposing and acting out those laws. It is here that Arendt takes up the issue of concentration camps. She says that they are instruments for studying ways to reduce individuals to oblivion, to being superfluous, which is the goal of totalitarianism.

Men insofar as they are more than animal reaction and fulfillment of functions are entirely superfluous to totalitarian regimes. Totalitarianism strives not toward despotic rule over men, but toward a system in which men are superfluous. Total power can be achieved and safeguarded only in a world of conditioned reflexes, of marionettes without the slightest trace of spontaneity. Precisely because man’s resources are so great, he can be fully dominated only when he becomes a specimen of the animal-species man.

The totalitarian attempt to make men superfluous reflects ihe experience of modern masses of their superfluity on an overcrowded earth. The world of the dying, in which men are taught they are superfluous through a way of life in which punishment is meted out without connection with crime, in which exploitation is practiced without profit, and where work is performed without product, is a place where senselessness is daily produced anew. Yet, within the framework of the totalitarian ideology, nothing could be more sensible and logical; if the inmates are vermin, it is logical that they should be killed by poison gas; if they are degenerate, they should not be allowed to contaminate the population; if they have “slave-like souls” (Himmler), no one should waste his time trying to re-educate them. … P. 457.

Why is it necessary that people become superfluous? The answer appears in the final chapter, Ideology and Terror: A Novel Form of Government. Ideologies are “… isms which to the satisfaction of their adherents can explain everything and every occurrence by deducing it from a single premise…”. P.468. They are the scientific programs offered by totalitarian movements as the organizing principles of societies. For Arendt, the Nazi ideology revolves around the idea of the laws of nature, of blood, while the Communist ideology revolves around the historical laws of Marxism. In both cases, human beings are in the way of the historical forces, and must be forcibly denied the ability to interfere with the primal force.

Terror is the realization of the law of movement; its chief aim is to make it possible for the force of nature or of history to race freely through mankind, unhindered by any spontaneous human action. As such, terror seeks to “stabilize” men in order to liberate the forces of nature or history. It is this movement which singles out the foes of mankind against whom terror is let loose, and no free action of either opposition or sympathy can be permitted to interfere with the elimination of the “objective enemy” of History or Nature, of the class or the race. Guilt and innocence become senseless notions; “guilty” is he who stands in the way of the natural or historical process which has passed judgment over “inferior races,”, over individuals “unfit to live,” over “dying classes and decadent peoples.” Terror executes these judgments, and before its court, all concerned are subjectively innocent: the murdered because they did nothing against the system, and the murderers because they do not really murder but execute a death sentence pronounced by some higher tribunal. The rulers themselves do not claim to be just or wise, but only to execute historical or natural laws; they do not apply laws, but execute a movement in accordance with its inherent law. Terror is lawfulness, if law is the law of the movement of some supra-human force, Nature or History. P. 465.

That idea, the idea of the unrestrained movement of supra-human forces, should sound familiar. That’s how Arendt described Imperialism, the early form of unrestrained capitalism. It also describes today’s world as seen by the architects of neoliberalism. They warn that everyone loses if The Market is subjected to even the slightest restraint, whether to movement of jobs and capital overseas or to prohibit dumping toxins into earth, air and water. They insist that foreign limitations on patents and copyrights are impossible restraints. They preach that the only legitimate goal of government is to enforce property rights to the utter maximum. For them, the restless movement of money in the hands of the rich and powerful operates in accordance with its own internal logic, logic which cannot be questioned by quasi-humans not gifted with the power to control vast sums of wealth. They tell us that The Market knows all and fixes everything as long as we mere humans do not interfere with its workings. Neoliberal capitalism is a form of supra-human force that Arendt warned us about.

Neoliberalism forms world view of movement conservatives. Here’s an article in the National Review on this issue by one Kevin Williamson. :

The truth about these dysfunctional, downscale communities is that they deserve to die. Economically, they are negative assets. Morally, they are indefensible. Forget all your cheap theatrical Bruce Springsteen crap. Forget your sanctimony about struggling Rust Belt factory towns and your conspiracy theories about the wily Orientals stealing our jobs. Forget your goddamned gypsum, and, if he has a problem with that, forget Ed[mund] Burke, too. The white American underclass is in thrall to a vicious, selfish culture whose main products are misery and used heroin needles. Donald Trump’s speeches make them feel good. So does OxyContin. What they need isn’t analgesics, literal or political. They need real opportunity, which means that they need real change, which means that they need U-Haul.

Williamson’s NRO colleague David French agrees:

My childhood was different from Kevin’s, but I grew up in Kentucky, live in a rural county in Tennessee, and have seen the challenges of the white working-class first-hand. Simply put, Americans are killing themselves and destroying their families at an alarming rate. No one is making them do it. The economy isn’t putting a bottle in their hand. Immigrants aren’t making them cheat on their wives or snort OxyContin. Obama isn’t walking them into the lawyer’s office to force them to file a bogus disability claim.

For generations, conservatives have rightly railed against deterministic progressive notions that put human choices at the mercy of race, class, history, or economics. Those factors can create additional challenges, but they do not relieve any human being of the moral obligation to do their best.

Williamson and French agree that the white working-class people are superfluous, and so are their communities and their way of life. Millions of them should just hire U-Hauls and move to the blessed land of plentiful jobs. They must all lose themselves and their way of life to the inexorable laws of movement, only this time, it’s the inexorable laws of neoliberalism, of rampant unrestrained capitalism. By those rules, individuals cannot act collectively, through unions or through active government. They are permitted to act collectively in their Churches, which emphasize their helplessness in this world except through the will of the Almighty, and therefore pose no real threat to the interests of the rich and powerful.

These white working-class people and their communities aren’t economically viable, and nothing can or should be done to make things different. They should surrender to the external and ungovernable force of hyper-capitalism. They are superfluous, and if they die in misery, leaving their families in poverty, it’s just the natural law of economic freedom working itself out in the passive voice, with the invisible hand of the rich and powerful hidden in a fog of words.

Index to prior posts in this series

The Origins of Totalitarianism: Interlude on The Commons

Previous posts in this series:

The Origins of Totalitarianism Part 1: Introduction.

The Origins of Totalitarianism Part 2: Antisemitism

The Origins of Totalitarianism: Interlude on the Tea Party

The Origins of Totalitarianism Part 3: Superfluous Capital and Superfluous People

In Part 3, I discussed two problems created by unrestrained capitalism, superfluous wealth and superfluous people. These twin problems are evidence of the damage done to people and societies by capitalism: the creation of large numbers of citizens with no role in the productive system of a nation-state, and the enormous wealth and power of the rich capitalists and the aristocracy. Arendt offers an explanation.

The decisive point about the depressions of [the 1860s and 70s], which initiated the era of imperialism, was that they forced the bourgeoisie to realize for the first time that the original sin of simple robbery, which centuries ago had made possible the “original accumulation of capital” (Marx) and had started all further accumulation, had eventually to be repeated lest the motor of accumulation suddenly die down. In the face of this danger, which threatened not only the bourgeoisie but the whole nation with a catastrophic breakdown in production, capitalist producers understood that the forms and laws of their production system “from the beginning had been calculated for the whole earth.” P. 148 fn omitted.

The motor of accumulation is a nice image for the idea that capital must move, must be constantly active, or it becomes useless and dangerous. The idea of the constant motion of money is similar to an idea we encounter later in the book, along with the idea of superfluity. The word “bourgeoisie” is slippery as commenter Bevin noted in response to Part 3, and can easily lead to confusion. For the purposes of the above quote, I think Arendt means the richest capitalists and aristocrats, and perhaps their financiers.

This is one of the footnotes I omitted:

According to Rosa Luxemburg’s brilliant insight into the political structure of imperialism {op. cit., pp. 273 ff., pp. 361 ff.), the “historical process of the accumulation of capital depends in all its aspects upon the existence of non-capitalist social strata.” so that “imperialism is the political expression of the accumulation of capital in its competition for the possession of the remainders of the non-capitalistic world.” This essential dependence of capitalism upon a non-capitalistic world lies at the basis of all other aspects of imperialism, which then may be explained as the results of oversaving and maldistribution (Hobson, op. cit.), as the result of overproduction and the consequent need for new markets (Lenin, Imperialism, the Last Stage of Capitalism, 1917), as the result of an undersupply of raw material (Hayes, op. cit.), or as capital export in order to equalize the national profit rate (Hilferding, op. cit.).

Here is the Wikipedia entry on Luxemburg. She was a revolutionary communist and a Marxist intellectual. Arendt refers to her book, The Accumulation of Capital, dated 1923, several years after Luxemburg was executed by the German Freikorps. I think Arendt might be referring to this book, and here’s a quote matching her description of Luxemburg’s thought.

Accumulation is impossible in an exclusively capitalist environment. Therefore, we find that capital has been driven since its very inception to expand into non-capitalist strata and nations, ruin artisans and peasantry, proletarianize the intermediate strata, the politics of colonialism, the politics of ‘opening-up’ and the export of capital. The development of capitalism has been possible only through constant expansion into new domains of production and new countries. But the global drive to expand leads to a collision between capital and pre-capitalist forms of society, resulting in violence, war, revolution: in brief, catastrophes from start to finish, the vital element of capitalism.

This analysis springs from Luxemburg’s reading of Marx, who, she says, was unable to show how accumulation of capital could occur in a purely capitalist system. Luxemburg says that accumulation of capital is only possible when the capitalist can find some new area to exploit. Arendt agrees.

I did not see any discussion of this issue in Jevons or in the bits and pieces of other 19th and early 20th century economists I have read, and I certainly can’t find it in the textbooks of Mankiw or Samuelson. Apparently this is not an issue of interest to economists. But the question does not disappear just because the self-described experts don’t want to talk about it. In The Great Transformation Polanyi describes the enclosure of the commons in England as a precursor to the Industrial Revolution. The enclosures were an example of the exploitation of a pre-capitalist strata made up of peasants and smallholders, to accumulate capital in the hands of the rich and vicious. One of the demands of the armed thugs in Oregon is that federal land, our joint land, be given to them for their personal exploitation and profit. They’re just more blatant than the Koch Brothers and Exxon.

One of the primary goals of neoliberals is to take over the commons. The medical system and wide swaths of the prison system have been turned over to the profiteers already. They play a huge role in the military state and the national security state. With the help of the rich and powerful, they are working to take over the education system with their charter schools and their for-profit colleges. They are all over the place, always scraping away at things we can do for ourselves cheaply and well through government, and routing taxes (which they don’t pay) and profits to themselves at the expense of the people who actually do the work.

The facts today support the views of Arendt and Luxemburg. This is no surprise. The conditions today are similar to the unrestrained capitalism of the late 1800s through the 1920s, with monopolies, oligopolies, vast disparities of income and wealth, and a government responsive only to the demands of the rich.

The Origins of Totalitarianism Part 1: Introduction

The Origins of Totalitarianism is Hannah Arendt’s analysis of the rise of totalitarian governments, the Nazis under Hitler in Germany and the Communists under Stalin in Russia. It was published in 1951, though it was largely completed in 1945. In its original form it focused primarily on Nazism, and as more detail emerged about Stalinist Russia, the book was revised. There are three sections, Antisemitism, Imperialism and Totalitarianism. The book can be read here. Page numbers at this link correspond to the page cites I’ll be using.


Why this book? Anyone following current US politics has seen references to a fascist turn in Republican politics, and in the crowds surrounding at least one of the candidates. Similar but much smaller outbreaks occurred at campaign appearances of Sarah Palin in 2008 and at other Republican and conservative gatherings. One early user of the term fascism was @billmon1 on the Twitter, also here. Arendt’s detailed exploration of the rise of fascism, particularly in Germany, is a tool to help us understand its genesis, and perhaps see certain parallels to today.

In Modernity on Endless Trial, Leszek Kolakowski says:

If we are to believe Hegel – or Collingwood – no age, no civilization, is capable of conceptually identifying itself. This can only be done after its demise, and even then, as we know too well, such an identification is never certain or universally accepted. Both the general morphology of civilizations and the descriptions of their constitutive characteristics are notoriously controversial and heavily loaded with ideological biases, whether they express a need for self-assertion by comparison with the past or a malaise in one’s own cultural environment and the resulting nostalgia for the good times of old. Collingwood suggests that each historical period has a number of basic (“absolute”) presuppositions which it is unable clearly to articulate and which provide a latent inspiration for its explicit values and beliefs, its typical reactions and aspirations. If so, we might try to uncover those presuppositions in the lives of our ancient or medieval ancestors and perhaps build on this basis a ” history of mentalities” (as opposed to the “history of ideas”); but we are in principle prevented from revealing them in our own age, unless, of course, … we are living in the twilight, at the very end of an epoch. P. 3.

Maybe so, but I think most ages are blessed with a few people capable of identifying at least the central points of a civilization, as they write the first drafts of history from the perspective of those who lived through it. They give us signposts for thinking about the best way to proceed into the future, and ways of understanding aspects of we humans and our societies that seem ineradicable. I’m also dubious about the term “historical period”, because there are few ideas that ever really disappear once installed in human minds. Instead they hide in the corners of society until conditions are ripe for another outbreak.

Arendt and Polanyi both wrote near the end of WWII. Both were Jews, educated in Europe after WWI, and both left Europe as Antisemitism struck at their ability to work and to live. Arendt left Germany in 1933, first to Czechoslovakia and then Geneva, then Paris. She was picked up by the Vichy regime in France, and interned in a camp. She was permitted to leave France in 1941 and moved to the US using an illegal visa issued by a US diplomat, Hiram Bingham, and with the aid of a noted rescue worker, Varian Fry. Polanyi left Vienna in 1933, and moved first to London, and then to the US. After WWII, he was unable to obtain a visa because his wife was a former Communist, so they moved to Canada and Polanyi commuted to New York where he taught at Columbia.

The technique adopted by Karl Polanyi in The Great Transformation was to look far back into history to show the wave that swept over European nations with the Industrial Revolution and the rise of capitalism as the dominant form of economic organization. Foucault uses the same technique, for example in Discipline and Punish, which describes the impact of the Industrial Revolution on the working people of France. Arendt uses the same technique. She gives a broad historical perspective to the rise of fascism and communism and their transformation of Germany and Russia into totalitarian states. This technique offers a way to begin to identify a civilization, or a social structure, to get at its roots. Thus, all three follow Kolakowski’s model.

In this post, I described Polanyi’s discussion of the rise of fascism in Germany. It is similar to Arendt’s analysis in The Origins of Totalitarianism. They both see the destruction of social roles of huge numbers of people, primarily from the lower and middle classes, as a crucial element of that change, though they use different sources and different language. Polanyi points to the large numbers of people who lost status and social position and roles in the sweeping changes of the Industrial Revolution, and in the wake of the Great Depression. As we will see, Arendt points to the dislocation of millions as the Industrial Revolution progressed, and to the dislocation of the lives of many Germans in the wake of defeat in WWI, exacerbated by hyperinflation in the early 20s and then worsened by the Great Depression.

It seems to me that the wave of neoliberalism that rose to new heights under the Reagan and Thatcher administrations and has wedged itself in our minds since, is a cultural change, not of the magnitude of the rise of totalitarian states or the Industrial Revolution, but still with an enormous impact on the lives of individuals. For many in the upper class, the neoliberal turn has removed any sense of responsibility to society or to the planet. For others in the upper class, there is increasing fear for the future because of global warming and the rise of oligarchy.

In the case of the lower and middle classes, that impact has been much more concrete. After years of stagnating wages and pointless wars followed by a frightening financial crash, and more wars and political deadlock, the middle class is disappearing. People experience dropping from the middle class as a loss of status, of a place in society, a role, and even a purpose. There is nothing in US society to replace that status, or to provide a new sense of belonging. These dislocated people are not in any way organized. The neoliberal system dismisses them as moochers and leeches seeking handouts while taking no responsibility for themselves. People who are nominally still middle class are feeling similar pain as their future prospects and those of their children dwindle.

The parallels to today are uncertain. But I think it’s worth examining this argument in detail to see if we can learn something useful.

General Plan

The Origins of Totalitarianism is divided into three sections: Antisemitism, Imperialism, and Totalitarianism. I intend to focus on Totalitarianism. I see the first two sections as setting up the third. One of the central ideas in the section on Antisemitism is that the Jews in Europe were never assimilated. There are several forces described in the section on Imperialism that reach full flower in Totalitarianism. Among others, these include the idea of superfluous humans and superfluous capital, which are associated with Arendt’s categories of the mob and the masses, and the whirlwind of capitalism. I’ll take those up briefly, and quite incompletely, before turning to the main discussion.

The Costs of Equal Opportunity in a Neoliberal Economy

Eric Loomis has a nice discussion of an article in the WaPo titled “White Americans long for the 1950s, when they didn’t face so much discriination.” The article reports these findings:

• 43% of all respondents said discrimination against whites is as much of a problem as discrimination against blacks and other minority groups.

• 60% of the white working class respondents said discrimination against whites is as big a problem today as discrimination against blacks and other minorities.

• White Americans feel put-upon and mistreated — and large shares of non-white Americans do not seem to have any knowledge of the challenges that white Americans say they face.

Loomis concludes that these feelings are the basis of the appeal of Donald Trump:

I will however say that the numbers of the white working class are particularly important because the economic insecurity of an outsourced and automated economy, the effects of which are swept under the rug by the many proponents of unrestricted globalization, are very real. I have said for a long time that if you want a stable society you have to have good paying jobs. Without those jobs, racial and religious prejudice becomes even more powerful than it usually is. That is part of what we are seeing in this recent rise of proto-fascism. It’s scary and should make us rethink a lot about the society we want to build before it’s too late. Emphasis added.

I absolutely agree with Loomis, but there’s more to be said. So here’s a story. I was accepted at Indiana University Law School in the Summer Session of 1971. My college grades were mediocre, but I got a very good score on the LSAT and had two years in the Army to encourage me to study harder. My law class had 200 people of whom 20 were women, as I recall. I graduated 20th in my class, and 10 of the people ahead of me were women. I assume that all the white guys with better credentials than mine got in, so it’s fair to guess that I would have graduated at least 10th if not for those really smart women. As it happened, it didn’t affect my ability to get a great job with a brilliant mentor, Stanley Schwartz, who taught me how to be a real lawyer. But that was a good time for lawyers and for hiring in general. And if I had wanted a job in New York City with a big firm, that move down the graduation rank would have made that unlikely.

The same thing happened to athletes when African-American players were allowed to compete. Lots of really good white players lost their scholarships to better players. The same things happened when police forces opened the doors to everyone on more or less equal terms. The number of jobs didn’t increase much, so the competition meant that some white men who would have been cops or office administrators or anything else didn’t get those jobs. It wasn’t a great problem until the decent jobs were disappeared by the rich. With the vast number of good jobs that had cushioned the entry of women and people of color gone, the previously privileged people, mostly white men, didn’t automatically win. Instead, they had to deal with the fact that there many previously disqualified people who were smarter and better prepared than they were, and many more were at least as smart and well-prepared as they. Just like me, they lost their previous rank.

That is an actual loss for white men. It isn’t just an appearance, or an excuse, it’s a genuine loss.

That was bad enough, but it got worse. When the rich started their drive to collect all the money from work in the Reagan years, they explained to the working people that they needed to be better and smarter, and they needed more education, which the workers were expected to pay for. Then college tuition shot through the roof, and states cut support, first for higher education, and then, in the wake of the Great Crash, for all education. But at the same time, Republicans tell workers it’s their fault, they need to work harder and longer and better and smarter. It’s a horrible double bind. I think the result is that some people respond by blaming themselves, and others respond by blaming the people who beat them out, or the liberals who made equal opportunity more of a real thing.

No one, especially politicians and economists, blames the people who shipped all the good jobs out of the country. Not a single politician or economist points out that if Intel and Apple and IBM don’t ship physical, financial and intellectual capital to Taiwan, there won’t be any semi-conductor manufacturing low-wage jobs there. No one says out loud that if the heavy equipment used to manufacture washing machines isn’t shipped to Mexico, there won’t be washing machine plants in Mexico. Economists of all stripes applauded the hollowing out of US industry on the absurd theory that the benefits to some outweighed the costs to society, assuming, of course, that there are economists who think about the interests of society beyond money. Neoliberal policies, specifically the massive support for unrestrained movement of physical, intellectual and money capital, produced the current state of the US economy.

Certainly, restraints on free movement of capital might not have permanently insured that these jobs remained in the US. But the central lesson we learn from Karl Polanyi’s The Great Transformation is that the pace of change is of crucial importance. See p. 39. The sudden and massive changes in the US economy have produced unnecessary misery, just as the Industrial Revolution did in the early 1800s in England. Whatever benefits there are in cheap foreign labor haven’t gone to the working class in the US, or even to most of the middle class. A government that cared about human beings would have acted to slow down change so society could protect itself. But we had Reagan and a crowd of crappy Democrats.

All this not only explains why people are so angry at both parties, it answers a basic question: why don’t the poorest among us vote? These are the people who benefit from the scraps of safety net left after years of efforts by neoliberals of both parties to destroy it. This is from the NYT:

While Mr. Bevin did not win Louisville, a Democratic stronghold, Mr. Conway did not win by nearly as big a margin here as Democrats usually do. William Benton, a Family Health Centers patient who voted for Mr. Conway, said he was not an inspiring candidate even for committed Democrats.

“A lot of people felt really justified not voting,” said Mr. Benton, a musician and part-time bakery worker who signed up for Medicaid this month to get help for his depression.

Not inspiring? That barely begins to describe a Democratic Party supporting neoliberalism at the expense of poor and the middle class.

The Great Transformation Part 1: The Market

The Great Transformation by Karl Polanyi opens with a discussion of the changes in industrial societies in the 1920-30, which he says wiped out the social structures of the 19th Century. His explanation of that change begins with a history of markets, and their role in creating what he calls the market society. In mainstream economic theory, there is no definition of the term market, as I discuss here. I found a definition of market economy in Economics by Samuelson and Nordhaus, 2005 ed. p. 26.

A market economy is an elaborate mechanism for coordinating people, activities, and businesses through a system of prices and markets. It is a communication device for pooling the knowledge and actions of billions of diverse individuals. P. 26.

This is obviously not an analytical definition. I argue here that it means that a market economy is any economy except a command and control economy.

Polanyi takes a completely different tack in defining the term market. He begins with a discussion of the way economies functioned in the earliest societies. Production and distribution of goods, he says, are based on three different schemes. In some societies, all production from hunters and gatherers is shared as needed, a principle of reciprocity. In some, all such production is given to one person, a headman or a chief, whose responsibility it is to distribute them properly, a principle that Polanyi calls redistribution. The third principle is householding. In these societies, the basic unit of production is the household which may be as small as an extended family or much bigger. Each household is responsible for providing itself with its needs. In each society, the motives of production and of exchange of products are different, and each shares some facets of each of these three principles. Here’s Polanyi:

Broadly, the proposition holds that all economic systems known to us up to the end of feudalism in Western Europe were organized either on the principle of reciprocity or redistribution, or householding, or some combination of the three. These principles were institutionalized with the help of a social organization which, inter alia, made use of the patterns of symmetry, centricity, and autarchy. In this framework, the orderly production and distribution of goods was secured through a great variety of individual motives disciplined by general principles of behavior. Among thee motives gain was not prominent. Custom and law, magic and religion cooperated in inducing the individual to comply with rules of behavior which, eventually, ensured his functioning in the economic system. P. 57

Polanyi says that Aristotle drew a distinction between householding and production for gain. The household produced for its own needs. When production exceeded its needs either accidentally or purposefully, it sold the remainder for money to buy things it could not produce. Aristotle and Polanyi do not see this as a movement away from the basic system of householding, so long as the excess production could otherwise have been used by the household.

The genius of Aristotle is his recognition that the sale of the excess was motivated by a search for gain, not by the relations inherent in the society itself or in any household. Inside the groups, the basis of exchange remains what it was before, such as distribution by the head of the household. But gain was the primary motive for activity in the open markets. Here’s Polanyi on this difference:

In denouncing the principle of production for gain as boundless and limitless, “as not natural to man,” Aristotle was, in effect, aiming at the crucial point, namely, the divorce of the economic motive from all concrete social relationships which would by their very nature set a limit to that motive. P. 57.

It’s here we find Polanyi’s definition of the term “market”:

A market is a meeting place for the purpose of barter or buying and selling. P. 59

Polanyi explains that standard economics is based on some other understanding of the term markets, and that his research shows that the facts contradict every element of the standard definition and the role of markets in society before Mercantilism took over.

The reasons are simple. Markets are not institutions functioning mainly within an economy, but without. They are meeting place of long-distance trade. Local markets proper are of little consequence. Moreover, neither long-distance nor local markets are essentially competitive, and consequently there is, in either case, but little pressure to create territorial trade, a so-called internal or national market. Every one of these assertions strikes at some axiomatically held assumption of the classical economists, yet they follow closely from the facts as they appear in the light of modern research. P. 61

He goes on to show that as markets began to form, society began to regulate and control them. In some societies, the tools were custom and ritual. In larger societies, governments took over control, along with other institutions.

Polanyi says that markets are not part of a society, but outside it. Societies impose controls to protect themselves from these intruders.

As a side note, this simple definition coupled with the discussion of social control fits pretty well with my definition, and with my motivation for the definition, which is set out in that post. Perhaps that explains why I like this book.

A market is the set of social arrangements under which people buy and sell specific goods and services at a specific point in time.

Social arrangements means all of the things that constrain and organize human action, including laws, regulations, social expectations, conventions, and standards, whether created or enforced by governments, institutions or local traditions.

This summary of the early history of markets in The Great Transformation gives, I hope, a good sense of the basis of Polanyi’s argument. It differs from the standard economics version, where markets arose spontaneously out of people’s general love of truck and barter, and the introduction of coinage to ease the problems of different levels of value. There are substantive criticisms of Polanyi’s history, one of which was suggested by commenter Alan: The Reproving of Karl Polanyi, Santhi Hejeebu; Deirdre McCloskey Critical Review; Summer 1999, I’ll discuss some of the criticisms, but for now let’s take time to think about this alternative history. We know a lot of the support for neoliberalism arises from the story of the evolution of the market system in what seems to be a natural and inexorable process from the earliest times to the present. It makes it seem so natural, so obviously human and desirable. Polanyi asks us to consider this simple question: What if standard economic history is just plain wrong?

Mankiw’s Tenth Principle: Society Faces A Short-Run Trade-off Between Inflation and Unemployment

The introduction to this series is here.
Part 1 is here.
Part 2 is here.
Part 3 is here.
Part 4 is here.
Part 5 is here.
Part 6 is here.
Part 7 is here.
Part 8 is here.
Part 9 is here.

Mankiw’s tenth principle of economics is: Society faces a short-run trade-off between inflation and unemployment. He admits that this is more controversial among economists than his other principles. He says that most believe this explanation:

  • Increasing the amount of money in the economy stimulates the overall level of spending and thus the demand for goods and services.
  • Higher demand may over time cause firms to raise their prices, but in the meantime, it also encourages them to hire more workers and produce a larger quantity of goods and services.
  • More hiring means lower unemployment.

This line of reasoning leads to one final economy-wide trade-off: a short-run trade-off between inflation and unemployment.

This gives economic policy-makers a tool for influencing economic trends. “By changing the amount of money it prints”, says Mankiw, government can put more or less money into the economy, and thus influence unemployment, at least in the short run. The Great Crash of 2008 is an example. Mankiw explains that it was caused by “bad bets on the housing market”, and led to high unemployment and lower incomes. The Obama administration responded with a stimulus package of spending and tax cuts, and the Fed increased the amount of money in the economy, in an effort to reduce unemployment. He adds: “Some feared, however, that these policies might over time lead to an excessive level of inflation.”

The frightened people were, of course, proven absolutely wrong, though they won the policy argument with the imposition of the Sequester. The stimulus package was too small, though at least it more or less happened, and of course spending on the military increased, which helped, though it would have been nice to have something for the money besides the worthless F-35. This discussion is fleshed out beginning at about page 490 (in the 6th Ed.) with a long discussion of the Phillips Curve. This Wikipedia entry is at least cheaper than buying Mankiw’s book. for those not familiar with the subject.

This isn’t so much a principle in the sense of an axiom as it is a theorem, worked up from axioms. The source of the idea is a 1958 paper by William Phillips, showing an historical correlation between inflation and unemployment in the UK, and extended to US data by Paul Samuelson and Robert Solow. The correlation and the explanation worked together to persuade people that both the grounds of explanation and the relationship were more or less permanent features of the economy. The ideas behind the explanation are neoclassical, so the correlation served to validate those neoclassical ideas.

Recently the Wall Street Journal published an essay by Ben Leubsdorf discussing the current understanding of the Phillips Curve debate: The Fed Has a Theory. Trouble Is, the Proof Is Patchy. [Paywall]. Jared Bernstein discusses it in this post and links to this New York Times post; both are worth reading to see just how unhinged we are from the simple explanation offered by Mankiw. This chart is from the WSJ article.

Phillips Curve Chart 3

To read the chart, select an expansion, find the line in that color, and look for the circle, which is the beginning of the period. Then follow the line as it moves showing the changes in inflation (y-axis) and unemployment (x-axis). Here’s Leubsdorf’s explanation:

But the simple link between U.S. unemployment and inflation described by the Phillips curve appeared to break down after the 1960s. High inflation coexisted with high unemployment in the 1970s. In the 1990s, the jobless rate fell as price pressures weakened. Over the past three years, inflation has declined despite a falling jobless rate.

Mankiw says there is dispute among economists about this, and Leubsdorf confirms that. He says that a recent WSJ survey found that 2/3 of economists “believed that the link exists.” Here’s a quote from a believer, Atlanta Fed President Dennis Lockhart.

“In the absence of direct evidence that inflation is in fact converging to the target and in the absence of compelling or convincing direct evidence, I think a policy maker has to act on the view that the basic relationship in the Phillips curve between inflation and employment will assert itself in a reasonable period of time as the economy tightens up ….

Economists are fully aware of the problems with the Phillips Curve, and there are plenty of attempts to make it better. This is from the conclusion of an April 2015 Working Paper by Laurence Ball and Sandeep Mazumder of the International Fund:

One of Mankiw’s (2014) ten principles of economics is, “Society faces a short-run tradeoff between inflation and unemployment.” This tradeoff, the Phillips curve, is critically important for monetary policy and for forecasting inflation. It would be extraordinarily useful to discover a specification of the Phillips curve that fits the data reliably. Unfortunately, researchers have repeatedly needed to modify the Phillips curve to fit new data. Friedman added expected inflation to the Samuelson-Solow specification.

Subsequent authors have added supply shocks (Gordon, 1982), time-variation in the Phillips-curve slope(Ball et al., 1988), and time-variation in the natural rate of unemployment (Staiger et al.,1997). Each modification helped explain past data, but, as Stock and Watson (2010) observe, the history of the Phillips curve “is one of apparently stable relationships falling apart upon publication.” Ball and Mazumder (2011) is a poignant example.

Even today people are looking for a way to find something useful in past data to predict future outcomes. As Leubsdorf noted, the Fed is using some version of this curve in deciding when to raise interest rates.

So, how does this fit with neoliberalism? One of the goals of neoliberal economics is the protection of established wealth. Inflation erodes wealth. Returns to capital may or may not keep up with inflation, depending on the strength of labor and other factors of production. Debtors are able to repay their debt in less valuable dollars, which erodes the assets of creditors. If the increased returns are less than the erosion, wealth suffers. As we have seen in the wake of the Great Crash, the governing power structure of neoliberalism demands that capital be protected whether in the form of equity or debt. This principle tells policy makers to put people out of work rather than suffer inflation.

The Fed follows this principle. This is a chart of the labor share of income.
labor share 1
The gray vertical bars are recessions. The chart shows that as the labor share rises, we get a recession. The following chart shows bank prime rates.
Bank Prime Rate
As interest rates rise, we get recessions. With the exception of the recession that followed the Great Crash, it’s fair to say that all of these recessions were engineered by the Fed because of inflation or fear of inflation.

The implications are fascinating. Before the Great Crash, almost all US money was created by bank lending and credit expansion. Mankiw’s Principle No. 9 tells us that when too much money is created, we get inflation. The Phillips Curve tells the Fed it has to raise interest rates to stem inflation, and that it does so at the cost of putting people out of jobs. So, businesses lend and borrow too much, creating inflation or fear of inflation, and to solve the problem created by the failure of capitalists, the Fed makes sure only the working people pay the price, by losing their livelihoods, and lately, by watching their incomes stagnate or drop. And that is the outcome of applying Mankiw’s Principles of Economics: damaging workers to protect the rich.

Revolutionary Changes in Economics

In this series, I tried to learn what Thomas Kuhn’s The Structure of Scientific Revolutions meant for economics. In this post, I suggested a possible paradigm for neoliberal economic theory. It uses the Ten Principles of Economics preached by N. Gregory Mankiw in his best-selling economics textbook, the general principle of maximization of economic efficiency, and a method suggested by David Andolfatto of the St. Louis Fed. Let’s assume the goals of neoliberalism fit the parameters described by Philip Mirowski in this article. I think my proposed paradigm can be used to generate the economic theory those parameters require, and I think that suits the goals of the people who fund academic neoliberalism just fine.

As Kuhn describes them, scientific revolutions take the form of a wholly new way to look at things, like an optical illusion. Where once our eyes told us that the sun revolves around the earth, now we know that it’s just the opposite. Not just is the earth not the center of the universe, we are on a small planet on the outskirts of a small galaxy, whirling around in a monstrously large physical space until entropy ends it. Since publication of Kuhn’s essay in 1962, there has been some discussion of such paradigm changes in economics, but as the series shows, I think old ideas do not die, but come back to haunt us, just as John Maynard Keynes said:

… the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil. Chap. 24 Sect. 5, The General Theory of Employment, Interest and Money.

I don’t know where Keynes got the optimism in the second half of that quote, any more than his seeming optimism about the end of laissez-faire theories. The ideas of Hayek and Friedman and their laissez-faire government-hating chest-beating right wing capitalism-worshipping true believers are still dominant nearly a century later. It just goes to show that if you capture the minds of the young, especially the young elites with textbooks like Mankiw’s, it’s mostly impossible to change their minds with mere facts and natural experiments from the real world.

Still, I think it’s quite possible to change some minds, or I wouldn’t bother with this. And there are new ideas, ideas just as revolutionary as any that Kuhn describes. One example is taxation. For centuries, people believed that the function of taxes was to provide the revenues to run the government. That may have been true in an age of gold. But in an age of fiat money, it’s just not true. Here’s a 1946 discussion by Beardsley Ruml, head of the New York Fed, explicitly stating this truth, and then offering justifications for taxation:

1. As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;
2. To express public policy in the distribution of wealth and of income, as in the case of the progressive income and estate taxes;
3. To express public policy in subsidizing or in penalizing various industries and economic groups;
4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.

This, of course, is the basis of Modern Money Theory. Here’s a quote from a readable and cogent explanation from L. Randall Wray:

But in the case of a government that issues its own sovereign currency without a promise to convert at a fixed value to gold or foreign currency (that is, the government “floats” its currency), we need to think about the role of taxes in an entirely different way. Taxes are not needed to “pay for” government spending. Further, the logic is reversed: government must spend (or lend) the currency into the economy before taxpayers can pay taxes in the form of the currency. Spend first, tax later is the logical sequence.

In the same way, most of us were taught that banks and other savings institutions were intermediaries between savers/depositors, and borrowers/investors. The role of the banks was to direct the accumulated assets of a society into their most profitable uses. No. Banks don’t need deposits to make loans. That idea, which I remember learning in Econ 101 at Notre Dame a very long time ago, is false. The bank merely makes book entries, one set to loans receivable, and one to deposits. This model is called finance and money creation in this 2014 paper by Zoltan jakab and Michael Kuhof of the IMF. Here’s the abstract:

In the loanable funds model of banking, banks accept deposits of resources from savers and then lend them to borrowers. In the real world, banks provide financing, that is they create deposits of new money through lending, and in doing so are mainly constrained by expectations of profitability and solvency. This paper presents and contrasts simple loanable funds and financing models of banking. Compared to otherwise identical loanable funds models, and following identical shocks, financing models predict changes in bank lending that are far larger, happen much faster, and have much larger effects on the real economy.

I remember learning about bank multiplier effects and the importance of reserves in determining the amount of money in circulation. It was one of those bizarre things that seemed logical until you realized that there was no particular reason to think any bank could or would actually lend all that money sensibly. Yet, as Jakob and Kuhof say, that is the theory incorporated into standard models of the economy. They create a new model using the financing theory, and get completely different predictions. These graphs are from the paper. The dotted lines are the predictions under the loanable funds model, and the solid lines are from the financing and money creation model.

graphs for post

At one level, this is just another reason to distrust economic models, because their basic assumptions are simply wrong. At another, it demonstrates that the standard paradigm is useless, because it treats the finance sector are irrelevant. And at another level, the new model demolishes the idea that the role of the bank is to intermediate savings. Savings are irrelevant to the main role of the bank, which is not to insure that savings are rewarded, but to make sure banks are rewarded.

Of course, such revolutionary changes won’t affect anyone not exposed to them and to their basis. And the wrong ideas will stay in textbooks for decades, insuring that generations will have them imprinted. No wonder nothing changes.

The proposed paradigm is set out here. In future posts in this series, I’ll attempt to show how each element contributes to the neoliberal economic theory that dominates the national discourse, and see whether I can find an optical illusion in each, leading to a better although not revolutionary understanding.

Neoliberal Markets Deliver for the Rich

This is a cross-post with some modifications from Naked Capitalism.

It is a truth universally acknowledged by all good citizens that markets are the only way to organize a society. The implication is that the role of government is to support and protect the operations of markets, and little else. I’ve been looking at this in a series of posts here; you can find them on my author page. It turns out that the claims about markets reach back to neoclassical analysis by William Stanley Jevons, and mirrored by other neoclassical writers. In his book The Theory of Political Economy, available online here, Jevons claims to prove that markets maximize utility for all participants. Economists generally, and especially neoliberal economists, take that proof at face value and have exalted it into a principle for the organization of society. The proof doesn’t stand up to close examination.

Jevons restricts his efforts to what we would identify as a perfectly competitive market. He defines utility using the definition of Jeremy Bentham:

”By utility is meant that property in any object, whereby it tends to produce benefit, advantage, pleasure, good, or happiness (all this, in the present case, comes to the same thing), or (what comes again to the same thing) to prevent the happening of mischief, pain, evil, or unhappiness to the party whose interest is considered.”

This perfectly expresses the meaning of the word in Economics, provided that the will or inclination of the person immediately concerned is taken as the sole criterion, for the time, of what is or is not useful. III. 2,3, my emphasis.

He uses these definitions to prove that in a perfect market with no constraints people will trade in commodities until any further trades would reduce their personal total utility. That is all there is to the proof for the superiority of markets.

Now whatever the case may have been in the second half of the 19th Century when Jevons wrote, it’s ludicrous to suggest that all markets are competitive. It’s doubtful that many markets for specific goods and services would meet Jevons’ definition.

I examine the definition of utility in this post, following Philip Mirowski. It turns out that the math produces nonsense results. This is known to economists, but ignored. Samuelson and Nordhaus in their basic economics textbook, Economics (2005 ed.) just tell their readers that utility is a “scientific construct”, not something subject to measurement or observation. They don’t seem to see the oddity of using a term in general use for a completely different purpose. They seem equally indifferent to the oddity of the basic assumption that each of us would know what would improve our total utility if we had an infinitesimal increase of money. Despite the best efforts of decades of economists, the proof for the theory of the superiority of markets hasn’t been improved.

Jevons thought that the only valid proofs were mathematical, but there are other ways to derive correct answers. For example, there is little math in Keynes’ General Theory, and it has held up quite well, better than the infallibility of markets. Perhaps there is something behind Jevons’ argument that would support his claim that markets are superior to other ways of allocating resources.

In this post I look at several definitions of markets. The thing that leaps out is that they are all based on point transactions: each takes place at a specific time and place, and has nothing in common with the next transaction at the same place, or at some other place or at some other instant. If two people are buying something at the same time in different places, there is no connection. The information in any specific transaction only involves the parties to the transaction. Their motives, the benefits they seek, and the satisfactions or lack of satisfactions, are known only to them. Nothing about the last transaction tells anyone or anything about the future.

And Jevons doesn’t claim anything to the contrary. Here’s how he describes his result:

But so far as is consistent with the inequality of wealth in every community, all commodities are distributed by exchange so as to produce the maximum of benefit. Every person whose wish for a certain thing exceeds his wish for other things, acquires what he wants provided he can make a sufficient sacrifice in other respects. IV.98

Jevons concludes that markets facilitate the distribution of commodities (which he defines to include services) from moment to moment. He makes no claims about the future. And he specifically acknowledges that the answers he gets from his markets will give benefit the richest most, and the poorer you are, the worse your outcome. In Jevons’ conception, money rules, and the rich get what they want. None of the other definitions offers any other outcome.

There is always someone with a system for beating the stock market. Some are technical analysts, who talk of resistance levels, support levels and such; here’s an interesting example discussing oil prices. But there isn’t any reason to think this is more than throwing darts. So, believe if you want to. The plain fact is that no analysis predicts the future, and neither do markets.

The proponents of market theory tell us that out of this disconnected series of point transactions, we get the perfect allocation of resources for any situation. Problems with air pollution? Drought? Peak oil? Health care? Answer: Markets.

How is that supposed to happen? Even for Jevons markets are the wrong answer. He would agree that the rich get clean air, water, oil and health care, and the rest of us don’t. Let’s put this to the test. California is experiencing a horrible drought. In response, business interests are busy sucking up the ground water and using it for agriculture and for fracking. If nothing changes we can expect an Easter Island outcome, and it won’t matter which is the main cause, as Gaius Publius explains at Digby. Do you really want decisions about the future of California made by markets in water, as this guy at Forbes wants from his home in Portugal or his armchair theorists in the comment section?

We already have a method for organizing ourselves other than the market. It’s called government. The theory was was that the majority of voters would run government, but the “marketplace of ideas” has been overwhelmed by huge piles of money devoted to obfuscation and lies and clutter that makes it impossible to think rationally, and power is controlled by the people we want government to control. But when it comes to planning for a future, government is the only way non-rich people can play a part in deciding whether or how to prevent the disasters staring us in the face, including water vultures.