Putting the ‘political’ back in political economy

I stumbled across an article in the New York Times a few days ago by Tyler Cowen of George Mason University and a regular contributor to the blog Marginal Revolution. Entitled “Income Inequality Is Not Rising Globally. It’s Falling.”, it takes a crack at attempting to indicate that while country-level income inequality is increasing the overall effects of globalization are leading to less aggregate income inequality globally, and that this is a good thing. I always enjoy reading Cowen’s stuff even when I don’t agree with him, and in this case I have a few contentions as a political scientist about his argument.

These contentions developed after seeing a comment from a friend on Facebook about the article. He noted that the key problem isn’t income inequality, but wealth inequality. The way that income and growth are structured in the modern world, if you start from a position of higher wealth and asset ownership, the more you benefit from the structure of the global economy. If you rely on a bi-weekly paycheck though you face nothing but downward pressure on your economic position, unless you work in the information, research, governance, or financial sectors (which happen to all play key roles in globalization). Cowen though says that while this country-level trend is unfortunate, we shouldn’t miss the point that globally income inequality has dropped. This is where I have my biggest contentions with the argument, since economics is about politics, and like Tip O’Neill said all politics is local.

To make his argument Cowen has to invert the relationship between people, politics and economic systems. In effect, he argues that we should be happy that while at the local (or national) level the economy might be a mess, it’s important that at a global system level income inequality is decreasing. For this to hold up, we have to assume that systems, in this case the global economic system, are what people are responsive to, things that people can’t or shouldn’t be motivated to change. While Cowen is more humane than many of his libertarian counterparts, believing that safety nets should still exist for the workers who lose in national wealth inequality, he still makes what I think is a problematically common mistake in economics. Implicit to Cowen’s argument is that economic systems exist in parallel or outside the impact of politics. Instead of discussing the tangible problem of increasing wealth and income inequality at the national level as something that can be changed through policy and intervention, he finds an abstract way to claim the system is working. This is a huge problem from a public policy perspective.

At a fundamental level Cowen’s argument subverts the notion of representative democracy. The models of economy have become the ends in themselves, things that politicians and policy makers have applied normative value to, and thus try to shape laws and policy for. This is where the democracy problem comes in. In the United States, we ostensibly elect officials to create policies that support the public interest. When those representatives make economic policy that is based on a set of models that actually lead to massive inequality and economic hardship, they are no longer representing their constituents and instead are representing the abstract notion of market economics. If my congressional representative’s response to a total failure of the economy in my district is to say “there may be no jobs and wages might be way too low, but at least on a global scale income equality is down” then they are not representing the needs of their constituents.

This is the inherent problem with Cowen’s argument, and it has knock on effects since policy makers listen to him and other’s from his school of thought. Essentially he is arguing that a system that has failed at the level where it matters (the citizen level) due to particular aspects of the socio-political nature of finance-driven markets shouldn’t be changed at the local level because it seems, depending on how you cook define the numbers, to be working at an abstract global level. It dehumanizes economics, which is an inherently very human enterprise. In case we forget our history, such things as the Reign of Terror, Communist revolutions, and Jesus’s life and teachings were in response to fundamentally broken and/or exploitive economic systems. If tally the score in those three cases, it would be: System Maintenance 0 : 3 Revolutionary Uprising (and Violence).

Politicians and public intellectuals who focus on abstract and contorted ways to justify the maintenance of an economic system that tangibly fails the public would do well to heed the lessons of history. Abstract arguments about the way the global system is working won’t mean much when the pitchforks come out at the local level.

3 thoughts on “Putting the ‘political’ back in political economy

  1. Yeah, Cowen does have some good insights from time to time, and has a reasonable amount of nuance to his arguments. But you do always get the feeling that he’s asking everyone to sit back and admire the wonder that is neoclassical economic theory, and not to touch anything as it is all ever so fragile.

    My question to him is when do we ever get to redistribute? The factors that benefit, as you mention, are expected to gain unequally from trade. But do we never get to compensate the losers because we want to pie to keep growing? The middle class in the US is on the ropes and we are looking at a lost generation in Europe. Surely people suffering and dropping out is a call for action. We have a problem, many problems staring us directly in the face. Surely our science can tell us more than that we should sit back and take the long view. Because that long view, supplied by high level abstractions and crafted apologetics, was done far better by Dr. Pangloss long ago.

    (Side note: Economists seem to get a lot of mileage out of the “counterintuitive” finding. The finding Cowen cites is not new, it was well known by the time I was getting my grad degree in 2005-2007. That was well before the end of the so-called Great Moderation, which economists were taking credit for having engineered. What is counter-intuitive is that the economics profession still gets to speak from on high given the debacle they failed to foresee and have no idea of how to get us out of, beyond telling us it could have been worse.)

    • Chris, this is a great comment, particularly the part about the admiration/fragility complex that economists have. I’ve concluded that many of them are less scientists more shamans, setting forth tabus about what we must do and not do to upset the powerful but fragile economic system. This seems to thematically work with the counterintuitive-finding observation as well; only economists, masters of instrumentation and mathematical proofs, can divine the complexity of economic behavior (which to mere peons seems ‘counterintuitive’).

      To be fair, I know some excellent economists who really do ply their trade for the benefit of humanity instead of the model. Interestingly, all these colleagues think the amount of math that was forced on them during their Ph.D.s was overkill. But if any department admitted this, suddenly everyone would say “wait, you’ve been bullshitting us with mathematical vagaries for the last 70 years?!” and the field would collapse. So everyone keeps getting more and more mathematical in some collective action bidding game, not wanting to be the department that knocks down the house of cards/sends all economists into the policy wilderness for a few generations.

      • Yes shamans. “High Priests” is was they struck me as during grad school. Which is ironic since economics puts itself out there as THE positive social science, just tells it like it is. But it often sounds suspicially like some other theoretical constructs which Popper, a king among kings among populists, skewers:
        “It was rather that I felt that these other three theories, though posing as science, had in fact more in common with primitive myths than with science; that they resembled astrology rather than astronomy.

        “I found that those of my friends who were admirers of Marx, Freud, and Adler, were impressed by a number of points common to these theories, and especially by their apparent explanatory power. These theories appear to be able to explain practically everything that happened within the fields to which they referred. The study of any of them seemed to have the effect of an intellectual conversion or revelation, open your eyes to a new truth hidden from those not yet initiated. Once your eyes were thus opened you saw confirmed instances everywhere: the world was full of verifications of the theory. Whatever happened always confirmed it. Thus its truth appeared manifest; and unbelievers were clearly people who did not want to see the manifest truth; who refuse to see it, either because it was against their class interest, or because of their repressions which were still “un-analyzed” and crying aloud for treatment.”

        Now I think a big part of the human world is actually just this kind of explanation and interpretation. It’s just economists do it in such a stunted way, all related back to their obsession with math, which means the only way they will listen to you is if you speak in their impovershed dialect. In his musings Boettke at GMU quoted some particularly aggravating economist who described any criticism not made in mathematics as being mere “soap bubbles.”

        The economic mainstream has been very dismissive of agent based modeling, and I think that is the way to skewer them. The computer can do much better math than an economist, it has no problem with non-linearity, so we can model much more closely to our logical concepts and don’t have to take on so many blatantly bullshit assumptions just to make the math work.

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