Economic Fundamentalism

We saw last time that the goal of Chicago School free market economics was to promote “noncontaminated capitalism,” which in turn would generate societal economic utopia:

“The market, left to its own devices, would create just the right number of products at precisely the right prices, produced by workers at just the right wages to buy those products — an Eden of plentiful employment, boundless creativity and zero inflation.”

The Shock Doctrine:  The Rise of Disaster Capitalism, Naomi Klein (2017)

To the School’s free market advocates, these ideas were pure science:

“The starting premise is that the free market is a perfect scientific system, one in which individuals, acting on their own self-interested desires, create the maximum benefits for all. If follows ineluctably that if something is wrong with a free-market economy — high inflation or soaring unemployment — it has to be because the market is not truly free.”

The Shock Doctrine

Scientific method requires that theories be falsifiable:  you have to be able to objectively prove them wrong.

“The philosopher Karl Popper argued that what distinguishes a scientific theory from pseudoscience and pure metaphysics is the possibility that it might be falsified on exposure to empirical data. In other words, a theory is scientific if it has the potential to be proved wrong.”

But Is It Science? Aeon Magazine, Oct. 7, 2019.

But how do you prove an economic theory based on “uncontaminated capitalism” in an economically contaminated world?

“The challenge for Friedman and his colleagues was not to prove that a real work market could live up to their rapturous imaginings…. Friedman could not point to any living economy that proved if all ‘distortions’ were stripped away, what would be left would be a society in perfect health and bounteous, since no country in the world met the criteria for perfect laissez-faire. Unable to test their theories in central banks and ministries of trade, Friedman and his colleagues had to settle for elaborate and ingenious mathematical equations and computer models.”

The Shock Doctrine

Mathematical equations and computer models aren’t the same as empirical data collected in the real (“contaminated”) world. If falsifiability is what separates scientific knowledge from belief-based ideology, then Friedman’s free market theory is the latter. Some scientists are worried that this spin on scientific theorizing has become too prevalent nowadays:

 “In our post-truth age of casual lies, fake news and alternative facts, society is under extraordinary pressure from those pushing potentially dangerous antiscientific propaganda – ranging from climate-change denial to the anti-vaxxer movement to homeopathic medicines. I, for one, prefer a science that is rational and based on evidence, a science that is concerned with theories and empirical facts, a science that promotes the search for truth, no matter how transient or contingent. I prefer a science that does not readily admit theories so vague and slippery that empirical tests are either impossible or they mean absolutely nothing at all…. For me at least, there has to be a difference between science and pseudoscience; between science and pure metaphysics, or just plain ordinary bullshit.”

But Is It Science?

The Chicago School believed so ardently in the free market theory that its instructional approach took on the dynamics of belief-based indoctrination:

“Frank Knight, one of the founders of Chicago School economics, thought professors should ‘inculcate’ in their students the belief that economic belief is ‘a sacred feature of the system,’ not a debatable hypothesis.’”

The Shock Doctrine

This dynamic applies to every ideology that can’t be falsified — verified empirically. The ideology then becomes a fundamentalist belief system:

“Like all fundamentalist faiths, Chicago School economics is, for its true believers a closed loop. The Chicago solution is always the same:  a stricter and more complete application of the fundamentals.:

The Shock Doctrine

Journalist Chris Hedges describes the dynamics of “secular fundamentalism” in I Don’t Believe in Atheists. (The book’s title is too clever for its own good — a later version adds the subtitle “The Dangerous Rise of the Secular Fundamentalist.”)

“Fundamentalism is a mind-set. The iconography and language it employs can be either religious or secular or both, but because it dismisses all alternative viewpoints as inferior and unworthy of consideration it is anti-thought. This is part of its attraction. It fills a human desire for self-importance, for hope and the dream of finally attaining paradise. It creates a binary world of absolutes, of good and evil. It provides a comforting emotional certitude. It is used to elevate our cultural, social, and economic systems above others…. The core belief systems of these secular and religious antagonists are identical.”

Thus we have Nobel prize-winning economist Milton Friedman famously saying, “Underlying most arguments against the free market is a lack of belief in freedom itself” — a statement entirely in keeping with the Mont Pelerin  Society’s idealistic Statement of Aims, which we looked at last time.

And thus we also have Nobel prize-winning economist Joseph Stiglitz countering with his thoughts about economics in a contaminated (“pathological”) world:

“The advocates of free markets in all their versions say that crises are rare events, though they have been happening with increasing frequency as we change the rules to reflect beliefs in perfect markets. I would argue that economists, like doctors, have much to learn from pathology. We see more clearly in these unusual events how the economy really functions. In the aftermath of the Great Depression, a peculiar doctrine came to be accepted, the so-called ‘neoclassical synthesis.’ It argued that once markets were restored to full employment, neoclassical principles would apply. The economy would be efficient. We should be clear: this was not a theorem but a religious belief.”

As we also saw last time, historical socialism and communism join free market capitalism in their fundamentalist zeal. In fact, some think that economics in general has become today’s dominant cultural form of belief-based thinking. More on that next time.

The Free Market and the New Socialism

Mont Perlerin

The historic Mont Pelerin castle/hotel.

In 1947, economists  Friedrich HayekFrank KnightKarl PopperLudwig von MisesGeorge Stigler and Milton Friedman convened the Mont Pelerin Society in a castle/hotel overlooking Lake Geneva, with the express intent of displacing the Keynesian economic model that prescribed government intervention and spending to pull America out of the Great Depression and install the New Deal. The Society’s founding Statement of Aims is forcefully idealistic:

“The central values of civilization are in danger.  Over large stretches of the Earth’s surface the essential conditions of human dignity and freedom have already disappeared.  In others they are under constant menace from the development of current tendencies of policy.  The position of the individual and the voluntary group are progressively undermined by extensions of arbitrary power.  Even that most precious possession of Western Man, freedom of thought and expression, is threatened by the spread of creeds which, claiming the privilege of tolerance when in the position of a minority, seek only to establish a position of power in which they can suppress and obliterate all views but their own.”

The Statement goes on to carefully position the Society’s purpose as fostering intellectual inquiry, not the advancement of a new economic “orthodoxy.” In time, however, Milton Friedman did precisely that, championing capitalist free market economics through the Chicago School of Economics.

“The core of [the school’s teaching on the free market] was that the economic forces of supply, demand, inflation and unemployment were like the forces of nature, fixed and unchanging. In the truly free market imagined in Chicago classes and texts, these forces existed in perfect equilibrium, supply communicating with demand the way the moon pulls the tides

“Just as ecosystems self-regulate, keeping themselves in balance, the market, left to its own devices, would create just the right number of products at precisely the right prices, produced by workers at just the right wages to buy those products — an Eden of plentiful employment, boundless creativity and zero inflation.

“For this reason, Chicagoans did not see Marxism as their true enemy. The real source of the trouble was to be found in the ideas of Keynesians in the United States, the social democrats in Europe, and developmentalists in what was then called the Third World. These were believers not in a utopia but in a mixed economy, to Chicago eyes an ugly hodgepodge of capitalism for the manufacture and distribution of consumer products, socialism in education, state ownership for essentials like water service, and all kinds of law designed to temper the extremes of capitalism.

“The Chicagoans declared war  of those mix-and-match economists. What they wanted was not a revolutions exactly but a capitalists Reformation:  a return to uncontaminated capitalism.”

The Shock Doctrine:  The Rise of Disaster Capitalism, Naomi Klein (2017)

Compare that vision to that of the Democratic Socialists of America we met last time, whose Constitution unreservedly advances their own counter-orthodoxy:

“We are socialists because we reject an economic order based on private profit, alienated labor, gross inequalities of wealth and power, discrimination based on race, sex, sexual orientation, gender expression, disability status, age, religion, and national origin, and brutality and violence in defense of the status quo. We are socialists because we share a vision of a humane social order based on popular control of resources and production, economic planning, equitable distribution, feminism, racial equality and non-oppressive relationships. We are socialists because we are developing a concrete strategy for achieving that vision, for building a majority movement that will make democratic socialism a reality in America. “

Thus the free market and socialism champions have planted their flags at the poles of the economic ideological spectrum. In between, however, are those whose perspective and goals are more immediate and  pragmatic, such as greater economic equality, improved public access to healthcare (see endnote below[1]) and education unencumbered with government-financed debt.

“Socialism historically has been associated with the concept of public or collective ownership of property and natural resources and has long been associated with Marxism and communism. In 1949, with the Chinese Communists just having taken control of China, and with the Communist Soviet Union creating fear of an aggressive effort to spread their ideology around the globe, Americans’ view of the term embraced the classic elements bound up in these types of movements.

“Now, almost 70 years later, Americans’ views of socialism have broadened. While many still view socialism as government control of the economy, as modified communism and as embodying restrictions on freedoms in several ways, an increased percentage see it as representing equality and government provision of benefits.”

The Meaning of “Socialism” to Americans Today, Gallup Polling Matters (Oct. 4, 2018)

Meanwhile, Millennials’ interest in this more temperate version of socialism is increasingly putting their free market elders in an awkward position:

“Perhaps the most significant thing about the rise of millennial socialism in the US is that it is forcing conservatives to articulate what exactly is so bad about a more equal system – often with results that are beyond parody.

“A writer for the ultra-conservative website the Daily Caller, for example, recently attended an Ocasio-Cortez rally and reported, completely straight-faced: “I saw something truly terrifying. I saw just how easy it would be … as a parent, to accept the idea that my children deserve healthcare and education.

“Kids deserving healthcare, imagine that! It’s a slippery slope, it really is.”

Socialism Is No Longer A Dirty Word In The US – And That’s Scary For Some, The Guardian (July 29, 2018)

What is going on, that a parent would say something like that? Digging deeper reveals a dynamic at work that is more powerful than a generation gap, polarized ideologies, or campaign issues such as healthcare. We’ll look into that next time.

[1] For those leaning toward socialism’s new version, the leading issue is healthcare. See also these Gallup survey results announced November 12, 2019:  “More than 13% of American adults — or about 34 million people — report knowing of at least one friend or family member in the past five years who died after not receiving needed medical treatment because they were unable to pay for it… Dovetailing with these results is a rising percentage of adults who report not having had enough money in the past 12 months to ‘pay for needed medicine or drugs that a doctor prescribed’ to them. This percentage has increased significantly, from 18.9% in January 2019 to 22.9% in September. In all, the 22.9% represents about 58 million adults.”

Brave New (Jobs) World

“The American work environment is rapidly changing.
For better or worse, the days of the conventional full-time job
may be numbered.”

The above quote is from a December 5, 2016 Quartz article that reported the findings of economists Lawrence Katz (Harvard) and Alan Krueger (Princeton, former chairman of the White House Council of Economic Advisers) that 94% of all US jobs created between 2005 to 2015 were temporary, “alternative work” — with the biggest increases coming from freelancers, independent contractors, and contract employees (who work at a business but are paid by an outside firm).

These findings are consistent with what we looked at last time:  how neoliberal economics has eroded institutional support for the conventional notion of working for a living, resulting in a more individuated approach to the job market. Aeon Magazine recently offered an essay on this topic:  The Quitting Economy:  When employees are treated as short-term assets, they reinvent themselves as marketable goods, always ready to quit. Here are some samples:

“In the early 1990s, career advice in the United States changed. A new social philosophy, neoliberalism, was transforming society, including the nature of employment, and career counsellors and business writers had to respond. (Emphasis added.)

“US economic intellectuals raced to implement the ultra-individualist ideals of Friedrich Hayek, Milton Friedman and other members of the Mont Pelerin Society…In doing so… they developed a metaphor – that every person should think of herself as a business, the CEO of Me, Inc. The metaphor took off, and has had profound implications for how workplaces are run, how people understand their jobs, and how they plan careers, which increasingly revolve around quitting.

“The CEO of Me, Inc. is a job-quitter for a good reason – the business world has come to agree with Hayek that market value is the best measure of value. As a consequence, a career means a string of jobs at different companies. So workers respond in kind, thinking about how to shape their career in a world where you can expect so little from employers. In a society where market rules rule, the only way for an employee to know her value is to look for another job and, if she finds one, usually to quit.”

I.e., tooting your own résumé horn is no longer not so much about who you worked for, but what you did while you were there. And once you’re finished, don’t get comfortable, get moving. (This recent Time/Money article offers help for creating your new mobility résumé.)

A couple years ago I blogged here about a new form of law firm entirely staffed by contract attorneys. A quick Google search revealed that the trend toward lawyer “alternative” staffing has been gaining momentum. For example:

This May 26, 2017 Above the Law article reported a robust market for more conventional associate openings and lateral partner hires, but included this caveat:

“The one trend that we see continue to stick is the importance of the personal brand over the law firm brand, and that means that every attorney should really focus on how they differentiate themselves from the pack, regardless of where they hang their shingle.”

Upwork offers “Freelance Lawyer Jobs.” “Looking to hire faster and more affordably?” their website asks. “ Tackle your next Contract Law project with Upwork – the top freelancing website.”

Flexwork offers “Flexible & Telecommuting Attorney Jobs.”

Indeed posts “Remote Contract Attorney Jobs.”

And on it goes. Whether you’re hiring or looking to be hired, you do well to be schooled in the Brave New World of “alternative” jobs. For a further introduction, check out these articles on the “Gig Economy” from Investopedia and McKinsey. For more depth, see:

The Shift:  The Future of Work is Already Here (2011), by Lynda Gratton, Professor of Management Practice at London Business School, where she directs the program “Human Resource Strategy in Transforming Companies.”

Down and Out in the New Economy: How People Find (or Don’t Find) Work Today (2017), by University of Indiana Anthropology Professor LLana Gershon — the author of the Aeon article quoted above.

Next time, we’ll begin looking at three major non-human players in the new job marketplace:  artificial intelligence, big data, and robotics. They’re big, they’re bad, and they’re already elbowing their way into jobs long considered “safe.”

Whatever Happened to Working For a Living?

“Politically, every transformation has begun
with a repudiation of the certainties of the previous age.”

– Economist Guy Standing

Guy Standing is a research professor at the University of London and a prolific author and world-traveling speaker. In his book, The Corruption of Capitalism (2016), he analyzes how the concept of working for a living has fared under the two economic models we looked at last time (the Fabian Society’s social democratic model and the Mt. Pelerin Society’s free market). I can add little to his analysis by rephrasing it, therefore I’ll quote excerpts at length in this post and the next.

“The period from the nineteenth century to the 1970’s saw what Karl Polanyi, in his famous 1944 book, dubbed “The Great Transformation” — the construction of national market economies.

“[T]he model that underpinned the Great Transformation made “labour,” not all forms of work. Socialists, communists and social democrats all subscribed to ‘labourism.’ Those in full-time jobs obtained rising real wages, a growing array of ‘contributory’ non-wage benefits, and  entitlements to social security for themselves and their family. Those who did not fit this model were left behind.

“The essence of labourism was that labour rights — more correctly , entitlements — should be provided to those (mostly men) who performed labour and to their spouses and children. As workers previously had little security, this was a progressive step.

“Labourism promoted the view that the more labour people did, the more privileged they should be, and the less they did the less privileged they should be. The ultimate fetishism was Lenin’s dictate, enshrined in the Soviet constitution, that anybody who did not labour should not eat.

“The labourist model frayed in the 1980’s, as labour markets became more flexible and increasing numbers of people moved from job to job and in and out of employment.

“Labour and social democratic parties everywhere became ‘reactionary’ — reacting to events rather than forging the future — and regressive, allowing or even fostering inequality.

“Around 1980 saw the beginnings of a Global Transformation — the construction of a global market system. As with the Great Transformation, the initial phase may be called ‘dis-embedded’ because the emerging economic system rendered old forms of regulation, social protection and redistribution obsolete or ineffectual.

“Politically, every transformation has begun with a repudiation of the certainties of the previous age. This time the attack was on labour-based security, previously the objective of governments  or both left and right. Now it was seen as an impediment to growth. Once again, policy changes were dominated by financial capital. Intellectual justification came from the so-called ‘Chicago school’ of law and economics at the University of Chicago, whose leading lights went on to receive Nobel Prizes. Their agenda, honed in the Mont Pelerin Society set up by Friedrich Hayek and thirty-eight like-minded intellectuals in 1947, evolved into what is now called neo-liberalism.

“This meant the liberalization of markets, the commodification and privatization of everything that could be commodified and privatized and the systematic dismantling of all institutions of social solidarity that protected people from ‘market forces.’ Regulations were justifiable only if they promised economic growth; if not, they had to go.

“As a consequence of these developments, ‘in-work poverty’ has rocketed. In some OECD[i] countries, including Britain, the USA, Spain and Poland, a majority of those in poverty live in households where at least one person has a job. The mantra that ‘work is the best route out of poverty’ is simply false.”

I.e., according to Prof Standing, historical and contemporary adherence to the Fabian and Mt. Pelerin ideals has skewed and will continue to skew the notion of working for a living in ways that are unsustainable in current economic reality.

Ironically, Lenin’s dictum  that “If any man does not work, neither let him eat” was first articulated two thousand years ago by none other than St. Paul. 2 Thessalonians 3:10. Thus the idea of “working for a living” has long persisted as a cornerstone belief in communist, socialist, and capitalist economic theory, giving it nearly universal sacred status. To question this ideal is truly to trample on hallowed ground.

More next time.

[i] The Organization for Economic Cooperation and Development has 34 mainly industrialized countries as members.

Ideas and Economics

quote-ideas-are-more-powerful-than-guns-we-would-not-let-our-enemies-have-guns-why-should-we-let-them-joseph-stalin-268865

Yes, ideas matter. In economics, they matter a lot.

Three key economics ideas have shaped academic debates and national policies about economics for the past 240 years. Communism was the latecomer:  Karl Marx wrote The Communist Manifesto in 1848 and Das Kapital in 1867, and his ideas took their place in the triumvirate in the 20th Century. Meanwhile, Scotsman Adam Smith articulated capitalistic economics in The Wealth of Nations (1776), which subsequently split into two key versions.

The first was championed by the Fabian Society, formed in London in 1884 in part as a counter to the growing interest in Marxism. The Fabians’ ranks included H. G. Wells and  George Bernard Shaw, and their agenda was democratic socialism, which became Europe’s dominant model. The Fabians advocated nationalized industry, centralized banking, and social welfare through “state-protected trade unionism and other state interventions such as social security and unemployment insurance. And [they] did so by claiming that capitalism worsens inequality and exploitation, that it is rife with robber barons and virtueless inheritors.” A History of the Mont Pelerin Society (1996), The Foundation for Economic Education.[1]

The second major version of capitalism got its most significant boost in 1947 when Austrian-British economist and philosopher F. A. Hayek invited a group of intellectuals to meet in Mont Pèlerin, Switzerland to chart the Western world’s recovery from WWII, and specifically to counter Marxism  and Keynesian economics. The group became known as the Mount Pelerin Society. Its original gathering included luminaries such as Hayek, Karl Popper, and Lionel Robbins of the London School of Economics, and Milton Friedman and George Stigler of the University of Chicago. The MPS agenda came to be known as neoliberalism, and advocated private enterprise and limits on government regulation of the kind that — despite the word “liberalism” in its label — have become associated with conservative politics.

in_this_corner_blue_red

Thus the lines between economic ideas were drawn, and debates among them persist to this day. Of the three, Communism’s Soviet version tanked in the late 80’s. but persists in China, albeit in vastly altered form. Meanwhile allegiances to the competing schools of capitalism are today more polarized than ever.

But do any of these models support current realities? A whole new generation of economists don’t think so, and believe it’s time policy-makers heeded some advice articulated by John Maynard Keynes:

johnmaynardkeynes1

Harvard Law professor Lawrence Lessig wrote this in The Future of Ideas:  The Fate of the Commons in a Connected World (2001):

“A time is marked not so much by ideas argued about as by ideas that are taken for granted. The character of an era hangs upon what needs no defense. Power runs with ideas that only the crazy would draw into doubt. The “taken for granted” is the test of sanity, “what everyone knows” is the line between us and them.

“This means that sometimes a society gets stuck. Sometimes these unquestioned ideas interfere, as the cost of questioning becomes too great. In these times, the hardest task for social or political activists is to find a way to get people to wonder again about what we all believe is true. The challenge is to sow doubt.”

Psychologist Scott Barry Kaufman and journalist Carolyn Gregoire expressed a similar sentiment in Wired To Create (2015):

“While experience is an important aspect of excellence in any creative discipline, one risk of being a seasoned pro is that we become so entrenched in our own point of view that we have trouble seeing other solutions. Experts may have trouble being flexible and adapting to change because they are so highly accustomed to seeing things in a particular way. For this reason, the newcomers to a field are sometimes the ones who come up with the ideas that truly innovate and shift paradigms.”

In the coming posts, we’ll examine some of today’s paradigm-shifting economic ideas and their impact on the contemporary working world.

[1] For another excellent review of this history lesson, see The Mont Pèlerin Society: The ultimate neoliberal Trojan horse (2012), The Daily Knell.