Rethinking Economics Waterloo Conference, Feb 7
Ali Kraushaar and  Geoff Evamy Hill, co-founders of the Rethinking Economics Waterloo initiative, are organizing a conference to be held Feb 7. It looks good!  See below.
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We want to inform you about the Rethinking Economics Waterloo Conference happening at St. Paul’s University College on Saturday, February 7. We invite you and all your members to be there, and hope we can collaborate on spreading the word!
- Dr. John Bonnett – Canada Research Chair Digital Humanities, Brock University
- Dr. Daniel Drache – Professor of Political Science & Canadian Studies, York University
- Dr. Peter Victor – Professor of Economics, York University
- Dr. Jennifer Clapp – Canada Research Chair Global Food Security, uWaterloo
- Dr. Lutz-Alexander Busch – Associate Undergraduate Chair of Economics, uWaterloo
- Joe Mancini – Director of the Working Centre, Kitchener
- Dr. Patricia Marino – Professor of Philosophy, uWaterloo
More information on the global Rethinking Economics movement:
Rethinking Economics is a global “grassroots†network of students, thinkers, and citizens who seek to give voice to new and marginalized economics narratives that could enrich economic theory, research, and teaching. Rethinking Economics aims to make economics more accessible, diverse, reflective and responsible for the public eye and within academia. Recently, Rethinking Economics has been mentioned in the news for its membership in the International Student Initiative for Pluralism in , Economics (ISIPE), Al Jazeera for its recent London, UK Conference as well as the New York Times following the Rethinking Economics Conference in New York City.
We thank you for spreading the word about this event. We hope to collaborate in the future and look forward to seeing you on February 7!
Sincerely,
Ali Kraushaar & Geoff Evamy Hill
Co-Founders, Rethinking Economics Waterloo
As a layperson you won’t find me at this event. But as a generalist I can offer some insights from a wider perspective than an economist is going to find in a textbook or paper.
First, something I call real-world Econ 101: economics is politics.
That’s how it all started out. Adam Smith’s The Wealth of the Nations was a book with a message: the economy is self-regulating and when governments interfere (then monarchies) it tends to ends badly.
Whatever hypothetical insights into economics and human behavior that are in this late 18th-century text, its purpose was to spearhead a political agenda.
To frame it in its historical context: in the modern era, Europeans invented science and technology which merchants and monarchs used to conquer and colonize the globe. The first stage was importing exotic goods from distant places. During this phase, the merchants were assimilated into the aristocracy.
The next phase, industrialization, however, shattered this alliance. James Burke writes about how heretics in Great Britain were banished from the upper class and their traditional economic endeavors. But being an industrious lot, they became successful mastering the new science and technology. One of them was James Watt.
So Adam Smith contributed to 19th-century idea of democracy, which let merchants and industrialists into the upper class. But like most revolutions it was full circle for the average person: in with the new aristocrats, same as the old ones.
What we think of as democracy didn’t emerge until the post-war era. At this time, the classical plutocratic economics of the 19th century was abandoned for the mixed-market system created by J M Keynes during the Great Depression crisis. This democratic economy — a revolution that actually delivered — lasted until the 1980s.
At that time, right-wing economic purists — peddling an ideology entirely self-serving to businessmen and the rich — used Smith’s message to, once again, rail against government: this time, democratic government. (They were obviously very successful. Of course, just as obviously, not in terms of economic success.)
This brings me to my second point: everyone has a political economic bias.
Left-leaning people believe society should be egalitarian. Right-leaning feel that society should be strongly hierarchical — to the point where there is no society. (The Goldilocks camp prefers the middle: moderate levels of inequality.)
So how did Milton Friedman spearhead a comeback of 19th-century classical economics? Was he like Niels Bohr or Albert Einstein making profound discoveries in economic science? Actually, no: one doesn’t travel back in time to make scientific discoveries.
And that’s why economics is not a science: it doesn’t use the scientific method to build up a body of definite knowledge. Economists can be described as pre-Copernican: they can’t — and more importantly, won’t — agree on whether the Sun revolves around the Earth or the Earth the Sun. The debate is not about knowledge, but opposing beliefs on how society should be structured. That’s why economics doesn’t remotely resemble real sciences which have no political agendas and make actual progress.
Economics consists of various cultural systems (schools) that are never held to account. What’s worse is that this knowledge is passed on to new generations of eager, naïve students who mistake it for truth. Like Medieval theology, it’s given far more credit that it has earned and is filled with absurd conclusions.
Fact is, physicists and behavioral scientists worked very hard, generation after generation, finding facts and eventually building models that were proven to reflect reality. Economists have the luxury of aping their math while using politics to hammer the puzzle pieces into place — a place of their liking. (Take for instance the Canada-China FIPA investor treaty. Canada’s market fundamentalists were all in agreement: those who oppose it are ultra-nationalist bigots. Scientists use logic to make their case. Politicians rely on disgusting rhetoric.)
In short, since economics is a subset of politics, economists need to master politics to make their vision a reality. Seeking truth is not going to do it. Culture is self-referential. Every cultural group believes they have the truth on their side. A revolution in economics requires a political revolution. Those waiting for the revolution to come to them, will be waiting a very long time.
BTW, I think that economics can be built into a science. Economics has a goal which all groups agree on: creating a system that: a) allocates resources the most efficiently and b) produces the most prosperity.
Over the past two centuries, a mountain of experimental evidence has been accumulated from economic systems across the spectrum: from hard-left communism to Keynesian social democracy and centrism to hard-right free-market ideology. So the first step is to throw away all the unfounded economic theory and start from scratch. Facts have to be established before models can be built. The evidence leads scientists towards the models. Linnaeus comes before Darwin. Planck before Bohr.
Anyone familiar with economic history during this period will realize the Keynesian system is the most successful, by far, in allocating resources and creating prosperity. Long story short: Keynes created the wealth of the first-world nations. From living standards to economic and productivity growth to economic stability, the Keynesian system was vastly superior to the two periods dominated by free-market ideology that came before and after (that both happened to collapse in global meltdowns.)
The Keynesian system also proved there can be too much of a good thing. Real incomes grew at an exponential rate from 1947 to 1973. From the US data: $25k to $47k in today’s dollars. If this had continued without intervention from inflation-fighting central banks, real wages would be $150k today. That means someone working at McDonalds would be making something like $60k a year.
This demonstrates there’s a limit to real wages. At some point the wage gains become more and more nominal. Which is to say the inflation rate rises and the economy becomes more sensitive to price shocks. (In short: increasing purchasing power evaporates into increasing demand which drives increasing prices.)
That’s exactly what happened in the 1970s. Two oil price shocks in 1973 and 1979 created inflation spikes that reached as high as 15%. (Not surprising given the real price of oil jumped 500% and the nominal price 1000% from 1972 to 1980.) It’s impossible to know what the actual trend rate of inflation was at the time because the central banks carpet bombed the economy with absurd interest rates.
This time period produced a lot of bad economics: sketchy theories based on crude assumptions predicated on unsubstantiated hypotheses founded on hysteria and politicking: e.g., inflation was ratcheted up by expectations and sticky prices; inflation caused recessions (stagflation) when central banks actually caused the recessions. A lot of reactionary bunkum extrapolated from a few years of data.
No doubt inflation was a problem. But inflation spikes produce temporary inflation. Price shocks are eventually absorbed. They don’t produce constantly rising prices.
Despite all the flaky theories: from the Phillips curve to monetarism to inflation targeting, the central banks’ strategy remained the same throughout: reduce inflation by creating recession and high unemployment which reduces real wages. That is ultimately why a similar oil price shock in the 2000s only produced 6% inflation by 2008 — by this time real wages were $36k, or what they were in 1963.
In short, a successful economic model will require some version of the mixed-market system to allocate resources effectively and maximize wealth creation. To keep wealth creation real, and strike the right balance on inflation (which requires a lot more thought than it has been given over the past 40 years) — while maintaining moderate levels of inequality (to preserve democracy) — wealth will have to be distributed in some way other than wages.
This can be accomplished with wealth being held more in public forms: sovereign wealth funds; better healthcare, education and retirement benefits; generous foreign aid; subsidized mass transit, internet (wired, wireless,) renewable energy, recycling programs; more investments in infrastructure, public works, the arts, the sciences, etc.