A Teacher Writes to Students Series (17): New Pragmatism
By Annavajhula J C Bose, PhD
Department of Economics, SRCC, DU
Can economics be made a force for good?
This question is addressed by two great living economists as representatives of new pragmatism as the way out of the ‘deserty, sterile, and thuggish’ orthodox economics. You might take-off from their contributions and evolve to get the Veblen-Commons Scholar Award. Such economists abjure “pure” theory in favour of tools, and use tools to solve problems.
I consider James Kenneth Galbraith. He has evolved to be very much like and even much more than his illustrious father John Kenneth Galbraith. I also consider Grzegorz Witold Kołodko, the founder and director of TIGER – Transformation, Integration and Globalization Economic Research, which is at the Kozminski University in Warsaw, an exciting place to study. Note that Professor Kolodko is a marathon runner and the globetrotter who has explored almost 150 countries. He is a music lover like me, and a photographer too!
Kolodko would speak to you like this: “I like to say that economics and the social sciences ought to be as simple as possible, but no simpler…I point out the interaction between culture and politics, technology and the economy, the environment and business, money and happiness, the past and the future, America and China, wisdom and stupidity, strategy and chaos, Europe and Africa, religion and competitiveness. The feedback and causal relations between these events and processes are what is fascinating in our interdependent world…People can commit errors in the public arena because they don’t know all the underlying facts, or draw the wrong conclusions from the facts through illogical reasoning. This is forgivable; to err is human…If they’re lying, we have a different problem.
Why do politicians, along with economists, ecologists, sociologists, political scientists—and market analysts—lie? Sometimes it’s for ideological or dogmatic reasons, but much more often it’s because they’re lobbying for a special interest group, even if they don’t say so. In short, they lie for ideology or they lie to collect a fee. Lies like this cannot be forgiven…It’s not always easy to separate truth from untruth and errors from lies. But it’s absolutely essential to do so in our quest for a better future…Take the myth that the free market is a cure-all for economic challenges and a recipe for sustaining Western prosperity or for rapid development in emerging markets. This costly misperception has led to the recent world financial and economic crisis. The sooner leaders—and economists—understand that the only chance for sustained and equitable growth is a positive synergy of the invisible hand of the market and the visible brain of the government, the better.
Interestingly enough, it’s been utilized with a great success in China, in a more murky way in Russia, and with mixed results elsewhere in emerging and transition economies. In the United States a great struggle is going on to get this synergy right. This is the contemporary American Civil War. We can hope that the intelligent option wins out. But this is only a hope…The so-called common wisdom of the economic mainstream doesn’t fit real life. Life is far more complex, yet still explainable.
Orthodox thinking is based on “assumptions”—one of the most frequent terms in economic models. My heterodox reasoning is based on the observation of reality…Things happen the way they do because many things happen at the same time. There is always—always, I repeat—a concrete, specific coincidence or overlapping of factors that make something happen or set a process in motion. To understand these multiple factors, you must observe them through various intellectual windows or from various perspectives—Keynesian, monetarist, neo-institutional, futurological. You have to know how to move—that is, to think—in a multitrack way. It’s difficult but exciting…A heterodox scholar is not closed in by one set of ideas and methodology, not a slave to any a priori doctrine or orthodox dogma. “Heterodox” implies a nonconventional progressive approach. In this world of the complex interdependence of culture, politics, economy, finance, and the environment, being orthodox is a waste of time. It can be good in religion (although I’m not sure it always is), but it’s utterly erroneous in contemporary social sciences. The future belongs to heterodoxy…”
James Galbraith, who looks up to Kolodko, would reinforce the above views thus:
“A training in academic economics…largely serves to inure young men (and a few women) who plan to make careers in business and finance from thinking in any serious or critical way about the social framework within which their future careers will unfold. Economics students are notorious, for example, for an ability to frame moral and ethical arguments in self-serving terms that students in other disciplines would abhor. This is undoubtedly useful preparation for careers especially in such fields as finance, where aggressive, predatory and opportunistic traits are widely admired and regarded as essential to success…the economics profession worked over fifty years to obstruct and denigrate analyses of resource quality and environmental degradation, and still to this day advances policy proposals that are based on mythical reasoning and, by and large, ignorance of scientific, engineering and human realities. Technology is treated in economic (growth) theory as a gift of science, in contradiction to the actual history of technological change.
An economic theory built on “representative agents” and abstract households has nothing useful to say about race or class, and the field was caught flat-footed by the pandemic, after having been complicit in the privatization of health care and the dismantling of public health services in those countries most addicted to the reasoning of the modern economics profession…
The explanation of capitalism is a project to which mainstream economists have contributed nothing for about half a century. A principal reason is that capitalism is a historical phenomenon, not an abstract or ideal system, still less a mathematical model.
To explain it, one needs to place it firmly in historical perspective. Here I would point to the insights of Karl Polanyi Levitt, a non-mainstream economist of the highest distinction, whose most recent book, From the Great Transformation to the Great Financialization does a wonderful job of describing the origins of modern capitalism in the globalization that began with the discovery of the Americas in the 15th century and rise of the Caribbean agricultural and industrial system, based on the cultivation of sugar by slaves imported from Africa.
Capitalism is a system defined by the purchase and sale of capital assets – this is what distinguishes it from its feudal predecessor – and the original capital asset was, predominantly, the human slave. Only later did the form of industrial capitalism emerge, in which a distinction began to be drawn between “capital” in the form of machines, inventories and finance, and wage “labor.”…
Pure global capitalism, such as it was, developed from around 1500 to the end of the 19th century. It was undermined by the Great War and collapsed in North America, Europe and the British Empire at the end of the 1920s. It was replaced over the course of the succeeding decades by a mixed economy, rooted in the pragmatic reforms of the American New Deal, the exigencies of the Second World War, and in reactions and adaptations to the competing systems of fascism and state socialism. The attempt to reconstruct a system of pseudo-unregulated global capitalism began only in the late 1970s, with waves of privatization, deregulation and austerity. That system never fully matured and it has already collapsed, first in the financial crisis, and now in the pandemic. So the question of its survival does not arise. The question now is, what should be built in its place? Answers to that question are already emerging, most prominently in China but perhaps also in Russia and in parts of Latin America. Europe, the UK and North America, where neoliberal ideologues prevailed for decades, must now come to grips with the urgent need for fresh thinking suited to free and democratic societies.”
To conclude, a “New Pragmatism, looking forward into danger and uncertainty, must … seek forms of development that are sustainable in three distinct ways: in terms of economic dynamics, in terms of social acceptability, and in terms of the environment…The right approach is an economics of moderation…This must come, by finding ways to work within the constraints, to use human potential within well-organized institutions, to provide security for all, and to conserve our natural resources and the planet as best we can.”
Will you lend an ear to Kolodko and Galbraith?
Learning/Unlearning economics is indeed a painful, very painful process. You have to bear with it if you have to become a problem-solving economist, though.
References
https://cup.columbia.edu/author-interviews/kolodko-truth-error-lies
https://www.ageofeconomics.org/interviews/james-galbraith/
https://diem25.org/james-galbraiths-memoir-of-lifelong-struggles-to-make-economics-a-force-for-good/
https://www.youtube.com/watch?v=Dvi6n89JWUY
James K. Galbraith. 2018. Backwater economics and new pragmatism: Crises and evolution of economics, TIGER Working Paper Series No. 138. TIGER. Warsaw.
Grzegorz Kołodko. 2011. Truth, Errors and Lies. Politics and Economics in a Volatile World. Columbia University Press.