The Trouble with Economics: William Nordhaus and Pope Francis

Economics is perhaps the one social science “profession” that is most entrenched in the political economy of contemporary nations. Little economic thought escapes the halls of academia without the neoliberal stamp of theoretical approval. The trouble with most of the social sciences is that it is very difficult for them to actually be scientific. In the first place, complexity is amplified exponentially by the fact that human behavior is mediated by language. Moreover, the language of human affairs is saturated with concepts and terms that have implicit political content.

Economics, like sociology, political science, and psychology, is a “discipline” that is disciplined by ideology. In particular, in its contemporary form economics is a powerful influence over national and international political policies, especially as applied to economic forces in society. Economics is in turn powerfully influenced by the most prevailing societal forces in the world today – the machinations of financial elites. Academic economics is dominated by the so-called “free market” theories for which Milton Friedman is most famous. From his intellectual throne at the University of Chicago, Friedman and his minions have dominated the economic framework of U.S. international as well as domestic policies for decades. Of course, there is little human freedom in the corporate-controlled “free markets.” Many of these policies have been at the heart of U.S. imperial strategies of foreign domination in the later twentieth century right up to today. U.S. geopolitical strategies have been driven largely by attempts to control world fossil-fuel markets.

Empire of Emissions

Anyone so naïve as to believe that U.S. foreign policy is meant to “bring democracy” to other nations must read Confessions of an Economic Hit man, by John Perkins (2004). As an “economic hit man,” it was Perkins’ job to persuade leaders of developing nations to accept huge loans to build massive infrastructure projects that did little to aid the development of those nations. Instead, they were designed and structured to bring poor countries with rich resources into submission to U.S. corporations and indebtedness to the U.S. government and the Big Banks. The deals required the money from the loans to be spent with U.S. construction companies on projects that would never generate enough income to pay off the loans. Pressure was then brought to bear on such nations to comply with U.S. political demands for resource exploitation and political subservience. Perkins’ book is a fascinating on-the-ground account of the workings of the expansive imperial structure, the larger picture that Naomi Klein characterizes as “disaster capitalism” in her book, The Shock Doctrine: The Rise of Disaster Capitalism (2007).

Despite the exposure of the massive economic and social failings of the growth-at-any-cost form of predatory extractive capitalism that is ideologically propped up by the neoliberal economic theorists, not much has changed in “modern economics.” This is also true of the specialty of “environmental economics.” The latest effort to stand firm supporting “market mechanisms” as the means to solve all problems in the world, is made by William Nordhaus. His essay in the New York Review of Books, October 8, 2015, tries to destroy the economic credibility of Pope Francis’ recent encyclical, Laudato Si’: On Care for Our Common Home (Vatican Press, 2015. Available at w2.vatican.va).

Nordhaus is Sterling Professor of Economics at Yale University and a well established environmental economist. His attack on Pope Francis’ encyclical pretends to be grounded in supposed rock-solid economic facts of “effective” market approaches to restraining carbon emissions. He entirely ignores the strong evidence that carbon trading in Europe has been a dismal failure. Rather than having a basis in scientific findings, his analysis is actually grounded only in neoliberal economic ideology. It ignores both the severity of the economic and ecological facts of our destabilizing world and the moral questions raised by Pope Francis’ argument.

At least ecological economists examine economic systems as operating within the living earth systems that sustain all life, including economists and other humans. Norhaus’ failure – and that of economics in general – is that he treats earth systems as mere economic factors to be incorporated in the economists’ models of market forces. In fact, economies are human systems operating within and now seriously disrupting the earth systems upon which they rely. This is a direct result of the propagandistic role of economics in the political culture of the U.S. and most of the other industrially overdeveloped nations.

Immoral Economics

Nordhaus wants to protect the failed economic system by tweaking its damaging impacts. However, living earth systems are being so severely destabilized by the fundamental ways that system operates, that only a massive reorganization of human economic life will be sufficient to allow those systems to re-stabilize.

Nordhaus concludes his essay by chiding the pope for not endorsing a “market-based solution” such as carbon pricing (and the disaster that is carbon trading) as “the only practical policy tool we have” to turn back the dangerous trends of climate change. Certainly, such “solutions” would constitute the limit of action if we had to accept the corporate free market ideology. But Pope Francis has other ideas. He asserts the social immorality of a system that destroys climate stability and all that depend on it while creating more plutocracy and poverty. Pope Francis calls upon the people to turn away from compulsive consumerism. He calls upon world leaders to abandon the “magical conception of the market” and to turn away from the failed economic system they have allowed to rule us and severely damage the planet.

Nordhaus will have none of it. He dismisses economists like Anthony Atkinson, Thomas Piketty, and Joseph Stiglitz, who recognize in different ways the relationship between capital gone wild and increasing inequality. By attacking the idea that climate disruption causes poverty, Nordhaus attempts to deflect attention from the fact that unrestrained predatory global capital causes both. He optimistically asserts that utilizing assumed magical qualities of market mechanisms can somehow undo the damage that unbridled global capital markets have wrought. That is the trouble with economics.

Overcoming Ideology: New Actions and New Ideas

Efforts to find a viable path to mitigating climate chaos and forging an ecologically viable economy are just not moving fast enough. They seem bogged down in struggles over old ideas and inadequate actions. Even some of the most esteemed liberal economists who are not on the corporate bandwagon have failed to escape this trap.

Paul Krugman and Joseph Stiglitz, both highly respected liberal economists, oppose the crass neo-conservative economic ideology of corporate imperialism. Yet, in his own way each remains trapped in the general economic ideology of extractive capitalism as the only way forward. Krugman imagines robust restrictions on carbon emissions without curtailing economic growth. Stiglitz imagines a ‘reformed’ capitalism where healthy competition can be restored. The imaginary and the possible are not necessarily the same.

French economist Thomas Piketty’s recent book, Capital in the Twenty-First Century, has received vastly more attention and sales than ever expected of a heavy economic tome. Piketty seems to expect inequality to be reduced by expanding economic growth. A simpler version of the myth of sharing a “bigger economic pie” or the “rising tide lifts all boats” story is available in any Econ. 101 class. Unfortunately for these fables, inequality is a positive feedback loop – greater power begets greater power.

Meanwhile, Krugman argued in his September 18, 2014 New York Times column, that carbon emissions can be reduced cheaply amidst strong economic growth. He does not mention the skyrocketing depletion rates of many important industrial materials – including petroleum – upon which continued economic growth depends. The connection between economic growth, growing poverty, and climate disruption is nowhere to be found.

Stiglitz writes in last September’s Harper’s Magazine, that Piketty is wrong in concluding that inequality is an inevitable outcome of capitalism. Instead, he says, ‘capitalism as we know it’ isn’t truly competitive like a capitalist system should be. Our system’s growing extreme disparities in income and wealth have been engineered by the wealthy. Stiglitz would reform capitalism.

Ending Economic Ideology

Stiglitz and Krugman are stalwart and articulate critics of the neoliberal economic ideology that attempts to justify corporate dominion over economic and political policy. However, despite their rather sophisticated economic analyses, our present economic system is what it is because it is not allowed to be reformed. The concentration of both wealth and income in the hands of a small elite is inherent in any economy in which excessive political power accrues to the financial elite. Inequality is becoming extreme, extractive demands of industrial production grow ever stronger as resources are depleted, and the devastation of the planet continues. Reform? You can’t get there from here.

As the international death dance continues around failed commitments to reduce carbon emissions, sufficient national and international actions to curtail climate chaos seem ever more unlikely. We know a lot about carbon emissions and the most important sources. Technically, the necessary reduction of greenhouse gas emissions could be planned as effectively as the U.S. mobilized the entire economy upon entering World War II. But execution is a political matter and therein lays the collective failure. Another way is needed and not even the most sincere and smart conventional economists seem able to help.

Increasing poverty, massive concentration of income and wealth, and accelerating climate disruption all have the same cause. The economy of endless growth required by the debt-driven imperatives of extractive capital is not susceptible to political reform. The very financial and corporate elites that drive the economy have captured and completely control the key players in the political process. We must look elsewhere for solutions. And elsewhere we will find them.

Resistance and Replacement: Actions Reforming Ideas

The people and the planet desperately need resistance to and replacement of the very institutions that even the most liberal critics of economic and environmental failure cannot give up. As neo-conservative economic policies still seek to solidify the empire of growth, progressive leaning conventional economists seek to reform what needs to be replaced. Powerful financial and corporate elites do not give up easily. Consider Jamie Diamond’s arrogant dismissal of Elisabeth Warren’s desire to regulate Wall Street’s excesses. The conversation in which it occurred is noted in the Afterward to the paperback re-issue of her book, A Fighting Chance.

Neither resistance nor replacement will be easy. But both will be nurtured by the growing sense among more and more people that we are on a path to catastrophe and need an immediate course correction. There is much to learn from non-violent movements of resistance that have succeeded, as reported in Peter Ackerman and Jack Duvall’s A Force More Powerful: A Century of Nonviolent Conflict. Even so, new models of resistance must involve accelerated withdrawal from the consumerist complex – no easy task. There is still a place for the forms of resistance seen in the Occupy and Arab Spring movements. But Gene Sharp, whose From Dictatorship to Democracy: A Conceptual Framework for Liberation, inspired those movements’ strategies, urged practical agility and creativity in fighting oppressive forces.

Today’s forces of oppression, especially in the ‘industrially advanced’ nations, are of a different order than the old dictatorships. The “inverted totalitarianism” with a façade of democratic formalism, as Sheldon Wolin describes in Democracy Incorporated, calls for new creative forms of resistance. Naomi Kline argues for ideologically driven forms of resistance in This Changes Everything: Capitalism vs. the Climate. However, new ideologies of humane social and economic relations, economic justice, and ecological society must be shaped by resistance that has direct and meaningful relationships to the immediate crises we face.

Replacement of the failed perpetual-growth political economy and its extractive energy-production and consumption practices requires even more creativity and organization. Various books, magazines, and Web sites, such as John Brown Childs, Trans-Communality, David Korten, Change the Story, Change the Future, Yes! Magazine, and Resilience.org – to name just a few – seek alternative cultural and political as well as economic paths. Works like that of Juliet B. Schor, author of True Wealth: How and Why Millions of Americans Are Creating a Time-Rich, Ecologically Light, Small-Scale, High-Satisfaction Economy, point to the formation of a new society grounded in humanity’s relationship to the earth and all its inhabitants. The idea of the good life is captured in that title. Many families and communities are experimenting with new ways of living outside of institutional entanglements. But much more is needed and on a much larger scale.

The hard part, of course, is getting it done, especially with so little time before catastrophic consequences of our current path become unavoidable. Some argue that it is too late. But that claim is pointless. We fight not because we will win; we fight because we must win.

Why a Return to Progressive Taxation is necessary…and Right

The accelerating concentration of income and wealth in the upper 1% of the upper 1% of the population and the failure of the “growth” economy to serve the population that supports it, are not only moral questions of fairness. The distribution of income and wealth are also important elements of the health of the economy itself. Between 30% and 75% of aggregate income in the past 30 years has gone to the top 10% and most of that has gone to the top 1%. After the “great recession” of 2008, almost all of new income went to the top of the top 1%. If this trend continues, the circulation of money and therefore the health of the economy will stagnate even further.

It is fortunate that French economist Thomas Piketty’s new book, Capital in the 21st Century, is making such an international splash. Piketty raises fundamental questions about the economy that most economists, in their pandering to the power elites, have avoided ever since crowning Adam Smith patron saint of mainstream economics.

What classical economics, as practiced throughout the industrial era, has ignored is the inherent tendency of capital to concentrate among the wealthiest individuals and corporations, unless mitigated by social policies that assure the broader circulation of money throughout the economy.  It’s really quite simple. The economic power of those who control the most wealth and income gives them advantages that enable them to accumulate wealth at increasing rates, to the disadvantage of everyone else in the economy.  Without economic regulations that dampen the special advantages of wealth, such as the progressive income tax that once benefited the economy, extreme disparities in income and wealth cause all sorts of problems.

The evidence of that destructive process is grossly obvious in the current economies of the industrial nations, especially in the United States. That is exactly what happened before the Great Depression of the 1930s, causing economic collapse due to excessive concentration of wealth among the richest class in America. Yes, class, that concept so long banned from discussion in the U.S. Forget the fancy academic analyses of socioeconomic class and status in social relations. It’s simply a matter of an inevitable distortion of the distribution of wealth and circulation of money when the tendency for concentration is not tempered by some kind of social policy designed to limit concentration by re-balancing the circulation of money in the economy. Such policies were enacted in the 1930s, but, under pressure from the most privileged, have been abandoned, allowing further distortion of income and wealth.

The concentration of wealth and income was moderated when we had a progressive income tax system. The simplest and most practical approach to staving off plutocracy (rule by the wealthiest members of society) and reducing damage to the economy that results from unfettered accumulation of wealth, is to return to a progressive system of taxation of income and the return of the tax on inheritance. There is simply no economic reason, let alone moral justification, for allowing the economy to spin out of control and fail to serve the public interest in order to allow the wealthiest members of society to become that much wealthier, simply because they already have excessive economic power.

At the same time, the obsession with reducing the federal debt by further cutting expenditures that support the general population, such as social security, medical insurance coverage, and public education, serves no earthly purpose other than to make the rich richer. The biggest con of all these days is the one that characterizes the ‘rentier’ class – those who merely make money on the value of the wealth they have already accumulated – is that their income and wealth ought to be protected from taxation because they are the “job creators.” They are no such thing, and their excessive income is of benefit to nobody, not even themselves – you can only spend so much before reaching absurd redundancy.  But the quest for power knows no bounds.

Restoring the progressive income tax would be fit medicine to help restore the health of an economy suffering from the cancerous growth of the ‘cells’ of the richest class of Americans and the corporations they control. The federal revenue gained thereby could be applied not only to the national debt, but to investing the desperately needed transformation of the fossil-fuel driven economy to a carbon neutral economy in order to minimize the damage of climate disruption. After all, it is the 1% and their fossil fuel related investments that have driven us to the brink of climate catastrophe.

Bottom line: an economy is not an economy of the whole society without consistently adequate circulation of money throughout the population.  It is both immoral and foolish to continue on the path of accelerating concentration of wealth to the detriment of the entire society. Privilege and wealth will not disappear with progressive taxation. Look at the post WW-II 1940s and 1950s, when the marginal tax rate on income above $200,000 — the tax rate on the part of income above the first $200,000 earned, and there were 23 brackets below that with progressively lower rates — was 91%; adjusted for inflation, that would be the rate for income above $2.41 million today. We should have such a healthy economy today!

What Donald Sterling and Cliven Bundy can Teach Us about Racism in America

Ignorant racism occasionally bursts onto the scene in the national media because the racists involved are unaware of the social and political impact of their blatantly racist talk. Sometimes ‘honest’ racists don’t even believe they are racists and are ignorant of the nature of their racist thinking. Cliven Bundy, the Nevada rancher who has refused to pay his fees for grazing on BLM land – our land – and does not recognize the existence of the U.S. government, may fall into that category, with his seemingly unconsciously racist comments about black folks. Donald Sterling, the wealthy owner of the LA Clippers, on the other hand, was recorded making private racist comments that went viral; but only then did it become public that he had for decades practiced housing discrimination against Blacks and Latinos in his Los Angeles properties and that the NBA had tolerated it all those years. Kareem Abdul-Jabbar exposed the hypocrisy of public anti-racism a day or two later in his Time Magazine opinion piece on the reaction to the Sterling exposure. Then the NBA fined Sterling $2.5 million and banned him for life.

Liberal white folks don’t like to hear racist talk, but they routinely tolerate institutionalized racism. And smart “closet” racists know how to appear “politically correct” in order to avoid the uncomfortable reactions of more sensitive people, despite their racist behavior and attitudes, which are re-coded to appear to the unsuspecting ear to refer to something other than race. Some, like Sterling, talk quite differently in private and in public settings. Magic Johnson expressed hurt and disgust with that hypocrisy in an interview after the “Sterling tapes” were revealed, having been given public ‘respect’ by Sterling before his private racism directed at Magic was revealed. Sterling embraces his racism but tries to avoid the embarrassment of its expression in public. Cliven Bundy, unused to the public limelight, appeared unaware and divulged his personal thinking unfiltered, then was made partially aware by the public reaction and tried to ‘dial it back.’

But we make a big mistake if we think we can understand racism in America by assuming that “racists” are only those people who make racist statements in public. Structural institutionalized racism is alive and well in America, and it is far more important than the naïve racism of fringe isolates like Cliven Bundy, who only recognized the damage to his image when public exposure showed him his own racism. What these different cases can teach us is that personal racism can take many forms and may have different levels of self-consciousness attached to it, but it is not the essence of contemporary racism in America.

The politically correct re-coded racists are in total denial, at least publicly. By avoiding traditionally racist language, they think they are immune to the charge of being a racist, even as they harbor feelings of superiority over the Other. They think of racism as merely a matter of proper speech. But in fact these folks are the bread and butter of institutional racism in America – an endemic system of inequality whereby the racism is built into the social and economic culture and institutional practices of society. In some respects it is as widespread as ever. Many ‘liberals’ voted for Barack Obama at least in part to demonstrate their lack of racism, which in polite company allowed them to proclaim a “post-racial” America – besides Obama emulates intellectual white social liberalism, with which he charmed them.

Closet racists re-code their racism in various ways. All the attacks on Obama as being a ‘socialist,’ a Muslim, a Kenyan, by ‘birthers,’ et al, merely excuse their closeted racist belief that a black man cannot legitimately be President of the United States of America. They do all they can to explicitly not recognize him as president. Their vision is of a White-Christian Nation, not the multi-racial, multi-ethnic society that we have become. But in a twisted way, the joke is on them. This president may be a good deal smarter than Dubya, but he is as strong a supporter of the corporate-state plutocracy as any president – in that sense, he is as ‘white’ as anyone, since it is the white male who symbolically represents the status quo anti. Remember, race is a social construct – in both biology and anthropology it has failed the test as an empirically viable concept, but it is a social reality.

America’s mostly unacknowledged status as Incarceration Nation, the system of actual apartheid embodied in the increasingly corporate prison-industrial complex, with the highest number of prisoners in the world, sustains our racism. Structural racism is a set of institutional practices that produce racist outcomes of inequality whether or not the individual actors are personally racist. As Michele Alexander has so perceptively demonstrated, a New Jim Crow system of segregation – facilitated by the sustained system of residential and educational segregation and media indifference – has emerged mostly from the drug war, which incarcerates massive numbers of mostly boys and men of color – despite equivalent rates of drug use by whites – producing in effect a new caste system stigmatizing and isolating many young blacks and browns from the economy and society.
Donald Sterling and Cliven Bundy are best understood as anachronisms, although Sterling’s wealth institutionalizes his personal racism. We need not be so offended by them, for their personal pathologies are not today’s real problem of racism. They are relics of an openly racist past in which racist language was merely the cultural expression of an openly self-acknowledged oppressive system. Today’s re-configured system of racial oppression and re-coded racist language pose a greater danger by their camouflage. White liberal reactions of disgust over these relics reflect a discomfort with what may be a subliminal recognition of the continued racial caste system in their imagined “post-racial America.” Where are they when white male millionaire congressmen repeatedly engage in a strategy of degradation and obstruction that no white president has ever experienced? They blame it on “party politics,” not the re-coded racism they tolerate.

Collapse: Converging Crises and the American Oligarchs

Two new studies now being reported converge in frightening ways with the most recent data on climate disruption. Their results reflect the growing likelihood that the converging crises of economy, social justice, and ecology will lead to the collapse of civilization and even the sixth mass extinction. (Kolbert, 2014)

First, Gillens and Page (2014) studied empirical records in the period from 1981 through 2010, and showed that the outcomes of national policy debates have had almost no relationship to the preferences of the general population, but are highly correlated with the interests of economic elites; the obvious inference is that we live in an oligarchy with the trappings of formal democracy – not exactly news. But previous research results were mixed and did not settle which model of political process is valid. The researchers found that the opinions of citizens of median income and lower have had no bearing on social policy outcomes. But the interests of economic elites (who happen to fund most of politics) are clearly reflected in law and policy. Uncomfortable as it is to admit, oligarchs rule, and like the Russian oligarchs, many are ruthless.

Second, a new study of the dynamics between human activity and nature, using mathematical models based on historical examples, predicts the collapse of civilizations when economic stratification or ecological strain surpass carrying capacity. Either economic stratification or ecological strain can independently lead to collapse. Together, well… But collapse can be avoided if a sustainable rate of resource use is achieved and if resources are distributed equitably, so that carrying capacity is not exceeded. (Motesharrei, et al, 2014) Industrial societies today, especially the U.S., have fundamentally failed to even work seriously to find a path to either economic equity or ecological sustainability as climate chaos fast approaches. (Politically motivated public gestures of little substance don’t really count.)

The latest International Panel on Climate Change (IPCC) reports gently urge an accelerated response to climate disruption because the indicators continue to accelerate. But with lags before effects of emissions are observed and felt, and positive feedback loops accelerate – dark arctic seas absorb much more solar radiation than reflective ice sheets – we are surely approaching a tipping point where mitigation efforts will not be enough and adaptation sufficient for survival will be nearly impossible. Like all previous reports, current assessments underestimate the urgency of accelerating climate disruption.

We are in a multi-faceted trap. The oligarchs continue to grab all they can, ignoring the signs of the end of the wealth they so desperately want to control. The corporate media continue to ignore the obvious, slowing public awareness of the immediacy of the human existential crises. And as the politicians are locked into their self-aggrandizing roles as the agents of the oligarchs, the people have no say over political decisions that affect human survival.

The economic-growth machine and its ideology grind on with full political support from the agents of oligarchy (congress and president) as if the old normal still applies. Interestingly, when we look at historical examples of the collapse of civilizations, such as the Maya and the Easter Islanders described by Jared Diamond, it is clear that collapse was not inevitable. Rather, it resulted from the failure of elites to adapt social behavior to changing conditions of climate and/or ecology as they continued down their paths of self-glorification. The difference today is that it is no longer some small ecological niche that is disrupted; it is the entire planet.

Only massive public mobilization and rapid reorganization leading to ecologically viable and equitable economics has a chance of staving off the collapse of civilization. It is hard to imagine how such massive change could be accomplished. The American social and economic mobilization at the outset of World War II, comes to mind, but the elites and the people were united and the transformation required was much smaller, as were the stakes. We live in perilous times. We must act, together, now.
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Diamond, Jared, (2005) Collapse: How societies Choose to Fail or Succeed. New York: Penguin Books, 2006.

Gillens, Martin and Bejamin I. Page, (April 9, 2014, unpublished paper) “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens,” Forthcoming, Fall 2014 in Perspectives on Politics.

Kolbert, Elizabeth, (2014) The Sixth Extinction: An Unnatural History. New York: Henry Holt.

Motesharrei, Safa, Jorge Rivas, and Eugenia Kalnay, “Human and nature dynamics (HANDY): Modeling inequality and use of resources in the collapse or sustainability of societies.” Ecological Economics 101 (2014) 90-102.