Thursday, April 19, 2012

What's the Mythology For, Anyway?

What's the Economy For, Anyway?: Why it's time to stop chasing growth and start pursuing happiness, by John de Graaf and David K. Batker, 2011. Bloomsbury Press.
Here's something Sandwichman didn't know: "Hoover and Roosevelt (and their predecessors) had one thing in common. None entered office with a model or theory of how a national economy works."

Poor Adam Smith and the whole of political economy back unto the time of William Petty, when the enterprise was known as political arithmetick! Dr. Smith may have called his book Wealth of Nations but apparently it made no impression on the leaders of nations -- or at least on the presidents of one nation, the United States of America. They had no theory of how a national economy works. Not even an incorrect or misleading theory. None whatsoever.

Now some people may have imagined that mercantilist, protectionist or laissez-faire policies were based -- whether loosely or strictly -- on models or theories of how a national economy works. But, no. "Hands off laissez-faire economics neither required nor generated any understanding of how prices, employment, consumption, government, and other economic phenomena are bound into a national economy and contribute to growth or collapse." Take that David Ricardo, John Stuart Mill and Alfred Marshall!

Let's not split hairs. We're not just talking about foolish assumptions and dogmatic conclusions of the doctrine Smith called "the system of natural liberty" and Keynes criticized as "the self-adjusting economic system." John de Graaf and David Batker have informed us, in What's the Economy For, Anyway?, that there was no model or theory of how the national economy worked until John Maynard Keynes "created modern macroeconomics," presumably out of whole cloth and Simon Kuznets's measurement of the Gross National Product.

Wow. Having read Keynes (and Kuznets, too, by the way) I was under the impression (as was Keynes) that he had built his theoretical edifice on the foundation of a critique of established theory, particularly that doctrine of the self-adjusting school that "lies behind the education and the habitual modes of thought, not only of economists but of bankers and business men and civil servants and politicians of all parties." Of course Keynes was talking about Britain. Maybe things were different in the U.S.A. where presidents were born in log cabins and perhaps were not exposed to "education and habitual modes of thought."

Fortunately, that oversight of not having a theory was corrected during the Great Depression, when Keynes came along, and then we finally had macroeconomics. So just what is this "macroeconomics"? "New goals", "new economic measures", "new policies" and "new national institutions". These are the implications of macroeconomic theory, according to de Graaf and Batker.

I suppose we pretty much have to infer what Keynes's macroeconomic theory says from what it implies because de Graaf and Batker don't tell us. Instead, they briefly sketch a "vision [...] of a mixed economy in which government is an active player, providing services, overseeing and regulating markets, preventing monopolies, and managing economic policy." In this rather vague model (or theory) of "how a national economy works", the crucial role of the GNP or GDP is apparently to keep the leaders informed about "how well our economy and our nation are doing," presumably so they know whether to do more or less providing, overseeing, regulating, preventing and managing.

I had no idea it was so... um... straightforward and yet so... ah... mysterious. Lest anyone think the Sandwichman is amplifying a minor miscue, there is a whole chapter in de Graaf's and Batker's opus, "Ancient History", that mythologizes the first two-thirds of the twentieth century, up to 1968, as "a tsunami of economic and political transformation": "The changes were enormously beneficial. American economic history is impressive and laden with vital lessons for today."
The progressives, New Dealers, and even conservative leaders advanced regulations and programs to improve the economy and environment and to achieve a fairer society. Their efforts produced the biggest middle class of all time and prosperity never before known in human history. Economists of the 1960s thought that macroeconomics had solved all economic problems. Letting the unregulated market rule, or laissez-faire economics, seemed moribund. Macroeconomics attained a near religious status based on a central measurement, the Gross National Product, and on a central idea: economies must grow or die.

But as the 1960s unfolded, a generation of young people, raised in the prosperity that macroeconomics had wrought, began to question the very lifestyle that had become the envy of the world. Material prosperity struck them as hollow; they felt, as the Berkeley Free Speech leader, Mario Savio, put it in 1964, like meaningless cogs in a well-oiled machine, children in a chrome-plated consumers’ playground. They looked for a new quality of life, and they found a surprising ally, a president himself [that is to say, Lyndon Baines Johnson].
Look, I have no ax to grind for vilifying LBJ ("hey, hey...") and I am not offended to the core by revisionist portrayals of his presidency as tragic. But Mario Savio and the Free Speech Movement finding in LBJ a "surprising ally"? Give me an effing break!

So what the Hell is the Sandwichman doing rambling on about a book that indulges in such bizarre historical fantasy worthy of Thomas Friedman, anyway?

First a disclosure. I've known and collaborated with John de Graaf for over a decade on shorter working time activism. Several colorful anecdotes that appear in the book were originally brought to light by yours truly. Two central motifs of the book are its critique of economic growth and a call for shorter work time. The book should be one whose message I can enthusiastically embrace and promote. But it isn't.

In short, Sandwichman objects strenuously to What's the Economy For, Anyway? because bad arguments for a good cause hurt the cause. As Ariel Levy wrote, "There are political consequences to remembering things that never happened and forgetting things that did."

One of the anecdotes in the book (page 103) concerns Truman-era Council of Economic Advisers chair, Leon Keyserling, and National Security Council memorandum, NSC-68. When a shorter work time discussion list member (not the Sandwichman) first brought up Keyserling and NSC-68 a few years ago, de Graaf disparaged the information as "conspiracy thinking" and the informant as a "wing-nut." Several months later, when the Sandwichman documented the story, de Graaf hailed it as "Brilliant, Tom, as usual. I will certainly use this in my new book." (Curiously, just as de Graaf was jumping off the conspiracy thinking bandwagon, Barkley Rosser at EconoSpeak jumped on. But that's another story).

The argument, though, was never that Keyserling, NSC-68 and the Cold War arms build-up were solely responsible for the end of the long-term trend of work-time reduction but that they were influential and representative of the thinking at top levels of government. De Graaf chose to credit neither the original list member who had raised the issue of NSC-68 nor Sandwichman's documentation of the scholarship or indeed the scholarship cited by Sandwichman -- Fred Block's "Economic Instability and Military Strength: The Paradoxes of the 1950 Rearmament Decision" and Edmund F. Wehrle's "Guns, Butter, the AFL-CIO, and the Fate of Full-Employment Economics." Instead, he cited the website of a third individual, William McGaughey, who himself had cited Tom Walker as his source.

The point of recounting this petty affair is not to accuse de Graaf of deliberately "concealing" his sources or snubbing those who had brought the information to his attention in the first place (much to his annoyance at the time). Rather it is to highlight a symptomatic "difficulty with sources" that arises when authors are winging it, dealing with material that is out of their depth.

There is a purpose to de Graaf's and Batker's golden-age mythologizing. They are peddling "Gross National Happiness" as a cure-all tonic for environmental, economic and social crises. The "vital lessons for today" that the impressive economic history of America in the 20th century is laden with is clear and simple: when you have an unambiguous goal, economic growth, and a relevant measure, GDP, you can achieve a "tsunami of economic and political transformation." All we need is to agree on a new goal, "the greatest good for the greatest number over the longest run," and a new measure, Gross National Happiness, and we're off to the races!

In the context of de Graaf's and Batker's golden age of growth and rosy future of happiness narrative, NSC-68 had to have been an anomaly -- a bug, not a feature, of the impressive economic history of American macroeconomic management. Fact confronts mythology in What's the Economy For, Anyway? and mythology wins.

I am haunted by Orwell's observation, which David Owen cited at the end of The Conundrum, "All left-wing parties in the highly industrialized countries are at bottom a sham, because they make it their business to fight against something which they do not really wish to destroy." Orwell was talking specifically about imperialism, but the argument applies equally to the environment and to social justice, in this case rendered as "happiness".

Gross National Schadenfreude?

Coincidentally, around the time de Graaf's and Batker's book was published, in the fall of 2011, one of their happiness gurus, Richard Layard of the London School of Economics, debated "Is Happiness the Right Measure of Social Progress?" with Keynes biographer, Robert Skidelsky. Skidelsky is not some reactionary defender of the dominant economic growth imperative. On the contrary, Skidelsky has highlighted a dimension of Keynes's thought that directly contradicts the growth fetish. Keynes's advocacy of shorter work time was not a position he came to late in life, as de Graaf and Batker claim, but a long-standing philosophical view:
Economics, Keynes always insisted, is only useful if it can get us over the hump of scarcity, as quickly as possible, into the realm of plenty, when man would confront his "real, his permanent problem--how to use his freedom from pressing economic cares ... to live wisely and agreeably and well."
Skidelsky's challenge to the economics of happiness can best be understood in the context of this problematic of living "wisely and agreeably and well." Does measuring happiness help us know how we are doing?

In his debate with Layard, Skidelsky posed three questions: what is happiness?, can it be measured and should it be the ultimate end of policy? First, happiness is a state of mind; it is independent of why we feel good or bad. Second, we can ask people to rank themselves on a scale and derive a distribution through space and demographic categories and change over time but do we know what a "zero" means or a "ten"? Skidelsky pointed out that we already know that certain objective conditions correlate with happiness and we don't need additional surveys to confirm what we already know.

But supposing that we know what makes people happy and we know how to increase happiness, should that be the goal of public policy? Skidelsky argued that a happy life is not the same as a good life. Friendship, leisure and community -- for example -- make us happy and they are good things. "But why should they sail under the banner of happiness?"

The Benthamite calculus rests on an assumption that there is a coincidence between individual and collective utilities. But to actually achieve such a harmonization requires the introduction of an additional idea of duty or virtue.

A strong objection to elevating happiness is that the happiness of a group of sadists cannot outweigh the suffering of a tortured individual. Not all things that make us happy are desirable or moral. To make happiness a goal independent of objective circumstances, Skidelsky concluded, is a "recipe for infantilism." "We don't want to banish the engineers of growth only to see them replaced by the engineers of bliss."

For all their blissful enthusiasm, it is not clear that de Graaf and Batker have any credible model or theory of how a national happiness economy works.


Will said...

None entered office with a model or theory of how a national economy works.

If I'm understanding you, the authors contend that FDR and the Hoov couldn't have had a theory of the macroeconomy, because none had been put forth, and not that the two men were simply ignorant of the subject. If they're saying the former, that's absurd. If it's the latter, though, that would be understandable. I'm pretty sure the most prominent economists in America up to that time were Carey, Henry George, and Veblen. Maybe John Bates Clark. Good luck trying to average that set out.

Sandwichman said...


Yes, from the context, the authors' meaning is that they couldn't have had a theory because none existed. But even the latter argument of simple ignorance of the individuals is preposterous and untenable.

Hoover, for example, founded and directed the American Relief Administration in Europe after World War I. FDR was governor of New York.

Now, if the authors had said that the theories in vogue at the time inhibited an effective and timely government response to the crisis, that would have been a different matter.

airth10 said...

Sandwichman, you bring up and interesting question: "What is the Economy For, Anyway?"

One of the first things that came to mind is the campaign slogan "It's the economy, stupid". Without the economy we could not sustain societies or civilization. The economy is a treadmill activity of consumption and replacement; we consume and thus we have to replace. The economy is basically about replacing what we consume and use up. It is also about repairing and maintaining the mechanics that keeps the world working. The economy and it wheels keeps at bay and combats the universal constant of entropy.

Capitalism and the free market has emerged as the premier economic system because it was found to be the best at finding and replacing the resources we consume and use up, and in giving us the sustainable development for our survival and continuance.

The economy is metaphysical. It more than anything has united the world in a common activity. It has combined the basic human instincts of creation and destruction, re-channeling the destructive and putting more emphases on the creative.

You say that we should pursue 'happiness' instead of economic growth. Ironically, economic activity is where our happiness has most come from. It is the wedge behind which we have had the luxury to think about happiness.

Sandwichman said...


You definitely picked up on some of the questions I addressed in my post. I am afraid, though, that you have confounded ideas I was criticizing with my own ideas. I wouldn't know where to begin to try to untangle those knots.

airth10 said...


Try. You seem like a smart man!

Sandwichman said...

Thanks, airth10. What I meant was I didn't say we should pursue happiness instead of economic growth. "What is the economy for, anyway?" is the title of John de Graaf's book, not my post. Your defense of "capitalism and the free market" is pure assertion. Do we actually have a "free market" or simply a market in which the most powerful can exercise their power without accountability? WHO "found" capitalism to be the best? Those who benefit the most? Speaking for myself, my happiness comes from creativity and personal relationships, which (in my case, at least) depend on limiting the sphere of economic activity.

airth10 said...

"Your defense of "capitalism and the free market" is pure assertion. Do we actually have a "free market" or simply a market in which the most powerful can exercise their power without accountability? WHO "found" capitalism to be the best?"

I think it is more than pure assertion or speculation. Capitalism and the free market are here for a reason. They are the best means of making things and distributing them. Experience has shown that. It is not as though capitalism was forced on us without alternatives pushing back, alternatives like command, mercantile and traditional economics. Capitalism and the free market evolved. It found itself best in fitting with human needs and aspirations. It found itself best in fitting with our quirks and quarks, idiosyncrasies and badness.

Well, if you compare it to economics under communism we do live in a free market, not only in economics but in ideas and, yes, happiness. Imagine, we are free to pursue our own means of happiness.

I am in a business of my own making. I am not one of the most powerful who can exercise power willy nilly as you have it. But I am held accountable. Most of us are. This non-accountability of capitalism and capitalists is exaggerated.

Marx believed that capitalism was the ultimate revolution. And it is. It is a best kind of revolution to have because the other, like the French, the Russian, WW1 and WW2, were scorched earth revolutions that left a lot of devastation in their wake. It is not that capitalism doesn't cause social upheavals, but it does it more creatively than those other revolutions. It leaves more to build on. It creates a sustainability. If today we had revolutions like those in the past there would be nothing left.

Humankind needs constant reform to remain alive and awake, and so that societies don't atrophy. Capitalism affords us that reform, at a price, but at one we can afford without totally starting from scratch.