Stephen, our first question is plain and simple: How did you become an economist?
It was a combination of policy relevance, this feeling that what you are doing is going to have an impact on the world, and the intellectual challenge of the kind of neat mathematics in which
economics was increasingly formulated. Like many others in the 1950s and 1960s, that is what attracted me, very simply. But economics has changed. You talk to young economists now and few claim to have any interest in trying to make the world a better place. You just do not hear that. It’s a career, it is a job.
In 1974/5, when economics was not only a job, you wrote, from a Marxian perspective, an influential two-part article on What Do Bosses Do?. Later on, you developed together with Amit Bhaduri the Bhaduri-Marglin model, which is still an important tool for post-Keynesian theory. In your last book, The Dismal Science: How Thinking Like an Economist Undermines Community, you deal with the explanatory power of behavioural economics. – Do you just switch from tool to tool, if I may say so, or do all these theoretical approaches of yours have something in common, a common idea or habit?
First, my last book is not really about behavioural economics. What I have to say about behavioural economists is that if these people had the courage of their convictions, or if they had convictions, then behavioural economics could be a very important tool for criticising standard economics. But as they themselves say, they are not out to rock the boat. They want to show what you can do when you change one little assumption here or there and keep everything else the same. Far from wanting to criticise standard economics, they are desperate for acceptance by the profession. Nor do they ever look at the consequences of
* Stephen A. Marglin holds the Walter S. Barker Chair in the Department of Economics at Harvard University, where he became a tenured professor in 1968. Marglin has contributed to many aspects of economics over his long career. His published papers and books range over the foundations of cost- benefit analysis, the workings of the labour-surplus economy, the organisation of production, and the process of macroeconomic adjustment. Together with Amit Bhaduri he developed the Bhaduri- Marglin model on the relationship between growth and income and its distribution.
** We would like to thank Rory Finch for the transcription of the interview.
© InterventIon 8 (2), 2011, 237–245
their theory, if it were to be carried out with rigour and some kind of complete programme,
for the whole branch of welfare economics.
From my perspective, mainstream economics, and in fact all economics has developed largely around normative issues. You cannot understand the framework of mainstream economics unless you understand that. You cannot understand why the competitive model is taken as the norm, and then other forms of market structure are taken as deviations from the norm. It makes no sense if your sole purpose is to describe how the world works. Were this the case, you would start with oligopoly, and monopoly, and maybe some monopolistic competition to take account of the vegetable sellers and restaurants and so forth. You sure as hell would not start with perfect competition; that would be a footnote.
Again, why do we spend so much time teaching the theory of consumer choice? If we weren’t interested in drawing normative conclusions, we could start from demand curves. We do not have to posit rational consumer choice. If we do insist on starting from consumer choice, why do we assume that preferences are fixed? Once again the answer lies in the normative agenda.
The whole structure of mainstream economics is geared towards its normative propositions, namely that markets are good for people. Why are markets good for people? Because they eliminate waste. They are efficient. This latest book of mine is really an attempt to understand this whole set of foundational assumptions that economics makes about people. It is about assumptions of individualism, assumptions of self-interest, assumptions of unlimited wants, which I have come to see as derivative assumptions, not the primary assumption. Finally, it is an assumption that there is only one community that is legitimate, that is the community of the nation. These are the assumptions of modernity that underlie the mainstream structure of economics and that permit one to argue that markets are good for people.
In some way or another, at least for the last forty years, critical examination of that conclusion, that markets are good for people, and its premises is what ties my work together, my trajectory. I cannot say that it was that well thought out, but in retrospect my career has been about trying to understand the limits of the assumptions of economics, particularly two strands: One strand is emphasized in the last book, which is what those assumptions do to communities. The other strand, with which my present research is concerned, is the failure of markets to deliver full employment, the Keynesian problem if you will. I have gone back and forth between these two issues, but I have to say that at some point around the year 2000, I got discouraged about Keynesian theory. I had additional thoughts to develop further some of my ideas of the 80s, which I worked out first in collaboration with Amit Bhaduri. I even wrote some of these ideas down. But in terms of really pushing them, spending a lot of time on them, it just seemed like there was nobody out there that would listen. Since 2008, I think the market has changed. In fact, the book that I’m working on at the moment is precisely an attempt to explain Keynes, perhaps what Keynes actually meant, and if not what he actually meant, then what he should have meant!
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If I understood your last book right, the hypothesis is that if people think as economists they are undermining communities and social ties. If so, let me ask provocatively, should economists not refrain from any economic policy advice? If mainstream economic ideas are undermining social cohesion, and you have some arguments for that, then why not get rid of all these economists?
That brings to mind the slogans of the revolutionaries in England in 1381, the great peasant rebellion, they wanted to do various things for the betterment of the country, the first of which was to kill all the lawyers! I am considered to be a radical, but I am certainly not that radical. I would like to change economics, not ban economics. I think the perspective of mainstream economics is a very important perspective. I teach it, I teach it not as a straw- man to knock down. I teach it as a very important perspective, a very important way of being in the world. My problem with my fellow economists is their belief that it is the only way of understanding the world, of being in the world. That particular way of understanding the world makes community invisible, so that there is no way that an economist who is steeped only in that tradition, only in that way of seeing the world, can meaningfully take account of community when formulating policies. Community literally does not make sense to an economist. I think what we have to do is change economics, and then we will get better policy recommendations out of economists.
Could you give an example for such a policy recommendation taking community into account?
One of the areas that is quite controversial is outsourcing jobs, and as part of that debate economists, like the general public, should take very seriously the impact of job loss on communities. There is a fair amount written about this, journalists have been writing about this, and this is politically a very sensitive subject. But economists consider this a naïve question. My colleague Greg Mankiw once defended outsourcing on the grounds of comparative advantage when he was chair of the Council of Economic Advisors, about six years ago. He had to back-pedal very quickly because not only Democratic members of Congress, but Republicans as well, were up in arms. As a perceptive commentator noted, and I quote this in The Dismal Science, the argument was not between Democrats and Republicans, but between economists and everybody else. All the economists lined up behind Mankiw. All his critics were non-economists. This demonstrated to me that economists do not really understand comparative advantage, number one. And number two, their framework makes it impossible for them to take into account what are the real consequences of job loss, which is the destruction of whole communities.
From the perspective of mainstream economics, the decision to outsource a branch or not would be based on a cost-benefit analysis, and they will attach monetary values to the costs and to the benefits. What would be the alternative, would you try to quantify the social impact of outsourcing as well?
No, I do not think that you can quantify everything. Albert Einstein is reported to have had a sign in his office saying ›Not everything that we can count counts, and not everything that counts can be counted‹. To bring in things that cannot be counted is the great challenge of economics. Not only the destruction of communities but the destruction of the ecosystems on which sustainability depends defies precise quantification.
My position on the ecology debate is that the North ought to slow down growth or perhaps end growth completely. Not because we know for sure that otherwise we are going to hell in a basket, we do not know. But even though there is good deal of evidence that growth is unsustainable, the evidence is not in the form of hard numbers; not everything that emerges from ›hard‹ science can be quantified. But there is enough evidence that we should be worried.
On the other hand, there is evidence that at the levels of income we have reached in Germany, Europe, the USA and similar countries, further increases in income do not make people much better off. There are huge problems of maldistribution of wealth and income, but in terms of average levels, we are not in the position of Africa, China, India, where the pie is too small to be distributed in a way that would satisfy peoples’ needs. So given the evidence on the ecological dangers of continued growth, and given the evidence that further increases in income will not contribute markedly to human well-being in the North, a powerful case can be made for stopping the engine of growth, or at the very least, slowing it down considerably. The case is made stronger by a third consideration, which is that the South does need growth. To free up ecological space for the South to grow is both prudent and equitable, even if we can’t demonstrate this conclusion numerically. We need a new discourse in economics that takes account of the things that we can quantify along with the things that we cannot quantify, or which takes the things we cannot quantify into the picture.
Am I right? On the one hand, your Keynesian heart says that we need growth to alleviate distributional conflicts, and on the other hand, your ecological heart says that we do not need it?
The Keynesian heart speaks to the short run, the ecological heart to the longer term issue of sustainability. My combined heart says that we need to change our institutions so that we have other ways of addressing problems of distribution rather than through growth. Ernest Gellner, the anthropologist, had a very nice phrase for growth in this context: he called it ›universal Danegeld‹, which he glosses as ›buying off social aggression with material enhancement‹. Danegeld was tribute the English natives paid to the marauding Danes in the 9th and 10th centuries, in order to be left alone. Today growth does the same thing for the rich: it directs the attention of the less fortunate – everybody else – away from the possibility, some might say the necessity, of redistribution. Redistribution could go a long way towards changing the way people measure their self-worth, measuring being in terms of having. Evaluating our lives in terms of material success, in terms of what we can afford to buy, is something that has been deeply engrained in us for centuries now. If we are to thrive in a post-growth world, this is something that we are going to have to change. We have to wake up and smell the flowers.
As you know, Keynes in his 1930 essay on The Economic Perspectives for our Grandchildren thought that this long-run solution would more or less automatically occur. But you, as you have also these Marxian elements in your arguments, would not tend to agree with him on this, I guess. So what are the concrete policy measures that we can take now that would bring us closer
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to the long-run solution to the economic problem that Keynes described. There is distribution, but what else?
There are policies, and then there is something much harder, and that is a social transformation. The policies are, first of all, to distribute income more equally. That would be done in a number of ways, but the tax system is the principal way of doing that. Another is to make it much easier to share work. Our institutions are against that. For instance, in the US most of our healthcare insurance is provided by employers. This is a huge cost, so it is obviously in the interest of the employer, in economising on this cost, to hire one person for forty hours instead of two people for twenty hours. For another example, we have to go no further than the current recession. In one sense, it is remarkable that a relatively small fall in total output can have such devastating effects. In the USA, at the bottom of the recession, output fell by only about 5 percent from pre-recession levels. Now, if everybody sacrificed about
5 percent, people would hardly notice it! But the impact has been severe precisely because it is so concentrated. Instead of leading to sharing the available work, economic slack has led to layoffs and firings: the unemployment rate has gone from 5 percent to 10 percent. So while there is considerable difference on how to provide jobs, economists and politicians are all in agreement that we need more jobs, we need growth to get out of this recession. And they are right – as long as our labour market institutions are what they are, the only way for people to get out of this recession is to have jobs. If instead of 5 percent of the labor force bearing most of the burden of unemployment, the pain were spread more evenly, the pressure for growth as a cure for recession would be much less.