Thursday, May 24, 2012

Amartya Sen and the Cloud of Ignorance

Amartya Sen has a wonderful sense of humor. And in commenting on the travesty of European austrity, he pokes at the misguidedness of the 1/10 of 1% without quite saying that a cloud of malign ignorance is what has banished science. Keynsian economics, as I have emphasized previously, for instance, here, says what to do about a depression. Put money into the hands of poor people through work (as in the stimulus) and they will spend it immediately and in the local economy. The multiplier effect will get the economy going again.

Give money, on the contrary, to Goldman Sachs and Mitt Romney and they will spend in China, or perhaps on a house abroad or bury it in a Cayman Islands account, and there will be little to no multiplier.

This insight, which Keynes had initially to fight through neoclassical ideology to gain, is not rocket science. It does, once again as in the case of the stimulus which avoided a great depression, make a huge difference.

This past year, George Demartino, my friend and colleague, organized a wonderful series of talks at the Korbel School on ignorance or humility - as opposed to the cloud of obscurantism - and social "science." In the economics profession, the Koch brothers and other narrow-minded billionaires have thrown sand in the eyes of economists and students, resulting in ignorance or at least underestimation, in the United States and in Europe, about this central Keynsian point. In a book edited by Seymour Harris, Saving American Capitalism (1946), my father, Richard Gilbert, once wrote forcefully about this insight and what had been learned in combatting the depression (which notably included the war economy launched in World War II).**

But politically, as we can see in the massive attacks on Obama (a centrist with very limited Keynsian tendencies, one perhaps overly influenced by Chicago "economics") and the elevation of Romney - with a blueprint for doing to social security and medicare what he did to firms at Bain Capital: sucking them dry to benefit the 1% - and the horrendous Republican cry for austerity (extending even to Ron Paul), sound insight - or science in so far as one can speak of social science - is mocked. The cure for gross inequalities - public spending to employ those who are unemployed, coupled with, for example, public financing of higher education (instead of creating debt-slavery to banks) - is known; how capitalism might not founder could be realized, but politics, or the overwhelming influence of the 1/10 of 1% in politics crushes this, and as Krugman emphasizes, imposes enormous, unncessary human misery.

As Europe founders, so will America (and the US, with a trillion dollars backing Romney, might even elect him - "corporations, my friend," he says happily, "are people" - and enforce even greater austerity on the poor), leading to a renewed depression which may make the "great depression" seem halcyon (for poor blacks and Chicanos, the average rate of unemployment in the depression already does). It is a bad thing to toss away morally useful and important knowledge...

In Development of Freedom (Amartya’s best book, I think), he ties serious economic development to the realization of individual capabilities (substantive freedom). If one looks at life expectancy (a big part of capabilities), for example, "backward" but egalitarian and anti-sexist Kerala in India beats the US.

The aim of economics, as he suggests in "The Crisis of European Democracy" below, improving Keynes, is to enable people, through providing enough income to exercise their basic rights, to participate in democratic deliberations. It takes a certain level of income or redistribution to do this; it may even take radical egalitarianism to make democratic participation, short of revolt, effective, though in extreme cases, as Amartya emphasizes about preventing famines, even the existence of an opposition newspaper may be sufficient.

This point in the book is a decisive argument for democracies compared to authoritarian regimes (it contrasts with the much hyped but currently vacant democratic peace hypothesis, since America has overthrown some 15 non-white democracies by CIA sponsored coups and under Bush corrupted Europe to set up secret sites for torture. See here, here, here and here. The hypothesis would only be true of some more genuinely democratic regimes, ones which served a common good, not that were organized to achieve what Rousseau calls a "will of all" in an oligarchy with parliamentary forms (in today's terms, elections to approve the will of the 1%).**

Amartya rightly notes that the European experts who enforce austerity (notably the Germans still fearful of a repeat of the 1923 inflation and irrationally invoking this as a mantra instead of looking clearly at today's circumstances) are anti-democrats. They do not care to explain supposed economic "necessities" to the poor or argue in some serious way for why they are victimizing the 99% and elevating a narrow stratum of bankers...

Perhaps that is because there is no such case to be made. Amartya adds cuttingly that the Greeks were not doing badly in terms of debt until the great recession of 2008 hit. The moralizing (and or racism) toward Southern Europe - a big deal among Germans as I learned vividly in Mallorca a few years ago - is empty and false.

Sen has done a lot to make the economics profession and development economics serious. The clarity of this op-ed piece is a sign of the distinction of that work.

The Crisis of European Democracy

Published: May 22, 2012
Cambridge, Mass.

IF proof were needed of the maxim that the road to hell is paved with good intentions, the economic crisis in Europe provides it. The worthy but narrow intentions of the European Union’s policy makers have been inadequate for a sound European economy and have produced instead a world of misery, chaos and confusion.

There are two reasons for this.

First, intentions can be respectable without being clearheaded, and the foundations of the current austerity policy, combined with the rigidities of Europe’s monetary union (in the absence of fiscal union), have hardly been a model of cogency and sagacity. Second, an intention that is fine on its own can conflict with a more urgent priority — in this case, the preservation of a democratic Europe that is concerned about societal well-being. These are values for which Europe has fought, over many decades.

Certainly, some European countries have long needed better economic accountability and more responsible economic management. However, timing is crucial; reform on a well-thought-out timetable must be distinguished from reform done in extreme haste. Greece, for all of its accountability problems, was not in an economic crisis before the global recession in 2008. (In fact, its economy grew by 4.6 percent in 2006 and 3 percent in 2007 before beginning its continuing shrinkage.)

The cause of reform, no matter how urgent, is not well served by the unilateral imposition of sudden and savage cuts in public services. Such indiscriminate cutting slashes demand — a counterproductive strategy, given huge unemployment and idle productive enterprises that have been decimated by the lack of market demand. In Greece, one of the countries left behind by productivity increases elsewhere, economic stimulation through monetary policy (currency devaluation) has been precluded by the existence of the European monetary union, while the fiscal package demanded by the Continent’s leaders is severely anti-growth. Economic output in the euro zone continued to decline in the fourth quarter of last year, and the outlook has been so grim that a recent report finding zero growth in the first quarter of this year was widely greeted as good news.

There is, in fact, plenty of historical evidence that the most effective way to cut deficits is to combine deficit reduction with rapid economic growth, which generates more revenue. The huge deficits after World War II largely disappeared with fast economic growth, and something similar happened during Bill Clinton’s presidency. The much praised reduction of the Swedish budget deficit from 1994 to 1998 occurred alongside fairly rapid growth. In contrast, European countries today are being asked to cut their deficits while remaining trapped in zero or negative economic growth.

There are surely lessons here from John Maynard Keynes, who understood that the state and the market are interdependent. But Keynes had little to say about social justice, including the political commitments with which Europe emerged after World War II. These led to the birth of the modern welfare state and national health services — not to support a market economy but to protect human well-being.

Though these social issues did not engage Keynes deeply, there is an old tradition in economics of combining efficient markets with the provision of public services that the market may not be able to deliver. As Adam Smith (often seen simplistically as the first guru of free-market economics) wrote in “The Wealth of Nations,” there are “two distinct objects” of an economy: “first, to provide a plentiful revenue or subsistence for the people, or, more properly, to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services.”

Perhaps the most troubling aspect of Europe’s current malaise is the replacement of democratic commitments by financial dictates — from leaders of the European Union and the European Central Bank, and indirectly from credit-rating agencies, whose judgments have been notoriously unsound.

Participatory public discussion — the “government by discussion” expounded by democratic theorists like John Stuart Mill and Walter Bagehot — could have identified appropriate reforms over a reasonable span of time, without threatening the foundations of Europe’s system of social justice. In contrast, drastic cuts in public services with very little general discussion of their necessity, efficacy or balance have been revolting to a large section of the European population and have played into the hands of extremists on both ends of the political spectrum.

Europe cannot revive itself without addressing two areas of political legitimacy. First, Europe cannot hand itself over to the unilateral views — or good intentions — of experts without public reasoning and informed consent of its citizens. Given the transparent disdain for the public, it is no surprise that in election after election the public has shown its dissatisfaction by voting out incumbents.

Second, both democracy and the chance of creating good policy are undermined when ineffective and blatantly unjust policies are dictated by leaders. The obvious failure of the austerity mandates imposed so far has undermined not only public participation — a value in itself — but also the possibility of arriving at a sensible, and sensibly timed, solution.

This is a surely a far cry from the “united democratic Europe” that the pioneers of European unity sought.

Amartya Sen, a Nobel laureate and a professor of economics and philosophy at Harvard, is the author, most recently, of “The Idea of Justice.”

* Even Romney and the Republicans are "military Keynsians."

** That "elected" leaders survive while enforcing austerity - for the majority or the 99% - while the rich make unheard of profits is a puzzling phenomenon. Capitalism may make itself politically - and against science - hard to save (unfortunately, it is taking all of us down with it...).

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