Wednesday, July 30, 2014

Ha-Joon Chang on How To Use Economics

Ha-Joon Chang, renegade economist and author of the indispensable 23 Things They Don't Tell You About Capitalism (only 23?) is back with a new book dropping some mad common sense:
1. Economics was originally called 'political economy' 
Economics is politics and it can never be a science. Yet the dominant neoclassical school of economics succeeded in changing the name of the discipline from the traditional 'political economy' to 'economics' at the turn of the 20th Century. The Neoclassical school wanted economics to become a pure science, shorn of political (and thus ethical) dimensions that involve subjective value judgments. This change was a political move in and of itself. 
4. Britain and the US invented protectionism, not free trade 
Britain had the most protected economy in the capitalist world in the late 18th and the early 19th century. Much of this protection was provided in order to promote British manufacturers against superior foreign competitors in Europe, the Low Countries (what are Belgium and the Netherlands today) in particular. 
The US went even further. Taking inspiration from British protectionist policy, Alexander Hamilton, the first Treasury Secretary of the US (that's the guy on the ten-dollar bill) developed a theory called the 'infant industry argument' - the view that the government of an economically backward nation should protect and nurture its young industries until they 'grow up' and can compete in the world market. Hamilton died in 1804 in a pistol duel, but the US adopted protectionism in the 1820s and remained the most protected economy in the world for most of the next century. 
7. Capitalism did best between the 1950s and the 1970s, an era of high regulation and high taxes 
Despite what we hear these days about the detrimental economic effects of high taxes and strong government regulation, the advanced capitalist economies grew the fastest between the 1950s and the 1970s, when there were a lot of regulations and high taxes.Between 1950 and 1973, per capita income in Western Europe grew at an astonishing rate of 4.1% per year. Japan grew even faster at 8.1%, starting off the chain of 'economic miracles' in East Asia in the next half a century. Even the US, the slowest-growing economy in the rich world at the time, grew at an unprecedented rate of 2.5%. Per capita income for these economies collectively have since then managed to grow at only 1.8% per year between 1980 and 2010, when they cut taxes for the rich and deregulated their economies. 
8. The internet was invented by the US government, not Silicon Valley 
Many people think that the US is ahead in the frontier technology sectors as a result of private sector entrepreneurship. It's not. The US federal government created all these sectors. 
The Pentagon financed the development of the computer in the early days and the Internet came out of a Pentagon research project. The semiconductor - the foundation of the information economy - was initially developed with the funding of the US Navy. The US aircraft industry would not have become what it is today had the US Air Force not massively subsidized it indirectly by paying huge prices for its military aircraft, the profit of which was channeled into developing civilian aircraft. 
13. Most poor people don't live in poor countries 
Currently, around 1.4billion people - or about one in five people in the world - live with less than $1.25 per day, which is the international poverty line (below which survival itself becomes a challenge). 
But most poor people do not live in poor countries. Over 70% of people in absolute poverty actually live in middle-income countries. As of the mid-2000's, over 170 million people in China (around 13% of its population) and 450 million people in India (around 42% of its population) lived with incomes below the international poverty line. These show the enormity of challenges that the two most populous countries face.
13 Facts You Didn't Know About Economics (Huffington Post UK)
Seung-Yoon Lee: You have said that “economics is a political argument,” that you cannot really separate economics from politics. Even the concept of “free market” is determined by politics. “What is free” is determined by society and through the political process. How do you come to this conclusion? 
Ha-Joon Chang: When I say this: I am seeking to debunk this widespread view, propagated by the current generation of economists, that somehow you can neatly separate economics from politics. They say, “This is the area of the market, and no political logic should intrude.” But actually, what you count as a political logic or market logic partly depends on your economic theory. Free market economists frequently see minimum wage legislation as mere political intervention. However, there are decent economic theories which show that, under certain circumstances, minimum wages can be beneficial, as it makes workers more productive. Although it might create more unemployment in the short run, workers become more productive and you have higher output in the long run, and you can employ more people as a result. I’m not necessarily defending that theory, but depending on your economic theory, you could say that what you might call a political logic can be an economic logic. 
But more importantly, all markets are in the end politically constructed. A lot of things that we cannot buy and sell in markets used to be totally legal objects of market exchange - human beings when we had slavery, child labour, human organs, and so on. So there is no economic theory that actually says that you shouldn’t have slavery or child labour because all these are political, ethical judgments. When the market itself is constructed as a result of some political and ethical judgment, how can you say that this area can somehow be separated from the rest of society and the political system?
Ha-Joon Chang: Economics Is A Political Argument (HuffPo)
Much of economics these days is about the market. Most economists today subscribe to the Neoclassical school, which sees the economy as a web of exchange relationships - individuals buy various things from many companies and sell their labour services to one of them, while companies buy and sell from many individuals and other companies. 
But the economy should not be equated with the market. The market is only one of many different ways of organising the economy - indeed, it accounts for only a small part of the modern economy. Many economic activities are organised through internal directives within firms, while the government has influences - and even commands - over large sections of the economy. Governments - and increasingly international economic organisations like the WTO - also draw the boundaries of markets while setting rules of conduct in them. Herbert Simon, the founder of the Behaviouralist school, once estimated that only about 20% of economic activities in the US are organised through the market. 
The focus on the market has made most economists neglect vast areas of our economic life, with significant negative consequences for our well-being. The neglect of production at the expense of exchange has made policy-makers in some countries overly complacent about the decline of their manufacturing industries. The view of individuals as consumers, rather than producers, has led to the neglect of issues like the quality of work (e.g., how interesting it is, how safe it is, how stressful it is, and even how oppressive it is) and work-life balance. The disregard of these aspects of economic life partly explains why most people in the rich countries don't feel more fulfilled despite consuming the greatest ever amounts of material goods and services.
How to 'Use' Economics (HuffPo)


  1. Hm. Yeah, political economy it is.

    But... during the Islamic middle ages, they pretty much separated market and state. There were no courts to enforce contracts, no police to evict your tenants. There was, also, absolute minimum of usury, and merchants were held in high esteem. They generally had to earn their living by adventuring in far away lands, instead of creating intrigue and manipulation at the Caliph's court. I have that from Graeber's Debt.

    1. "The core economic functions of production and distribution of goods can be handled by many different methods. After the fall of communism, the market mechanism has become nearly universal. Conventional economic theories argue that this is natural, because it is the best and the most efficient method for organizing economic affairs in a society. This paper, based on the analysis of Polanyi (1944) and Klein (2008) argues that the opposite is true. Market mechanisms conflict with natural mechanisms for production and exchange in traditional societies. Unregulated markets cause tremendous damage, as can be witnessed today in terms of countless economic crises, wars, environmental destruction, as well as damage to social networks. Because of this damage, market societies can only be maintained by force, as well as disinformation. To resolve crises on myriad fronts caused by the unregulated market, it is the need of the hour to find viable alternatives."

      So... under the muslim "unregulated" rule, trade prospered peacefully by and large. But as soon as (also unregulated) Christian ships arrived in the Indian ocean, they sacked the ports and the trade peace was over. I think Graeber might argue that the difference is not state regulation, but the values of the society that either push predation via usury, or through strong values enforced peer-to-peer, prevent usury, and with it a lot of predation that goes on in the name of the market. What do you think?

    2. It's a terrific essay, and I finally read it all this weekend. The major problem I have with it is the elephant in the room - the Muslims began the African slave trade prior to the Europeans. Thus, the 'regulated' market permitted the buying and selling of captive human beings. This is not addressed. I think maybe his picture of the Islamic trading world is a little too rosy.

  2. Not related to this article per se, but I wanted to pass this along to you. It seems like you would understand, because it puts together stuff I think you try to say.

    1. Blah, Blah, Blah whiney, long-winded, 30-something loser. Maybe he should go ahead and kill himself if everything is soooo bad. No wonder he can't stay in a relationship. Being a class A curmurdgeon isn't something to aspire to. Do people actually follow this guy's writing?

    2. Wow, that's a great find thanks! The comment from the asshole above only reinforces his point about America today.

      "I'm a writer, editor, former newspaper columnist, full stack web designer and developer (with a focus on PHP, JS, Node and the Meteor framework) and musician. I've traveled and lived all over the world..."

      That doesn't sound like a loser to me. I'm guessing the Anonymous commenter is nowhere near as accomplished. This kind of attitude is why we've built a society of sociopaths where everything is guaranteed to get worse. One is forced to conclude that things will only get better if people like the commenter, who seem to dismiss any reflection or criticism of society, off themselves. Even better, maybe they can stick around and change their attitude.

      And that’s where we are. You, me, we’re trapped, between being nothing more than consumers, every aspect of our lives quantified and turned into demographic data, or being fucking Amish cavemen drifting into increasing irrelevancy. Because it really does feel like there’s no middle ground anymore, doesn’t it? There’s no way to stay an active, informed citizen of the world without some motherfucker figuring out a way to squirm into your life to try and get a dollar out of you. Only fools expect something for free, and only bigger fools believe they’re anything other than a consumable or a consumer. ... I know a lot of people who privately long for an apocalypse of some kind, a breakdown of the ancient Western code, because then they’d either be dead or free. How fucking horrifying is that?


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