“The basis of optimism is sheer terror”  

– Oscar Wilde, The Picture of Dorian Gray (1890)

The US is pathologically positive. From its foundational myths of scrappy, underdog revolutionaries battling against an established Old-World empire to the chimeric garage origin stories of Silicon Valley, US-Americans are socialized to believe that any obstacle can be overcome, and any goal can be achieved through grit, hard work, and belief. Far from utopic visions of a better future, US optimism is relegated to visions of financial success and ascension up the financial hierarchy; the locus of this optimism is the individual rather than a collective optimism of social progress. Failure is the fault of the individual while success is entirely meritocratic: the natural result of hard work and a positive attitude. This unflagging optimism is at once the social inheritance and congenital disease of the US. 

While stories of perseverance and determination serve the socio-cultural purpose of teaching resilience, once its futility is exposed through lived experience and material lack, the insistence on relentless optimism turns predatory. A large part of the blame for this exhausting optimism is that effigy of corporate malice and conspiracy of elites: neoliberalism. While often serving as the catch-all sin-eater in popular press, neoliberalism is the well-defined yet often misunderstood ideological overseer of US capitalism since the 1970s. The misapplication and hazy interpretations are understandable, for neoliberalism relies on a rhetoric that is pushed widely and loudly yet executed selectively. Calls for a small state and a hands-off approach to markets are belied by bespoke regulations which ensure bank bailouts and business tax breaks. Privatization of public goods and services results in government spending being locked into contracts with private corporations, and the latter protected from public scrutiny by the Fourth Amendment right to privacy. Public welfare is undermined and denigrated while corporate welfare is lauded and valorized. These contradictions seem plain, and yet as social safety nets unravel and as market protections are fortified, neoliberalism persists, and the ideology of the atomized individual metastasizes. 

 

The micro-capitalist

In a 1960  interview, John Steinbeck opined that US-Americans are all, “temporarily embarrassed capitalist(s).”¹ Nothing better encapsulates the working experience in the US than the idea that each individual is a micro-capitalist, in sole possession of and solely responsible for their own human capital development and ability to sell their skill set in the career marketplace. Higher education is a return-on-investment calculation as student debt pushes the pursuit of human capital acquisition further out of reach. Degree disciplines are subjected to the logic of narrowly defined proficiencies and take on the armature of job training. Education is not pursued for life enrichment but for financial enrichment alone. 

Under neoliberalism, every individual is encouraged to think of themselves as an entrepreneur. Within the workplace, employees are to act as micro-capitalists, proactive and innovative in their approach to work. This management approach ostensibly entrusts the worker with their own ability to perform, their own ability to problem-solve, and their own self advocacy. The veneer of autonomy and self-determination obscures the intent: the responsibility of success or failure is placed on the worker who must engage in hyper self-regulation and monitoring regardless of the structural and administrative constraints within the organization itself.

And attitude is everything. The Protestant work ethic which characterized early capitalism morphs into rise-and-grind, hustle culture under neoliberalism. The neoliberal micro capitalist must submit to the capitalist logic of constant growth of their productivity, their focus and ambition, and self-improvement. We can trace the neoliberal emphasis on overwork through cultural expression beginning in the 1970s “Me” generation, continuing into the 1980s young, urban professionals: the “yuppies.” In the wake of the savings-and-loan crisis of the late 1980s and 90s, such naked ambition was frowned upon as hollow and overly self-serving. In its place, however, we’ve seen a variety of cultural trends which maintain the impulse of greed, softened and sanitized with a kind of social awareness. In the new millennium, hipsters became the next iteration of yuppies in an awkward entanglement of ambition and nonchalance. Channeling the Beatniks and their post-World War II rejection of conformity and suburbanization, hipsters replaced the Beatnik disdain of materialism with disdain for anything mainstream, thus perpetuating the “greed is good” grind from yuppies. The rise of the “boss babe” likewise coated the rapacious ethos of neoliberalism with a sparkly, feminist, candy pink gloss which exhorted women to build their empires. Whether it is the more subtle optimism of the hipster rejection of convention and embracing of individuality or the more overt optimism of the empowered boss babe, the optimistic and optimizing micro-capitalist remains at the core of the neoliberal individual’s identity.

In addition to the amplification of the Protestant work ethic under neoliberalism, we can also see the transmogrification of the can-do, optimistic narrative. Horatio Alger’s rags-to-riches stories embody the valorization of the individual work ethic foundational to 19th century capitalism. These bootstrap success stories mutated under neoliberalism into what journalist Adam Johnson refers to as “perseverance porn,” media stories of individuals struggling against systemic failures and the ruthless, no excuses drive of neoliberal capitalism.² Here we find stories of individuals forced to spend several hours of their day walking to and from their workplace or working while injured or inventing side-hustles to pay for college or healthcare. The overwhelming odds through which these individuals work serve as fluffy, optimistic tales of inspiration which contain (within the unspoken) sharp and unforgiving cautionary warnings that excuses will not be tolerated. 

 

Perilous counter-trends

No ideological movement can survive without a healthy counter-movement to absorb the frustrations and vent the hostility that could otherwise be channelled into demands for reform and change. Those counter-movements which inadvertently reinforce the primary ideology pose less of a threat and therefore persist longer; viable counter-movements provide an outlet rather than an opposition. Any genuine counter-movement that survives long enough will eventually be co-opted and subverted. In the case of neoliberalism, counter movements of care are mitigated and transformed into coping mechanisms and consumerism.³

Self-care is a perverse edict to the individual that they are responsible for their own mental health

In 1988, Audre Lorde wrote about the necessity of self-care within the context of political activism: “Caring for myself is not self-indulgence, it is self-preservation, and that is an act of political warfare.”⁴ To Lorde, self-care was an integral part of political struggle, a necessary tool to enable one to survive and continue the fight. Against the neoliberal grindstone of relentless optimism, however, self-care has been smoothed into the innocuous consumerism of ‘retail therapy’ where short-lived doses of dopamine can be purchased, and credit card debt justified. In the US, where healthcare is rationed and mental health care is a luxury few can afford, self-care is a perverse edict to the individual that they are responsible for their own mental health. The neutralization of Lorde’s invocation of self-care into consumerism and as an emaciated substitute for genuine healthcare epitomizes the dilution of counter movements against neoliberalism; twisting institutions to instead reinforce and contribute to its survival. Rather than an inoculation against neoliberalism, self-care is an invocation to the self-generative optimism on which neoliberalism thrives.

Alongside self-care sits the (much more profitable) wellness industry. Discouraged and disempowered from profit driven healthcare, towering medical debt, and—if an individual is lucky enough to have both insurance and free time—endless pleading with insurance companies, it is unsurprising that individuals turn to do-it-yourself alternatives. In the wake of the Covid pandemic, the wellness industry expanded exponentially. From relatively benign meal plans and fitness programs to exorbitantly priced supplements and wellness retreats, and further afield into invasive procedures like blood transfusions and IV infusions, wellness entrepreneurs have yet to find an upper limit on the health optimization they might offer. The allure of the wellness industry as a means of care untainted by the greed of big Pharma and the futile fight for insurance coverage is clear. The wellness industry also offers the individual a path to prosperity which taps into the self-made mythos upon which the US was founded: piecing together one’s bodily and mental wellness outside of the tyrannical institutions of US healthcare is the quintessence of bootstrapping. In the optimism of overcoming, domination of the self is the natural precursor to success: self-cured begets self-made.

The tradwife movement is an attempt to reestablish the communal through family, church, and a community which at its core is threatened by the potential of equality and loss of privilege

The tradwife (or traditional wife) movement is a revanchist call to an imagined past of traditional gender roles within the heteronormative, nuclear family of 1950s suburbia. A fairly recent cultural phenomenon of the past decade, scholars have yet to pin a specific taxonomic definition to the tradwife apart from their shared ultra-conservativism.⁵ With reactionary politics and Christianity as their unifying principles, tradwives reject modernity after the post-World War II boom—a wholesale rejection of the Civil Rights movement, second wave feminism, and neoliberalism. Within that rejection is a gendered, racist call back to the “rugged individualism” of the first century of the US, when white European families fended for themselves on this nascent country’s expanding Western frontier. Some tradwives boast of living this literal homesteading ethos while others embrace the June Cleaver housewife model, but all attempt to reject febrile neoliberal individualism in order to return to the traditional family dynamic. It is an attempt to reestablish the communal through family, church, and a community which at its core is threatened by the potential of equality and loss of privilege. False hope isn’t the only by-product of predatory optimism; the disenchantment wrought by predatory optimism can prompt some to seek liberation by following even more destructive paths. In the case of tradwives, that path is white supremacy.

 

Reclaiming care and the communal

Predatory optimism lubricates the friction between the mythology of self-madeness and the reality of the intensifying precarity wrought by neoliberalism. When self-recrimination wears too thin, scapegoating, moral panics, and the bread-and-circuses of political cycles absorb the overspill of blame and revitalize the individual’s self-worth. To speak of structural constraints, institutional barriers, systemic failures or the social diseases of racism, sexism, and the enduring legacies of colonial holocausts is heresy, but such sacrilege is critical in order to destabilize the narrative of market supremacy over the atomized individual.

In the US, each individual is cast as both the protagonist and antagonist of their own reality. Succeeding by their wits alone and foiled by none other than themselves, the individual is thus also the author of their reality, entirely in control of their story. Caring for others is not a moral imperative if one’s fate is solely determined by the choices they made along the way.

Even the most talented learn from others, are supported by communities of similarly talented people, and all at some point drew upon the resources of the state

At the rotten core of neoliberalism there sits the withered and fantastical rendering of an individual who is completely self-sustaining, self-reliant, self-governing. Predatory optimism embodies the myths and repeated refrains that the neoliberal individual self is capable of what has never been done in the history of humanity – surviving alone. But human survival is a communal activity. Medical advancements, technological innovation, cultural expression, revolutionary overthrow of an oppressive power are not solo achievements. Contrary to the hagiographies of once-in-a-generation geniuses and leaders (whatever that means), even the most talented learn from others, are supported by communities of similarly talented people, and all at some point drew upon the resources of the state. 

 

Footnotes and References

1. Steinbeck, John. 1960. A Primer on the 30s. Esquire. p. 93.

2. Johnson, Adam. 2017. “Media’s Grim Addiction to Perseverance Porn.” FAIR.

3. Brown, Wendy. 2015. Undoing the Demos: Neoliberalism’s Stealth Revolution. Book Collections on Project MUSE. Zone Books.

4. Lorde, Audre. 1988. “A Burst of Light: Living with Cancer.” A Burst of Light: Essays. Firebrand Books.

5. Darby, Seyward. 2020. Sisters in Hate: American Women of the Front Lines of White Nationalism. Little, Brown, and Company.

Klein, Naomi 2023. Doppelganger: a Trip into the Mirror World. Farrar, Straus and Giroux.

Wilde, Oscar. [1890] 1913. The Picture of Dorian Gray. Simpkin, Marshall, Hamilton, Kent & Company Limited, and Olde Paris Booke-Shoppe.

Wrenn, Mary V. 2022. “Overcoming Optimism (and Moving toward Hope).” Journal of Economic Issues, 57:2, 376-388.

Wrenn, Mary V. 2023. “Multi-Level Marketing: A Neoliberal Institution.” Journal of Economic Issues 57:4, 1043-1061.

 

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Mary Wrenn is a Senior Lecturer in Economics at the University of the West of England Bristol. She is an internationally recognized scholar and prolific researcher on the topic of neoliberalism. Wrenn is particularly interested in exploring the ontological dimensions of neoliberalism as expressed and experienced through personal agency, identity, emotions, and care.

Listen to his full presentation here

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Read the transcription

 

 

 

As I listened to Professor Roselli, my first instinct was that perhaps it was necessary to begin by apologizing for my nationality. But then it occurred to me to remind you that none of the originators of neoclassical economics were actually American: not Walras, not Menger, not Jevons, not Marshall, certainly not Frank Hahn. The Americans only came in in a second and derivative generation after our institutions were overtaken, and there was, in a preexisting American tradition, an economics which one can trace back to Thorstein Veblen, John R. Commons, and a certain emigrant from Canada, whose name family modesty precludes my mentioning here. That was, I think, very much in line with the insights of Keynes and Luigi Pasinetti. 

 

Keynes and Revolutionary Economics

In the closing pages of Keynes and the Cambridge Keynesians, Pasinetti summarizes his vision of the structural dynamics of a monetary production economy, a lifelong effort to advance a revolution not fully achieved and indeed overwhelmed in his lifetime by a savage counter-revolution (detailed meticulously, so far as Cambridge was concerned, in recent work by Ashwani Saith) and undermined, as Pasinetti acknowledges, by infighting and failures of strategic and tactical vision amongst the revolutionaries themselves. But looking back, one may argue that the revolutionary conditions of the 1930s had disappeared in the 1950s and 1960s, clearing a path for complacency and neoclassical dogma, both simplifying and obscurantist: perfect competition, constant returns, general equilibrium, marginal productivity, money neutrality, rational expectations, not to mention Solow’s growth theory and the refusal to acknowledge the capital critique – and at the policy level, the Washington Consensus, balanced budgets, tight money, privatization, deregulation, free trade, open capital markets. For obvious reasons, the failure of this bizarre confection is now apparent, the paradigm is frayed; it is fragmented, as has already been observed, into experimental and behavioral economics (but also above all, what I would describe as small-bore empirical econometrics, statistical analysis). 

This is where you come in with economics or what economists do. And we are back in a proto-revolutionary setting. The revolution may therefore perhaps now resume and our project here, I would urge, is not merely archeological. The question before us is what direction should it take? Pasinetti depicts the Cambridge ethos as having operated at two levels. One of them is purely theoretical. It is represented, above all, by Sraffa and the other is institutional – represented, mostly I would say by Nicky Kaldor – Pure Economics and Political Economy, if you like, with Keynes (almost alone or certainly in a preeminent position) operating equally at both levels. But Pasinetti also cites Schumpeter in calling for a unifying vision: something that can make sense of the whole picture and convey it practically at a glance to the uninitiated. For Schumpeter, as for Veblen, this was evolution: Darwin’s natural selection, economics as process rather than result, materialism over teleology, the wrenching of economics from 18th century stasis to the change and turmoil of 19th century science. In the 20th century, there was a return to a kind of managed stasis, at least for a time: growth theory, again, the neoclassical synthesis. 

And so, since this stasis has now begun – in fact it’s an advanced state of dissolution – this is a good starting point even for us. But even within the guidelines laid down by Pasinetti, nine points have already been articulated, we can go further. And I want to just quote a few lines from Keynes and the Cambridge Keynesians. He writes, “it is precisely here that one reaches the crucial point. Which other framework of reference can we look for? Traditional theory does not provide another one. It leaves us in the wilderness at a complete loss. To solve the riddle one must really stop patching up, one must genuinely go back to Keynes’s initial exhortation for a really radical change – for a genuine break away from the reductionist constraints of neoclassical economics. Time has come to sail widely and freely beyond.” But where? 

 

Economics, Time, and Space

Long ago, at the suggestion of Robert Skidelsky, I argued that Keynes’s General Theory was crafted in explicit analogy to Einstein: monetary production, space time. Effective demand is relative to the curvature of space in the presence of massive objects. The integration of macro and micro is akin to John Archibald Wheeler’s dictum that matter tells space how to curve and space tells matter where to go. I still find this a relatively easy and effective way to introduce the general theory to undergraduates who have not yet had common sense and a vision of the wider world beaten out of them by courses in neoclassical economics. But it remains to unify the theoretical and the institutional levels. And for this, let me suggest that biophysical principles governed by thermodynamic laws are the suitable tool, not least because they immediately unify economics and social science generally to physics and biology, making the whole comprehensible on common terms and exposing the pre-scientific illusions of the neoclassical edifice. 

When I first met Joan Robinson – I was on my first days as a graduate student the one year I spent at Cambridge – she took me to lunch in the buttery of the University Library and explained, and I remember her saying this explicitly, “You can’t put time on an IS-LM diagram.” I had no idea at that moment what she was saying, but I would now rephrase it as “economics is subject to entropy just as much as anything else.”

In a biophysical nutshell, all activity requires resources, which must yield a surplus, a greater return than they cost to extract. This is not a new idea at the Accademia Nazionale dei Lincei. Alberto Quadrio Curzio were he here would, I trust, appreciate my putting it in the first place. Secondly, all extraction requires prior fixed investment – whether you’re talking about photosynthesis or nuclear fission – which is made only with the expectation of profit under conditions of uncertainty, which are influenced by discount rates and the cost of capital. Credit money – and we are talking about monetary production here so we have to bring this in – is a device for concentrating capital in hands capable of using it in a more or less civilized substitute for piracy and pillage (the previous common ways of achieving this). All investments have a limited term. Nothing goes on forever. There is no equilibrium. Nothing is permanent. There is no end of history. So far as I can say, every element of the Keynes, Kaldor, Sraffa, Pasinetti vision is compatible with this one. In particular, as Pasinetti urged, it places production and the decision to produce at the heart of the analysis, not the exchange of somehow mysteriously previously produced goods (as in the Walras, Marshall, Arrow, Debreu scheme of things). 

 

Theories of Value

Pasinetti was always very concerned, continuing to the end of his life as we’ve just heard, with the theory of value. Well, production is about the realization of economic value. And I would argue, and I am arguing with co-author Jing Chen in papers and a forthcoming book, that value depends on two considerations: scarcity (Walras’ preferred formulation) in relation to the size of the market, and market power (or the degree of competition), which, obviously, is already acknowledged in Joan Robinson’s work on imperfect competition. Both of these can be captured by a simple logarithm function, where scarcity is the argument expressed as a probability and the number of suppliers or the degree of monopolies is just the base of the logarithm. In this very simple scheme, as market penetration or the number of suppliers increases, value goes down. If one takes an average across a range of products or processes, then the mathematical expression is identical to entropy or to information in Shannon’s theories, results quite consistent across a range of fields. The expression and its underlying concept are inherently dynamic, highlighting the quest for value in novelty, in exclusiveness, in market expansion and market control. The decision to produce can likewise be captured by a somewhat less simple differential equation taking account of fixed and variable costs, project duration, discount rate, and uncertainty. 

The intuition is familiar to any business in that efficiencies and conveniences of modern life were made possible by large fixed investments in a climate of low uncertainty and readily available cheap resources, facilitating rapid technical improvement. This is the extraordinary confluence of Keynesian macro management and the age of oil, beginning in the 1920s but really taking root in the 1930s: in a world (from the 1940s onward) that was for a long time stabilized by a global framework managed by the United States, through certain institutions, including the United Nations. 

Once again, there is no stasis and no equilibrium. Favorable conditions can be upset by changing physical conditions, resource depletion, or by shifting control over resources, or by mismanagement (leaving the available resources idle), or by a shift in the management of the whole system from a concept of stewardship (that is the fostering of economic development on a broad basis) to one of predation (which is to say, the drive to hoard the resources and make them scarce for a large part of the world’s population). These things have become characteristic since the 1970s, especially since the 1980s, and even more especially since the early 2000s with the resulting decline in the biological rate of return (that is to say the rate of reproduction of the human species) and prospective population declines are now the evident consequence of what is a very straightforward economic decision on the part of millions of households. 

 

Money, Plans, and Distribution

Monetary production presupposes money. And from a pedagogical and political perspective, I have to here speak on behalf of some American colleagues of mine, again defending the few saving graces in the national outlook at the moment. But the greatest recent progress toward accomplishing Pasinetti’s revolution in this area has built on Keynes particularly the Treatise on Money, Hyman Minsky and his arguments about financial instability. And this is the purview of a group of scholars who have coined the phrase Modern Monetary Theory (MMT), whose threat to the neoclassical mainstream is extremely evident from the scorn that is poured on these people by academics in prominent positions. 

But the fact is, their work helps to clarify that money is created by governments and by banks to do things, to create specific and aggregate effective demand. Here a critical distinction is between sovereign and not-so-sovereign monies in the hierarchy of World Finance. For the former, the approach to full employment is limited only by real resource constraints. As Keynes argued, anything you can do you can afford to do. The only constraint is what you can’t actually do. For those who are not in so favored a position, the access to real resources is rationed by the access to external finance. In this way, a colonial system was perpetuated in the post colonial era, so to speak, by the back door. 

The biophysical framework presupposes plans. That is to say, it calls our attention to the fact that a system of any kind has different parts for different functions, which generally work together but sometimes break down. This is like any living creature or any machine. It is not the interaction of particles, neither stable nor complex nor chaotic, as in agent-based models, but differentiated and integrated. And here to restate the point: like every biological or mechanical system, human societies and their economies work according to plans. In living entities, these are encoded in genes, in machines and buildings in blueprints, and in societies and economies in habits, regulations, and laws. These evolved in different ways in different places which is why there is no universal best formula for economic policy and why all attempts to impose one – to come back to the Washington Consensus – are doomed. Let alone the vain hope that markets (sometimes and somehow left alone) will self regulate or self organize. You cannot assimilate those concepts to a biophysical perspective consistent with biology, mechanics, or economics in the vein of Keynes and Pasinetti. 

Finally, a biophysical framework integrates monetary production to the study of distribution – not merely the functional distribution, but also the distribution of pay or household income – so that the evolution of inequalities at the global level (captured in national and regional datasets) becomes an artifact of macroeconomic performance. This is how macroeconomics controls microeconomic outcomes, and the exercise of economic power. I have built up that particular argument over years from the bottom up, beginning with the application of Henri Theil’s entropy-based measures of inequality to administrative and industrial datasets, leading, ultimately, to showing how innovation drives inequality in advanced countries while the actions of the global monetary and financial regime, which changes over time, dominate the movement of inequalities within countries over most of the globe, most of the time. This work establishes that the stabilization or reduction of inequalities is a regulatory function, without which societies tend to become quite unstable. It is as necessary as the control of effective aggregate demand. But it is achieved only in relatively strong states, with strong institutions. And at the level of global governance, that is a revolution still far from being accomplished. 

So I’d just like to acknowledge that it was Luigi Pasinetti’s curiosity about this work – his immediate understanding, I think, of how well it fit under his larger scheme of things – that led him to suggest my name for the election to this body and, therefore, to the privilege I feel with being able to speak to you from this platform today. It is simply a very great honor to be able to pay tribute to this great, soft spoken, modest man: a really marvelous role model for anybody who wants to take the business of thinking seriously, particularly in economics. And it’s a pleasure to stand with fellow revolutionaries as we move, I hope, to complete the project of which he spoke.

 

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James K. Galbraith is Lloyd M. Bentsen, jr. Chair in Government/Business Relations at the Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin. He holds a PhD in Economics from Yale.

Read his other contributions to the symposium at the links below:

Industrial Policy Is a Good Idea, but So Far We Don’t Have One

Entropy, the Theory of Value and the Future of Humanity

Will Austerity and Precarity Finish Off the Human Species?

Listen to his full presentation here

 

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I would ask you to forgive my somewhat portentous title; with Professor Fukuyama present, one is naturally tempted to reach for the big theme. And with Professor Phelps also present, this conference is graced with the most distinguished exponents of the worldview that I plan to demolish – in a friendly way – in the next few minutes. In doing so, I align myself with the pragmatic perspective, the new pragmatism of Professor Kołodko whose philosophical orientation recognizes that there is no end to history, no equilibrium state, and that the task of the economist in the real world is to define, analyze, and address an unending series of evolving problems thrown in our path by economic, social, political, and ecological change.

Equilibrium

The central and distinctive tenet of mainstream economics and its subsidiary disciplines is the notion of equilibrium: the idea that whatever the current unsettled condition of a market, an economy, or a society, there exists some configuration – a fixed point, we used to call it when I was in graduate school at Yale in Herbert Scarf’s classes many years ago – with the property of long-term persistence. This notion underpins the elementary concepts of supply and demand, the Phelps-Friedman construct of a natural rate of unemployment, as well as such latter-day fashions as computable general equilibrium, and the DSGE (dynamic stochastic general equilibrium model).

More dangerously, you may recall how, 35 years ago, the economies of central Europe (and a bit later the former Soviet Union) were labeled “transition economies”, which gave the clear implication that the teleological end state was already known. In 1989, in the Journal Ekonomista, the Journal of Michael Kalecki, in an issue where I shared space with Professor Kolodko long before meeting him in person, I published an article entitled “The False Metaphor of Transformation” which warned that – and I’ll quote myself here – “the East Europeans may go to sleep on the train to Stockholm and wake up as the boat docks in Buenos Aires.” So far as I’m aware, no one at the time noticed or paid any attention to those words. 

The grip of equilibrium reasoning is strong. Its roots go back thousands of years to concepts of celestial harmony in classical Chinese philosophy, which were taken up by the physiocrats in France, the utilitarians in Britain, and refined in the late 19th and 20th centuries as the consequence of choices made by rational agents in perfect markets so that equilibrium prices reflect psychological valuations, a separate theory of value being rendered unnecessary. Of course, a market may be imperfect, information may be asymmetric, individuals may be irrational. The equilibrium, nevertheless, is supposed to exist in principle if not in practice. In real life, in modern science, there is no such thing. Evolutionary principles and the second law of thermodynamics preclude and exclude equilibrium. 

The grip of equilibrium reasoning is strong. Its roots go back thousands of years to concepts of celestial harmony in classical Chinese philosophy, which were taken up by the physiocrats in France, the utilitarians in Britain, and refined in the late 19th and 20th centuries…

Realigning Economics

The question can only be how to bring economics out of its pre-scientific stagnation and into line with the life principles governing physics, biology, and every real, existing mechanical or social system. This is the task modestly undertaken in my forthcoming book, co-authored with the mathematician Jing Chen, and entitled Entropy Economics, the Living Basis of Value and Production. In brief and intuitively, all biological, mechanical, and social systems must tap into the entropy flow. They draw resources from the environment and they must do so with a usable surplus. This requires fixed investment according to plans. The plans are encoded in genes, in blueprints, in software, in habits, in regulations and laws. A plan is viable if the value of output is sufficient to cover the variable costs plus a contribution to the fixed costs over time. Profit maximization, that iconic objective of mainstream economics, has nothing in common with this. Those that meet the condition for viability survive whether they are maximizing or not. And those that fail to meet it will fade away whether they are maximizing or not. 

Value, economic value, in turn, is governed by two factors. One of them is scarcity in relation to market size (things which are more scarce are more valuable). And the other is market power, which you can proxy, or indeed measure, by the number of suppliers of a specific good or service. In our representation, we model this, we represent it, with a simple logarithm function whose argument is a probability measure representing scarcity, and whose base is the number of firms that are producing a particular good or service. This notion that the base can represent this was an innovation introduced by my co-author, which I think has really a great deal of explanatory power. Where one generalizes to multiple products or processes, the formula exactly replicates Shannon’s measure of information as entropy. Thus, low entropy and high economic value are exactly parallel. Mathematically, they are the same thing. It is also the case that entropy clearly underpins a utility notion of value since we instinctively prize the young, the fresh, the new, and the efficient. 

Value, economic value, in turn, is governed by two factors. One of them is scarcity in relation to market size (things which are more scarce are more valuable). And the other is market power, which you can proxy, or indeed measure, by the number of suppliers of a specific good or service.

This is a simple, practical, mathematical theory with many straightforward applications. It can cover such issues as: trade policy, the introduction of free trade between two economies with different resource intensities; regulation, the role that firms often play in using regulatory mechanisms to reduce the amount of competition that they face, forcing the weaker players out of the market and raise their own economic value; antitrust policy; stock market valuations can be modeled this way; and many similar topics which we illustrate in the book. 

The Family and its Reproduction

Do these ideas tell us something about the future of humanity? I regret to say that I think that they do. I address this question in another recent paper, which was published a month or so ago by the Economic Democracy Initiative of the Open Society University Network. It’s entitled “Will Austerity and Precarity Finish Off the Human Species?“. A household unit is an economic unit. It operates like every other economic unit on biophysical principles. It has fixed costs to cover. It must access resources abundant enough, at low enough variable cost, to ensure viability over time. 

The household unit is, well, it’s the ultimate micro foundation of an economic society. In simple societies, as Professor Kołodko has witnessed many times on his travels and has described in his writings, the fixed costs of the household are low. They consist of food, rudimentary housing, basic clothing – a few other things, not very much. Children add little to these elementary burdens and indeed can contribute to meeting costs from a relatively early age. Adam Smith was well aware of this, writing that in 18th century North America a child was worth about a hundred pounds net gain, a very large sum at the time, to the family. And he said that a young widow with four or five children, whose prospects in Europe would be terribly bleak, would be courted in America as a sort of instant fortune. 

In complex societies, the kind that we all live in now (almost all of us), the fixed costs of the household are actually very high. I include houses, cars, utilities, taxes, healthcare, education; the list goes on. Children have to be raised, educated, entertained, and tolerated to the extent possible for almost two decades. During this time, they bring no economic return – very, very rarely do they bring any economic return – to the household. And afterwards they move away, making, generally speaking, no further specific contribution to the economic welfare of their parents. While there is often a psychological contribution, that can be either positive or negative depending on the case. 

Complex societies, therefore, enjoy – or should I say did enjoy – population booms, only when resources are cheap, as they were in the early post-war America and a bit later in Europe. Well, that era ended in the 1970s when costs rose, energy, food, taxes, interest rates, and tuition. While incomes stagnate, thanks partly to deindustrialization and the migration of productivity gains to other parts of the world, households face a viability crisis just like any business firm. To meet it, they redouble their efforts and reduce their costs. Now what is the great economy that’s open to them? 

While incomes stagnate, thanks partly to deindustrialization and the migration of productivity gains to other parts of the world, households face a viability crisis, just like any business firm.

The answer to that is obviously to have fewer children. Now this, I think, explains in a fairly simple way, and it is very hard I think to argue with it, why fertility declined with the onset of neoliberal austerity policies in the 1970s. Then the decline deepened after the 2008 crisis, which did a great deal of damage to the established wealth of households in North America and Europe, certainly. It affects all wealthy societies whose fertility is systematically lower than in poorer countries (even though in most, if not all, poorer societies also, there has been a decline for similar reasons, just from much higher levels).

Consistent with evolutionary principle, there is no equilibrium. There is no equilibrium state. Each phase leads to the next: to cut costs and raise incomes, households work more and they procreate less. We observe a transitory rise in what we measure as GDP (money value of incomes and output) as secondary earners flood into the workplace. That happened heavily in the United States in the 1980s into the 1990s. With fewer children and a strong commitment to general welfare, the population ages. Investment shifts from support for children and child-rearing to the needs of the elderly (clinics, hospitals, nursing homes, hospices). It is all very natural and there is nothing to be said against this. This is just the way in which a society changes its priorities to meet the needs that it is facing. 

The relative burden on the young grows while the birth cohort relative to the population shrinks. With a smaller birth cohort, the population becomes ever harder to replace. Immigration can help, but only as long as the conditions are relatively attractive – that is to say only as long as living standards and the receptivity for immigrants makes it worthwhile to leave their countries of origin to come to wealthier societies. This is largely true at the present, but it will not be true indefinitely. And even while it is true, immigration is resisted by incumbents because they don’t like the social dislocation that it inevitably brings. We are seeing this played out rather dramatically on the southern border of my home state here in Texas at the moment. 

Over-Burdened

Where does this end? So far as I am aware, no society whose individual fertility rate has fallen below the replacement value, which is about 2.1, has ever recovered. So far as I’m aware, only the Russian Federation, among wealthy societies, has seen even a partial recovery thanks to very assiduous, pro-natalist policies. But Russia suffers from the small birth cohort it inherited from the chaos of the 1990s. China is an extreme case, having implemented a one-child policy which has greatly reduced the birth cohort available to it at the present time, and it is already suffering a fairly rapid rate of population decline.

So far as I am aware, no society whose individual fertility rate has fallen below the replacement value, which is about 2.1, has ever recovered.

At the present time, in fact, amongst the large countries of the world, only two that I am aware of, Pakistan and Nigeria, have fertility rates that are significantly above replacement. Apart from that, only some relatively small, sectarian communities enjoy that status, and they are probably too small to be likely to inherit the Earth. Over time, therefore, and thanks largely to the way in which rising resource costs affect the fixed cost structures of any modern society, the human species (I think we can reasonably infer, though it is going to be a rather dramatic inference) has placed itself on a glide path toward extinction.

Those doctrines have worked over time to obscure the real conditions that we face, to blind us, as it were, to evolutionary and biophysical dangers while the neoliberal policies of austerity and precarity have worked to accelerate the processes that I described. 

This argument does not rely in any way on the four horsemen of the apocalypse: famine, pestilence, war, and death, the checks that were known to Malthus and that underpin neo-Malthusian arguments. I am not really referring to those at all, nor will I place direct blame on the equilibrium doctrines of which Professor Phelps and Fukuyama are such distinguished representatives. I will say that those doctrines have worked over time to obscure the real conditions that we face, to blind us, as it were, to evolutionary and biophysical dangers while the neoliberal policies of austerity and precarity have worked to accelerate the processes that I described. 

So, absent radical change – including reductions in the over-burdens, the military and financial predatory structures, that have come to be such a heavy part of the fixed cost of ordinary life in so-called advanced societies – this combination of circumstance and incomprehension seems quite enough to do us in. 

I will close here just by noting that I’m far from being the first or the only figure to offer a warning along these lines and I will give you references to three canonical texts. 

The first one is Kipling’s Recessional: 

“Far-called, our navies melt away; / On dune and headland sinks the fire: / Lo, all our pomp of yesterday / Is one with Nineveh and Tyre!” 

The second one is Archibald MacLeish’s poem called The End of the World, and I’m extremely fond of it. This is the last stanza:

“And there, there overhead, there, there hung over / Those thousands of white faces, those dazed eyes, / There in the starless dark, the poise, the hover, / There with vast wings across the cancelled skies, / There in the sudden blackness the black pall / Of nothing, nothing, nothing — nothing at all.

And finally, one that I’m sure everybody is familiar with from The Hollow Men, T .S. Eliot:

“This is the way the world ends. / This is the way the world ends. / This is the way the world ends. / Not with a bang but a whimper.”

 

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James K. Galbraith is Lloyd M. Bentsen, jr. Chair in Government/Business Relations at the Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin. He holds a PhD in Economics from Yale.

The central methodological claim in Professor Rodrik’s essay is that mainstream economics is “paradigm-free.” By this, Rodrik means that the policy implications of the mainstream worldview are “indeterminate.” This is a most interesting claim. Yet, in his contribution, Rodrik does not clearly define “mainstream economics,” so let me begin by venturing such a definition. We can then ask whether it is possible to separate “mainstream” from “neoclassical” – and then to follow Professor Rodrik to his offering of a “productivist” version of mainstream economics.

The metaphor of “mainstream” is hydrological. The word distinguishes the primary channel – let’s say of a river – from tributaries and diversions. It is by definition where most of the water will be found. Let’s therefore define “mainstream economics” as theories shared by most academic economists at what they claim to be “leading” universities, published in what they describe as the “top” journals, as ranked by… well… by mainstream economists. This is a fairly well-defined community. It would be illuminating to discover that its members have no theoretically-determined policy views. Is it true?

To be sure, “mainstream” in economics does not necessarily imply “neoclassical.” To take a canonical case, the Harvard economics department has always been mainstream. It has not always been neoclassical. Until perhaps 50 years ago, Harvard economics was eclectic. Among the traditions that were then well-established, New Dealers believed that the mixed economy had supplanted classical capitalism. Keynes had established an indispensable managerial role for the state. The most prominent Harvard economist was the former director of war-time price control and an apostle of big organizations and countervailing power. Socialism and planning were legitimate alternatives to capitalism; the Soviet Union was studied as an alternative system. Marxism was represented in the senior and junior ranks. From the standpoint of method an earlier figure, Joseph Schumpeter, though vehemently pro-capitalist, had been closer to Marx than to Rodrik. Apart from the young radicals who were purged in 1971, practically all of the Harvard economics faculty at that time would have been considered mainstream.

Today, apart from a rare survivor of that era – Stephen Marglin comes to mind – none of these tendencies can be found at Harvard. Nor, in the “top” departments, anywhere else. To put this in concrete terms, could any modern mainstream economist advocate the “Chinese model” – except implausibly by claiming that China has become a capitalist state? Could any advocate the Meidner-Rehn model of trade-union centralization and egalitarian wages practiced with great success for decades in Sweden? Not to mention the harsh-but effective industrialization of the Soviet Union under Stalin. They could not, and there are no such examples in any “leading” economics department.

Today, the mainstream in economics is indisputably and uniformly neoclassical. It is not without some differences, among neoclassicals, over the policy implications of that stance. An elementary textbook that highlights “rival perspectives” in economics distinguishes “liberal” and “conservative” variants of “conventional” or mainstream economics. Both are built from the same neoclassical basics: households, firms, rationality, profit-seeking, supply, demand, price adjustment, equilibrium. They differ mainly over flaws, frictions, externalities and other caveats and qualifications. As a core matter of policy, “both believe that capitalism is the greatest economic system.”¹ This minimalist definition may be taken as uncontroversial.

In practice, neoclassical economics specifies far more than this in most cases, including a set of supposedly mainstream modeling techniques (such as CGE and DSGE) and econometric methods. To say that today’s mainstream economics is paradigm-free is therefore absurd. The entire project of mainstream economics for decades has been to narrow intellectual horizons – to specify a paradigm. Within the paradigm, there is an allowed range for disputes, but it is narrow.² Though some departures are permitted, the bias is always toward markets, competition, flexibility, openness. No mainstream economist privileges planning, monopoly, controls or autarky.

Rodrik would like to separate himself from neoclassical dogma, but his commitment to the present-day neoclassical mainstream can be adduced in several ways. Most important, his decision-maker is always the “firm.” Firms make “employment, investment, and innovation decisions, in the language of economists.” Firms make “decisions on how many workers to employ, how much to pay, what kind of technology to deploy, and how to organize work [to] effect not just the bottom line, but the life chances of prospective employees and their communities.”

In Rodrik’s paradigm, government exists to provide what “firms need: a reliable and skilled workforce, good infrastructure, an ecosystem of suppliers and collaborators, easy access to technology, and a ‘sound’ regime of contracts and property rights.” Conspicuously missing from this list: democratic control, public purpose, social insurance, human and civil rights, wage and labor standards. These are not in the paradigm. Nor does his model mention unions, collective bargaining, or the non-profit sector. (One might ask, within his paradigm, could Harvard University exist?) The model here is not of real-existing capitalism. It is of a neoclassical vision with an unrealistically limited definition of government and a set of institutions purged of many that necessarily exist in the real world.

Now we come to Rodrik’s proposed innovation, “productivism.” Though the word and its cognates occur repeatedly in his essay, it is not entirely clear to me what they mean. As a matter of logic, if some economic activities are productive, others must be unproductive. This distinction is readily found in classical political economy – it is the subject of an entire chapter in Adam Smith’s Wealth of Nations. But Rodrik does not appear to be specifying a distinction between tangible and intangible outputs, as Smith did. For him, it is clear, services are not less productive than the creation of material objects.

Instead, it would appear that Rodrik’s concept of what is productive is related not to outputs but to the quality of the jobs that are provided. Thus, a “productive” economy is one that generates “good jobs” that “pay sufficiently well to allow for a reasonable living standard.” This is the crux of Rodrik’s policy problem. If, as Rodrik specifies, “firms” generate jobs, under what conditions could they be induced to ensure that jobs are plentiful, and that they meet Rodrik’s criteria for “good jobs”?

Here, let me suggest, Professor Rodrik has to struggle to align his thinking with the logic of mainstream economics, or even with the common meaning of words in economics generally. “Productivity” is normally defined as a ratio of output to labor (Y/L), where Y is measured in physical units and L in labor-time. Productivity goes up when the labor component is driven down – that is, when jobs are eliminated. If the firm is the decision-maker, it is in the logic of the profit-seeking firm to replace costly labor with machines, computers, and artificial intelligence.

If the definition of productivity is given in money terms, then productivity is essentially profit, which goes up when wages are cut relative to prices. Either way, productivity is not intrinsically connected to the provision of good jobs, so long as firms get to decide on technologies and pay. This is why, in real-existing capitalism, governments and unions make many decisions about pay. It is also why, in real-existing capitalism, governments and the non-profit sector are on hand to provide jobs, to the extent that private firms are unwilling or unable to do so.³ Proposals like the job guarantee are thus not radical departures; they are rather improvements on current and past policy practice.

From this I would argue that to reach the objective that Professor Rodrik advocates – let’s summarize it as good jobs at decent wages – there is no alternative to laws, institutions, unions, wage standards and countervailing power. The problem is not to align the firm to this objective through market incentives; it is to regulate and overrule the market in the interest of a stable and prosperous society. To advocate this position coherently, therefore, there is no alternative, except to repudiate today’s mainstream.

To come back to the top of Rodrik’s essay, he states that his new paradigm is “suspicious of large corporations,” exhibits “skepticism toward technocrats” and is “less instinctively hostile to populism.” On one reading, these features may seem to evoke the neoclassical textbook model of perfect competition. But are they mainstream? Does Rodrik really propose to produce automobiles in small shops or steel in backyard furnaces? Does he propose to produce aircraft or electricity without engineers? Does he propose to approve new drugs without scientific research? This is all quite curious. I suspect few other “leading” economists would regard such positions as mainstream. If they would not, then Professor Rodrik’s effort to link these rather special features of his proposed paradigm to the mainstream – neoclassical or otherwise – would appear to be unsupported.

But then, one might ask, is there a heterodox tradition that might take him in? I do not see an obvious home for such ideas in the Institutionalist, Keynesian, Post Keynesian or ecological or environmental schools. They are unconnected to issues of debt, credit and money, and so not relevant to Modern Monetary Theory. Though my father had roots in the avowedly populist United Farmers of Ontario – back in the 1920s – these aspects of Rodrik’s ideas are, of course, highly opposed to those of The Affluent Society and The New Industrial State.

There is a lingering tradition of neo-populist antitrusters. They are very active, these days, in the political space, but they are not – so far as I’m aware – strongly represented within any present-day academic school of economic thought. And, possibly, for good reason.

 

Footnotes

¹Voices on the Economy, Amy S. Cramer and Laura Markowitz, Second Edition, 2023, Vol. 1, 124.

²In 1987 Paul Krugman wrote, “If there were an Economist’s Creed, it would surely contain the affirmations ‘I understand the Principle of Comparative Advantage’ and ‘I advocate Free Trade'” — before going on to cast doubt on both propositions – and yet winding up as a free trader anyway. This is a nice example of policy discipline in mainstream/neoclassical economics.

³In services the definitions of “productive” and “productivity” are even trickier. Services output in the national accounts is measured by the revenue generated. (A highly-paid professor, or concierge, by definition, makes a larger contribution to GDP than a poorly-paid one.) Since services use little capital, most services revenue goes to labor – either as wages or salaries. Productivity is therefore either (a) money revenue divided by factor payments (equal to one by definition and unable to be improved) or (b) money revenue divided by labor hours – in which case “productivity” rises when wages or salaries and therefore prices rise. Within the firm, revenue can be distributed to wages and salaries unevenly, and usually is. If the owner makes the decisions – as Rodrik assumes to be the normal (indeed, universal, paradigmatic) case, then there is a flat conflict of interest between the “firm” and the provision of “good jobs.” The owner pays himself well and everyone else as poorly as possible, unless – once again – wage standards and collective bargaining intervene. But again, these are not in the paradigm of mainstream economics as neoclassical economics.

References

• Cramer, Amy S and Laura Markowitz. 2023. Voices on the Economy: How Open-Minded Exploration of Rival Perspectives Can Spark Solutions to Our Urgent Economic Problems, Second Edition, Volume 1. Tucson: Voices on the Economy.
• Galbraith, John Kenneth. 1958. The Affluent Society. Cambridge: Houghton Mifflin
• Galbraith, John Kenneth. 1967. The New Industrial State. Cambridge, Houghton Mifflin.
• Krugman, Paul. 1987 “Is Free Trade Passé?“ The Journal of Economic Perspectives, Vol. 1, No. 2 (Autumn), 131-144.
• Rodrik, Dani. November 2023. “A New Paradigm for Economic Policy“. Post-Neoliberalism.org.
• Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. Many editions.

Related material

• Galbraith, James, “Why mainstream Economics Got Inflation Wrong,” Project Syndicate, Nov 15, 2023
• Galbraith, James, “The Stagnant Science: Mainstream Economics in America,” American Affairs, Volume VII, number 4 (Winter 2023), online on 20 Nov, 2023.

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James K. Galbraith teaches at The University of Texas at Austin. He holds a PhD in Economics from Yale.

In this short essay,¹ I will sketch a policy paradigm that I have called “productivism”. I also want to suggest that mainstream economics can be this paradigm’s ally, rather than its enemy.

Productivism is an approach that prioritizes the dissemination of productive economic opportunities throughout all regions of the economy and segments of the labor force. It differs from neoliberalism in that it gives governments (and civil society) a significant role in achieving that goal. It puts less faith in markets and is suspicious of large corporations. It emphasizes investment in productive activities over investment in financial products, and revitalizing local communities over globalization. It also departs from the Keynesian welfare state in that it focuses less on redistribution, social transfers, and macroeconomic management and more on creating economic opportunity by working on the supply side of the economy to create good, productive jobs for everyone. And productivism diverges from both of its antecedents by exhibiting greater skepticism towards technocrats and being less instinctively hostile to populism in the economic sphere.

Our core economic problems – poverty, inequality, exclusion, and insecurity – have many roots. But they are reproduced and reinforced on a daily basis in the course of production, as an immediate by-product of firms’ employment, investment, and innovation decisions. In the language of economists, these decisions are rife with externalities for society, i.e., they have consequences that spill over to many people, firms, and other parts of the economy. Some of these externalities are well recognized in economics. Learning and innovation spillovers from R&D form the rationale for tax credits and other public subsidies. Environmental externalities and the effects of greenhouse gas emissions on climate change form the basis for environmental regulation.

But in our contemporary world, these externalities are broader and also include what may be called “good jobs” externalities. “Good jobs” are jobs that pay sufficiently well to allow for a reasonable living standard with some security and savings, are relatively stable and with safe working conditions, and offer some career progression. Firms that generate “good jobs” contribute to the vitality of their communities. Conversely, a shortage of good jobs comes at social, political, and economic costs. Social consequences can take the form of exclusion, broken families, drug abuse, addiction, and crime. Political ills such as polarization, the rise of populism, backlashes against globalization and immigration, decline in trust in government, experts, and institutions can follow. The prevalence of “bad jobs” is also symptomatic of economic dualism, which creates its own inefficiency: productive technologies remain bottled up in a few firms and do not disseminate throughout the rest of the economy and the labor force.

Firms’ decisions on how many workers to employ, how much to pay, what kind of technologies to deploy, and how to organize work affect not just the bottom line, but the life chances of prospective employees and their communities. When a company decides to automate its production line or outsource part of its production to another country, society may suffer long-term damage that is not “internalized” by its managers or shareholders.

Framing the problem in terms of an “externality” – or as a “coordination failure” which prevents the undertaking of complementary actions (in training, technology adoption, investment decisions) for broad-based prosperity – clarifies that productivism is about productivity first and foremost, and not about redistribution or social/labor standards. But it does not presume productivity trickles down. It aims to enhance well-being across all sectors of society by directly broadening access to productive employment opportunities.

Productivism requires an explicit quid pro quo between private firms and public authorities. To prosper, firms need a reliable, healthy and skilled workforce, good infrastructure, an ecosystem of suppliers and collaborators, easy access to technology, and a sound regime of contracts and property rights. Most of these are provided through public and collective action, which is the government’s side of the bargain. Governments in turn need firms to internalize the various externalities they produce for their communities and societies when they make their labour, investment, and innovation decisions. So firms must live up to their side of the bargain too – not as corporate social responsibility but as part of an explicit regulatory and governance framework.

Productivism focuses on enhancing the productive capabilities of all segments and regions of a society. While traditional forms of social assistance and especially better access to education and health care can help in this regard, connecting people with productive employment opportunities requires interventions that go beyond these. It requires improvements on the demand side of the labour market as well as the supply side. Policies must directly encourage an increase in the quantity and quality of jobs that are available for the less educated and less skilled members of the workforce, where they choose (or can afford to) live.

In the future the bulk of these jobs will come not from manufacturing, but from services such as health and long-term care and retail. In the U.S., fewer than one in ten workers are currently employed in manufacturing. Virtually all new net job creation in the private sector since the late 1970s has taken place in services. Even if policy succeeds in reshoring manufacturing and supply chains, the impact on employment is likely to remain limited. The experience of East Asian manufacturing superstars such as South Korea and Taiwan provides a sobering example. These two countries have managed to rapidly increase the share of manufacturing value added in GDP (at constant prices) – yet they have experienced steady declines in manufacturing employment ratios thanks to automation and other labor-saving technologies.

This is important since so much of the policy effort in the U.S. is focused on promoting high-tech manufacturing. The most recent example is the CHIPS act the U.S. Congress has passed providing $52 billion in funding for semiconductors and related manufacturing. The initiative is aimed at both enhancing national security vis-à-vis China and creating good jobs. Unfortunately, even if the first objective is met, the second objective is likely to remain elusive. A strategy fixated on geo-political competition with China will not be very effective on the jobs front. The advanced semiconductor industries promoted by CHIPS are highly capital and skill-intensive and do little for job creation.

A similar point can be made about the subsidies to green technologies that are a core component of the “Inflation Reduction Act.” Without question, the green transition is an urgent priority that the new paradigm needs to tackle. But here too, governments cannot kill two birds with one stone. Green technologies will not create many new jobs on net, and the jobs they create will often not be in the distressed regions that need them the most. Policies that target climate change are not a substitute for good-job policies, and vice versa. Shoring up the middle class and disseminating the benefits of technology broadly through society requires an explicit good-jobs strategy.

If the future of good-job creation is mostly in the service industry, the question then arises: Is an industrial policy for services possible? Enhancing productivity in services is notoriously difficult, and often impeded by a myriad of otherwise well-meaning licensing, safety, and other regulations. But if we cannot find ways of increasing productivity in jobs that the bulk of our workers will end up doing, we will end up with economies that are both worse performing and less inclusive. I have discussed elsewhere what such a strategy might look like in the concrete contexts of the U.S., French, and British economies (Rodrik, 2022; Rodrik and Stantcheva, 2021; Doshi, Spencer, and Rodrik, 2023). I briefly summarize here the U.S. proposals.

My proposed program has both a local and a national component. The local approach would build on existing development and business assistance programs that are already loosely structured along the lines advocated here. These are collaborative partnerships between local development agencies, firms, and other partners aiming to revitalize local communities and create good jobs. They are organized around an implicit (and evolving) quid pro quo: the provision of public services (such as business extension services, infrastructure, or customized training) in return for soft commitments by firms on investment and employment creation. Such partnerships align with a new, more-flexible, and contextual model of industrial policy that is better suited to the challenge of creating good jobs.

The federal initiative would be the establishment of an Advanced Research Projects Agency (ARPA) focused on the promotion of employment-friendly technologies: ARPA-W(orkers). Starting from the premise that innovations that complement rather than displace workers are feasible yet currently undersupplied, ARPA-W would promote early-stage investments in digital and other technologies that enhance prevailing worker skills and create good jobs.

Consider what is perhaps the toughest test case for these ideas: long-term care. This is a sector where employment will increase rapidly in future years as the population continues to age and demand for in-home or assisted living arrangements increases. It might be useful to increase productivity in long-term care through a strategy that is analogous to the deployment of innovations in manufacturing pioneered by Japanese auto producers (Osterman, 2019). This entails a combination of investing in worker skills, providing workers with greater voice, discretion, and autonomy, and giving them more responsibility for the quality of the service. Care workers that are empowered with greater autonomy and decision-making can use their knowledge of residents and patients to customize their services and provide more flexibility (e.g., in schedules, food, and treatment).

An important component of the strategy could be the introduction of new technologies that complement caregivers’ skills, such as digital tools that enable caregivers to collect real-time information, and to respond quickly and efficiently to the needs of individual residents. These changes would require a willingness to experiment with novel work practices and a continuum of efforts—from R&D and the introduction of new technologies for long-term care, on the one hand, to their local adoption, adaptation, and contextualization in specific communities, on the other. If long-term care is managed better in these ways, productivity benefits would show up in lower turnover among care workers, reduced hospitalization rates, better management of chronic conditions, and quicker and smoother transitions out of acute-care facilities.

… reducing inequality and economic insecurity is more effective when it happens through better employment prospects than via fiscal redistribution only.

In this paradigm, the conventional separation between growth policies and social policies no longer makes sense. Faster economic growth requires new technologies and productive opportunities to be disseminated among smaller firms and wider segments of the labour force and that their use not be confined to narrow segments of the elite. And reducing inequality and economic insecurity is more effective when it happens through better employment prospects than via fiscal redistribution only. The growth and social agendas effectively merge.

Let me conclude by saying a few things about the role of mainstream economics in all this. Neoliberalism and mainstream economics seem inseparable. Neoliberalism promoted freer markets and freer trade, and discouraged government intervention. Aren’t those precisely the policy conclusions that students in economics courses are taught? And weren’t deregulation, tight money and fiscal austerity, weakening of labor market institutions, and hyper-globalization promoted using the ideas of (and by) leading members of the economics profession? Since the answers to both questions are yes, the demise of neoliberalism should perhaps prompt us to jettison mainstream economics as well.

But the economics of reasoned discussions in graduate seminar rooms is quite different from Econ 101 and the bastardized economics of the neoliberal policy advocate. Consider whether economics preaches free trade. In my book The Globalization Paradox I imagined a journalist going undercover as a graduate student and visiting an economics professor during his office hours. The undercover journalist asks the professor: Is free trade good? In public, the professor might have been tempted to provide a knee jerk answer in the affirmative, but this is graduate school, and the question demands a fuller answer. “What do you mean by ‘good’?” the professor responds. “And good for whom?” The professor then launches into an extensive exegesis that will ultimately culminate in a heavily hedged statement: “So if the long list of conditions I have just described are satisfied, and assuming we can tax the beneficiaries to compensate the losers, freer trade has the potential to increase everyone’s well-being.” If he is in an expansive mood, the professor might add that the effect of free trade on an economy’s long-term growth rate is not clear either, and would depend on another long list of requirements.

If even the beneficence of free trade is up for grabs by mainstream economics’ own rules, imagine how indeterminate policy conclusions must be in any other domain. As Carlos Diaz-Alejandro wrote a while back: “by now any bright graduate student, by choosing his assumptions … carefully, can produce a consistent model yielding just about any policy recommendation he favored at the start” (Diaz-Alejandro, 1974:97). And this was some fifty years ago! Imagine how creative today’s graduate students can be. One can also express this idea in a more positive light. Keynes, who was probably the best practitioner of contextual economics, defined economics as “a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world.”

Unlike what many of its critics believe, where policy preferences are concerned mainstream economics comes paradigm-free in its sophisticated, seminar-room version, and can be used to support any number of conflicting policy paradigms. What disciplines this immense flexibility is logical rigor (which helps clarify the critical conditions under which any policy recommendation holds) and systematic evidence (which tries to map those conditions to the real world in specific settings). Neoliberalism was bad policy not because it adhered too closely to neoclassical economic tenets, but because it treated them too cavalierly. Neoliberalism was in fact bad neoclassical economics (Naidu, Zucman & Rodrik, 2019) The economists who let their enthusiasm for free markets run wild were not true to their own discipline. A younger generation of economists, using the rich variety of contextual predictions of mainstream economists and sticking closer to the evidence, will likely do much better.

 

See James Galbraith’s reply to this piece, “A Comment on Dani Rodrik’s ‘New Paradigm for Economic Policy‘” for further discussion.

Footnotes

¹ This essay borrows heavily from my monthly Project Syndicate columns and from my essay “On Productivism.”

² See this article for a discussion of how thinking of economics as a collection of models helps us overcome the faddishness, over-confidence, and hubris that often accompanies public punditry on economic policy see Rodrik (2015).

³ See for example the policy briefs produced by the Economics for Inclusive Prosperity network, or the new generation of empirical work on industrial policies discussed in Juhasz, Lane & Rodrik (2024).

References

• Diaz-Alejandro, C. 1974. “Trade Policies and Economic Development,” in P.B. Kenen, ed., International Trade and Finance: Frontiers for Research, Cambridge and New York: Cambridge University Press.
• Juhasz, R., Lane, N., and Rodrik, D. 2024. “The New Economics of Industrial Policy,” Annual Reviews of Economics (forthcoming).
• Naidu, S., Zucman, G., and Rodrik, D. 2019. “Economics after Neoliberalism,” Boston Review, February 15, 2019.
• Osterman, P. 2019. “Improving Job Quality in Long Term Care,” in Osterman, ed., Creating Good Jobs: An Industry-Based Strategy (Cambridge, MA: The MIT Press)
• Rodrik, D. 2015. Economics Rules (New York: W.W. Norton)
• Rodrik, D. 2022. “An Industrial Policy for Good Jobs,” The Hamilton Project, Brookings Institution (September)
• Rodrik, D., and Stantcheva, S. 2021. “Economic Inequality and Insecurity: Policies for an Inclusive Economy,” Report Prepared for Commission Chaired by Olivier Blanchard and Jean Tirole on Major Future Economic Challenges, Republic of France (June)
• Doshi, V., Spencer, H., Rodrik, D. 2023. “Creating a Good-Jobs Economy in the UK,” Resolution Foundation (July)

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Dani Rodrik is the Ford Foundation Professor of International Political Economy at Harvard’s John F. Kennedy School of Government. He is currently President of the International Economic Association, and co-director of Economics for Inclusive Prosperity. His newest books are Combating Inequality: Rethinking Government’s Role (2021, edited with Olivier Blanchard) and Straight Talk on Trade: Ideas for a Sane World Economy (2017).