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Economics without Scarcity
// TripleCrisis
Economists have often been characterized as a dry, calculating bunch, focusing on the allocation of scarce resources with carefully drawn supply and demand curves. The reason for this is that economics has, in Neoclassical theory and particularly within the writings of Lionel Robbins, emphasized choices and competition under conditions of scarcity. Mainstream economic theory, rooted in Neoclassical thought, has continued in this vein, with a focus on market efficiency as the rule. So, why do I have a problem with it?
Mainstream theory embodies decades of debate and rigorous application, but its focus on choice under scarcity has centered the study of economics on products, not people. The assumption that people are there to either consume or produce products moves away from any requirements for basic human well-being, as emphasized by Amartya Sen in his own criticism of Neoclassical economics, supposes that consumers and producers always want to buy or sell more goods, and fails to focus on aspects of nature (such as forests or coral reefs) as more than resources, such as entities with a right to exist without subjugation to the human race.
These assumptions are flawed and not universally held.
First, with regard to the role of humans as producers or consumers, Karl Marx focused on labor not as one component in product, but as the most important component of value creation. Marx centered on the struggle between capitalists and workers, and the exploitation by the former of the latter, as the primary economic issue. As the Neoclassical school arose, Marx's labor theory of value was ditched in favor of marginalism, with emphasizes consumer satisfaction and producer costs, with little to no emphasis on the plight of the worker. Later, economists like Amartya Sen focused on economic development as more than accumulation of products or wealth, but as capabilities to live, function, and enjoy life.
Second, the assumption that consumers always want to buy more goods and producers always want to sell more goods may be true sometimes, but grossly oversimplifies the nature of production in society. It defies the mind, but not all societies are about working and shopping. In many places, accumulating goods or wealth is a means to an end, and not an end in itself.
Third, while environmental economics and theories of public goods have sought to describe how natural and common resources should be valued, there is a failure in both aspects of Mainstream theory to recognize the rights of nonhuman living beings to exist. This idea is not that far-fetched; the nation of Ecuador recognized Rights for Nature in its Constitution adopted in September 2008. The city of Santa Monica, California, also recognized "natural communities and ecosystems" right to exist. Biocentric rights theories, and some religious and ethical theories make the same assertion.
What is more, in most cases, the concept of scarcity has rarely prevented economic agents from exploiting resources. The fact is, despite the definition of economics as the study of the allocation of scarce resources, it doesn't really work. Labor and nature in particular have been used in many places and times as if they have no upper limit. Workers are frequently overworked and underpaid as if labor was not scarce, and natural resources have been used up often without replenishment.
While I risk being accused of a lack of realism, I believe that the definition of economics as a study of scarcity is unethical and disingenuous in its current embodiment. This study has helped to foster some of the ills we experience as a society, producing and consuming ever more as long as we can, without really considering our effect on humanity and nature. After the global crisis, some economists, particularly heterodox, or non-Mainstream economists, called for a restructuring of the economics discipline. This didn't happen. Now, as we face a potential climate crisis, can we change our understanding of this critical field? Reshaping economics as the study of livelihoods, relationships to other humans, institutions, and nature, and well-being may be a step in the right direction. Perhaps the next generation will understand that economics is more than filling our storage units and bank accounts, and give credence to other, essential aspects of life.
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Hillary Clinton Embraces Ideas From Bernie Sanders's College Tuition Plan
// NYT > Business
The presumptive Democratic nominee's campaign said she plans to eliminate tuition at in-state public colleges for families with annual incomes under $125,000.
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Bond yields are just so damn low…what is that telling us?
// Jared Bernstein | On the Economy
I pour the morning cup of mud, schlep out to the stoop to get my paper, and open my WSJ to learn that the yield curve is awfully flat (i.e., the difference between the interest rates of bonds of different maturities is low). In fact, the yield on the 10-yr–1.367% yesterday–is the lowest on record. And the difference between the 10 and 2-yr Treasury yields, at about 0.8, is the same as it was in November, 2007.
Source: WSJ
Not good, and very much worth noticing. There are those who will tell you the yield curve is a revealing recession indicator and that a narrow 10/2 year spread is flashing red. But now isn't late 2007. Most importantly, of course, the housing bubble was imploding back then, whacking bank portfolios, wiping out trillions in wealth, and generating both a credit freeze and a demand-killing negative wealth effect. Also, the Fed funds rate has been at or near zero since around 2009, so that's also very much in the mix here, holding down Treas yields.
One must be steely-eyed in these circs and avoid unnecessary bedwetting. On the negative side, along with the flat yield curve, we have:
–the strong dollar: it hurts our trade competitiveness and puts downward pressure on inflation and thus props up the real interest rate;
–volatile markets/uncertainty: surely a bigger problem for the UK than us/US, but watch our equity markets for wealth effects; still, credit flows here seem largely untouched;
–possible weakening job growth: that's a big one of which I'll have more to say later this week.
On the plus side:
–low unemployment, a bit of wage growth, and low inflation, while a problem re propping up real interest rates, is helping paychecks go further;
–growth: kind of the bottom line here, and while it's been bumpy, we're basically posting growth rates of around 2%, yr/yr, which ain't great (and reflects a nasty downshift in productivity growth) but is actually the envy of most other advanced economies right now.
Two other things. I suspect the probability of a near-term recession remains relatively low here, well below 50%, though who knows? But what I'm absolutely certain of, as I wrote here, is that we're not ready for it, either re monetary or fiscal responses.
Finally, I couldn't be more flummoxed by this next point: these historically low Treasury rates amidst sluggish growth and an engine of job growth that could be downshifting are absolutely SCREAMING for policy makers to borrow and invest in public infrastructure. That would help on many levels now, from labor demand to productivity.
I won't make free lunch arguments, but given these yields and the potential benefits of the investments, this is lunch with a very large discount. I realize I'm screaming into the gridlocked, political void, but scream I will. And you should too, IMHO.
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A Remarkable Financial Moment
// Economist's View
Larry Summers:
A Remarkable Financial Moment: The US 10 and 30 year interest rates today reached all time low levels of 1.32 percent and 2.10 percent. Record low 10 year interest rate were also registered in Germany, France, Switzerland and Australia. Notably Swiss 50 year interest rates are now for the first time negative. Rates out 15 years are negative in Germany and 9 years in France. ...
Remarkably the market does not now expect a full Fed tightening until early 2019. This is despite all the Fed speeches expressing optimism about the economy and a desire to normalize interest rates.
I believe that these developments all reflect a growing awareness of the importance of the secular stagnation risks that I have highlighted over the last several years. ...
Unfortunately markets have been much more aggressive in responding to events than policymakers. ... Having the right world view is essential if there is to be a chance of making the right decisions. Here are the necessary adjustments.
First..., neutral real interest rates are likely close to zero going forward. ...
Second, as counterintuitive as it is to central bankers who came of age when the inflation of the 1970s defined the central banking challenge, our problem today is insufficient inflation. ...
Third, in a world where interest rates over horizons of more than a generation are far lower than even pessimistic projections of growth, traditional thinking about debt sustainability needs to be discarded. ...Brad Delong and I set out in 2012 for expansionary fiscal policy to pay for itself are much more easily satisfied today than they were at that time.
Fourth, the traditional suite of structural policies to promote flexibility are not especially likely to be successful in the current environment... Indeed in the presence of chronic excess supply structural reform has the risk of spurring disinflation rather than the contributing to a necessary increase in inflation. There is in fact a case for strengthening entitlement benefits so as to promote current demand. ...
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