Economists are a fascinating bunch; they either have their feet on the ground or their heads in the clouds. Sometimes they gymnastically squeeze their noggins into tighter places.
For an indication of their athletic range, I recommend watching Bill Moyers’ online interview with Paul Krugman.
Moyers is a journalist, former press secretary to U.S. president Lyndon Johnson, and host of a half-hour PBS show on political affairs. Krugman is
Professor of Economics and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times.
Oh, and Krugman won the 2008 Nobel Prize in economics, too.
In 2013, the prof seriously suggested the U.S. Federal Reserve mint a “platinum trillion dollar coin” if the Republicans tried to force the U.S. government into default. In effect, he admitted that the Fed creates fiat currency out of nothing — a claim once limited to right-wing conspiracy circles.
But I digress. The topic of the interview was a book by Thomas Piketty, a professor of economics at the University of Paris. The reams of charts in Capital in the Twenty-First Century verify what most of us have heard already about the extraordinary gap between rich and poor in the United States. The “new gilded age” isn’t just hyperbole, it’s the demonstrable return of 19th century levels of inequality.
The divergence isn’t just a structural flaw in the American political economy, Piketty argues. It’s inherent in the very nature of capitalism, on either side of the Atlantic. The leapfrogging accumulation of wealth by those who already have it trumps wages in terms of economic growth.
The Sorcerer’s Apprentice of compound interest asymmetrically rewards those in the position to hoard money and stockpile real estate. “He with the most toys” may not “win” in the Charlie Sheen sense when they die — but their offspring certainly will, resulting in Piketty’s “patrimonial capitalism,” with its “drift toward oligarchy.”
This process of hereditary capital accumulation has been around for ages — it’s how the Rockefellers, Du Ponts and other family dynasties have maintained cross-generational power and influence. Yet the French economist’s research came as something of a shock to some of his colleagues.
“I mean, even for someone like me, it’s a revelation,” Krugman told Moyers. “Even people like me stopped talking about capital because we thought it was all about human capital. We thought it was all about earnings. We thought that the wealthy were people who one way or another found a way to make a lot of money.”
Seriously, dude? You chart the course of great financial rivers like a number-crunching Jacques Cousteau, yet this filthy-rich-are-different research came as a “revelation?”
We’re talking about a Nobel-prize winning economist and a public intellectual beloved by the American progressive left, not some slash-and-burn acolyte of the late Milton Friedman. At least Krugman acknowledged his discipline has a vision problem worthy of Mr. Magoo, and had the grace to recommend Piketty’s 700-page eye chart to his audience.
And to be fair, it wasn’t until Piketty and a few colleagues supplied the missing historical pieces that economists knew for sure that the dine-and-dash financial capitalism of the past 20 years wasn’t an anomaly, but a return to the historical norm. The French prof had the numbers, and economics is nothing if not a numbers game.
Although there are alternative models out there, neoclassical economics is usually taught in such a way that its “discoveries” don’t call into question the power structures that money is embedded in. As for scientific accuracy, U.S. economists couldn’t foresee the crash of 2008, much less time it.
The predictive power of the “dismal science” is still little better than medieval theology.
Little wonder that last May, students from 42 economic associations in 19 countries signed a manifesto demanding changes in how they are taught.
The manifesto condemned a “dramatic narrowing of the curriculum” that presents the economy as some bell jar experiment, conducted “in a vacuum.”
No revamped economics curriculum can afford to leave out Capital in the 21st Century. In fact, the Occupy movement’s rhetoric about the one per cent came by way of Piketty’s original research, as popularized by former World Bank chief economist Joseph Stiglitz.
As for the well-meaning professor Krugman, his Road-to-Damascus moment feels too little too late.
geoffolson.com
