The pathology of economics

COVID-19 exposes the deadly dominance of neoclassical economics in Africa.

On February 24, 2021 Ghana received a vaccine shipment (600,000 doses), the first to sub-Saharan Africa under the COVAX facility. It amounted to a tiny fraction of the hundreds of millions needed on a continent increasingly ravaged by the pandemic. Contrast this to the tens of millions already vaccinated in the UK and US. The optimism that Africa would be spared by “early lockdown”, “less dense population, “the effect of ultraviolet”, “a climate that meant people spent more time outside” and “Africa’s youthful population” has rapidly faded. Officially there are now more than 100,000 deaths on the continent, but the real numbers are much higher due to the paucity of testing and the lack of capacity to accurately track and evaluate causes of mortality.

The shortage of tests and vaccines are exacerbated by the West’s hyper-nationalism restricting the import of these two vital tools to combat the pandemic. The same forces have also generated a scarcity of personal protective equipment (PPE), the lack of monoclonal antibody and other treatments, and terrible shortages of medical oxygen so vital to keeping people alive. How is it possible, 60 years after independence, for African countries to be so highly dependent on the goodwill of the outside world for basic health goods? A good deal of the answer lies in the pathology of economics and related policies, which have spread like a pandemic globally and have come to dominate both the West and the continent of Africa. How did this come about? How does it relate to the strategies that have undermined African capacities to mitigate the effects of the pandemic on the health and welfare of its people? And what should be done?

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Corporate Planning in the Coronavirus Economy

woman-wearing-mask-in-supermarket-3962289The global pandemic and associated developing global recession are calling into question a whole range of economic truths and demanding novel solutions to various interlinked societal problems. In this blog post, I want to connect what we’re currently seeing in the retail sector during this pandemic to deep-seated narratives about the nature of economic exchange, in particular to the notion of “the market”. 

The market is one of the most dominant concepts for making sense of the social world, primarily because of the prestige of the economics discipline and the elevation of the market concept by the discipline (albeit in a highly abstract manner). At its most basic, it paints the economic sphere as akin to a marketplace, where there is a level playing field and rivals compete for custom primarily through having the keenest of prices. Other, more complex, ideas often get laid over this concept, such as the market pricing mechanism allowing supply and demand to equilibrate, price signals communicating complex information to market participants, and, as such, the market allowing for decentralised decision making led by consumer demands. (For a much (much) fuller account of the market concept, see here.)

However, as a result of the coronavirus pandemic increased demand for basic goods – such as toilet roll, hand sanitiser and flour – has put a strain on the distribution of these goods and has engendered a response quite dissimilar to the narrative of the economic system as a competitive, decentralised, profit-maximising market. What we have seen, instead, is retailers working as sites of governance in order to ensure a degree of equity in the distribution of resources. Read More »

Brexit’s Keynesian Lesson: Fundamental Uncertainty Revisited

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“About these matters there is no scientific basis on which to form any calculable probability whatever. We simply do not know.”

An economist’s words but not meant to be a description of where things stand today in the aftermath of the Brexit referendum, though they might as well be. These are Keynes’s words from a 1937 article following the publication of his magnum opus, The General Theory of Employment, Interest and Money in 1936.Read More »

Increasing and Diminishing Returns – Africa’s Opportunity to Develop

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‘This tendency to Diminishing Returns was the cause of Abraham’s parting from Lot, and of most of the migrations of which history tells’ wrote the founder of neo-classical economics, Alfred Marshall, in the first edition of his textbook Principles of Economics (1890). In a footnote he refers to the Bible’s Genesis xiii : 6: ‘And the land was not able to bear them that they might dwell together; for their substance was great so they could not dwell together’. (Marshall 1890: 201)

Marshall’s observation also applies to today’s migration patterns: from countries where most activities are subject to constant or diminishing returns to countries whose key economic activities are subject to increasing returns to scale. Diminishing returns occur when one factor of production is limited by nature, which means that it occurs in agriculture, mining, and fisheries. Normally the best land, the best ore, and the richest fishing grounds are exploited first, and – after a point – the more a country specialises in these activities, the poorer it gets. OECD (2018) shows how this occurs in Chilean copper mining: every ton of copper is produced with a higher cost than the previous ton.

In Alfred Marshall’s theory, the ‘Law of Diminishing Returns’ is juxtaposed with ‘The Law of Increasing Returns’, also called economies of scale. Here we find the opposite phenomenon; the larger the volume of production, the cheaper the next unit of production becomes. Traditionally economies of scale were mainly found in manufacturing industry, and increasing returns combined with technological change has for centuries been the main driving force of economic growth. Increasing returns creates imperfect competition, market power and large barriers to entry for challengers – companies or nations – making it difficult for them to enter these industries. In contrast to the rents produced under conditions of increasing returns, raw materials – commodities – on the other hand, are subject to perfect markets, and productivity improvements spread as lowered prices. This is the essence of the theory which explains why former World Bank Chief Economist Justin Yifu Lin was correct hen he asserted that ‘Except for a few oil-exporting countries, no countries have ever gotten rich without industrialization first’ (Lin 2012 : 350).Read More »

Keynes or New-Keynesian: Why Not Teach Both?

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For economists, the Great Recession, the worst crisis the world economy has seen since the Great Depression of the 1930s, has highlighted the need for plurality in macroeconomics education. Ironically, however, there is a move towards greater insularity from alternative or contrasting points of view. Where as, what is required for vibrant policy making is an open-minded academic engagement between contesting viewpoints. In fact, there does not even exist a textbook which contrasts these contesting ideas in a tractable manner. This blog post is as an attempt to provide certain pointers towards developing macroeconomics in a unified framework.

Macroeconomics as a subject proper came into existence with the writings of John Maynard Keynes[i]. There were debates during his time about how to characterise a capitalist economy, most of which are still a part of the discussion among economists. Keynes argued that capitalism is a fundamentally unstable system so the state needs to intervene to control this instability.Read More »

Free Trade Free for All: Market Romanticism Versus Reality

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The drama surrounding President Trump’s decision to impose import tariffs on steel and aluminum has roiled the Republican Party and wide swathes of the corporate elite. The tariff decision comes on the heels of political bluster about the US being treated “unfairly” by other countries. This accusation of “unfairness” when it comes to US trade deficits is well worn. In a previous era, Japan was the alleged culprit of “unfair” trade practices because of its persistent trade surpluses with the U.S.Read More »

Market Forecasting: A Sensitive Practice at the Heart of Neoliberal Capitalism

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This article was originally posted on The Economic Sociology and Political Economy community blog.

Since the emergence of modern financial markets, financial analysts have played a critical role in producing visions of “the economy” and its future development. As experts, they analyze market developments and predict future scenarios that enable other financial market participants to speculate on the rise or fall of stock prices, the success or failure of particular investment products, and the growth or decline of entire national economies. The substance of the analysts’ valuation and forecasting practices is, however, heavily disputed among economists. In neoclassical economic theory, the assumption that markets are informationally efficient has challenged the legitimacy of the work of financial analysts since the establishment of the efficient market hypothesis as a central paradigm in the mid 1960s. Alternative schools of thoughts – such as new institutional or behavioral economics – have criticized this paradigm. However, they have also argued that the degree of uncertainty, which is inherent to financial markets, makes prediction impossible.Read More »

Towards a better understanding of convergence and divergence: or, how the present EU strategy – at the expense of the economic periphery – neglects the theories that once made Europe successful

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This new working paper attempts to address some of the main problems of the European Union today. The main thesis is that the Weltanschauung and the economic narrative on which the European project has been based have changed radically since the inception of the European Project, from one conducive to convergence and cohesion to another which is conducive to divergence and, in the last instance – I shall argue – to a form of internal colonialism towards the economic periphery.

The field of Science and Technology employs the term sociotechnical imaginary [1] about the collective narratives and visions of social futures and of the common good. I shall argue that the European Union has moved away from the sociotechnical imaginary, or narrative, that dominated after World War II. I shall argue that this post WW II Marshall Plan Narrative (MPN) gave way to an equilibrium-based Neo-Classical Economics Narrative with an added innovation rhetoric, which I shall argue is based on a fairly shallow understanding of innovation (which I shall call NC+I).Read More »