Occupy Wall Street and the Political Economy of Inequality1 ARINDRAJIT DUBE and ETHAN KAPLAN

Introduction: Economics and Occupy Wall Street SURESH NAIDU

hether and how Occupy in Zuccotti Park, I met a visitor from Indiana interest and exchange rates, the federal reserve, Wall Street (OWS) persists who had been involved in starting “Occupy Ko- unemployment, debt, the European crisis, the are wide open questions. komo” in his hometown (population 50,000). banking sector, the nature of money, who ex- Nonetheless, it has given As shown in the graph in the second essay of actly were the 1 percent and what do you do to the income distribution this issue, the media lavished attention on OWS get there, all these things were asked by different Wits “moment in the sun.” In a lip comment in and inequality, bringing attention to inancial folks every week. I recall describing search fric- 2008, I suggested to a Latin American colleague regulation, the political inluence of money, the tions in the labor market, and trying to talk the that the U.S. was not likely to respond to an burden of household debt, and a host of issues intuition behind IS-LM. Of course, there was a economic crisis with a openly left-wing social that had stayed off the American political radar fair share of fringe economic theorizing (e.g., movement. September 2011 thus surprised me; throughout not just the Little Depression, but the abolition of money or demands to end cen- even though I knew OWS was being planned also the last generation. tral banking), but economists should take heart I dismissed it as another demonstration that I have no expertise on many of the issues that there was no shortage of demand for their would either get quickly locked up by the NYPD raised by OWS. But by virtue of social networks expertise among the young people camping in or just izzle out. However, this was one protest and preferences, I found myself discussing these Zuccotti Park. that caught ire, and rapidly spread throughout things often with Occupiers, running weekly This issue of the The Economists’ Voice is the country. Its geographic reach was extensive: economics teach-ins in Zuccotti Park with Ma- showcasing views around the issues OWS has liha Safri. One thing that immediately became raised. Leading the issue is an essay by Daron Suresh Naidu is assistant professor of economics and public clear was the huge demand for economics Acemoglu and James Robinson on “Is This affairs at Columbia University. knowledge that Occupiers had. Questions about Time Different? Capture and Anti-Capture of

BroughtDOI: 10.1515/1553-3832.19 to you by | University04 of Massachusetts - Amherst W.E.B. Du Bois Library (University of Massachusetts - Amherst W.E.B. TheDu Economists’Bois Library) Voice http://www.degruyter.com/view/j/ev March, 2012 © De Gruyter Authenticated | 172.16.1.226 -1- Download Date | 4/6/12 9:45 PM U.S. Poitics.” The authors present an essay on the last 30 years has resulted in substantial dif- even hunter–gatherer populations as economic the historical robustness of inclusive American ferences the capacity of rich and poor to mo- organizations, so too, argues Safri, can they ob- political institutions. Building on concepts de- bilize and exert political inluence. They also serve the conduct of a protracted demonstration. scribed in their forthcoming book Why Nations suggest that the increase in upper tail inequal- Drawing on the history of large-scale strikes in Fail: Origins of Power, Prosperity and Poverty, they ity is not merely another instance of the skill- the U.S. as well as more recent protests in Latin describe patterns of political and economic in- biased technical change or trade liberalization American and the Middle East, she discusses the equality in the U.S. over the past 250 years, fo- that have arguably driven wage-inequality, but economic allocations of basic necessities that cusing on the late nineteenth century Gilded Age rather an increase in the returns to capital. Po- must be in place in order to maintain a long- as an analogy with today. They argue that tech- litically targeting the 1 percent is thus different lasting, large scale political protest. Safri’s article nological change can drive economic inequal- from targeting the 10 percent or the 20 percent, suggests the political protest itself is a type of ity, which can translate into increased political as the former is the population whose income economic organization, solving collective action inequality. American institutions, however, are depends more on the return to inancial and problems. robust enough to nurture counter-movements, physical capital than labor. The 1% vs the 99% Finally, Mike Beggs touches a professional of which the Progressive movement was one better proxies for the functional, rather than the nerve, asking why economics itself was a target and OWS may be another. The historical anal- individual, distribution of income. They con- of Occupiers examples include the Ec 10 walk- ogy and the time-scale is apt; many of the things clude by suggesting how an amorphous, non- out at Harvard, the Occupy Economics video, demanded by the Progressive movement, such policy focused movement such as OWS can and the AEA demonstrations. He unearths the as the income tax or direct election of senators, nonetheless affect economic outcomes, either last time social movements challenged main- were not enacted until much later, well after the by creating common-knowledge about the taste stream economics, in the late 1960s, and the movement had demobilized. for egalitarianism in the political realm, or by ensuing brawls of content and form that swept The next essay is by Arindrajit Dube and tightening the “outrage constraint” in the sphere over the economics discipline. However, Beggs Ethan Kaplan. Dube and Kaplan take a view on of private compensation. recognizes that economics is a very different Occupy Wall Street drawing on recent research Maliha Safri investigates the economic orga- animal than its 1960s incarnation, and chides in political economy and labor economics. They nization of occupations past and present. This those Occupiers that would believe that con- suggest that Occupy Wall Street is a reaction style of political activity does not conduct itself tem- porary economics is nothing more than to two trends, one political and one economic. in an economic vacuum. Just as economists right-wing ideology (not an uncommon view in They suggest that the increasing inequality of have taken to studying families, charities, and Zuccotti Park). Nonetheless, Beggs argues that

ocieties are molded by their institu- meant that the U.S. has been fully able to harness The roots of inclusive economic institutions that determine both their levels the talent of its citizens who have consequently tions in the U.S. lie in a long history of conlict of prosperity and how that prosperity experienced high rates of social mobility. and struggle. Going right back to the founding is distributed within society. For most Obviously economic institutions were not of the Jamestown colony in 1607 the Virginia of its history the U.S. has had econom- inclusive everywhere in the U.S. The federal Company wanted to create an extractive soci- Sic institutions which have been comparatively in- system allowed for institutional divergence and ety especially after it realized it could not make clusive in the sense that economic opportunities the Southern states had much more extractive money by exploiting indigenous peoples (too have been open to most, the playing ield has institutions, with a tilted playing ield in favor thin on the ground) or precious minerals (there been level, and property rights have been secure. of elites and weak or absent property rights for were none). So instead it propagated its “Lawes The inclusiveness of economic institutions has many in society. Instead of opening economic Divine, Morall and Martiall” where private prop- institutions to everyone or allowing social mo- erty was all but abolished and the settlers were James Robinson is David Florence Professor of Government bility, extractive institutions restrict opportuni- forced into barracks and a draconian work re- at Harvard University. His research interests are in comparative economic and political development. He is ties to a powerful few and block social mobility. gime. It did not work. The settlers ran away to currently conducting research in the Democratic Republic The children of slaves were also slaves, slaves the frontier and they began to organize to de- of the Congo, Sierra Leone, Haiti and in Colombia where he could not own property, had no opportunity for mand different institutions. This process culmi- teaches at the University of the Andes in Bogotá. Daron Acemoglu is the Killian Professor of Economics social mobility or the free choice of occupations nated in the creation of the “headright system” at MIT. In 2005 he received the John Bates Clark Medal or careers and it was even illegal to teach slaves in 1618 giving settlers access to land. Aspiring awarded to economists under forty judged to have made the most signiicant contribution to economic thought and to read and write in most Southern states prior oligarchs tried again in Maryland, Pennsylvania knowledge. to the Civil War (Margo 1991). and the Carolinas. For example, the Fundamen-

BroughtDOI: 10.1515/1553-3832.1902 to you by | University of Massachusetts - Amherst W.E.B. Du Bois Library (University of Massachusetts - Amherst W.E.B. TheDu Economists’Bois Library) Voice http://www.degruyter.com/view/j/ev March, 2012 © De Gruyter Authenticated | 172.16.1.226 -1- Download Date | 4/6/12 9:45 PM tal Constitutions of Carolina laid out a rigid so- political power that forced open economic in- ate equality and economic progress, some can cial structure with “leet-men” at the bottom with stitutions, breaking down monopolies (e.g., in always beneit by taking institutions in a more clause 23 noting: “All the children of leet-men banking, Haber 2010) and opening up the fron- extractive direction, by erecting barriers to en- shall be leet-men, and so to all generations.” Not tier to allow land to be equally distributed, as try and excluding people from proitable eco- quite what Ronald Reagan had in mind when he demonstrated by García-Jimeno and Robinson nomic opportunities to create monopoly, and talked in his farewell address about the “shining (2011) (see Keyssar 2009, for an overview). by undermining the property rights of others to city on a hill.” The consequences of these inclusive institu- defend and use their assets. Inclusive economic institutions were under- tions were that the U.S. became one of the most The economic growth of the second half of pinned by inclusive political institutions. At the prosperous and technologically dynamic societ- the nineteenth century, the Gilded Age, created same time as the settlers in Jamestown won the ies in the world (Sokoloff and Kahn 1990, on a group of very wealthy new businessmen, the headright system they gained/obtained self-gov- how non-elites were crucial for innovation). Not “Robber Barons.” One of the most notorious was ernment in the form of a Legislative Assembly only was the U.S. prosperous it was egalitarian. Cornelius Vanderbilt who remarked: “What do which effectively enfranchised all adult white The distribution of assets, income and oppor- I care about the Law? Hain’t I got the power?” males. The Virginia Company had been unable tunity generated by inclusive economic institu- (quoted in Josephson 1934, p. 15). Another was to exploit the white settlers because in the New tions was relatively equal. John D. Rockefeller, who started the Standard World the de facto distribution of political pow- Once created there is a natural tendency Oil Company in 1870 which by 1890 controlled er was very broad, the creation of the Assem- for inclusive institutions to persist – a virtuous 88 percent of the reined oil lows in the U.S. bly institutionalized this inclusive distribution circle where inclusive economic institutions Contemporary cartoons depict Standard Oil as of political power. The inclusive political and spread opportunities, income and wealth more an octopus wrapping itself round not just the oil economic institutions which developed in the equitably which in turn helps sustain the broad industry but also Capitol Hill. colonial period continued into the nineteenth distribution of political power and economic The positioning of the tentacles of the octo- century. Even though the constitution disen- resources. Nevertheless, the system faced con- pus is signiicant. The wealth of the Robber Bar- franchised women and blacks, by the 1820s all tinual challenges, most obviously from the ons was created by their ability to take advan- Northern states had universal white male suf- Southern states until the Civil War and the tage of many new economic opportunities that frage and this spread to the South by 1850. Po- rapid economic success of the second half of emerged, often generated by new technologies litical rights were broadly distributed by world the nineteenth century created fresh challeng- like railroads. These men also quickly became standards and it was this even distribution of es. Though inclusive institutions might gener- adept at using this wealth to manipulate the po-

Brought to you by | University of Massachusetts - Amherst W.E.B. Du Bois Library (University of Massachusetts - Amherst W.E.B. TheDu Economists’Bois Library) Voice http://www.degruyter.com/view/j/ev March, 2012 Authenticated | 172.16.1.226 -2- Download Date | 4/6/12 9:45 PM litical system to their advantage. Crucially, the tions allowed the Robber Barons to threaten the on legislation, particularly concerning the role Robber Barons captured the Senate, which was inclusive economic institutions which had made of the state in the regulation of monopoly. They indirectly elected by state legislatures and they the U.S. so prosperous. induced the creation of the Interstate Commerce narrowed the distribution of political power. But the institutional equilibrium was more Act of 1887, which created the Interstate Com- This process was satirized by the journalist Da- robust than it irst appeared. The Gilded Age merce Commission and initiated the develop- vid Graham Phillips in a series of articles under created a backlash in society in the form of the ment of the federal regulation of industry and the rubric of the “Treason of the Senate” in the Populist and then subsequently the Progressive the Sherman Antitrust Act of 1890 Cosmopolitan magazine starting in March 1906 movements. The Populist movement emerged Though the Populists seriously declined af- (collected in Phillips 1953). Philips went state out of a long-running agrarian crisis, which ter they threw their weight behind the Demo- by state. First was New York Senator, Chauncey aflicted the Midwest from the late 1860s on- crats, their reform agenda was taken up by the Depew, long a lawyer for the Vanderbilt family ward (Sanders 1999). By 1892 rural interests Progressives, a heterogeneous reform move- and their chief lobbyist in Albany for which he had formed a coalition with organized labor ment which had a more urban and intellectual was eventually rewarded with a seat in the Sen- and created the People’s Party. At the founding base. The Progressive movement initially gelled ate. Phillips then moved to Rhode Island where of the party in Omaha, Nebraska they adopted around the igure of Teddy Roosevelt who be- the chief villain was Nelson Aldrich, none other the Omaha Platform, demanding speciic policy came president in 1901. Prior to his rise to na- than Rockefeller’s son-in-law. Here he described changes, such as the introduction of an income tional ofice, Roosevelt had been an uncompro- not just how Aldrich played the same role for tax, which until then had been deemed uncon- mising governor of New York and had worked Rockefeller as Depew did for Vanderbilt, but stitutional. More important it demanded a se- hard to eliminate political corruption and “ma- also how the political institutions allowed this to ries of reforms in political institutions intended chine politics.” Roosevelt proposed that Con- happen, how “The apportionment of legislators to undermine the aim of the political parties to gress establish a federal agency with power to is such that one-eleventh of the population … “secure corruption funds from the millionaires.” investigate the affairs of the great corporations. elect a majority of the legislature – which means These included direct elections for senators, the By 1902, Roosevelt had used the Sherman Act they elect the two United States senators .. The introductions of ballot initiatives and referenda to break up the Northern Securities Company, Aldrich machine controls the legislature, the which they thought would improve democratic affecting the interests of J. P. Morgan, and subse- election boards, the courts – the entire machin- accountability. quent suits had been brought against Du Pont, ery of the “republican form of government”.”The These political movements slowly began to the American Tobacco Company, and the Stan- increasingly extractive nature of political institu- have an impact on political attitudes and then dard Oil Company. Roosevelt strengthened the

Brought to you by | University of Massachusetts - Amherst W.E.B. Du Bois Library (University of Massachusetts - Amherst W.E.B. TheDu Economists’Bois Library) Voice http://www.degruyter.com/view/j/ev March, 2012 Authenticated | 172.16.1.226 -3- Download Date | 4/6/12 9:45 PM Interstate Commerce Act with the Hepburn Act nication technology and globalization, has again via which people get their political information, of 1906 and his successor, William Taft, pros- coincided with a huge increase in economic in- which made money much more powerful as a ecuted trusts even more assiduously, the high equality in the U.S. Part of this inequality is a by- tool for determining the outcome of elections. point of this being the breakup of the Standard product of the structural transformation of our The U.S. political landscape was also changed Oil Company in 1910. Taft also promoted other economy. For example, the technological devel- by the rise of fundamentalist Christians, casting important reforms, such as the introduction of opments that have swept the U.S. labor market their ballots mainly on the basis of normative a federal income tax, which came with the rati- can account for why the demand for workers issues. The co-optation of such voters by the Re- ication of the Sixteenth Amendment in 1913. with high school degree or less has plummeted. publican Party has given it greater freedom to The grassroots opposition was greatly aid- However, they cannot plausibly account for why propose economic policies favored by its oth- ed by investigative journalists such as Phillips the top 1 percent of Americans captured almost er constituents, most notably the wealthy. The known as “muckrakers” who exposed the abus- 25 percent of national income in 2007, up from Democrats, often dragging their feet, have typi- es of the Robber Barons. The most famous ex- 9 percent in 1974. For the 0.1 percent this has cally followed the money, if not in their rhetoric, ample being Ira Tarbell’s 1904 book History of gone from 3 percent to 12 percent (Piketty and in actuality in their policies on many important the Standard Oil Company. Saez 2003). issues such as redistribution and regulation. The These reforms to preserve the inclusive na- This rapidly increasing inequality is simi- result of this cocktail of changes, greater inequal- ture of U.S. political and economic institutions lar to that which emerged in the Gilded Age in ity, greater power for the wealthy at unchanged were effective in two ways. First they helped the sense that it went along with not only eco- levels of inequality, and greater political utility guarantee that the rapid economic growth that nomic growth but also an increasing capture of the thing the wealthy had most of – money – the U.S had experienced in the second half of of the political system by the wealthy (Bartel, created a new form of “inequality multiplier”: as the nineteenth century would be sustained. Sec- 2010, Hacker and Pierson 2010). The capture inequality increased the rich were able to push ond they succeeded in reversing the massive of the political system has been facilitated by government regulation and policy in their favor, increase in inequality and the concentration of several other factors; the reaction of conserva- thus creating even more inequality. Just as in the wealth which had built up in the previous half tive and business groups to the “Great Society” Gilded Age, this trend threatens the inclusive century. programs of the 1960s and early 1970s and the nature of U.S. economic institutions. More than a century after the Gilded Age, a increased taxes that paid for them; the decline Yet these dynamics have created another new era of great opportunities, this time under- of organized labor as an economic and political backlash from outside the traditional political pinned by advances in information and commu- force; the rise of television as the main medium parties in the form of the Occupy Wall Street

Brought to you by | University of Massachusetts - Amherst W.E.B. Du Bois Library (University of Massachusetts - Amherst W.E.B. TheDu Economists’Bois Library) Voice http://www.degruyter.com/view/j/ev March, 2012 Authenticated | 172.16.1.226 -4- Download Date | 4/6/12 9:45 PM (OWS) movement. The occupiers style them- nature of political institutions. An obvious rea- not just because they were complaining about selves as the 99 percent, those excluded from son for the form that OWS protests have taken the same things as OWS, but also because they the 1 percent of the population who have is the successful model of revolt in Egypt. The were successful. Even if the tactics of and the snapped up the economic gains the U.S. econo- technology of the media and protests is also interests behind OWS are different, lessons can my has generated in the last 30 years. They are radically different. The spread of newspapers be learned about what might make OWS likely protesting about rising inequality, falling social and literacy allowed modern mass protests to to succeed. First, even if the Populists and Pro- mobility, the decline in the social safety net and emerge in the eighteenth century, and we have gressives mobilized outside of the traditional the capture of politics by the wealthy, the inan- seen the positive role that newspapers and inde- political parties, their agendas had an enduring cial industry and the large corporations. As they pendent muckrakers played in pushing forward impact on political and economic institutions in put it on their web page they are “ighting back the Progressive agenda. Today the emergence of the U.S. because they were able to force the tra- against the corrosive power of major banks and the internet with Twitter and other social media ditional political parties to take up many of their multinational corporations over the democratic is similarly important in facilitating the emer- reforms. Though they did this partially through process.” gence of protest and shaping the form it takes. threatening the entry of an effective third party, The interests underpinning this group are Nevertheless, their aim is the same, to roll this is probably not a necessary condition for different from those of the Populists and Pro- back the increasing threats to the inclusive na- such inluence. Ultimately OWS will have to gressives and so are their political strategies. For ture of economic institutions in the U.S. To do build bridges to sympathetic politicians in the example, Progressives did not react to the con- this they recognize, as the Populists and Pro- mainstream political parties. From this perspec- trol of the Senate by occupying the front lawn gressives did, that political institutions must be tive the statement on the OWS webpage that of “The Breakers” Vanderbilt’s plush mansion in changed to remove the control of the wealthy “we don’t need politicians to build a better soci- Newport, Rhode Island. However, it is not sur- over the agendas and policies of the main politi- ety” is probably short sighted. prising that the speciic tactics of OWS differ cal parties. Second, Populists and Progressives were from those of the Populists and Progressives. If Will they succeed in their aims? Or will it successful because they formed a broad coali- one looks at the evolution of social protests over be different this time with the capture of U.S. tion. The Populist Party brought organized la- the past few centuries there is continual change politics now having become more ingrained and bor together with farmers and the Progressives as social movements must alter their strategies more systematic? Of course it is far too early to added many middle class groups and intellec- in response to changes in the structure of the know the answer to this but the experience of tuals and were even more successful. OWS is economy and society, in technology, and in the the Populists and Progressives are interesting similarly trying to reach out to organized labor,

Brought to you by | University of Massachusetts - Amherst W.E.B. Du Bois Library (University of Massachusetts - Amherst W.E.B. TheDu Economists’Bois Library) Voice http://www.degruyter.com/view/j/ev March, 2012 Authenticated | 172.16.1.226 -5- Download Date | 4/6/12 9:45 PM to environmentalists and extend into university 100 years ago, but they will be important for fundamentally on the willingness of many citi- campuses. It is not the exact details of the coali- focus and for institutionalizing their successes. zens not to be complacent and stand up and be tion that are important but the breadth. A cautionary tale here comes from the French counted in defense of inclusive institutions. It is Third, the role of the media will be critical in student protests and occupations of May 1968 this that makes the OWS movement, despite its determining the success of the movement. The (Tarrow 1993). These were initially quite suc- many laws, a hopeful sign of the resilience of role of muckrakers during the Gilded Age not- cessful in putting politicians on the defensive our institutions. withstanding, there is no necessity that the me- in their demands for educational and social dia will play a reformist role in society. For exchange. But the French students did not come ample, DellaVigna and Kaplan (2007) identiied up with speciic proposals about how, for exam- Letters commenting on this piece or others may a “Fox news effect” whereby the spread of the ple, the educational system should change. The be submitted at http://www.degruyter.com/ conservative Fox news channel has a signiicant government responded irst with large wage in- view/j/ev?tab=services positive impact on the vote share of Republican creases for trade unions to try to isolate the stu- candidates. Moreover, as we discussed above, dents and then with a proposed loi d’orientation one hypothesis about why U.S. politics has been ultimately an emasculated reform which was NOTES 1. The concepts and arguments used in this paper bor- increasingly captured by money is precisely the very far from what the students could have row heavily from our forthcoming book Acemoglu increased importance of television since the achieved if they had been more focused on the and Robinson (2012). 1970s as a source of political information. It is speciics and how to build a political coalition not just the existence of media that matters but with insiders to get them. Such policies and REFERENCES AND FURTHER READING who owns it and what it is trying to achieve. In reforms should focus on the really irst-order Acemoglu, Daron and James A. Robinson the light of this the use of the internet, owned by issues, particularly how to reform the U.S. po- (2012) “Why Nations Fail: Origins of Power, nobody, is probably critical. litical system by making it less likely that the Prosperity and Poverty,” New York,Crown. Finally, the lesson from the Populists and wealthy and other special interests can cement Bartels, Larry M. (2010) “Unequal Democracy: the Progressives is that to succeed OWS must their capture of politics. The Political Economy of the New Gilded Age,” come up with a list of speciic institutional and There is still room for being optimistic Princeton, NJ, Princeton University Press policy changes that will help to counterbalance that this time it will not be different and that DellaVigna, Stefano and Ethan Kaplan (2007) the trends they have set themselves against. the anti-capture forces will be up to the chal- “The Fox News Effect: Media Bias and Voting,” These will not be the same as those proposed lenge ahead of them. But this optimism depends Quarterly Journal of Economics, 122: 1187–1234.

hat is behind the rise of the POLITICS: WHY NOW? Bradley et al. 2003). Greater inequality may re- Occupy Wall Street (OWS) nequality in the U.S. has risen dramatically lect as well as exacerbate factors that make it movement? How should Iover the past 40 years. So it is not too sur- relatively more dificult for lower-income indi- we think about its focus on prising to witness the rise of a social movement viduals to mobilize on behalf of their interests. income disparities between focused on redistribution. The more dificult Over the past two decades we have seen the near Wthe top 1 percent and the bottom 99 percent? question is why it took 40 years. It turns out disappearance of private sector labor unions, And inally, how might this incipient movement that the U.S. provides a particularly stark ex- which historically have been the primary in- alter the distribution of wealth and power in the ample of the paradox where increased pre-iscal stitution in the economic and political sphere United States? In this essay, we consider these income inequality may be associated with less pushing for higher wages and social insurance three inter-related questions and provide some redistribution (Meltzer and Richard 1981, Ale- programs. This is particularly relevant given initial answers. sina et al. 2001, Campante 2011). For instance, the wealth composition of donors to left versus the U.S. stands alone among the Organization right social movements. For example, entities for Economic Co-operation and Development like Americans for Prosperity funded by David Ethan Kaplan is Assistant Professor of Economics at the (OECD) countries in experiencing an increase and Charles Koch contributed towards the mo- University of Maryland at College Park. He focuses on bilization of the conservative Tea Party activists empirical political economy but also does applied micro- in pre-iscal income inequality during the 1980s econometric research in labor economics. and 1990s and yet engaging in less redistribu- (Mayer 2010, Skocpol and Williamson 2002). Arindrajit Dube is Assistant Professor of Economics at the tion (Kenworthy and Pontusson 2005). Given the greater collective action problem on University of Massachusetts Amherst. His research has focused on inequality, minimum wages, and labor market One explanation of this paradox focuses on the left, relatively large expected gains from mo- institutions. He also works on topics in political economy. mobilization of political resources (Korpi 1983, bilization are needed to surmount the costs.

BroughtDOI: 10.1515/1553-3832.1899 to you by | University of Massachusetts - Amherst W.E.B. Du Bois Library (University of Massachusetts - Amherst W.E.B. TheDu Economists’Bois Library) Voice http://www.degruyter.com/view/j/ev March, 2012 © De Gruyter Authenticated | 172.16.1.226 -1- Download Date | 4/6/12 9:46 PM Yet, even the economic crisis of 2007 did not This experience elucidated the extent to inequality in the U.S. to levels not seen since initially produce a left social movement. We sug- which the state had been captured by the elite. the 1920s. This increase in inequality since the gest that in part, this is due to the interplay be- “Banks got bailed out, and we got sold out”—as a early 1970s has been pervasive throughout the tween social movements and electoral processes. popular OWS slogan went—because apparently distribution of income. There have been large A belief that we have a well-functioning electoral the very wealthy had an immense sway over increases in the wage gap between those who process dulls the incentives for independent so- both major political parties. The elite were not have a college degree and those who do not, but cial movement activism. The election of Barack primarily actors, musicians or sports superstars: there have also been large increases within each Obama as the president of the U.S., along with they tended to be CEOs, inance executives, and of these two groups. Economists have spent a a solid Democratic majority in Congress, likely Wall Street lawyers (Bakjia et al. 2010). Their lot of time trying to account for this increased served such a role. Only after it became increas- wealth came from ties to capital, and often it inequality and have come up with explanations ingly clear that the political process was unable came from speciic ties to inancial sector prof- such as changes in technology, changes in la- to enact serious reforms to address the causes or its. This power ensured that the deregulation of bor market institutions, slowdowns in educa- the inancial sector would proceed unhindered consequences of the economic crisis did we see tional acquisition, and increases in globaliza- during the 1980s and 1990s, that bank bailouts the emergence of the OWS movement. tion. However, less attention has been given would come with few strings attached during By 2011, most of the banks that played a to upper-tail inequality—the income share of the crisis, and that few redistributive social poli- central role in the inancial crisis had emerged the 1 percent or the 0.1 percent—as a separate cies would be enacted. Besides the failure of the largely unscathed. Proitability had been re- private market to generate broad-based prosper- phenomenon. stored thanks to public guarantees and infu- ity, there was also government failure that pre- In part, this was due to the availability of sion of liquidity, and executive compensation vented a policy response. Behind both failures data. As better income data became available, a proceeded to grow, not shrink, in the aftermath was the immense growth in upper-tail inequal- stark picture emerged of incredible gains at the of the crisis. At the same time, the enactment ity—surging income shares of the top 1 percent very top (Piketty and Saez 2003). In 1970, the of austerity at the state and local government and the 0.1 percent. This was the context of the top 1 percent made less than 10 percent of total level was exacting large costs on workers who emergence of the OWS movement. pre-tax income. This was roughly in line with had little to do with the economic crisis, and most European countries. However, by 2007, the federal government appeared to have no ap- ECONOMICS: WHY THE 1 PERCENT? the share of the top 1 percent in pre-tax income petite for further countercyclical measures after or some time, we have known that there had increased to 23.5 percent.2 The higher the 2009 stimulus wound down. Fhas been an enormous explosion in income up the distribution of income one looked, the Brought to you by | University of Massachusetts - Amherst W.E.B. Du Bois Library (University of Massachusetts - Amherst W.E.B. TheDu Economists’Bois Library) Voice http://www.degruyter.com/view/j/ev March, 2012 Authenticated | 172.16.1.226 -2- Download Date | 4/6/12 9:46 PM more extreme was the inequality. For example, Figure 1 the income share going to the top 0.1 percent Income Share and Composition of Top 0.1 Percent grew from 1.9 percent in 1970 to 8.2 percent in 2007 (Figure 1). Changes in tax policies ampli- ied pre-tax earnings trends. Between 1970 and 2007, the top U.S. marginal tax rate dropped from 60 percent to 35 percent, while the maxi- mum capital gains tax rate dropped from 32 percent to 15 percent. During the 1990s and 2000s, most economists viewed the growth in the upper-tail inequality as largely representing the same phenomenon as the growth in wage inequality elsewhere—primarily a change in the demand for skills through technological change, with some role for policy. The fact that hedge fund managers were making a lot more than the median worker in the U.S. was thought to be the same phenomenon as an engi- neer making more than a janitor. When factors Notes: Data is from 2008 Updates of Piketty and Saez (2003) posted at http://elsa.berkeley.edu/~saez/ speciic to upper-tail inequality were considered, the discussion was often about mechanisms am- plifying the underlying growth in skill demand, Missing from all this was a discussion about 2004). Consider three pieces of evidence. First, such as the superstar theory. For example, the how upper-tail earnings inequality could be bet- there has been a broad decline in the labor share growth in irm size was offered as an explanation ter understood as an increase in the power of of income from around 66 percent in 1970 to for the tremendous growth in CEO pay, as the those with control over inancial and physical 60 percent in 2007.3 Moreover, as measured, CEO’s actions were now multiplied over a larger capital. The exceptions were mostly outside of labor income includes compensation going to base (Gabaix and Landier 2008). mainstream economics (e.g., Duménil and Lévy top executives—the modern day equivalent of

Brought to you by | University of Massachusetts - Amherst W.E.B. Du Bois Library (University of Massachusetts - Amherst W.E.B. TheDu Economists’Bois Library) Voice http://www.degruyter.com/view/j/ev March, 2012 Authenticated | 172.16.1.226 -3- Download Date | 4/6/12 9:46 PM the nineteenth century capitalist. The exclusion ity is seen as being the least fair, as economic dent Obama, for example, seems much more of their compensation would show a substan- rents and returns to wealth are often perceived willing to discuss inequality—as suggested by tially greater drop in labor’s share. Additionally, as unearned income (Atkinson 2009). Most his speech in Osawatomie, Kansas in December most of the growth in executive compensation people have very different notions of distribu- 2011, and further his State of the Union address has been capital-based, i.e., through stock op- tive justice over income perceived as being in January 2012. tions but appears in national accounts as labor earned as opposed to being “found money,” How does a social movement affect politics? income (Frydman and Molloy 2011). and this is borne out in a host of experimen- First, it provides information. Polling trends Second, based on tax data, the majority of tal studies (Thaler 1999, Cherry et al. 2002, suggests awareness of conlict between the rich income at the top comes from capital-based Oxoby and Spraggon 2008, Durante and and rose dramatically by end of 2011, concur- earnings (capital gains, dividends, entrepre- Putterman 2009). Therefore, OWS’s focus on up- rent with the OWS movement. Over two-thirds neurial income and rent). In 2007, this propor- per-tail inequality, as opposed to say the gap due of respondents in a Pew poll believed that there tion was 62 percent and 74 percent for the top 1 to educational attainment, accords with what we were “strong conlicts” between the rich and the percent and 0.1 percent, respectively (Figure 1). know about social preferences on inequality. poor—higher than in the past two decades.5 Third, the biggest driver of upper-tail in- Google search trends show a greater interest in equality—both in terms of capital and wage POLITICAL ECONOMY: WHAT ARE THE CHAN- “inequality” of late than any in previous period based income—was inance, the sector which NELS OF CHANGE? when data is available (Figure 2). The focus on governs the allocation of capital. Between 2002 hile it is far too early to assess the long- inequality can have an effect through changing and 2007, 34 percent of all private sector prof- Wrun impact of the Occupy movement, individual or higher order beliefs, and through its came from the inancial sector.4 Meanwhile, we think there are two likely channels through increasing the salience of certain frames (e.g., studies of inancial sector pay setting suggest which OWS could affect the distribution of in- “bankers’ bonuses”) in the public discourse. Of that the exorbitant inance premium in earnings come. The irst and most obvious way is by in- course, it is an open question whether any of was driven by inancial sector proits (Philippon luencing public policy. The second mechanism this leads to longer-term policy shifts—especial- and Resheff 2009, Crotty 2011). is more subtle, but may be equally as important: ly challenging in a majoritarian setting (Iversen Overall, a focus on the 1 percent concen- shifts in norms that govern private-sector pay and Soskice 2006). trates attention on the aspect of inequality most setting behavior. A second mechanism involves directly shift- clearly tied to the distribution of income be- We think OWS has already begun to inlu- ing pay norms. The literature on Social Structures tween labor and capital. This type of inequal- ence the public policy making process. Presi- of Accumulation has long argued that pay-setting

0 year. OWS organizers have staked out a claim. Jan 1, 2004 Jan 1, 2006 Jan 1, 2008 Jan 1, 2010 Jan 1, 2012 “Our inances are weak, but our spirit is strong. We are the 99 percent. Our spring is coming.” Notes: The blue line represents weekly Google Trends on searches for "Inequality." The black line The distribution of wealth and power in the represents a lowess-smoothed trend. The vertical dashed line represents the beginning of the United States may well depend on the accuracy OWS encampment in Zucotti Park. of this political meteorology.

Brought to you by | University of Massachusetts - Amherst W.E.B. Du Bois Library (University of Massachusetts - Amherst W.E.B. TheDu Economists’Bois Library) Voice http://www.degruyter.com/view/j/ev March, 2012 Authenticated | 172.16.1.226 -5- Download Date | 4/6/12 9:46 PM and the Causes of Changing Income Inequality: Durante, Ruben and Louis G. Putterman (2009) Letters commenting on this piece or others may Evidence from U.S. Tax Return Data,” Working “Preferences for Redistribution and Perception be submitted at http://www.degruyter.com/ paper, Williams College of Fairness: An Experimental Study,” Working view/j/ev?tab=services Bebchuk, Lucian Arye and Jesse M. Fried (2003) paper. “Executive Compensation as an Agency Prob- Frydman, Carola and Raven Molloy (2011) NOTES lem,” Journal of Economic Perspectives,17(3): “Does Tax Policy Affect Executive Compensation? 1. We wish to thank Kyle Meng, David Munroe, 71–92. Evidence from Postwar Tax Reforms,” Journal of Suresh Naidu, Ceren Soylu, Sebastien Turban, Lau- rence Wilse-Samson, and Haishan Yuan for their Bradley, David, Evelyne Huber, Stephanie Public Economics, 95(11–12): 1425–1437. comments. Moller, Fraņois Nielsen and John D. Stephens Gabaix, Xavier and Augustin Landier (2008) 2. World Top Incomes Database: http://184.168.89.58/ (2003) “Distribution and Redistribution in “Why has CEO Pay Iincreased So Much?” Quar- sketch/ 3. http://www.bls.gov/opub/mlr/2011/01/art3full.pdf Postindustrial Democracies,” World Politics, terly Journal of Economics, 123(1): 49–100. 4. http://www.bea.gov/national/nipaweb/ 55(2): 193–228. Iversen, Torben and David Soskice (2006) 5. http://www.pewsocialtrends.org/2012/01/11/rising- share-of-americans-see-conlict-between-rich-and- Campante, Felipe (2011) “Redistribution in a “Electoral Institutions and the Politics of Co- poor/ Model of Voting and Campaign Contributions,” alitions: Why Some Democracies Redistribute 6. http://www.cbsnews.com/8301-201_162- Journal of Public Economics, 95: 646–56. More Than Others,” American Political Science 57363402/bonus-season-not-as-festive-for-bank- ceos/ Cherry, Todd, Peter Frykblom and Jason Review, 100(2): 165–181. Shogren (2002) “Hardnose the Dictator,” Ameri- Kenworthy, Lane and Jonas Pontusson (2005) REFERENCES AND FURTHER READING can Economic Review, 92(4): 1218–1221. “Rising Inequality and the Politics of Redistri- Alesina, Alberto, Edward Glaeser and Bruce Crotty, James (2011) “The Bonus-driven “Rain- bution in Afluent Countries,” Perspectives on Sacerdote (2001) “Why Doesn’t the US Have a maker” Financial Firm: How These Firms En- Politics, 3: 449–471. European Style Welfare State?” Brookings Papers rich Top Employees, Destroy Shareholder Value Korpi, Walter (1983) “The Democratic Class on Economic Activity, Fall. and Create Systemic Financial Instability,” PERI Struggle,” London: Routledge and Kegan Paul. Atkinson, Anthony B. (2009) ‘‘Factor Shares: Working Paper Series No. 209. Levy, Frank S. and Peter Temin (2007) “In- The Principal Problem of Political Economy?’’ Duménil, Gerard and Dominique Lévy (2004) equality and Institutions in 20th Century Oxford Review of Economic Policy, 25: 3–16. “Neoliberal Income Trends. Wealth, Class and America,” Massachusetts Institute of Technol- Bakija, Jon, Adam Cole and Bradley Haim Ownership in the USA,” New Left Review, 30: ogy, Department of Economics, Working Paper, (2010) “Jobs and Income Growth of Top Earners 105–133. No. 07–17.

he oldest meaning of “occupy,” (or True to its etymology, Occupy Wall Street and distributed clean laundry and arranged beds occupare coming from Latin), is “to (OWS) assumed both sides of the meaning of and showers, the structure group that organized take possession or seize,” and his- the word: to take up the space, and to do work. the eventual spokes council decision-making torically came to be linked to mar- Of course their squatting and claims over the structure for the entire occupation, the technol- tial occupation, carrying a negative space received more than ample media, police, ogy committee that produced the infrastructure connotationT that countries seek to avoid today and judicial attention. Perhaps less-reported are for communication, the janitorial committee even as they undertake it.1 In the late fourteenth the various working committees of OWS: the charged with clean-up, and dozens of more century, with the rise of craft and merchant library which organized and ran a free book- committees. The architecture of OWS speaks to guilds and their elaborate classiication of work lending service, the kitchen committee which at least one of the movement’s basic points: how categories, occupation took on the meaning produced and distributed up to 4000 meals a society can and does organize partial production which is generally the irst that comes to mind day on peak protest days, the education and and distribution of goods and services outside today: “employment,” or “what one does for empowerment committee which organized and market mechanisms. work.” distributed well-attended lectures and daily free This is not unique to OWS. Historically, classes (one on popular economics at OWS NY U.S. occupations have been associated with the Maliha Safri is an assistant professor in the economics which I co-taught every week), the facilitation tradition of sit-down strikes in factories: 1936 department at Drew University, and has taught and published on political economy. Her most recent article was committee which trained people in the art of began with a momentous factory occupation published in the Middle East Journal, “The Transformation running meetings, the press committee which and ended with an even bigger one. In Janu- of the Afghan Refugee: 1979-2009.” Safri has also been involved with aiding worker cooperatives in the New Jersey handled the hundreds of reporters and media ary of 1936, 10,000 workers in Akron, Ohio, and New York metropolitan area. demands, the comfort committee that produced occupied factories from three distinct tire irms

BroughtDOI: 10.1515/1553-3832.1900 to you by | University of Massachusetts - Amherst W.E.B. Du Bois Library (University of Massachusetts - Amherst W.E.B. TheDu Economists’Bois Library) Voice http://www.degruyter.com/view/j/ev March, 2012 © De Gruyter Authenticated | 172.16.1.226 -1- Download Date | 4/6/12 9:46 PM (Firestone and Rubber Co., Goodyear, and BF security, contact with the outside, and for their The tactic was so powerful, (Flint and other Goodrich), bringing national attention to Ak- own “kangaroo courts” in which workers were police forces lip-lopped on intervention since ron, as well as shifting the entire tire industry sentenced for failing to report to assigned du- the strikers were not clearly breaking the law), decisively towards unionization. But by the end ties on the above mentioned committees (Fine that it had to be made explicitly illegal to prevent of the year, the epic Flint autoworker sit-down 1969). The number of “sit-downers” luctuated, its deployment. The question was pushed to the strike would overshadow even Akron in the his- but always coordinated closely with workers Supreme Court, which ultimately sided against tory books. In Flint, Michigan, GM’s workers outside the plant who picketed, collected funds, the workers. In 1939’s National Labor Relations staged a 44 day occupation of factories despite and enlisted sympathy for the cause. In that, oc- Board vs. Fansteel Metallurgical Corporation, the a massive police assault. Within a month, GM, cupations (in factories and OWS) can be seen NLRB lost the right to force irms to rehire work- at that time the largest manufacturing irm in as constituted by layers of direct occupiers and ers after a sit-down strike and factory occupation, the world, was forced to recognize a unionized those that sustain the occupation without living if the NLRB had found that the factory had pre- workforce. In 1937, some 400,000 workers par- there. cipitated the strike and was at fault. Despite the ticipated in factory occupations (Green 1998). Ultimately, the sit-down tactic (rather than fact that Fansteel had engaged in a string of ille- Between 1936 and 1939, U.S. workers occupied a conventional picket strike) was adopted wide- gal tactics to prevent unionization, the Supreme 583 plants, threatening massive disruptions for ly in that time, not for ideological reasons, but Court had ruled it was illegal for the workers to their employers and ultimately, their hegemonic because the technique proved itself effective in wage a factory occupation to achieve their de- position in the bargaining process (Ness 2011). forcing employers to the bargaining table. Occu- mands, and essentially banned the use of the tac- In many of these occupied plants, “strikers pied plants, as in Flint, were chosen strategically, tic. The Supreme Court weakened the National formed a ‘new and special kind of community’,” and actually brought production to a halt across Labor Relations Act, by “elevating the property where there was a strong “feeling of solidarity” the spectrum of corporate holdings because the rights of employers over the organizing abilities (Fine 1969). The Flint occupied plants each occupiers chose key plants that produced criti- of workers. This was a judicially imposed choice formed a little government, electing a mayor cal elements in the entire supply chain of parts. not mandated by the N.L.R.A.” (Casebeer 2007). and strike committee that ultimately sought the Rather than risk the removal of the equipment The openness to occupation tactics granted by consent of strikers for virtually all decisions. from strike to strike-free plants, workers chose the legislative act on labor relations was ulti- Committees were routinely established in oc- occupation as a tool which “neutralized the ar- mately closed by the judicial branch in the U.S. cupied plants for food, recreation, information, senal of weapons” available to GM and other More recently, workplace occupations have education, postal service, sanitation, patrol and corporations (Fine 1969). resurged outside the U.S. In Argentina (after

Brought to you by | University of Massachusetts - Amherst W.E.B. Du Bois Library (University of Massachusetts - Amherst W.E.B. TheDu Economists’Bois Library) Voice http://www.degruyter.com/view/j/ev March, 2012 Authenticated | 172.16.1.226 -2- Download Date | 4/6/12 9:46 PM 2001) and Brazil (continuously since 1980), al solutions act as a running thread across Tahrir Class History, Eric Arneson, ed., New York, workers continue to come together in groups, Square, Occupy Wall Street, South American re- Routledge. http://papers.ssrn.com/sol3/papers. often owed millions in unpaid wages by employ- covered farms and factories and U.S. occupied cfm?abstract_id=1131283 ers, occupy their former factories or farms, resist plants. Despite the differences in political targets Fine, Sydney (1969) “SIT-DOWN: The Gen- eviction often with the aid of entire neighbor- and constituencies, they all embody collectively eral Motors Strike of 1936-37,” Ann Arbor, MI, hoods in which they were located, and reinitiate organized production and distribution. Paying University of Michigan Press. http://www.press. production under worker control, management, attention to the economics in and of these orga- umich.edu/titleDetailDesc.do?id=18460 and ownership. Both the Recovered Factory nizations and events might shed light on how to Green, James R. (1998) “The World of the Movement in Argentina and the Movimento Sem sustain them. Worker: Labor in Twentieth Century Amer- Terra (landless rural worker movement)2 in Bra- ica,” Champaign, IL, University of Illinois zil share a motto: “Occupy, Resist, and Produce.” Press. http://www.press.uillinois.edu/books/ Neighborhoods provided immense material and Letters commenting on this piece or others may catalog/74bat4hw9780252067341.html moral support, turning out in mass numbers to be submitted at http://www.degruyter.com/ Hidalgo, F. Daniel, Suresh Naidu, Simeon Nich- prevent police eviction efforts, aiding in the sale view/j/ev?tab=services ter and Neal Richardson (2010) “Economic De- of goods produced in the occupied factories, terminants of Land Invasions,” The Review of NOTES and so on. Again, one can identify the direct and 1. On the 10 year anniversary of U.S. entry into Af- Economics and Statistics, 92(3): 505-523. http:// indirect layers of support that contribute to the ghanistan (October 6, 2011), Afghans marched www.mitpressjournals.org/doi/abs/10.1162/ success or failure of an occupation. through the streets of Kabul holding signs saying REST_a_00007 “No to Occupation,” while American news out- While workplace occupations have the obvi- lets such as MSNBC put “Occupation” in skeptical Ness, Immanuel (2011) “Workers’ Direct Action ous economic effects of ceasing line production, quote marks as they reported on the protests. and Factory Control in the United States,” in 2. See Hidalgo et al. (2010) for a discussion of the eco- (and then reinitiating it in the case of Argentin- nomic determinants of land occupations in contem- “Ours to Master and to Own,” ed Immanuel Ness ian and Brazilian recovered factories, clinics, porary Brazil. and Dario Azzellini, Chicago, IL, Haymarket. hospitals, hotels, and farms), occupation sites http://www.haymarketbooks.org/pb/Ours-to- also require economic infrastructure. They are REFERENCES AND FURTHER READING Master-and-to-Own not (only) political events with economic causes Casebeer, Kenneth M. (2007) “National Labor or consequences, but also methods of allocating Relations Board v. Fansteel Metallurgical Corp,” scarce resources to given ends. The organization- The Encyclopedia of US Labor and Working

ccupy Wall Street has thrown ing economic inequality in America, we macroeconomics, they would have found the off many sparks. One landed are walking out of your class today both class steeped in Keynes, learning from someone in academic economics. In to protest your inadequate discussion of who said this in the New York Times in 2008: “If November last year a group of basic economic theory and to lend our you were going to turn to only one economist Harvard students walked out on support to a movement that is changing to understand the problems facing the economy, OGreg Mankiw’s introductory economics course. American discourse on economic injus- there is little doubt that the economist would be Later that day, the Harvard Political Review tice. John Maynard Keynes.” posted an open letter the dissenters had written After the walkout, Mankiw used anoth- to Mankiw: The main complaint of the dissenters, ex- er Times column to defend his teaching and pressed in every paragraph, was bias: “There textbook. He had learned his irst economics We are walking out today to join a is no justiication for presenting Adam Smith’s from the epoch-deining text of Paul Samuel- Boston-wide march protesting the cor- economic theories as more fundamental or basic son, whose “own politics were decidedly left of poratization of higher education as part than, for example, Keynesian theory.” center,” and he turned out just ine. His text of the global Occupy movement. Since A trope began in the comments thread be- is widely seen as the successor to Samuelson’s, the biased nature of Economics 10 con- low: it was ironic that these ill-informed under- and he sees himself as following Samuelson’s tributes to and symbolizes the increas- graduates had walked out on Mankiw, a leading path: to represent the mainstream. “If my pro- light of the New Keynesians, thinking that he fession is slanted toward any particular world Mike Beggs is a lecturer in Political Economy at the was an anti-Keynesian. Had they waited until view, I am as guilty as anyone for perpetuat- University of Sydney. next semester, when Mankiw's course turns to ing the problem. Yet, like most economists, I do

BroughtDOI: 10.1515/1553-3832.1901 to you by | University of Massachusetts - Amherst W.E.B. Du Bois Library (University of Massachusetts - Amherst W.E.B. TheDu Economists’Bois Library) Voice http://www.degruyter.com/view/j/ev March, 2012 © De Gruyter Authenticated | 172.16.1.226 -1- Download Date | 4/6/12 9:46 PM not view the study of economics as laden with Everyone remembers the man on his right At the same time, a grass-roots movement for ideology.” – Milton Friedman – whose columns alternated radical economics emerged on campuses, carried with Samuelson’s in Newsweek. The challenge mainly by students and young academics. To THE MAN IN THE MIDDLE from his left is now less familiar. At the level of them, Samuelson’s textbook was the establish- n his New York Times apologia, Mankiw high theory, it took the form of a concerted at- ment. As Tiago Mata1 describes, Harvard became Iwrote that the walkout of his own class tack in some of the discipline’s top journals on an early battleground, thanks to a coalition of un- triggered nostalgia for his own 1970s under- neoclassical treatments of value, distribution dergrads, grad students and untenured faculty, graduate days “when the memory of the Viet- and growth. The Cambridge capital contro- with the tacit support of some of the established nam War was still fresh and student activism versies were so named because they revolved professors. These included some big names in- was more common.” Economics was highly around technical problems with treating capital deed – not only John Kenneth Galbraith, but politicized, and nothing symbolized this like as an aggregate factor of production, and be- Nobel prizewinners Kenneth Arrow and Wassily the igure of Samuelson himself. At that time cause the key protagonists were associated with Leontief. By 1973 orthodoxy had asserted itself he was the most famous living economist, a Cambridge, England, on the critics’ side, and in the form of tenure denials to MacEwan, Sam- Nobel laureate, author not only of the domi- Cambridge, Massachusetts, on the side of ortho- uel Bowles, Herbert Gintis and Thomas Weiss- nant introductory textbook but the template doxy – with Samuelson and Robert Solow the kopf. Only Stephen Marglin survived, having for all introductory textbooks, and dean of main igures of the latter. They had peaked in already received tenure before the storm. the liberal technocratic economics that had the 1960s but ran on into the next decade, and Similar dramas took place on many campus- framed policy debate since the 1940s. He was seemed to have Massachusetts on the back foot, es, and the ight for radical economics became an establishment Democrat, having been ad- conceding the theoretical point but not its prac- a protracted war of position. Tenure was denied viser to Kennedy and Lyndon Johnson, and tical signiicance. The debate was much more in one department, while another across town now he wrote a regular column for Newsweek. important for the critics than for neoclassical reached critical mass. Marxists, feminists and The neoclassical-Keynesian synthesis was fray- economics itself. It consolidated and boost the other radicals made common cause with others ing as unemployment and inlation climbed morale of a school of economics that could pres- exiled from the kingdom of modernizing eco- together. Samuelson was associated with the ent itself as a wholesale alternative to the main- nomics departments: the economic historians Phillips curve even more closely than Bill Phil- stream, at least its equal in rigor and technical and historians of economic thought, the post- lips himself. He and everything he stood for sophistication – in other words, not a bunch of Keynesians, the institutionalists, even some- were under attack – from two sides. cranks. times the Austrians. New conference circuits de-

Brought to you by | University of Massachusetts - Amherst W.E.B. Du Bois Library (University of Massachusetts - Amherst W.E.B. TheDu Economists’Bois Library) Voice http://www.degruyter.com/view/j/ev March, 2012 Authenticated | 172.16.1.226 -2- Download Date | 4/6/12 9:46 PM veloped, and radicals tried to make themselves is on the side of the angels: a self-proclaimed Macroeconomics has always been essentially useful outside academia entirely – to activists, to Keynesian, scourge of real business cycle the- technocratic. The great debates in macroeco- unions, to their communities. Journals sprung ory, “saltwater” economist fellow to Paul Krug- nomics revolve around the potential scope and up, many of which are with us today. Fortresses man, and member of the “reality-based com- limitations of policy instruments. Right and left rose – at Sydney, at Amherst, at the New School munity.” ight for the central ground deined by policy for Social Research – and fell – most notably at This vision of economics rests on two mis- effectiveness. Cambridge, England. conceptions. First, it underestimates the ex- The budding economists of the Occupy tent to which mainstream macroeconomics movement have other ish to fry. They can make A BULWARK OF THE CENTER, NOT THE RIGHT remained Keynesian through the 1980s and common cause with the liberals against the aus- he misunderstanding in the Harvard stu- 1990s, in spite of the New Classical ascendancy. terity-mongers, but their concerns go well be- Tdents’ open letter to Greg Mankiw about This is especially true of policy-oriented mac- yond rational demand management. At the top his relationship to Keynes relects a widespread roeconomics, where the need to be useful to of the list are inequalities of income, wealth and liberal layperson’s view of the state of the disci- policymakers sustained pragmatism and iltered power – precisely the central issues for Occupy pline. The idea, reinforced by the recent public out mere academic exercises. The latter might Wall Street and in the students’ letter to Mankiw. debates around stimulus, government debt and be ideologically helpful to conservatives in some These are issues which continue to be neglected austerity, is that there is a scientiic split within arenas, but were at a disadvantage on policy ter- by mainstream economics, precisely because economics, which follows political lines: lib- rain – in contrast to Milton Friedman, whose there are no easy policy ixes. As Mankiw re- erals are Keynesians, conservatives are anti- success depended on his adaptation to the fact sponded to his students, “Widening economic Keynesian. The conservative, anti-Keynesian that “we are all Keynesians now.” inequality is a real and troubling phenomenon, side is thought to have been dominant in the The second misconception is that Keynesian albeit one without an obvious explanation or years or decades leading up to the crisis, bear- economics is necessarily a creature of the left. easy solution.” ing some responsibility for it, while the liberal One testament to its error is Friedman’s lasting The founding statement of the Union for Keynesians were prophets in the wilderness. mainstream legacy – evident everywhere from Radical Political Economics, from 1968, did not Figures like Mankiw are dissonant with this Ben Bernanke’s acknowledged debt to the view criticize mainstream economics for being wrong, view. He is on the side of the devils: chair of the of liberal econo-blog lynchpin Brad DeLong that or for using misguided techniques or methodol- Council of Economic Advisers under President “Friedman completed Keynes.” Mainstream eco- ogies – in fact, it went out of its way to acknowl- Bush, then oficial adviser to Mitt Romney. He nomics is a bulwark of the center, not the right. edge “the value of some of the tools and concepts

Brought to you by | University of Massachusetts - Amherst W.E.B. Du Bois Library (University of Massachusetts - Amherst W.E.B. TheDu Economists’Bois Library) Voice http://www.degruyter.com/view/j/ev March, 2012 Authenticated | 172.16.1.226 -3- Download Date | 4/6/12 9:46 PM of modern economics.” The complaint was not perhaps the true anti-Samuelson, spent the last leaving the minor issue of relative prices to a that mainstream economics was delusional, or two decades of her life building bridges between single later chapter. Needless to say, given the biased to the right, but precisely that it was tech- her generation of dissident high theorists and tenor and uniied commitment to abstraction of nocratic. It framed the economy as a technical the new generation of radical economists. The 1970s economics, the textbook, which was not problem to be solved with the correct applica- precise technical points of the Cambridge con- without laws, attracted few adherents. tion of scientiic principles by policymakers. It troversies were never the real issue – she had no Mainstream economics is now in some ways had little to say about the truly burning prob- illusions that the mainstream was a tightly con- a different beast. It is more monolithic than most lems of the day – “the economics of the ghetto, structed machine that would collapse to dust social sciences but less so than many outsiders poverty in the American economy, international if a single part were removed. Nor was it the think. Many lowers are blooming at the level imperialism, interest-group analysis, the mili- necessarily the case that theoretical orthodoxy of research, including political economy, behav- tary-industrial-university complex… .” This was signiied reaction and heterodoxy radicalism – ioral economics, and economic history, and an not because these things could not be analyzed, as illustrated in her generation by Oskar Lange overall turn towards the empirical. Indeed, the but because they were not amenable to policy and Friedrich Hayek. documentation of the 1 percent share itself is solution, given the prevailing balance of power. But Robinson did argue that the fundamen- owed to one of the young stars of mainstream Paul Samuelson’s textbook was, as Kerry tal problematic of neoclassical economics – the economics, Emmanuel Saez. The blogosphere Pearce and Kevin Hoover have described it, eficient allocation of scarce means to given ends has opened up a space in which genuine argu- “above all a harmonist book.” In this, it was in – left it with blind spots concerning things of ment is thriving. But Robinson’s criticisms still tune with the discipline it inducted students great social importance. It could not deal ade- apply. The contemporary textbook, for which into. Like the invisible hand itself, it took seem- quately with uncertainty and unstable, historical Mankiw sets the template, is not much differ- ingly antagonistic interests and transformed time in which equilibrium was always running ent from the Samuelson model. “Politics,” to the them towards a common purpose, and it never further off into the future. Its basic “parables“ economist, still means “policy,” meaning a tacit met a crisis it could not resolve with more ra- (as Samuelson called them) misled about distri- acceptance of the balance of social forces that set tional use of policy instruments. This harmonist bution, implying that it was settled by margin- the bounds of reasonable possibilities. The fun- vision was the target of both the radicals and the al productivity. Her quixotic attempt to tackle damental questions about society raised by the ‘post-Keynesian’ dissidents. Samuelson on the other front with a 1973 text- Occupy movement are not going to be answered Joan Robinson, captain of the Cambridge, book reversed the order of the typical curricu- by a regression analysis – this much income in- England team in the capital controversies and lum, starting with distribution and growth and equality is explained by technology, that much

Brought to you by | University of Massachusetts - Amherst W.E.B. Du Bois Library (University of Massachusetts - Amherst W.E.B. TheDu Economists’Bois Library) Voice http://www.degruyter.com/view/j/ev March, 2012 Authenticated | 172.16.1.226 -4- Download Date | 4/6/12 9:46 PM by “globalization”, another part by tax policy… . DeLong, J. Bradford (2006) “Friedman business/know-what-youre-protesting-econom- Economics must become a broader church; open Completed Keynes,” Project Syndicate, ic-view.html itself up again to the grandest old questions of November 27, http://www.project-syndicate. Mata, Tiago (2009) “Migrations and Boundary political economy – what is capitalism, where org/commentary/friedman-completed-keynes Work: Harvard, Radical Economists, and the did it come from and what is happening to it? Harcourt, Geoff C. (1977) “The Theoretical and Committee on Political Discrimination,” Science – and stop taking for granted that it has no prob- Social Signiicane of the Cambridge Controver- in Context, 22(1): 115–43. http://journals.cam- lems a policy tweak could not ix. sies in the Theory of Capital: An Evaluation,” bridge.org/action/displayFulltext?type=1&id= in Jesse Schwartz, ed., The Subtle Anatomy of 3259524&jid=SIC&volumeId=22&issueId=01 Capitalism, Goodyear Publishing Company, &aid=3259516 Letters commenting on this piece or others may Santa Monica, CA, pp. 285–303. http://books. Pearce, Kerry A. and Kevin Hoover (1995) “Af- be submitted at http://www.degruyter.com/ google.com.au/books?id=IhI6AAAAMAAJ&q=i ter the Rrevolution: Paul Samuelson and the view/j/ev?tab=services nauthor:%22Jesse+G.+Schwartz%22&dq=inau Textbook Keynesian Model,” in Allin Cottrell thor:%22Jesse+G.+Schwartz%22&hl=en&sa=X and Michael S. Lawlor, eds, New Perspectives NOTES &ei=QN5iT_HrKOyXiQfc4dXFBQ&ved=0CD on Keynes, annual supplement to History of Po- 1. Mata (2009). MQ6AEwAA litical Economy. http://hope.dukejournals.org/ King, John E. and Alex Millmow (2003) “Death content/27/Supplement/183.short REFERENCES AND FURTHER READING of a Revolutionary Textbook,” History of Politi- Robinson, Joan (1977) “The Relevance of Eco- Cohen, Avi J. and G. C. Harcourt (2003) cal Economy, 35(1): 105–34. http://hope.duke- nomic Theory,” in Jesse Schwartz, ed., The Sub- “Whatever Happened to the Cambridge Capi- journals.org/content/35/1/105.short tle Anatomy of Capitalism, Goodyear Publishing tal Theory Controversies?” Journal of Eco- Mankiw, N. Gregory (2008) “What would Company, Santa Monica, CA, pp. 16–21. http:// nomic Perspectives, 17(1): 199–214. http:// Keynes Have Done?” New York Times, No- books.google.com.au/books?id=IhI6AAAAMAA www.ingentaconnect.com/content/aea/ vember 28, p. BU4. http://www.nytimes. J&q=inauthor:%22Jesse+G.+Schwartz%22&dq jep/2003/00000017/00000001/art00010 com/2008/11/30/business/economy/30view. =inauthor:%22Jesse+G.+Schwartz%22&hl=en Students of Economics 10 (2011) “An Open html &sa=X&ei=QN5iT_HrKOyXiQfc4dXFBQ&ved Letter to Greg Mankiw,” Harvard Political Re- Mankiw, N. Gregory (2011) “Know What =0CDMQ6AEwAA view, November 2, http://hpronline.org/har- You’re Protesting,” New York Times, December Robinson, Joan and John Eatwell (1974) vard/an-open-letter-to-greg-mankiw/ 3, p. BU4. http://www.nytimes.com/2011/12/04/ “An Introduction to Modern Economics,” re-