Flip-flops of Eco­nomics

Enterprise - - Contents - By Rick Wolff

Most US econ­o­mists are pro­fes­sors in col­leges and univer­si­ties. Their aca­demic po­si­tions en­able re­search and teach­ing that is sup­posed to be in­de­pen­dent of cor­po­rate in­ter­ests. They could at least hy­po­thet­i­cally pro­vide the crit­i­cal in­sights into eco­nomic prob­lems needed for their so­lu­tion. Econ­o­mists might help to pro­pose eval­u­ate and de­bate the wide range of pos­si­ble so­lu­tions — from those that min­i­mally change the sta­tus quo to those that en­tail fun­da­men­tal so­cial change. How­ever his­tory shows that most pro­fes­sional econ­o­mists have been sub­servient to cor­po­rate in­ter­ests rather than con­struc­tive crit­ics. They cel­e­brated cap­i­tal­ism ig­nored or dis­missed al­ter­na­tive eco­nomic sys­tems and only ar­gued over how best to man­age the huge so­cial costs of cap­i­tal­ism’s re­cur­ring in­sta­bil­ity. The econ­o­mists’ shame­ful cor­po­rate sub­servience has been quite a loss.

The US pro­fes­sional eco­nomic es­tab­lish­ment — its mem­bers call them­selves “main­stream” — never leads. It al­ways fol­lows. Be­fore the Great De­pres­sion main­stream econ­o­mists du­ti­fully em­braced what they called “neo­clas­si­cal eco­nomics.” This eco­nomic “sci­ence” showed they said that what prof­ited business ben­e­fited the whole so­ci­ety. In this main­stream per­spec­tive pri­vate en­ter­prise and mar­kets worked best for ev­ery­one when left free of gov­ern­ment reg­u­la­tion or in­ter­fer­ence. Big business led and pub­licly pro­moted this cel­e­bra­tion of cap­i­tal­ism. Col­leges and univer­si­ties sought fi­nan­cial con­tri­bu­tions from busi­nesses their own­ers and their lead­ers. They needed en­roll­ments from th­ese peo­ple’s chil­dren ( few oth­ers could af­ford the costs of higher ed­u­ca­tion). Aca­demic ad­min­is­tra­tions nei­ther wanted nor sup­ported pro­fes­sors who crit­i­cized pri­vate business in­ter­ests or oth­er­wise dis­pleased them ( for ex­am­ple by chal­leng­ing main­stream eco­nomic sci­ence).

After 1929 when pri­vate en­ter­prises and free mar­kets yielded the Great De­pres­sion business largely shifted to ad­vo­cate mas­sive gov­ern­ment in­ter­ven­tions to “fix” the bro­ken econ­omy ( as it does again to­day). Ex­cept for a few diehards the pro­fes­sional econ­o­mists quickly fol­lowed and re­versed their “sci­ence.” They found a new guru in John May­nard Keynes who ex­tolled the virtues and clar­i­fied the mech­a­nisms of gov­ern­ment eco­nomic in­ter­ven­tions. Main­stream eco­nomics be­came Key­ne­sian from the late 1930s through the 1970s. Ev­ery­where col­lege eco­nomics cour­ses taught about business cy­cles ( the po­lite term for cap­i­tal­ism’s chronic in­sta­bil­ity). Text­books in­structed a gen­er­a­tion that gov­ern­ments’ mon­e­tary and fis­cal poli­cies were nec­es­sary and ef­fec­tive means to limit off­set and even­tu­ally elim­i­nate business cy­cles.

In the 1970s the main­stream re­versed course yet again. Key­ne­sian eco­nomics had failed to over­come or even pre­vent cap­i­tal­ist business cy­cles in the US. Mon­e­tary and fis­cal poli­cies had not de­liv­ered the pros­per­ity growth and sta­bil­ity promised by the Key­ne­sians. Mean­while US cor­po­ra­tions had got­ten rich and pow­er­ful enough — while mem­o­ries of the Great De­pres­sion had faded enough — to un­der­mine the gov­ern­ment reg­u­la­tions and con­trols pro­voked by the Great De­pres­sion. Be­cause business re­sented those gov­ern­ment in­ter­ven­tions that limited prof­its cor­po­rate in­ter­ests pro­moted Rea­gan’s can­di­dacy for the pres­i­dency. His lifetime ser­vice to cor­po­rate in­ter­ests qual­i­fied him to roll back the New Deal. Tax cuts es­pe­cially on busi­nesses and the rich and dereg­u­la­tion of business be­came mantras for lead­ing politi­cians in both par­ties. Cor­po­rate Amer­ica re­sumed the pre 1929 cel­e­bra­tion of pri­vate en­ter­prise and free mar­kets.

Aca­demic econ­o­mists again fol­lowed. Cur­ric­ula text­books and con­fer­ences all changed. Key­ne­sian eco­nomics was out neo­clas­si­cal eco­nomics was back in and Mil­ton Friedman was the new guru. He had been a diehard who kept cel­e­brat­ing pri­vate en­ter­prise and free mar­kets across the main­stream’s Key­ne­sian pe­riod. Then as busi­nesses in­creas­ingly de­cided that “our econ­omy no longer needed gov­ern­ment in­ter­ven­tion” that con­strained prof­its Friedman won their support for his Univer­sity of Chicago eco­nomics depart­ment. So in Rea­gan’s new Amer­ica the eco­nomics pro­fes­sion du­ti­fully found that Friedman’s eco­nomics was now “cor­rect” and “sci­en­tific.” He and his sup­port­ers took over the main­stream. They marginal­ized Key­ne­sians and breath­lessly re en­dorsed the old pre 1929 “neo­clas­si­cal” eco­nomics that ex­alted pri­vate en­ter­prise and free mar­kets as guar­an­tors of pros­per­ity.

So com­plete was the aca­demic main­stream’s embrace of neo­clas­si­cal eco­nomics that very few stu­dents learned about cap­i­tal­ism’s in­sta­bil­ity. Cour­ses in business cy­cles once sta­ples of the eco­nomics cur­ricu­lum largely van­ished. The Bush gov­ern­ment’s econ­o­mists were prod­ucts of eco­nomics ed­u­ca­tions that in­ca­pac­i­tated them to cope with to­day’s mas­sive cap­i­tal­ist crash. Thus they ( 1) failed to see let alone pre­vent the crash ( 2) waited too long to act as the crash un­folded across the lat­ter part of 2007 and 2008 and ( 3) pro­posed one half baked and in­ef­fec­tive gov­ern­ment pol­icy after another since mid 2008. The econ­o­mists gath­ered by Obama ex­em­plify the same in­ca­pac­i­tated gen­er­a­tion.

The pro­fes­sion’s shame­ful his­tory of op­por­tunism may be best il­lus­trated by the Jan­uary 2009 an­nual meet­ing of the supremely main­stream Amer­i­can Eco­nomics As­so­ci­a­tion ( AEA). Late 2008 had seen big busi­nesses get tril­lions in gov­ern­ment bailouts. Lead­ing main­stream econ­o­mists at the AEA meet­ing cravenly an­nounced the er­rors of their for­mer ways and ad­vo­cated re­turn to Key­ne­sian eco­nomics. Neo­clas­si­cal econ­o­mists saw their ca­reers jeop­ar­dized and acted quickly. New York Times re­porter Louis Uchitelle even ap­plied the re­li­gious term “con­ver­sion” to the pa­per by Har­vard’s Martin Feld­stein. Like many born again Chris­tians though born again Key­ne­sians will no doubt back­slide at the first sign of fi­nan­cial sec­tor sta­bi­liza­tion.

To sum up re­peated os­cil­la­tions be­tween neo­clas­si­cal and Key­ne­sian eco­nomics in defin­ing main­stream eco­nomics re­veal the pro­fes­sion’s op­por­tunis­tic sub­servience to business needs. The same sub­servience ex­plains why it con­sis­tently re­fuses to en­gage the econ­o­mists who re­spond to cap­i­tal­ism’s in­sta­bil­ity by ad­vo­cat­ing so­cial change to al­ter­na­tive eco­nomic sys­tems. In the wake of yet another mas­sive cap­i­tal­ist break­down how­ever our real choices need not and should not be limited to neo­clas­si­cal or Key­ne­sian eco­nomics to just another shift be­tween pri­vate and state man­aged forms of cap­i­tal­ism. The case for de­bat­ing move­ment beyond cap­i­tal­ism has never been so strong.

The now con­sid­er­able the­o­ret­i­cal lit­er­a­ture on post cap­i­tal­ist economies ( for ex­am­ple S. Res­nick and R. Wolff Class The­ory and His­tory Cap­i­tal­ism and Com­mu­nism in the USSR New York Rout­ledge 2002) and the ac­cu­mu­la­tion of lo­cal and na­tional ex­pe­ri­ences with them pro­vide am­ple re­sources and lessons to make such moves.

Rick Wolff is Pro­fes­sor of Eco­nomics at Univer­sity of Mas­sachusetts at Amherst. He is the au­thor of many books and ar­ti­cles in­clud­ing ( with Stephen Res­nick) Class The­ory and His­tory Cap­i­tal­ism and Com­mu­nism in the U. S. S. R. ( Rout­ledge 2002) and ( with Stephen Res­nick) New De­par­tures in Marx­ian The­ory ( Rout­ledge 2006).

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