End of Utopias (13 Nov 2009)

Slavoj Žižek has a good essay in the LRB about the anniversary of the fall of the Berlin Wall. He looks at the idea that the end of the socialism brought in its wake a realistic mind-set grounded in the "truth" that markets and capitalism are the only basis for a social order that works. He basically argues that after the Wall fell, the same sort of people maintained political control. Neoliberalism has its power elite, just as Warsaw Pact countries had their Politburos. What's striking about the velvet revolutions, Žižek argues, is that after the fall of the Wall, these elites turned out to be the same people:

Indeed, one could argue that, when the Communist regimes collapsed, the disillusioned former Communists were better suited to run the new capitalist economy than the populist dissidents. While the heroes of the anti-Communist protests continued to indulge their dreams of a new society based on justice, honesty and solidarity, the ex-Communists were able without difficulty to accommodate themselves to the new capitalist rules. Paradoxically, in the new post-Communist condition, the anti-Communists stood for the utopian dream of a true democracy, while the ex-Communists stood for the cruel new world of market efficiency, with all its corruption and dirty tricks.

He sums up the ideological usefulness of this misrecognition: free marketeers can argue that their revolution was betrayed and demand more radical reforms.

In the 1990s, it was believed that humanity had finally found the formula for an optimal socio-economic order. The experience of the last few decades has clearly shown that the market is not a benign mechanism that works best when left alone. It requires violence to create the conditions necessary for it to function. The way market fundamentalists react to the turmoil that ensues when their ideas are implemented is typical of utopian ‘totalitarians’: they blame the failure on compromise – there is still too much state intervention – and demand an even more radical implementation of market doctrine.

Markets don't exist by virtue of natural law; impersonal exchange is hardly inscribed into human genetic code. Violence, or its implied threat, establishes the terms of exchange, or worse, the arbitrary neutrality of a society governed by unimpeded markets fosters an anything-goes climate where violence between competitors is tolerated, and is inevitable.

What we deem rational is ideological (26 Sept 2009)

Will Wilkinson highlighted this paragraph about economism and behavioral economics from the FT's Economists Forum blog:

Behavioural economists have uncovered much evidence that market participants do not act like conventional economists would predict “rational individuals” to act. But, instead of jettisoning the bogus standard of rationality underlying those predictions, behavioral economists have clung to it. They interpret their empirical findings to mean that many market participants are irrational, prone to emotion, or ignore economic fundamentals for other reasons. Once these individuals dominate the “rational” participants, they push asset prices away from their “true” fundamental values.

This helped me clarify in my own mind the muddle I've been in about the ideology of "perfect markets" and how that ideal is possibly used ideologically. The economists quoted, Roman Frydman and Michael Goldberg, seem to lay it out pretty clearly. At the behest of most economists, neoclassical or behavioral or otherwise, we've fallen into the habit of elevating what economists normatively deem rational to the only true form of rationality, while ignoring what human behavior seems to suggest should be called "rational" -- that is, what ordinary people tend to do when confronted with various incentives or dilemmas.

And the motivating force behind all this is the effort to isolate "true" asset values -- a quest that has had an ignominious journey through the history of political economy as Justin Fox's The Myth of the Rational Market well documents. (For what it's worth, I reviewed that book here.) "True" asset values underpin the financial sector, motivate its investment strategies and analysis. The pursuit of them keeps money circulating, which keeps economies growing (on paper, anyway).

Determining what constitutes value has vexed economists from the beginning of the discipline. Marx's Capital is essentially a long meditation on the origin of "surplus value" as it arises out of exploited labor -- a notion that depends on his definition of value as socially necessary labor time. The labor theory of value has been discarded by economists in favor of marginalism, which to remain coherent requires a human subject that exhibits the sort of "rationality" behavioral economists are undermining.

The alternative (and I am not entirely sure it is preferable) would seem to be to render "rational" those "other reasons" that people have for behaving -- the decision-making approaches that are not driven by straightforward utility calculus. That means returning to a morality or an ethos that is not based on the market but on other norms of human interaction, ones that evolve not from impersonality (the market's liberating feature) but from integrative social ties. The danger is that this would reinstitute tribalism and ethnocentrism as the source of norms -- a return to feudalism or something worse instead of the development toward cosmopolitanism that arguably the globalization of market forces has ushered in.

Cheap and fat (17 Sept 2009)

Vox EU posted a study by Neil Gandal about the relationship of obesity to price sensitivity.

Is increasing obesity due to changes in relative food prices? High-energy density foods are less expensive per calorie than fresh fruits and vegetables. Using data from Israel, this column shows that price sensitivity has a significant impact on obesity. In fact, price sensitivity may be more crucial than income.... We find that women who stated that price was not important at all when purchasing food products had a BMI 1.3 units below those who stated that price was “very important.” A reduction of 1.3 units in the BMI for all obese women would move approximately 25% of women who are in the "obese" category to the "overweight" category.

In other words, according to this study, people who are cost-conscious while buying food tend to be fatter, even after controlling for income. (So perhaps commentators should be careful about reflexively linking poor and fat together; fat and cheap is the proper knee-jerk insult combo.) It seems to suggest by implication, too, that being poor doesn't necessarily make you more cost-conscious about food, which seems a bit hard to believe. Perhaps you don't self-report as "cost-conscious" when you can't choose to spend more on food even if you wanted to.

Eating badly can seem like an ignorant thing to do, and conservative types tend to assume that the poor are poor because they are ignorant as well. So it seems to make ideological sense to them that the poor make bad eating choices out of the same supposed myopic ignorance that has made them "choose" poverty. They aren't forced by straitened circumstances to eat unhealthy food; they choose it. The study could be distorted to support that view. But the study also would seem to suggest that some of the wisdom and economic common sense that the poor are sometimes presumed to lack -- being more rational in the marketplace, finding good deals, being thrifty, etc. (the imprudence that allegedly keeps them poor) -- is precisely what's correlated with the unhealthy eating, that bargain hunting and obesity stem from the same miser pathology. What's clear is that the rationale of the market wreaks havoc on whatever our body might otherwise tell us about what we need nutritionally. We make market-based decisions about what body needs, letting the market dictate those needs, to our body's detriment.

The context for the study is the proposition of taxes on sugar drinks. Gandal notes that "Drewnowski and Barratt-Fornell (2004) conducted a simple "experiment" in a Seattle supermarket and found that, per calorie, carrots cost virtually five times more than cookies or potato chips, and orange juice costs virtually five times as much as soft drinks." One of the reasons for this, as Michael Pollan has argued and as Gandal notes, is U.S. agricultural policy:

Between 1985 and 2000, fruit and vegetable prices in the US increased by about 40%, while the price of soft drinks dropped by 23%. These seem like large changes in relative prices. According to Pollan, the change in relative prices is in large part due to the US farm bill, which provides generous subsidies for corn and soy, which are prime ingredients in high-density “processed food.”

The Economist's Free Exchange blogger puts the findings in perspective and makes a good point: the U.S. should take on the irrational agri-subsidies first before levying nanny-ish taxes on unhealthful consumer behavior.

Perfect markets as coercive ideology (9 Sept 2009)

In the past few posts I have been trying to get at ways in which the fantasy of perfect markets can be deployed ideologically, used normatively to shape people's thinking and aspirations, how we assess how reasonable our behavior is when we attempt to be "objective". Here are some more propositions:

1. If the laws assume a particular institution, subjects will conform their thinking to accommodate the institution in that mandated form.

2. If attempts to legislate a rational market into existence occurs, to simplify governing and entrench advantages already embedded in the status quo, then people must be forced to become homo economicus, must habitually restrict self-knowledge to cost-benefit analysis.

3. Perfect markets imply an ongoing process of equilibria being found. A chief way of trying to legislate perfect markets into existence is to try to force equilibrium, mandate it as a norm.

4. Market rationality is not merely the presumption of calm, omnipotent calculation in an instant. It also incorporates the assumption that we are always arbitraging as equilibrium are coalescing -- this activity is presumed to fashion the equilibrium, but only after certain already-favored parties have already taken advantage of the imbalance in the process. This exploitation can then be popularly conceived as justice, as inevitable, as harmful to impede.

5. In an economy with alleged, presumed or mandated perfect markets, timing is what is always at stake. We exploits the discrepencies on the way to equilibrium, and who suffers the equilibrium as fait accompli. This is matter of how information and the opportunity to act on it is distributed. The advantages of timing -- the arbitrage opportunity -- tends to disappear from the macro view, hiding any exploitation or injustice.

6. All of this is an elaboration of the observation that the useful fiction of efficient markets can be used as an ideological tool to browbeat people and curtail freedoms, and also to hide actual imperfections pertaining to timing. It's an ex post facto alibi for unfair outcomes.