Weekend read: Some thoughts on a post-neoliberal project

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from Richard Parker and current issue of RWER

So then what might a project for a Post-Neoliberal Economics entail?  Since I think “neoliberalism” as concept and practice represents one more of an ongoing series of ultimately ad hoc justifications for the hierarchic structuring of human societies, and think that the larger concept of “capitalism” contains already many visibly differentiated stages of its own in that long story of hierarchies, here are several modest ideas I’d propose.

First, to confront what we don’t like about “neoliberalism”, we should start by recognizing what we are facing, which is not just a methodenstreit problem in academic economics.

The World Economic Forum – what a waggish journalist friend, from direct experience, slyly dubbed “neoliberalism’s favorite ski resort” – has for several years now declared climate change and economic inequality the two greatest issues facing humankind.  This is not the language of neoliberalism, circa 1978-2008, at least in its diagnosis.  Davos has then gone on, as prescription, in ways that ignore mainstream economics’ ideas about the centrality to “economic life” based in the logic of competitively efficient choices for individuals and firms, and neoliberals’ “markets-lead-states” conceit, to call for cultivation of “cooperation” and “coordination” across firms, industries, societies, governments and international organizations in order to address the challenges climate change and inequality pose for us all.[1]  It talks of moving the world past carbon, of state-assisted redistribution of income and wealth, of globalized tax policies, of the errors made in the name of free trade, and of the primacy of moral and cultural values that undergird community but are rarely taken up by economists directly or frankly. They do so, moreover, in ways that partially erase the border walls between markets and states.[2]  One can of course dismiss all this as merely “Davos Talk” – as a calculated rhetorical evolution, not a refutation, of neoliberalism – but its concessions contain what amounts to what I think is a rare epochal opening with opportunities that should be taken up by the rest of us. 

It also reminds us of something important: that, like the rest of us, capital-owners and their senior managers form hypotheses and conclusions about our species not just from a narrow definition of self-interest but from their assessment of what they understand signals risks and opportunities of several kinds. A more orthodox economist than I might try (and certainly Chicago economists have tried) to subsume such changes entirely or almost-entirely within “market” economic models but without (and this seems to me to be why neoliberalism is in trouble) real or lasting persuasive success beyond Hyde Park itself.

Climate change, in those sorts of conventional economics terms, even now is still considered an “externalities” problem, to be modeled and solved by “correcting” price signals tied to the production and use of fossil-fuel energy.  What that explanation doesn’t do – among its several weaknesses – is forthrightly ask how “the market system”, whose apex defense is of allocating resources “efficiently”, could have gotten resource extraction costs, goods- producing costs from those resources, and the climate-costs of final consumer prices for those goods so wrong for so long that we now face this crisis. [3]

Explanations are of course offered – but they almost always seem still to turn on the “failure” of institutions and behaviors “outside” the core market-efficiency axioms at the heart of neoclassical thought.

In the matter of “economic inequality”, the issue is somewhat different, and to me is decomposable, nationally and internationally, into three separate but deeply connected subjects that elude useful capture in conventional “economic” terms: the persistence of poverty and the reasons why; the utility for societies as a whole of income and wealth concentration in the 1% – not in any narrow “economic utility” sense but in what I’ve earlier called “democratic efficiency” terms; and finally, the pressing and increasingly politically-charged questions about the future of “the middle majority” (at least in the OECD) who find themselves stretched insecurely between poverty and wealth, questions that are not just about a current membership in the middle quintiles in blackboard terms, but the means – individually and societally – of joining it, the ways of remaining in it, and how to secure its benefits beyond the material.

In all this, there are now two 21^st century landmarks, one empirical, one conceptual.  The first is recognition of China’s quite extraordinary growth achievements since the Cultural Revolution, the second, the arrival of Thomas Piketty and Capital, his allies, their charts and data and their conceptual focus.  Together, they have visibly moved the public conversation (not just in the West) from preoccupation with aggregate growth alone to the challenge of growth’s disaggregated distribution.

What the unexpectedness of “China” and “Piketty” – forgive my shorthand – signal at least to me now given, I’d add, America’s chaotic disarray, is this: that neoliberalism and the larger neoclassical assumptions on which it stands have been overtaken both by the real world and the re-imagined. If true, then our profession’s enduring habit of recasting ontological, epistemic, social-organizational and moral questions into its methodenstreit debates – whether between orthodox marginalists and Keynesians, neo-Keynesians and Rat Exers, Monetarists and Fiscalists, New Classical and New Growth models, etc. – is simply not what’s really before us now.[4]

Second, since we’re not in a methodenstreit moment, we need what amounts to new academic programs

In the university, we need to open up and reorganize our antiquated departmental structures to recognize what’s been happening outside traditional economics departments.   Well before “neoliberalism’s” ascent in the 1970s, mid-century academic economics had largely purged their departmental curriculum of cross-disciplinary topics that it had inherited from 19^th and early 20^th century “political economy”: for example, the close study of legal systems, social relations and institutions, geography and demography, political systems and ideology, and history.  Here or there individual courses might be offered on one or another of these subjects (often by faculty approaching retirement), but in its rush to consolidate the essence of neoclassical assumptions and translate them into a structured “model” that is supposed to be mathematically testable (and in positivist terms, refutable), “economics” after World War II recreated itself into the form we encounter today – impoverished by its lack of attention to those topics and their useful place in economics.

What’s notable today, after the serial disappointments of that postwar economic project, is this: “political economy” is being revived as a legitimate academic discipline, often with its own faculty, research facilities, graduate and undergraduate degrees, and journals.   In the US, Princeton, Harvard, Columbia, Berkeley, Stanford, Duke, Georgetown (and even Jerry Falwell’s evangelical Liberty University) – to name just a few of the best-known – now offer undergraduate and/or graduate programs in “political economy”.  Most, I’d note, exist outside university economics departments – in government or political science or international relations departments, in public policy, law, and business schools or programs, and sociology and history faculties.[5]  (The sheer number and range of such programs can be glimpsed by typing “political economy” and “syllabus” or “program” in any online search engine.)

The degree to which these modern “political economy” programs diverge from economics departments varies. That said, their brightest faculty and best students are clearly up to something like a nascent Protestant rebellion against an ailing but still-regnant Marginalist Church, itself visibly wedded to not just the ideas but the institutions of capitalist economies and their governing elites and structures. Here for example are Neil Fligstein and Steven Vogel, senior faculty in Berkeley’s Political Economy program, writing a month before Donald Trump’s electoral defeat last November, describing what they see as what these new programs offer:

…we are facing a particularly horrifying moment, defined by the triple shock of the Trump presidency, the pandemic, and the economic disasters that followed from it. Perhaps these – if combined with a change in power in the upcoming election – could offer a historic window of opportunity. Perhaps. But seizing the opportunity will require a new kind of political-economic thinking. Instead of starting from a stylized view of how the world ought to work, we should consider what policies have proved effective in different societies experiencing similar challenges. This comparative way of thinking increases the menu of options and may suggest novel solutions to our problems that lie outside the narrow theoretical assumptions of market-fundamentalist neoliberalism.

We know about these possibilities from the work of economic sociologists, who stress the political, cultural, and social embedding of real-world markets. From work in comparative political economy, demonstrating how the relationships between government and industry and among firms, banks, and unions vary from one country to another. From political and economic geographers, who place regional economies in their spatial contexts and natural environments. From economic historians, who explore the transformation of the institutions of capitalism over time. From an emergent Law and Political Economy (LPE) movement that aspires to shift priorities from efficiency to power, from neutrality to equality, and from apolitical governance to democracy. And from economists – often villainized as the agents of neoliberalism – who are exploring novel approaches to the problem of inequality and the slowdown in productivity, and show renewed concern with the economic dominance of a few large firms. The challenge is to bring these insights together.[6]

What I find refreshing, reading these Berkeley professors, are three clear assumptions.  First is the insistence that we approach inescapably-complex “economic” problems by situating them in actual societies embedded in equally-complex histories, with the contingencies of the moment fully on display. Second is the frank willingness to cross the university’s departmental boundaries – boundaries, I’d hasten to add, that are barely a century old – to look for answers. Third is the absence of anxious talk about “heterodoxy” – a term that to my ear too often sounds self-defensive, even self-apologetic, rather than brave.  Better at this point, it seems to me – if we truly mean to overcome “neoliberalism” – is to act like Luther rather than Erasmus here, and treat “political economy” as what it could be: a modern-day Protestant rebellion rather than a half-way reform of the One True and Holy Marginalist Church.

My colleagues’ caveats

I realize this may be going too far for some.  I have great admiration, for example, for my Harvard colleague Dani Rodrik, whose own deeply-considered views nowadays reflect his meticulously-calibrated evolution intellectually from a once mildly-voiced disquiet about the profession’s ills in the 1990s to quite deep and sharp-edged critique these days of neoliberal policies and much about their uses of neoclassical theory.

Nonetheless Dani at times seems anxious to hold on to core features of the marginalist model, which he sees as “evolving” by responding to the current moment.  “Economics,” he does ruefully admit, “is still somewhat insular within the social sciences because of its methodological individualism, model-based abstraction, and mathematical and statistical formalism.” He then draws hope from what he sees changing:

But in recent decades, economists have reached out to other disciplines, incorporating many of their insights. Economic history is experiencing a revival, behavioral economics has put homo economicus on the defensive, and the study of culture has become mainstream. At the center of the discipline, distributional considerations are making a comeback. And economists have been playing an important role in studying the growing concentration of wealth, the costs of climate change, the concentration of important markets, the stagnation of income for the working class, and the changing patterns in social mobility.[7]

What Dani lists is true, in the sense that you or I, counting up the number of papers, books, and theses being produced nowadays, would find that more on all these topics than 30 years ago – but, taken together, does that constitute change?

Although many Americans might call them “justice issues” at this George Floyd-inspired moment of racial reckoning in America, I certainly agree with Dani that “distributional issues” are getting more attention from economists, and that the number of empirically-grounded – rather than purely theoretical – articles published in leading economic journals has increased.[8]

What I find missing from Rodrik’s argument is a persuasive claim for the intellectual integration and ordering of those approaches: there are, here and there, many interesting things going on in economic history, behavioral economics, climate economics, and massive data set manipulation, etc., to be sure – but signs that these individual explorations are being woven into a larger, more unified narrative theory that moves past marginalist paradigms, in my view, is still elusive.  Pearls do not a necklace make.

Development economics, for example, is Rodrik’s specialty – so he knows as I do that it has always operated at an oblique, sometimes orthogonal, angle to mainstream economics views.  Not least that’s because so many of its projects have been designed, financed and evaluated on a state-to-state basis. Consequently – and not surprisingly – a great deal of attention was paid to institutions and to empirical data that could measure “success” as understood by the bureaucratic administrators and funders involved. But rare were the critiques within the profession (though not outside it, in an ever-growing number of NGOs, major segments of the press, and a few universities and foundations) of the complex and often deeply corrupt bureaucratic and political interests of those same administrators and funders and their designated recipients. That all remained subordinated to, if not invisible in, most mainstream economic evaluations of the projects.

One could, I suppose, ask then why so many development economists embraced the Washington Consensus and its essential “markets-lead-states” models? Although the adoption by multilateral institutions of the Millennium Development Goals at the end of the last century (and since then, the Sustainable Development Goals) represents a turn away from that essentialism (that’s even included a measure of apology for imposing Consensus rules)[9], I’d argue that the field has never deeply examined how or why it made the turn toward Consensus essentialism in the first place.

Joseph Stiglitz floated the question succinctly, if a bit backhandedly, in reviewing what he insightfully dubbed “the post Washington Consensus consensus” in 2005:

If there is a consensus today about what strategies are most likely to promote the development of the poorest countries in the world, it is this: there is no consensus except that the Washington consensus did not provide the answer. Its recipes were neither necessary nor sufficient for successful growth, though each of its policies made sense for particular countries at particular times.[10]

But how to get beyond agreement on what didn’t work? To do that requires not just more “empiricism” but well-structured arguments grounded in documentable decisions and changes taken by political and corporate institutions – lenses which have rarely made their way into economists’ models.  Let me give an example of what I mean: to explain modern fossil-fuel energy pricing, I wouldn’t start with the neoclassical economics of energy pricing and matching abstracted supply and demand.  Instead I’d begin by explaining the concerns of leading European statesmen, bankers, and big businessmen in the late 19^th century about the mining of coal and refining of oil.  The questions weren’t just “economic” in a mainstream way; at issue was their unnerving likely impact on the technologies of war.  War-making and its proffered and perceived threat are central functions of all states that economists almost never consider.

I’d then trace petroleum’s roles in both world wars, sketch how and why the US emerged a victor after both, and why after the second war (but not the first) it adopted hegemonic roles best described as “imperial”, albeit with lots of comparative qualifiers.  I’d go on to describe the postwar petroleum management system of production and import quotas, taxes, and constrained technological innovation – part government, part industry – and how it seemed to offer the industry and the country stable and predictable growth for a time. I’d explain then how America’s multi-faceted crises in the 1960s led to Nixon’s election in 1968 and his destruction of the Bretton Woods system three years later.

I’d argue, for example, that the destruction of Bretton Woods led to OPEC’s massive spike of

oil prices in 1973 and then again in 1979, why the West hadn’t then forced those prices back down, how petrodollars were recycled to New York and London banks which then lent them out to Third World governments and companies the banks had ignored for years, how the financing fueled a brief growth spurt in the developing world, how the Volcker Recession crushed that spurt, why the crushing created a crisis in banking, how states responded to that financial crisis by lifting regulations, which ushered in the neo-conservatism of Reagan and Thatcher, which in turn laid the ground for the neoliberalism of Clinton and Blair, their further deregulation of finance and its explosive growth ever since, and then the Great Recession.

One can write such an analytic political-economy history narratively – but I don’t know successful examples of doing it mathematically, using only highly-stylized and abstracted representative agents without names for those agents, individually or in small groups, or their positions or affiliate institutions that might help us understand how their decisions were made, how those decisions intersected others, and how conflicts between decisions were adjudicated and why.

That leaves me to make my third and final point: that we need to boldly take up what we think are the large social, political and moral projects of our time – and use not just our discipline’s conventional “economics toolkit” but our ability to think about, and argue for, human freedom and equality not just within but across borders, and moreover situated in production-consumptions that are cognizant of the planet’s carrying capacities, in a radically more-committed way. 

Here Davos is right: “climate change” (shorthand in my mind for the total impact of the Anthropocene on the planet) and “economic inequality” (measured for me not just in income and wealth distribution terms but the legal, institutional and customary means by which property is defined and its rights allocated) are the issues we’re facing. But addressing them in ways beneficial to the many rather than the few requires of us a vast reimagining and rebuilding of what we are doing, for which our economistic toolkits alone are utterly inadequate.

The several challenges of Piketty

A decade ago, Thomas Piketty’s publication of Capital helped ignite not just a a professional discussion by economists, nor even just a “public debate” – of which there are too many in this social-media-saturated world of ours – but a sudden and far-reaching mobilization of political energies among millions around issues of wealth and income distribution. What to me is almost breathtakingly remarkable is that it has a good chance of matching the impact that Keynes’ General Theory had long ago on the issues of aggregate growth and macro-intervention by government in the Roosevelt era, an enduring impact that in our own time justified the world’s massive fiscal and monetary response to the Great Recession a decade ago and is doing so again in the COVID crisis now.

Capital exemplifies many of the innovative “stylistic” or “methodological” features that, as I earlier noted, Dani Rodrik sees as recent hopeful signs for economics as a profession: in place of mathematical abstraction, Piketty demonstrates his deep commitment to empiricism, his affinity for the construction and manipulation of large-scale data sets, and his willingness to “do economics” in a narrative prose structure that names many of its actors individually, contextualizes their historical moment, and explains to us their roles and effects institutionally rather than, for the purposes of parsimonious modeling, aggregating those lives into the abstract representative “agents” of high mathematical theory.

More important, Piketty in his more recent Capital and Ideology, has gone beyond the massive empiricism of Capital to sketch out his admittedly-preliminary arguments for not just a new way of “doing economics” but of situating economic thinking in a larger vision of what I at the beginning of this paper chose to call – since I’m writing to fellow economists – “democratic efficiency”.[11]

For Piketty, this requires economists to consider first the question “what is a just society?”[12]  His “necessarily imperfect” answer is that it is

One that allows all of its members access to the widest possible range of fundamental goods.  Fundamental goods include education, health, the right to vote, and more generally to participate as fully as possible in the various forms of social, cultural, economic, civic, and political life. A just society organizes socioeconomic relations, property rights, and the distribution of income and wealth in such a way as to all its least advantaged members to enjoy the highest possible life conditions. A just society in no way requires absolute uniformity or equality. To the extent that income and wealth inequalities are the result of different aspirations and distinct life choices…they may be considered just. But this must be demonstrated, not assumed… That is why deliberation is both an end and a means.[13]

In sum, what we need to rediscover about doing economics?

How then to summarize and close here, since I’m keenly aware that I’ve raised questions that I’ve not answered? Let me do that by pointing to the Forgotten Keynes – not Maynard, author of The General Theory (and so much more), but his father, Neville.

Neville Keynes lived a distinguished and useful life as an academic administrator of Cambridge University. He was also an admirer and in a way an apostle of Alfred Marshall, the Moses of Marginalism. Nearing the close of the 19^th century, he took up Marshall’s great Principles of Economics in order to carry its theoretical implications into the practical world of Victorian Britain’s global economy.

To do so, he drew what I still count as a valuable distinction.  Because “economics” – the sort of new “scientific economics” the Victorians thought they’d discovered (or designed, the difference never entirely clear since it was not clear in their own minds). This new “economics” thus was not meant to be a textbook or blackboard exercise of the academic mind whose lessons could then be translated (albeit with a guaranteed net loss of intellectual qualities) into “policy” – a process by which they imagined (as so many of our colleagues still do) the transformation that yields the great and incontestable good of “Progress”.

Keynes instead proposed a tripartite division he thought should define the work of the “new economics”.  The three parts were these:

1. “positive economics” (the study of what is, and the way the economy works),
2. “normative economics” (the study of what the economy should be), and
3. “applied economics” (the art of economics, or economic policy). [14]

Read carefully, one can recognize the effects of this trinitarianism on his son in The General Theory, even more (and in some ways more famously) in The Economic Consequences of the Peace, and then scattered throughout the hundreds of articles Maynard Keynes wrote for newspapers and magazines and their popular audiences – perhaps most relevant to us here, “Economic Possibilities for Our Grandchildren”.[15]  The key is to grasp the distinction of the second – the study of what the economy should be – and to recognize what the Keynes, father and son, understood: that doing “normative economics” necessarily entails incorporation of values that lie beyond the “positive economics” of blackboard work – not because such “normative” economics is inferior to “positive” economics (a claim Milton Friedman popularized for Cold War colleagues in “The Methodology of Positive Economics”)[16] but because only through the “normative” consolidation can “positive” theorizing hope to exercise purchase on “the art and craft of policy-making” in the real world.

At a moment in American history when the neo-authoritarian flames ignited by the Trump presidency are still smoldering – and fully capable of reigniting – economists who want to affect “policy” and are willing to embrace the messy necessities of “politics” in order, in the words of Martin Luther King, to “bend the arc of the moral universe toward justice”, these are promising times.  A post-neoliberal world that could echo far beyond the classroom, textbook, and journal world in which so many of us live is being played out, boldly but awkwardly, in Washington right now.  The contribution I think we could make is to open  a new chapter in “teaching economics” to cross-disciplinary, empirical, and normative work that places a premium on engaging us and our students in the conversations that will push economies into pursuit of a democratic equality that can be experienced in day-to-day life (and not in our quadrennial visits to the voting booth) and toward a sustainable balance in our encounters with this tiny speck of a planet on which we have been given the gift of existence only briefly.

Read all of Parker’s paper here

[1] See Davos’ latest 2021 report, “The Great Reset”: https://www.weforum.org/great-reset/

[2] I think a critic of Davos might attack along a couple of lines.  One would be to compare Davos corporatism to the medieval Catholic Church’s organicism; another would be to sketch the ways German ordo-liberalism lies hidden in the Davos analysis and its prescriptions.  I leave that to others.

[3] See, for example, Oswald and Stern, “Why are economists letting down the world on climate change?”, VoxEU. Sept. 17, 2019.  For a harsher view of estimation problems, Steve Keen, “The appallingly bad neoclassical economics of climate change”, Globalizations, Sept. 1, 2020.

[4] On this, Heilbroner and Milberg, The Crisis of Vision in Modern Economic Thought, which I reviewed when it appeared for the New York Times here: https://www.nytimes.com/1996/01/28/books/the-momentary-science.html

[5] A colleague in Harvard’s Government department tells me “political economy” is the largest area focus of its doctoral students.  Here is a sample listing of their thesis topics: https://dash.harvard.edu/handle/1/4927603/browse?value=Political%20Economy%20and%20Government&type=department  . For a listing of some of these programs, one site tailored to students is: https://www.collegehippo.com/graduate-school/programs/top-ranked-masters-degree-political-economy.  A list of master’s programs in political economy is: https://www.masterstudies.com/Masters-Degree/Political-Economy/

[6] Fligstein and Vogel, “Political Economy After Neoliberalism”, The Boston Review. October 6, 2020:  https://bostonreview.net/class-inequality/neil-fligstein-steven-vogel-political-economy-after-neoliberalism

[7] Naidu, Rodrik and Zucman, “Economics After Neoliberalism”, The Boston Review, February 15, 2019: http://bostonreview.net/forum/suresh-naidu-dani-rodrik-gabriel-zucman-economics-after-neoliberalism

[8] I commend to readers here “Economics for an Inclusive Prosperity”, the group Rodrik has cofounded with Gabriel Zucman and Suresh Naidu, to be found here: https://econfip.org/

[9] Larry Elliot, “The World Bank and IMF Won’t Admit Their Policies Are the Problem,” The Guardian, Oct. 9, 2016: https://www.theguardian.com/business/2016/oct/09/the-world-bank-and-the-imf-wont-admit-their-policies-are-the-problem. On whether the Washington Consensus – and neoliberalism – have in fact receded is taken up in Babb and Kentikalinis, “People have long predicted the collapse of the Washington Consensus. It keeps reappearing under new guises”, Washington Post, April 16, 2021: https://www.washingtonpost.com/politics/2021/04/16/people-have-long-predicted-collapse-washington-consensus-it-keeps-reappearing-under-new-guises//

[10] Joseph Stiglitz, “The Post Washington Consensus Consensus”, Institute for Policy Dialogue, Columbia University, 2005 at http://policydialogue.org/files/events/Stiglitz_Post_Washington_Consensus_Paper.pdf

[11] Piketty’s term is “participatory socialism”, which I find possibly understandable in French but too freighted and twisted in the American context.  I’m writing this at a moment, after all, when the GOP talks, in echo of their best McCarthyite timbre, about Joe Biden being “a socialist president”.

[12] I would add that concern for “a just society” is not a concern only of progressive economists such as Piketty.  Chicago’s Robert Fogel’s The Fourth Great Awakening: the Future of Egalitarianism takes up the issue quite boldly, insists like Piketty on situating economics in a broader historical and ethical context, eschews mathematical models for narrative prose – and, in a way I find fascinating, frames his argument in the successive history of religious struggles that help define the American public landscape.  Concerned like Piketty about providing more equal access to education, health care, income security, Fogel (a Nobel laureate for his work in cliometrics) raises the “immaterial” issues of both individual and collective meaning and purpose, which he associates with religion, to the fore.

[13] Piketty, Capitalism and Ideology, 968.

[14] For a thoughtful though slightly forlorn engagement with the three ways of doing economics – and the failures of much of modern economics to heed Neville Keynes’ foresight, David Colander, “Retrospectives: The Lost Art of Economics,” Journal of Economic Perspectives, V6, No. 3 (Summer, 1992).

[15] http://www.econ.yale.edu/smith/econ116a/keynes1.pdf

[16] Milton Friedman, “The Methodology of Positive Economics”, to be found in his Essays on Positive Economics (1953).