Following a lead from Mark Koyama’s twitter I arrived at the blog of Scott Summer, where I learned that heterodoxy is making inroads into that bastion of academic Economics, the American Economic Review. Despite the date of the post (April 1), it seems to be a serious, even passionate denunciation of an article by Nobel laureate Robert Shiller (at one point Summer characterizes Shiller’s views thussly: “That’s just silly.”).
From the abstract of the Shiller article:
The human brain has always been highly tuned toward narratives, whether factual or not, to justify ongoing actions, even such basic actions as spending and investing. Stories motivate and connect activities to deeply felt values and needs. Narratives “go viral” and spread far, even worldwide, with economic impact.
I didn’t read the article itself, but it sounds like Shiller is proposing to broaden up the spectrum of possible influences on economic processes from a very narrow focus that has been the trademark of the Orthodox Economics, something that I have called for on this blog (for example, here). Interesting that even a Nobel prize doesn’t protect one from being branded a heretic.
But the main reason I wanted to write this post was a comment by Summer later in his post, “But the Black Death was inflationary, just as the AS/AD model predicts” (the emphasis is Summer’s). I don’t know what the AS/AD model is, but factually this statement is clearly incorrect, and this is well known to economic historians since the groundbreaking work by Wilhelm Abel. See here, as reproduced in Fischer’s book The Great Wave:
The “Medieval Price Revolution” saw sustained growth of prices up until the first half of the 14th century. The post-Black Death period (1350-1450) was a period of price deflation.
Now, readers of Secular Cycles know that things were a bit more complicated than that. In agrarian societies sustained population growth eventually results in too many hands that need work and too many mouths that need food. So some things become more dear, like land and its produce (e.g., grain). Other things become cheap, like labor and its products (manufactures). So how prices respond depends on the commodity. Excessive population growth results in the increase of price of land, food, fuel, and shelter. It also depresses the price of labor (mostly unskilled) and manufactures whose price is primarily labor costs. Servant and soldier wages also decline, inasmuch as they are recruited from the “population surplus.”
The relationship between real wages and population pressure on resources is one of the most reliable relationships in economic history. Here’s an example from my work:
Here “Rel. Pop” is population relative to the carrying capacity of the land, and “Inv. wage” the inverse of real wage, or “misery index” (see Secular Cycles for details).
Historically (in agrarian societies), population declines brought about by epidemics like the Black Death always result in improved quality of life for the common people–those that survived. They switch to eating better grains (wheat instead of barley), drinking bear and wine, eating fruit and meat.
Peasants Feast by Pieter Aertsen
It happened after the Black Death in Europe, but we see the same dynamic after the Antonine Plagues and the Plagues of Justinian in the Mediterranean. And in the seventeenth century, when he plague returned to Europe, it was followed by a period of prices deflation.
AS/AD is “Aggregate Supply/Aggregate Demand”: https://en.wikipedia.org/wiki/AD%E2%80%93AS_model
I think that it would be interesting to see what the source of funding (government, university, political think-tank, financial institution) of each economist is, and see how that correlates to their position on economic orthodoxy. Of course, this wouldn’t tell you if it’s cause or affect, though, since most people and institutions will not voluntarily support economists whose policy positions they do not agree with. But, it seems hard to posit that economists are not impacted by their own forces of supply and demand, to supply the economic analyses (rationalizations?) for which there is demand.
I talk a little about it in
The somewhat misnamed Nobel Prize in Economics is funded and administered by a consortium of banks, who naturally favor a particular kind of ecnomics.
Probably it would be best to ask real economics heretics, like Michael Hudson and Steve Keen what makes most economists so orthodox.
I rather like Hugh Hendry’s notion that economists aren’t worth listening to since they don’t have skin in the game. Perhaps they should be paid based on their predictive abilities.
One moment of thought:
In mediaeval times, astrologers were sought after at the King’s court. Reading into stars they made predictions of events based on positions of the planets etc. Then with the “Scientific revolution” in the years 1500-1700 the subject of Astrology departed into two camps: Astrology and astronomy. Only one of these subjects can be studied at a university.
I presume it is entierly possible the same process will happen again with the field of Economics. It could split into one camp of pseudo-science and another of a more refined scientific approach.
Isn’t it to be expected that a blogger at the “Library of Economics and Liberty” would be committed to a fictional universe where, by cracky, the Black Death really was inflationary, just like economic science predicts! If Marxian economics, which predicts that business cycles are a feature of capitalism, is manifestly pseudoscientific nonsense, while economic science informs us that the business cycle is caused by something (government by means as yet unascertained,) if it exists at all, surely a safely distant detail like the inflationary results of the Black Death can be left to the professional authority of the economists.
Economic science does not amend its views to fit mere facts. As a proponent of the demographic-structural theory which attempts to explain cycles in political life, surely you have noticed the resistance to admitting the existence of the cycles.
As for Shiller, the quote sounds as if he is advocating a kind of group psychological causality. Economic science relies on a model of individual psychology, and doesn’t admit any groups. Seems to me Summers correctly states the prevailing feeling of economic science on that kind of thing.
Seems almost like there are two kinds of economics, capitalist fundamentalism and more careful empirical research that recognizes such things as market failures, and also non-economic social influences on economies.
http://eclectic.ss.uci.edu/~drwhite/center/ppt_pdf/Fiske2007-Apr13_RMT_Marschak.p — Alan Page Fiske proposes that there are four basic kinds of social relations:
* Communal Sharing
* Authority Ranking
* Equality Matching
* Market Pricing
Capitalist fundamentalists seem to think that the fourth mechanism is all one needs.
Also, capitalist fundamentalism seems a lot like Panglossianism, the belief that this is the best of all possible worlds, at least economic worlds.
http://www.sciencedirect.com/science/article/pii/S0921800914000615 — Human and nature dynamics (HANDY): Modeling inequality and use of resources in the collapse or sustainability of societies
The authors use a rather abstract and general model of society, but they find something much like structural-demographic cycles.
I think Summers was referring to the situation in England. Using a trailing 5 year moving average to smooth data from Measuring Worth, you can see that the price level rose about 40% from the five year average ending in 1348 to the five year average around 1370. On the other hand, nominal wages rose 90%. So the Black Death *was* inflationary, yet at the same time real wages for workers rose. This is because the workforce fell dramatically which bid up the price of labor, which appears to have resulted in some wage-push inflation. Elites took it on the chin which was why they tried (unsuccessfully) to employ wage controls, such as the statute of Laborers in 1351 and another measure a couple of years earlier that I cannot remember the name of.