Friday, 28 June 2013

Rethinking Economics: a New Conference this Weekend

For those of you who aren’t already there, our Rethinking Economics conference began in London this afternoon. The conference will be running all weekend and we would love to have you join us.

If you’d like to find out more about this event, Yuan Yang has written a guest blog post for one of our partners, the New Economics Foundation (NEF): Check the schedule at!schedule/cihc and come join the conversation.

We would love to hear from you, whether you are attending the conference or not. Please fill out our survey, which can be found at!yourthoughts/c187x.

Thursday, 27 June 2013

Rethinking for Action

Author: Diana García López

Teaching economics is a political act. What you discuss (or not) in your seminar, what you include (or not) in the syllabus, shapes the minds of generations of economists. Academics create and perpetuate economic theories that inform and ultimately justify policies that affect society as a whole.

The last decades have seen the economics syllabus become narrower and narrower. A student who studied economics in the 60s would have received a much broader education than many UK undergraduates today. Recently, a lecturer in economics at a leading UK university even compared the fading of non-neoclassical schools of thought to the abandonment of treatments like leeches, tobacco smoke enemas and homeopathy by the medical profession. His students are not systematically exposed to the history of economic thought; some of them have never heard of Keynes in their lectures (let alone of Marx), and are frustrated because what they are taught has little relationship to the current real-world economic problems that attracted them to the study of economics in the first place. Critical thinking is not encouraged; prospective young lecturers are valued in terms of how much they have published in ‘the correct’ few mainstream journals.

Meanwhile, the UK (and Europe) has got stuck in a socio-economical and political impasse in which new answers are needed urgently. Suddenly the economics jargon has invaded the news and concerned citizens have become amateur economists, trying to understand what is going on, with the perception that economics can no longer be left exclusively to the supposed experts who “didn’t see it coming”. We have thus seen the development of a broad range of civil-society groups who share a focus on practical solutions and action, while differing in methods, scope and specific objectives (e.g. New Economics Foundation, Positive Money, Jubilee Debt Campaign, World Development Movement, Strike Debt, Robin Hood Tax, City Reform Group, UK Uncut, to name a few).

Successful efforts to increase coordination and exchange have taken place in the last few weeks, for example at the Transforming Finance conference [10 May 2013] that brought together academics, finance professionals and campaigners “to discuss how to make finance work in the long-term interests of the people and planet”. Last Saturday [22 June 2013], after weeks of preparation including an endorsement by 63 economists, Central Hall in Westminster saw 4000 campaigners from different backgrounds historically join forces in a People’s Assembly against austerity.

We are witnessing how the government’s budget cuts target the poor and the weakest in society – e.g. two thirds of people hit by the bedroom tax are disabled (as if it was the poor who had the money to reduce the debt!). The program to dismantle the welfare state is being implemented not only in the UK but all across Europe; entwined with the vicious circle of bad debt it leads to social collapse as the unfolding Greek tragedy shows. The respective ‘opposition’ parties across Europe have also accepted the “they/we deserved it; there is no alternative” belief. Only a few brave black sheep are left, armed with facts that nobody wants to hear.

The UK alone boasts 3 new food banks every week, with 13.5m people under the poverty line, 2.5m unemployed, 1.8m households on council house waiting-lists, and 25000 elderly people freezing to death at home every year because they can’t afford to pay their heating bills, just to mention a few figures. To me and to many this is not what a civilized society looks like.

Answers are needed to overcome this worsening situation, and in my opinion students and academics have a moral responsibility to participate in the production of such practical answers. As with everything we do, there is a whole spectrum of positions, each of which implies some degree of contradiction. The question is what degree of contradiction one is prepared to assume.

The clock of history is ticking; an answer is expected from the economics academics. I reckon it’s time to take a look outside the academic bubble, to descend from the high tower and reconnect the economics discipline with its roots – with the society it was always meant to serve.

Wednesday, 26 June 2013

Economics needs feminism

Author: Yuan Yang

Economics is a feminist issue. The structure of the economy reproduces gender roles; what’s more, the concepts we use to talk and think about the economy reflect our patriarchal understandings. Yet there aren’t many feminist economists.

What does feminism have to bring to economics that is so difficult for the profession to swallow? The first form of feminist economics refocuses the topics of economic research. One can see gender differences as barriers to economic growth: the Food and Agriculture Organisation estimated that 100 million malnourished people could be sufficiently fed through overcoming the misallocation of resources in agriculture: within the same household, men tend to hoard and over-use fertiliser, whereas women don’t receive an efficient share to use on their plots. Educating women is a cost-effective way of improving health and education outcomes for children, who then become more productive.

So far, this is economics as usual, only with its gaze scrutinising a part of society that is often ignored: women’s lives. Grown presented the so-called “business case” for gender equality. Investing in women boosts growth, therefore we should invest in women. This flags the question: why are women not part of the “business” that we are trying to improve? Economics as a profession is shamefacedly noncommittal about its ultimate political values, and the “business case” for gender equality tries to fit into this shifty-eyed academic scene. But achieving equal access to capital, equal bargaining power in the labour market, and dismantling mechanisms of oppression are all good aims in themselves, and not only as tools to inch up our GDP measures.

This brings us to the second form of feminism in economics: it broadens our conception of what an economy is. When we think of economic production, we usually think of the production of material goods in the formal, remunerated market. Feminist economists also consider “social reproduction”, the process of (re)producing the households and workers that compose the economy. For example, care work is the production of labour by means of predominantly female labour in the unpaid household sector. And as much as we need to invest in fixed capital like machinery for economic production to continue, we also need to invest in social reproduction.

Humans need care. Professor Stephanie Seguino talks about the effect of austerity programs on eroding “social infrastructure”. This is the infrastructure created by care work that is either paid for by the government (child benefits, social care, education), or the result of the unpaid labour of parents – predominantly mothers who face a gender wage gap that makes it individually rational for them not to participate in the formal economy, plus a host of social expectations about housework and care.

Now we are really getting somewhere. The third and most exciting form of feminist economics is at the level of methodology and the structure of economic thinking. Neoclassical economics deals with closed transactions, comparisons and equivalents. Its fundamental axioms of rationality require commensurability of different goods into one utility measure; its methods of analysis presuppose that all decisions are choices between commensurable alternatives. Does, for example, the fact that childrearing labour is largely unpaid and a long-term commitment to one non-exchangeable institution of love instil a fundamental inequality in the social economy? Is our relationship with our children and partners not analysable in neoclassical economic terms? Latour writes of anthropologists who look at “primitive” economies, “[they] recoil in horror at the imbroglios which are described among these others. ‘Oh dear,’ they sigh, ‘these poor people will never get out of this mess, they are always tied up, attached, indebted, hooked, mixed up, entangled.’” The state of those who participate in social reproduction can be characterised by this entanglement.

The interdependence and interrelatedness of humans engaging in social reproduction contrasts with the individualism of economic methodology, which takes one agent (or more problematically, one unified household) as the unit of agency and analysis. Welfare economics can barely handle ‘other’-referring preferences – preferences which mean you care about other people’s consumption. What would a feminist economic methodology look like? I don’t know, but I think we need to begin the journey.

Feminism does not only reorient the economic enterprise to map a broader human landscape; it lets us see more deeply, and asks us if we are really looking in the right way at all.

Supercasinos - based on bad economics

Author: Sam Wheldon-Bayes

The supercasino controversy in the UK is a classic example of bad economics being applied to a policy under consideration. As a result, the government utterly failed to properly grasp the wide-ranging social and economic consequences of the proposed policy – to allow massive Las Vegas style “destination casinos” in the UK.
Gambling addiction is, without a doubt, awful. This hardly seemed to be taken into account when the enormous new gambling venues were proposed, however. Policymakers were not considering the terrible problems that the casinos might cause, they were instead fixated on comparing a few comforting, easily-measurable variables. The entire project seemed to be based on whether on not the construction costs outweighed the direct income from the casinos and the number of jobs created.
Having concluded that these three variables indicated that the casino was a good idea, enthusiastic New Labour politicians would not be moved in their support for the casinos. It took a change of Prime Minister from Tony Blair to Gordon Brown to halt the badly thought-out project. Why did they become so enamoured with these hulking gambling stations? What caused so many politicians to disregard the obvious negative side-effects of constructing these casinos? After all, every job created is created with money taken in from a gambler. That gambler stands at risk of becoming addicted to gambling, potentially ruining not only their own lives, but the lives of those around them too.
There was some rumour of corruption surrounding then-deputy PM John Prescott, who had spent several weeks holiday on the ranch of a man who wished to construct the first supercasino in what was then the disused Millennium Dome and is now the wildly successful O2 Arena. Given that the first casino ended up being planned, before the policy was scrapped, for construction in Manchester, this does not seem likely to be the sole explanation of the government’s folly.
Instead, I believe it relies on economics’ unhealthy obsession with measuring things, and the even more unhealthy tendency to simply ignore that which is too difficult to be measured. Taking the example of supercasinos, the point is illustrated rather well. It is fairly easy to consult with the potential casino operators on their expected staff numbers, and hence get a figure for the number of jobs you expect to create. It is much harder to go about defining, measuring and predicting the number of lives that will be negatively impacted by gambling addictions of varying degrees.
This leaves us with a situation where one was the central justification of the policy (and creating jobs is a valid government objective) yet the other – the primary downside of the policy – was basically ignored by those responsible for it. Trying to measure the human and social cost of the policy would be tremendously hard and imprecise – but that does not mean it is worth doing.
Gambling problems are not only prohibitively expensive for the person suffering from them, they have many other side effects. They can potentially ruin personal relationships with significant others, children, family and friends. The knock on effects, for example, that a gambling addiction will have on the education of the children of those affected, will not have been taken into account during the policy creation.
Illegal activity to obtain money to gamble with is also, unsurprisingly, common among problem gamblers, which will have many unanalysed negative consequences. Other mental health issues become more likely in problem gamblers, which are desirable to avoid for their own sake and also for the strain treating them puts on the national health budget and dealing with them puts on society at large.
In short, the UK government was guilty of massively underestimating the downsides of a particular policy due to the fact that the upsides of that policy were far more easily measurable than the downsides. Thankfully the proposed policy was abandoned eventually, but it came far closer to reality than it ever should have done. We should rethink economics to place more emphasis on the human and social cost of decisions that we all too often characterise as purely economic.

A global revolt in economics

Author: Ben Waltmann

On the 6th of April this year, students at the École des hautes études en sciences sociales (EHESS), one of France’s foremost higher education institutions in the social sciences, organised a general assembly (Etats Généraux) to discuss alternatives to the current orthodoxy in economics education. In September last year, more than 400 German students participated in apluralist alternative event (Pluralistische Ergänzungsveranstaltung) to the yearly meeting of the German Economic Association (Verein für Socialpolitik), aimed at providing a forum for the discussion of economic ideas outside the mainstream. Next weekend, students, academics, professionals and imaginative citizens will come together in London to rethink economics and economics education at the Rethinking Economics conference. Throughout the world, students of economics are protesting against the way economics is currently taught, and trying to find new and different ways in which economics could be done differently. These are not one-off events: There is a growing global student movement aimed at fundamentally reconsidering the way we look at economics and the economy.
The movement began in June 2000, when a group of students in France published a manifesto in which they called for an end to what they described (in problematic terms) as the “autism” of economics as an academic discipline. In particular, they criticized economics’ “uncontrolled” use of mathematics as if that were an “end in itself”, its failure to engage with economic reality, and the perceived dogmatism of and lack of intellectual pluralism in economics teaching, leaving no room for critical thought in general and alternative approaches to economics in particular. Instead, they demanded a different economics that would use a diverse set of tools to capture the complex reality of actual economies and thus be scientific without being scientistic – that is, without uncritically endorsing methods simply because they are believed to be the methods of the natural sciences.
The student manifesto was soon matched by a petition from economics professors in France, supporting the students’ demands. These protests found a large echo in the French media and found official recognition in the form of a committee instituted by the French culture minister to investigate the students’ and professors’ complaints. Most importantly, however, these events led to the formation of a global movement in favour of ‘post-autistic’ economics comprising both students and academics.
While the label ‘post-autistic’ has by now thankfully been abandoned, the student movement in particular is alive and well, and indeed seems to be becoming larger and more vocal every year. The German Network for a Plural Economics now counts 12 local chapters at universities throughout Germany, and not all German groups of economic rethinkers are even affiliated with the network. Similar student groups exist not only in the UK and France, but also as far afield as Canada or Chile. Furthermore, there is now a global infrastructure in place for networking between rethinkers. The Institute of New Economic Thinking (INET) founded its Young Scholars Initiative (YSI) in the course of its 2012 conference in Berlin, which has now developed into a global network of young economic rethinkers. In the same vein, the World Economics Association (WEA), a network of economists associated with the ‘post-autistic’ movement, has recently launched its Young Economists Network (YEN).
This year, the global student movement for rethinking economics is stronger than ever. On the same day that the French students were holding their general assembly, students on the other side of the world were discussing much the same issues at the New Economy Summit at the University of Vancouver, Canada. Next weekend, at the same time as the Rethinking Economics conference in London, our sister conference with the same theme will be taking place in Tübingen, Germany – the second in a series of yearly conferences organised by the Tübingen team. On July 19-21, young economic rethinkers will be exploring ideas for a new economy and a different economics at ReRoute, a conference in New York City organised by the American New Economics Institute.
The reasons are clear: all the issues highlighted by the French students in their 2000 manifesto remain unresolved. Economics teaching is still often narrow and dogmatic, mathematics still seems to be treated by many in the economics profession as an end in itself, and academic economics still has little to say on what happens in the actual economy. More importantly, however, the global crisis has made it painfully obvious that many orthodox macroeconomic models are woefully inadequate, and that the understanding of the economy offered by mainstream economics has neither enabled economists to predict the crisis nor does it allow us to avoid seemingly interminable recessions.
As students and academics, we can together develop visions and lobby for a more pluralist and less dogmatic economics and economics education. Only in an environment where different approaches can flourish is it possible for an old paradigm to be challenged. Only then is there any chance for academic economics as it is to be turned into a new economics that would be more relevant for economic policy.

Saturday, 22 June 2013

Why is capital so much freer than labour?

Author: Sam Wheldon-Bayes

It is often said that “history is written by the victors”, yet those who are winning also get to write the rules of the present. In the rules of international trade drawn up by rich countries and, through a combination of carrots and sticks, forced onto poor and middle-income countries, it is very hard to restrict the movement of capital. In short, international institutions like the IMF, World Bank and WTO make it very difficult for a country like Nigeria to prevent, say, a British company from investing in it.

The neoliberal consensus decreed that only by allowing countries and companies freedom to invest as they please would economically efficient outcomes be achieved. To prevent them doing so would be to prevent the market from operating freely, which would be both morally and pragmatically wrong. However, as Chang says in 23 Things They Don’t Tell You About Capitalism, “there is no such thing as a free market”. Whenever we say “free market” there are always constraints. Even in Hong Kong, ranked 1st in the world for economic freedom, someone wishing to sell marijuana or counterfeit iPhones would quite quickly begin to feel things are less “free” than they first seemed.

Another area of economic activity which is tightly controlled is labour. While rich countries are extremely keen to increase the freedom of labour in some senses – like reducing the power of trade unions in factories producing cheap garments – they are much less willing to open up their labour markets to migrant workers. In contrast to Nigeria’s inability to restrict British capital, the UK is able to place huge restrictions on Nigerian labour and chooses to do so.

Now, there are good reasons to restrict the movement of labour, to a degree. Social welfare programs – seen by many as vital for a functioning society – would quickly become unfeasible if the entire world were allowed to use them. Local cultures would likely suffer if overwhelming numbers of newcomers arrived, creating potential hostilities between the newcomers and original populations. These, among others, are compelling reasons not to allow free migration.

There are also strong reasons – beyond naked patriotism and self-interest of local elites – to restrict free movement of capital. Just as an influx of foreign labour can be problematic, an influx of foreign capital can be too. It can often be much easier for governments to work with domestic companies than foreign ones. People are not the cold-hearted rational actors that some economists assume them to be – many CEOs, despite their interest in profit, will still feel a certain loyalty to the society they are from. Even if they do not, they are likely to have more of an interest in the general health of their society for purely selfish reasons than foreign managers. This means that a certain amount of arm-twisting and cajoling in the national interest is likely to be possible – much more so than with a foreign firm.

This sets up a strange dichotomy where “free markets” trumps all as an argument when forcing through rules which benefit the citizens of rich nations, yet not for citizens of poor nations who would benefit greatly from free migration. In fact, there is scant empirical evidence that free movement of capital is, as the Western institutions continue to insist, good for poor nations. Two of the 20th century’s outstanding economic growth stories – Japan and South Korea – were achieved while directly contradicting this doctrine.

I am arguing neither for free migration nor complete restrictions on FDI. However, it is grossly hypocritical of the West to force rules onto poorer nations using argumentation that they themselves do not accept all of the time. We must rethink economics to question why it is that arguments we accept in one domain, we outright reject in another.