Roger linked to this video when McCain became a shoo-in for Republican presidential nominee. But given Cool Britannia, and all that guff, it seems more appropriate to the collapse of New Labour… Think back (no, really, think back) to the mid nineties, and the Blur / Oasis ‘duel’…
I’m a little bit tired at the moment, so no proper post just yet. But for anyone interested in Derrida and Marx, let me put up a pointer to Le Colonel Chabert, who has recently started a Marx-oriented critique of Derrida.
From the conclusion of the outstanding first post:
“It is against the project (of explanation, critique and action) expressed and referred to here in the Grundrisse that Derrida’s intellectual product most consistently militated, undertaking a defence of liberalism’s doctrine of sacred property in the most mystical and mystifying possible manner, discovering private property, and indeed, eventually, capital specifically, to be not only the natural law of human relations but the the very primal matter-energy of which the phenomenal world is made, the force that is found spectrally filling the void from which being and presence have always already absconded (to be forever pursued, their imaginary loss forever mourned), the foundation of the universe itself, the creator and all creatures, eternal, indestructible.”
But read the post in full.
And I’m drunk, having just spent the evening with a former civil servant for the ministry of defense, trying to explain, ever less cautiously, my rage. So forgive me if I quote d-squared’s latest post.
‘One of those fifth anniversary surveys, asks a number of questions, but look at Q20. Apparently, 24% of Iraqis answered “yes” to the question “Have you personally experienced the murder of a member of your family or relative since the invasion in 2003?”.’
One of the big criticisms directed at poststructuralism, ‘Theory’, academic identity politics, etc. was always that these apparently leftist intellectual trends were thoroughly complicit in the social structures they criticised – that postmodernism, the cultural logic of late capitalism, manifested itself, within the academy, as shilling for the economic status quo. I never had a huge amount of time for that complaint – partly just because I like Theory, but also because I felt that poststructuralism offers critical resources that the left-wing anti-Theorists tended to neglect.
Which I still believe. But as I try to study economics I notice myself becoming markedly less sympathetic to Theory. And the situation is hardly helped by stuff like this. It’s a quote from J.K.Gibson-Graham’s ‘The End of Capitalism (as we knew it)’ (1996) – a feminist ‘critique’ of political economy I started reading today.
“To the extent that firms in the finance sector are engaged in commodity production, some will be capitalist sites where surplus labor is appropriated as surplus value from employees whereas others will be sites of independent commodity production – for example, the personal investments manager who is a self-employed entrepreneur and appropriates her own surplus labour – and therefore noncapitalist.” (p. 18).
Laughing out loud. Rolling on the floor. Oh My God. Because, you see, according to Gibson-Graham [= Katherine Gibson & Julie Graham, though I like the single author idea] the self-employed personal investments manager isn’t part of capitalism. No capitalists here. No exploitation! Because she’s self-employed, our Wall Street entrepreneur appropriates her own labour… not anybody else’s. You might ask what “commodity” she produces. You even might ask where the value of her work comes from. You might believe (if you’re an old school Marxist) that it has something to do with her clients’ investments converting surplus value into the means of production. That would be… um… the creation of capital – the most basic and pervasive operation in the constitution and reproduction of capitalist societies, according to Marx. This self-employed entrepreneur wouldn’t then be so much “noncapitalist” as… the embodiment of capitalism.
It’s a little dizzying that the author(s) a) know(s) enough about Marx to be able to write that sentence, and b) went ahead and wrote it. (Without, I should add, any kind of gesture towards the incongruity; I’m not massively distorting this by taking it out of context.) So: a reminder from the man himself. “If money, according to Augier, ‘comes into the world with a congenital blood-stain on one cheek,’ capital comes dripping from head to toe, from every pore, with blood and dirt.” No more anti-essentialism, please, until you’ve taken full account of this fact.
Let me try to see if I’ve got this right. The Fed’s remorseless cutting of interest rates whenever the American economy began to slow has fostered and perpetuated a series of bubbles. The technology bubble of the nineties was replaced by the housing bubble of the noughties – consumption was never brought back down to earth after the collapse of internet stocks, because Americans were encouraged to treat their properties as sources of easy income. Low interest rates were one half of the policy package that enabled this – the other half was deregulation. ‘Financial innovation’ ensured that the whole world and his dog could take out mortgages – increasing demand for housing, which increased house prices, which perpetuated the illusion that you couldn’t lose by taking out a mortgage, even if under normal circumstances, without rapid house price inflation and easy credit, you wouldn’t have been able to afford it. The consumption that kept the economy going was based on credit; increasing availability of credit was based on a bubble; and now the bubble’s burst we’re going to see declining living standards for large sections of America’s population. To say nothing of the rest of the world.
Plus, what’s true of the average American consumer is also true of America as a whole. America’s prosperity since the 1980s has been partly based on massive borrowing from the growing Asian economies. But the ability to borrow is premised on the supposed ability to repay; and if American growth is based on consumption based on this same borrowing, it’s kind of unclear where the money’s going to come from. Hence the decline in the value of the dollar – the massive global imbalance of America’s current account deficit is being reduced by the market’s revaluation of America’s currency.
One of my favourite d-squared posts is about the collapse of the Russian economy in the wake of its neoliberalisation. D-squared asks the question – exactly why would a botched privatisation program, which placed Russia’s assets in the hands of a small group of oligarchs, reduce GDP by 42% and starve a million people to death? “Terribly unfair and corrupt or not, handing over ownership of a factory from this bunch of gangsters to that bunch of gangsters doesn’t stop the wheels turning.” The really stupid neoliberalisation policy, d-squared says, was the imposition of foreign exchange and capital markets, which enabled the oligarchs to stash all their wealth overseas, converting it into dollars. Result: a catastrophic reduction in domestic liquidity and, therefore, demand – i.e. depression.
D-squared’s post ends with a nasty little twist. “Note that most of the bad effects of the kleptocrats took place because they converted their (local currency) profits of theft into dollars, draining the economy of hard currency. Because of this, we can credibly hypothesise that there is one case in which you could hand the entire economy over to robber barons and it wouldn’t really matter at all. That would be the case in which the local currency is the global reserve currency, so that the kleptocrats are happy holding their wealth in the local currency. In other words, the one country which has literally nothing to fear from becoming a gangster state in the United States of America.”
Unfortunately, the Bush administration is in the process of proving that hypothesis wrong. In the short term there’s no drain on domestic liquidity from the ruling elite’s theft of ordinary people’s wealth. But this only holds so long as the dollar remains the world’s reserve currency – and the dollar is only the reserve currency because of America’s economic credibility. Because the money the ruling elite has been stealing isn’t actually America’s money, the status of the dollar as the world reserve currency is under intense strain.
American policy since the eighties has been driven by the desire to further enrich a tiny fraction of the population: massive tax cuts go hand in hand with attacks on the earning power of labour. If the economy is to keep growing, however, American consumers need to keep spending; and that’s hard to achieve when wages stagnate, or are reduced. The ruling class’s solution was to generate workers’ incomes through debt, rather than wage increases. The credit bubble was a way of upwardly redistributing America’s wealth, without a short-term decrease in consumer spending. A systematic robbery has taken place, hidden by debt, and only now are Americans discovering how much of their real wealth has been confiscated.
Furthermore, the borrowing from Asian economies that was necessary to fund a level of national consumption higher than the level of national income allows the ruling class to appropriate that money, too. And when the other shoe drops, the ruling class are not the ones who are indebted – ordinary Americans are. You can’t get a much clearer example of conflicting class interests. America’s ruling class has got rich beyond the dreams of avarice by undermining the prosperity of the nation the interests of which they’re supposed to be representing.
America resembles those bond insurers we’ve been reading so much about. Just as the insurers’ AAA rating allowed them to make a mint by guaranteeing subprime debt, so the dollar’s status as reserve currency allowed America to engage in the most incredible financial recklessness, secure in the knowledge that everyone would still have confidence in its long term solvency. But confidence can only withstand so much recklessness. The subprime mortgage fiasco is now destroying those AAA ratings, and, for the same reasons, the dollar’s status as reserve currency is looking weaker by the day.
At any rate, this is what George Soros suggests in his recent FT article: “the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency.” Soros foresees “a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world.” Will this crisis be the tipping point in which the Yuan replaces the dollar as the world reserve currency? Is this the end of American economic hegemony? I have no idea – I don’t know what I’m talking about. But I’ve picked an interesting time to try to understand economics.
[NB: Of course, what the above neglects is that much ‘American’ wealth, appropriated from ordinary Americans by the ruling class, is itself already appropriated from poorer countries through American economic hegemony. Plus – much of what is said here of ‘America’ could be said with equal justice of ‘the developed world’ in general. Like I say – I don’t know what I’m talking about.]
From ‘A Brief History of Neoliberalism’ (2005), pgs 141-142:
“China has massive labour surpluses, and if it is to achieve social and political stability it must either absorb or violently repress that surplus. It can do the former only by debt-financing infrastructural and fixed-capital formation projects on a massive scale… The danger lurks of a severe crisis of over-accumulation of fixed capital… The Chinese banking system, which is at the heart of the current deficit financing, cannot currently withstand integration into the global financial system because as much as half its loan portfolio is non-performing. Fortunately, the Chinese have a balance of payments surplus that can be applied, as we have already seen, to wiping the banks’ slates clean. But it is at this point that the other shoe is liable to drop, because the only way the Chinese can afford this is by piling up balance of payments surpluses against the US. A peculiar symbiosis emerges, in which China, along with Japan, Taiwan, and other Asian central banks, fund the US debt so that the US can conveniently consume their surplus output… Chinese economic dynamism is held hostage to US fiscal and monetary policy. The US is also currently behaving in a Keynesian fashion – running up enormous federal deficits and consumer debt while insisting that everyone else must obey neoliberal rules. This is not a sustainable position, and there are now many influential voices in the US suggesting that it is steering right into the hurricane of a major financial crisis. For China, this would entail switching from a politics of labour absorption to a politics of overt repression. Whether or not such a tactic can succeed, as it did in Tiananmen Square in 1989, will depend crucially upon the balance of class forces and how the Communist Party positions itself in relation to those forces.”
On December 6th Samina Malik was given a nine-month suspended jail sentence. She has to carry out 100 hours of community work, and will be under observation for 18 months.
It could have been worse. The sentencing judge remarked that “In my opinion your offence is on the margin of what this crime concerns.”
But don’t start getting silly ideas. (Ideas like – the Terrorism Act is an appallingly authoritarian assault on freedom of speech and thought, its implementation is racist, and this racism was inherent in its conception.) “The Terrorism Act and the restrictions it imposes on personal freedom exist to protect this country, its interest here and abroad, its citizens and those who visit here. Its protection embraces us all, its restrictions apply to us all whatever our personal, religious or political beliefs.”
If you feel like becoming a criminal (U.K. readers only), you can download the al Qaeda manual here.
Naomi Klein has published Milton Friedman’s 1975 letter to Pinochet. (via Robert Vienneau)
“Such a shock program could end inflation in months, and would set the stage for the solution of your second major problem – promoting an effective social market economy.
This problem is not of recent origin. It arises from trends towards socialism that started forty years ago, and reached their logical – and terrible – climax in the Allende regime. You have been extremely wise in adopting the many measures you have already taken to reverse this trend.”
No, I don’t understand. But as far as I can tell, three things are behind the current fears of a dollar rout and a world recession. America’s massive current account deficit is largely the product of 1) a hugely expensive war of choice, and 2) tax cuts for the wealthy. And the ongoing subprime crisis was mostly created by 3) deregulation. Am I missing something? And if not, could someone explain to me again why left wing economic policies are naïve?
Greg Mankiw is one of the most widely read economics bloggers. He teaches at Harvard, and was chairman of Bush’s Council of Economic Advisers from 2003-2005. I’ve recently been looking at some of his old posts.
On April 27 2006 Mankiw discussed “intergenerational transmission of inequality.” In a talk to the Centre for American Progress, the economist Tom Hertz said: “the chances of [an American] getting rich are about 20 times higher if you are born rich than if you are born in a low-income family.” Mankiw expresses annoyance with Hertz’s liberal “spin”.
Mankiw: “One might ask why being born into a high-income family means you will likely have higher income. Is it the good genes that you inherited from your successful parents or the nice neighbourhood and expensive private schools that their high income could purchase for you? Is it nature or nurture?
The evidence suggests that nature trumps nurture.”
Mankiw refers to a study about adoption by the economist Bruce Sacerdote. [For some reason I can’t get the link to work – but you can download the study from Mankiw’s site.] Sacerdote studied 1117 families who adopted children through Holt International Children’s Services from 1970 to 1980. (The data was collected in 2003). He attempted to calculate “the transmission of income, education and health characteristics from adoptive parents to adoptees. I then compare these coefficients of transmission to the analogous coefficients for biological children in the same families, and to children raised by their biological parents in other data sets.”
Here’s the passage Mankiw quotes:
“Having a college educated mother increases an adoptee’s probability of graduating from college by 7 percentage points, but raises a biological child’s probability of graduating from college by 26 percentage points. In contrast, transmission of drinking and smoking behaviour from parents to children is as strong for adoptees as for non-adoptees. For height, obesity, and income, transmission coefficients are significantly higher for non-adoptees than for adoptees.”
As Sacerdote puts it, parents’ education has an “economically meaningful” effect on adoptees’ education. “Each additional year of mother’s educational attainment raises the adoptee’s educational attainment by .07 years. But the effects for adoptees are modest when compared with the corresponding effects for non-adoptees… [F]or educational outcomes, the level effects of parental education are quite important, but only about one quarter of the story.”
So ‘nature’ and ‘nurture’ both play a role in educational attainment – and ‘nature’ seems to play a larger role than one might expect. But Mankiw’s post focuses on income, and here Sacerdote’s conclusions are counter-intuitive. “The adoptee’s income appears to have almost no relationship to parental income.”
Mankiw: “Sacerdote suggests that income is like height. Having a tall father means you are likely to be tall, but it is because he has given you the tall gene, not because he has created an environment that fosters height. The same appears to be true of income.”
~~~~
I hardly know where to start. Perhaps its worth mentioning that human growth is massively influenced by environmental factors. As Wikipedia puts it: “Genetics is a major factor in determining the height of individuals, though it is far less influential in regard to populations. Average height is increasingly used as a measure of the health and wellness (standard of living and quality of life) of populations. Attributed as a significant reason for the trend of increasing height in parts of Europe is the egalitarian populations where proper medical care and adequate nutrition are relatively equally distributed… Genetic potential plus nutrition minus stressors is a basic formula.”
So income is indeed a lot like height, in the sense that there’s a causal relationship between them. Living in “an environment that fosters height” – i.e. having a high standard of living – is going to influence how tall you are. Still, Mankiw and Sacerdote are only talking about U.S. families, so Mankiw’s shorthand is, perhaps, acceptable.
Far more dubious is Mankiw’s interpretation of Sacerdote’s paper. In the first place, Sacerdote does not discuss the range or distribution of the adopting parents’ incomes. Although Hertz makes strong claims about transmission of income levels from parents to children (“our parents’ income is highly predictive of our incomes as adults”), he also argues that this relationship is far stronger at the extremes. “Children born to the middle quintile of parental family income ($42,000 to $54,000) had about the same chance of ending up in a lower quintile than their parents (39.5 percent) as they did of moving to a higher quintile (36.5 percent).” The problem, put simply, is that the poor stay poor, while the rich stay rich. Within the broad range of middle-income families, the relationship between parent and child income is not strong.
We don’t know details of the incomes of the families in Hertz’s study. But we do know that Holt’s background check requires adopting families to have a “minimum income.” Sacerdote doesn’t say what this income threshold is – but it must surely exclude the low-income extreme at which, according to Hertz, the intergenerational transmission of income is strongest. In a word, adoption agencies have a responsibility to place children with families who can support them. Sacerdote’s study therefore cannot adequately incorporate many of the most important factors by which income inequality is perpetuated. (Not just factors directly related to income – Holt also runs a criminal record check, for instance, and requires parents to have been married for at least three years.) This is not “a data set in which adopted children were, literally, assigned randomly” (as Mankiw writes), because a number of strict criteria must be met before the random allocation of children to families can begin.
But even when this is taken into account, one would expect to find a relationship between the incomes of parent and adopted child. The apparent lack of such a relationship is particularly striking given the reported link between different generations’ educational attainment. If there really is no intergenerational transmission of income to adopted children, one would need an explanation for why the relationship you’d expect between income and education has here broken down.
As it happens, Sacerdote offers two such explanations. This result “could be driven by the restriction of range among Holt families, or by higher measurement error in my survey.” Higher measurement error, that is, than in similar surveys which do find a positive link between the incomes of parent and adopted child. In his Table 3a, Sacerdote compares “Transmission in Holt Sample Versus Transmission in Other Samples.”
Holt Adoptees:
Transmission of Years of Education: 0.069
Transmission of Income: -0.087
Swedish Adoptees:
Transmission of Years of Education: 0.144
Transmission of Income: 0.154
NLSY Adoptees:
Transmission of Years of Education: .277
Transmission of Income: .112
There are, of course, many possible reasons for the disparities between these figures. But it’s striking that Mankiw picks an apparently anomalous result as the basis for his post.
Sacerdote himself seems to favour “measurement error” over “restriction of range” as the explanation for his counter-intuitive income transmission result. “The lower income transmission in my sample is quite possibly driven by higher measurement error in my income survey question.” “Loss of parental income is not statistically significant in predicting child’s years of education, which may be a statement about the measurement error in my parental income variable.” But Mankiw doesn’t mention this possibility. For Mankiw, “Sacerdote suggests that income is like height.”
In other words, Mankiw is misrepresenting the paper he quotes. He is picking a result that conflicts with previous studies of intergenerational social mobility, and with common sense, in order to advance his political views. These views are, of course, that the poor are to blame for their poverty, while the rich deserve their wealth. Don’t talk about social justice: entrenched inequality has nothing to do with society.
Generally the right talks about weakness of character here. (See, for instance, Mankiw’s New York Times piece on American health-care. One reason for the failures of the American health care system is “the sexual mores of American youth”.) In this post Mankiw has an alternative explanation. It’s all in the genes.
[NB: It turns out that Sacerdote’s original study prompted an absolute deluge of internet comment, which I’ve just belatedly discovered. If I get time I’ll try to see if any of it blows apart what I say above.] [I never did get round to it. If you spot any grievous flaws in the above, please leave a comment.]
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