Economic development is widely accepted as a prerequisite for a stable society. Yet, industrial production contributes to the massively destabilizing phenomenon of global warming. This blog documents the research of SCEPA economists Duncan Foley and Lance Taylor as they investigate how nations can reconcile their needs for growth, stability and sustainability. This project is generously supported by the Institute for New Economic Thinking (INET).
In conversation with INET’s Lynn Paramore, New School Economics Professor Lance Taylor breaks down what’s wrong with the current debate on inequality and what to do about it.
Taylor is critical of the mainstream approach to inequality advanced by economists Joseph Stiglitz and Thomas Piketty. According to Taylor, Piketty’s celebrated book on inequality, “Capital in the Twenty-First Century,” relies heavily on an economic model that was discredited in the 1960s.
Taylor’s issue with the model Piketty uses goes back to the Cambridge Capital Controversies of the 1960s, when economists at MIT and Cambridge were at loggerheads over two fundamental economic questions. One was whether income distributions are formed by purely economic factors, or if social relations play a role. The other was whether it makes sense from a technical perspective to use an economy-wide capital stock in economic modelling. For Taylor, social relations are important and an all encompassing capital stock is problematic.
But much of the economics profession tacitly assumes the opposite positions, including Piketty.
This often leads to a confusion between the causes and the symptoms of inequality. For example, Stiglitz believes that economic rents, such as high costs of real estate, are a driver of income inequality. For Taylor, soaring property values in New York and London are a consequence of economic inequality, whose true causes can be traced to financialization and the erosion of workers’ power.
Taylor has been developing a model of economic growth and distribution that does not rely on what he considers Piketty’s questionable assumptions. He believes it is possible to reverse the trend of growing inequality in the U.S., but doing so will require more than redistribution through the tax code. We’ll need to promote socialized investment and redistribute power back to the working class.
New School Economics Professor Lance Taylor thinks most economists are missing the big picture.
In an interview with Lynn Parramore of the Institute for New Economic Thinking (INET), Taylor describes the major problem in the field of economics as the division between micro and macro - between our understanding of the economic behavior of individuals and markets and our understanding of the behavior of entire economic systems.
The first problem Taylor discusses is how the split between macro and micro makes forecasting imprecise at best. From the perspective of macroeconomics, people’s behavior in certain circumstances is unpredictable--like when housing prices fall and the financial system coagulates. It’s no surprise that the profession was caught off guard by the financial crisis of 2008. Without new theory and forecasting techniques, they’ll likely be surprised by the next one.
Another problem is the growing divide between the haves and the have-nots. Taylor is cautiously optimistic on the debate about inequality, which Thomas Piketty's book and the Occupy Movement elevated to popular discussions. There is still a major disjunction between economists who believe that inequality is driven by factors such as merit, education and opportunity, and those who believe that social relations and the legal system play an important role.
Lance has published a new report criticizing mainstream approaches to growth and inequality, and proposes a new, more realistic way of thinking about it. As he describes in the video, growing inequality is driven by conflict over profits. Over the past 40 years, he says, “the bargaining position of companies has improved relative to the bargaining position of workers.” There is no economic law that means this must be so. Rather, it’s because unions have been weakened and industry groups have consolidated their power, both of which are determined by social values and the legal system. Until workers get their bargaining power back, incremental changes in the minimum wage or the provision of employer-sponsored benefits won’t go very far toward lessening inequality.
The impetus to tackle economic problems must come from the political sphere. It could take another crisis, either a credit crunch or major climatic event, to shock the system enough. But we shouldn’t just react. We need to prepare for problems and destabilizing trends before they fully materialize. Financial crises cause recessions and impoverish workers, but climate change threatens our ability to occupy the planet in the manner to which we have become accustomed. Waiting around isn’t worth the risk.
Alternet and the Huffington Post published an interview by Lynn Parramore with SCEPA economist and New School Professor Emeritus Lance Taylor. The two discussed research published as part of SCEPA's Sustainable Growth project supported by INET.
"...economist Lance Taylor and his colleagues examine income inequality using new tools and models that give us a more nuanced — and frightening —picture than we've had before. Their simulation models show how so-called reasonable modifications like modest tax increases on the wealthy and boosting low wages are not going to be enough to stem the disproportionate tide of income rushing toward the rich.
Lynn Parramore: So what’s to stop us from becoming a Downton Abbey society?
Lance Taylor: We’ve got to have a real social consensus that the way things are going is dangerous and unacceptable, and an understanding that it will take seriously progressive taxation to make a dent in the problem. But I am not optimistic about the prospects. Through various channels 10 percent of national income has been transferred to an über class. Without the political will, that sort of change is difficult to undo."
On March 23, 2015, SCEPA Economists and New School Professors Duncan Foley and Lance Taylor received the 2015 Leontief Prize for their research in understanding the relationship between macroeconomics and environmental quality. Their work makes up SCEPA's project on Sustainable Growth, generously sponsored by the Institute for New Economic Thinking (INET).
The Leontief Prize for Advancing the Frontiers of Economic Thought recognizes "outstanding contributions to economic theory that address contemporary realities and support just and sustainable societies," according to the Global Development And Environment Institute, which administers the award. "Our Institute's work has been much influenced, and has greatly benefited, by the ways in which Dr. Foley and Dr. Taylor have crossed the boundaries between economics and other disciplines to produce the kind of rigorous analytical work that the Leontief Prize was created to recognize," said GDAE Co-Director Neva Goodwin.
"Dr. Taylor's research has integrated relevant social relations into macroeconomic models, and is of critical importance for understanding present and future environmental realities and challenges. Dr. Foley's unique approach to combining research on political economy with advances in statistics and a broad grasp of the relevant data has produced a deeper appreciation of the policy consequences of economists' choices in theories and models."
New School Economist Lance Taylor released a symposium of literature on Thomas Piketty’s Capital in the Twenty-First Century in conjunction with the INET-sponsored research project on Economic Sustainability, Distribution and Stability. It includes papers offering a structuralist response to Piketty's explanation of inequality and advancing alternative theories.
- Thomas Piketty’s Capital in the Twenty-First Century: Introduction to a Structuralist Symposium
Lance Taylor (The New School)
- Capitalism, Inequality and Globalization: Thomas Piketty’s Capital in the Twenty-First Century
Prabhat Patnaik (Jawaharlal Nehru University, New Delhi)
- Elasticity of substitution and social conflict: a structuralist note on Piketty’s Capital in the 21st Century
Nelson Barbosa-Filho (São Paulo School of Economics)
- Piketty’s Elasticity of Substitution: A Critique
Gregor Semieniuk (The New School)
- The Triumph of the Rentier? Thomas Piketty vs. Luigi Pasinetti and John Maynard Keynes
Lance Taylor (The New School)
Download all papers in a zip file.
Lance Taylor critiques Thomas Piketty's prediction of ever-increasing shares of national income going to the owners of capital. Using a demand-driven version of Luigi Pasinetti's (1962) growth model, he shows "along strictly Keynesian lines that euthanasia, persistence, and triumph of the rentier are all possible." Read Taylor's article that appears as a contribution to INET's "Institute Blog." To get an idea of Taylor's argument, see the blog post "Must the Rich Grow Richer?" on our Worldly Philosopher blog.
Lance Taylor, SCEPA Faculty Fellow and Emeritus Professor of Economics at The New School for Social Research, will join the keynote panel for the annual conference hosted by the Institute for New Economic Thinking (INET) and the Centre for International Governance Innovation (CIGI).
The conference will be in Toronto, Canada, from April 10-12. The event will highlight INET and CIGI's work to promote "new economic thinking" by identifying pervasive flaws in existing economic paradigms, promoting innovative interdisciplinary research, creating a strong global community for young scholars, and pushing the economics discipline to meaningfully address challenges of the 21st century.
Taylor will join the panel discussion, "Innovation and Inequality: Cause or Cure," to discuss his work with Professor Duncan Foley on an INET grant investigating the long-term consequences of economic growth, including the effects on climate change, the shift toward a service-centered economy, and the potential for financial and fiscal instability.
On October 25, 2013, Lance Taylor, economics professor emeritus at The New School for Social Research, gave a presentation at a Berlin conference hosted by the Research Network Macroeconomics and Macroeconomic Policies (FMM) titled, "The Jobs Crisis: Causes, Cure, Constraints."
Taylor's presentation provides a long-run analysis of economic growth and CO₂ emissions from his research paper, "Greenhouse Gas Accumulation and Demand-Driven Economic Growth," coauthored by Duncan Foley, Jonathan Cogliano and Rishabh Kumar.
His demand-driven growth model analyzes how economic growth through capital accumulation requires an increase in energy consumption. Increased energy consumption releases harmful greenhouse gases and reduces growth through the adverse effects of climate change, such as natural disasters and an increasing business costs. A possible solution would be increased spending on mitigation to reduce climate change damages. The model shows that investment in mitigating greenhouse gases to a "good," steady-state would cost 1.25% of the global GDP, roughly equal to military spending. On the distribution side, greenhouse gases cut into the profit share in any scenario - moderately in a mitigated scenario, but precipitously on an unmitigated, "business-as-usual" path.
INET and SCEPA will host a conference on Sustainable Growth at The New School in New York City on April 25-26, 2014.
The purpose of the event is to discuss issues of growth theory emerging from the current travails of the world economy. One focus will be the treatment of distribution and climate change in models of growth and stability, but the conference will not be limited to that agenda.
Below are links to the preliminary program and target papers for the three sessions of the conference.
Target Paper 2:
US Size Distribution and the Macroeconomy, 1986–2009
Lance Taylor, SCEPA Faculty Fellow and emeritus Professor of Economics at The New School, analyzes Paul Krugman's "IS/LM" macroeconomic model. His analysis includes a discussion of the theory's origins in the history of economic thought and ends in a critique that the policy implications may not be robust.