Letter to Barack #15: Better Science, Better Policy

Dear President Obama,

The questionable epistemological status of mainstream economics is displayed daily in the press and on television as scholars trained in that discipline purport to derive explanations of the current crisis (and associated predictions and prescriptions) from a single prior case or period. For some everything went wrong with the deregulation of recent decades. For others today´s case is comparable to the recession of 1981 and 1982, or to the Great Depression of the 1930s, or to the crisis of 1873. The chairperson of your Council of Economic Advisors distinguished herself by studying monetary and fiscal policy in the 1930s, and she is on record as encouraging graduate students who wish to advance in the profession to do detailed empirical studies of particular historical cases similar to those she does herself.

If one accepts the two premises that (1) Observed phenomena do not reveal the causal powers that produce them, and (2) What is happening now, as we move from a chaotic present to an uncertain future, is not a repetition of any single pattern of past events; then we must conclude that comparisons with the Great Depression or any other period or case are not likely yield reliable guidance as we endeavor to select among the options available to us those present actions which will produce a better future.

To begin to dissolve economics into a broader socioeconomics that will be capable of explaining the phenomena we are experiencing, and of contributing to a more reliable guidance of social reconstruction, it helps to consider circumstances in which it is logically valid to draw general conclusions from a single case. When biologists study a single specimen, they have good reasons for believing that their findings will be true of all individuals of the same species. A beginning student who dissects a frog finds structures common to all frogs of the species dissected. A frog, unlike a Great Depression, is made of bones, tissues, and organs that repeat themselves over and over again in numerous similar cases.

Why? Because living beings are built according to instructions encoded in DNA. In a normal environment, a given seed will grow into a given plant or animal.

The ecohistorican Thomas Berry frequently remarks that the human species is biologically coded to be culturally coded. The same word used in speaking of DNA, the word ¨code,¨ can be employed to refer to cultural codes that organize behavior (norms, rules, customs, habitus). Up to a point the anthropologist can echo the biologist in generalizing from a single specimen, learning about a culture by interviewing and observing a single informant who has internalized its codes.

When applied to economics (or, rather, to dissolving economics into transdisciplinary social science) an approach that starts by detecting and articulating cultural structures built from codes (¨¨symbolic structures¨¨ in the terminology of Jürgen Habermas) calls for giving greater attention to what Joseph Schumpeter called ¨institutional framework¨, and for contextualizing what he called ¨¨analysis.¨ When Smith and Ricardo assumed that society divided into three classes of human beings: (1) the landowners, (2) the merchants and manufacturers, and (3) the laborers; they assumed what Schumpeter calls an institutional framework. When they took it to be the task of the science of political economy to explain the natural and proper division among the social classes of society´s annual produce (or, what for them was the same thing, its annual revenue), they were doing what Schumpeter calls analysis. They were proposing a theory of rent, a theory of profits, and a theory of wages.

In Schumpeter´s muddled mind it was possible to write a history of politically neutral economic analysis, devoted to explanation while rigorously avoiding prescription, while assigning to a separate discipline, sociology, the study of the constitutive rules of the institutions that created the phenomena observed. But we will not make much progress in improving the performance of our institutions until we reform our social sciences to bring the basic rules of institutional frameworks into focus; for they are the principal causes of the phenomena observed.

Dissolving economics into a transdisciplinary social science that studies the causal powers of cultural coding contributes to solving what Michel Foucault called the principal political problem of our times. Foucault remarked that the principal political problem of our times was lack of imagination. His remark describes the debates in the United States Senate and House of Representatives on the stimulus package, which were almost entirely about one or another proposal to get the economy moving again by restoring the confidence of the investors who invest, restoring the confidence of the consumers who buy, restoring the confidence of the bankers who lend, and restoring the confidence of the executives who manage firms.

Retiring economics from its splendid and disastrous isolation, connecting it with sociology and with history and all the arts and sciences, helps to free us in many ways. One of those ways is that it frees our imagination and therefore our vision. We see that basic cultural structures might change; we see that they have changed (“Always historicize!” wrote Fredric Jameson): we open our eyes and see that human behavior is in practice not nearly as dominated by profit-seeking as it has been in mainstream economic theory from Smith to Friedman.

We see the present crisis as an opportunity. It is an opportunity to wean ourselves from our excessive dependence on the for-profit subsector of the private sector. We see that the public sector and the non-profit sector can take up the slack when for-profit private business sags. Instead of chasing the will-of-the-wisp ¨confidence¨, which always depends (as Keynes taught us) not on any rational or objective standard whatever, but on people´s subjective perceptions of other people´s subjective perceptions, we can come down to earth and focus on the physical task before us: building sustainable cultures that mobilize resources to meet needs.

We can be thankful that just as global warming is getting out of control, while human population growth is continuing to spiral out of control, and –to generalize a series of ecological warning signs without naming each specifically—just as we are on the verge of destroying our habitat and therefore destroying our species; a financial crisis has come to save us. The financial crisis is slowing down the profit-driven machine that is destroying us. A better epistemology helps us to see the financial crisis as an opportunity to let the private for-profit economy slow down, as an opportunity to bring that machine under ethical and rational control, and as an opportunity to supplement it with other ways (public and non-profit) to mobilize resources to meet needs. The present crisis is our opportunity to become a sustainable species in a sustainable biosphere.

Peace and all good,

Howard R.

In Place of Folly: Letter to Barack #14

Dear President Obama,

 

            You know that I do not expect any substantial improvements in foreign policy until there are substantial and constructive changes in the structure of the economy.  Here  --with breathtaking simplification—is a nine point outline of a plan for achieving substantial and constructive changes in the economy.

 

First,  let the for-profit private sector shrink.   Rely on the standard rational responses to the signals the market is sending when it determines that a business is no longer profitable:  bankruptcy, downsizing, layoffs.

 

2.  Rewrite the reorganization chapters of the Bankruptcy Code to make it easier to downsize without going out of business completely.   Repeal the dogmatic requirements for prompt and full payment of administrative, secured and priority creditors.  They too frequently make reorganization impossible.  

 

3.  A general (“Scandinavian”) principle:   No flesh-and-blood human being should suffer from the demise of a legal fiction.   The sunset business entity (the legal fiction) ceases to exist after it shuts down operations and files its last tax return.   But the flesh-and-blood people who worked for it should still be regarded as members of what Martin Luther King Jr. (following Josiah Royce) called “the beloved community.”    They should be, for example,  funded to go back to school while they are between jobs.  (Lifelong learning.)

 

4.  Compensate as much as possible for the loss of jobs in the for-profit private sector by increasing employment in the public sector and in the “third” sectors (variously defined).  Job creation to compensate for job loss includes the greening programs you are already proposing, the human services programs Martin Luther King Jr. regarded as an inexhaustible source of employment opportunity,  self-employment, micro-credit, nonprofits including schools and hospitals,  thrift shops, recycling centers,  community supported agriculture, cooperatives, employee-owned businesses….and others.

 

5.  Build inclusive local communities that provide basic security for their members while depending less on sales, less on money-based ties, less on market relationships.    See www. gift-economy.com.   This category includes many kinds of self-help, do-it-yourself projects, and do-it-with-friends projects; it includes faith-based cooperation,  and neighborhood (territory-based) cooperation, e.g. in housing, in growing and distributing food, in child care, in care of the elderly.    You learned all about this in your early Chicago years before you went to law school.

 

6.  Nationalize the Federal Reserve Bank and the biggest private banks.

 

7. Define corporations as social institutions with social responsibilities, whose incomes should be used for socially legitimate purposes (cf. Keynes´  “euthanasia of the rentier class”)   The corporate mission statement should define creating employment as achieving a corporate goal,  not only as a cost. 

 

8. Fund government (and charitable foundations) with rents from natural resources and other rent-yielding assets,  collected as severance taxes, as other taxes, as royalties, or as revenue from outright ownership.     Income from taxes on wages and profits is declining; printing money is inflationary; borrowing cannot go on forever; therefore the public purse must be filled to an increasing extent with income from rents.

          

9.  Dissolve the World Trade Organization.   In general reclaim American sovereignty and help other nations to reclaim their sovereignties,  so that people can decide how they want to live instead of being compelled to live as the global economy dictates.    

 

           Compared to the currently prevailing mad rush to make ailing private for-profit businesses profitable at any cost, the nine point plan briefly outlined above has the following six advantages:

1.  It will work.

 

2. It will lead toward a mixed economy, which is where we should be going in any case.

 

3.  It will tend to make democracy real by moving toward liberating the governance process from the overwhelming systemic imperatives to establish a regime of profit accumulation and to compete in the global economy at all costs.

 

4.  It will tend to make a peace economy possible by making the military-industrial complex and the global projection of military power unnecessary.

 

5.  From an academic point of view, it relies on an intellectually defensible transdisciplinary social science, wider in scope than the prevailing mainstream economics that has been for many years discredited by the critiques of logicians and philosophers of science.

 

6. Parts of it can be implemented by civil society and local governments without waiting for the federal executive and congress to see the light.

 

 

One more point:  in your daily conversations about the economy with Larry Summers please talk to him as well as listening to him.   Repeat what you said when you spoke to Warren Buffet and his Wall Street friends.    Tell him about the higher purpose.   Tell him about revising the rules of the game from time to time to make them better serve the higher purpose.   Tell him about your experiences with Asset Based Community Development  when you were a community organizer in Chicago.

 

 

peace and all good,

 

Howard R.