Opinion

Edward Hadas

Russia-Ukraine conflict shows money isn’t the root of all war

Edward Hadas
Sep 3, 2014 15:17 UTC

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Many people think politics is really a branch of economics. When the United States invaded Iraq in 1991, the common cry was that it was all about oil. On the same thinking, rich countries were indifferent to the brutal civil war in the Democratic Republic of the Congo – which has cost 5.4 million lives, according to the International Rescue Committee – because the economic stakes were too low to matter. This economic reductionism goes on in developed countries too. Pundits and pollsters argue that elections are won and lost above all else on the economy.

Such ideas can be traced back to the philosopher Karl Marx. He believed that material considerations motivated everything people do, including how they are governed. In modern surveys, people routinely say that the desire for better jobs or higher incomes is not what drives their voting behaviour. On Marx’s view, these respondents are either lying, or in denial. They may not realise that economic discontents and aspirations drive their action – and all of history.

Followers of this dialectic should be disconcerted by current events. Only a die-hard Trotskyite could see economic issues behind the conflicts in Ukraine and Iraq.

Economic explanations are inapplicable to the strategy of Vladimir Putin, even if the president of Russia is trying to reconstruct the glory of the supposedly Marxist Soviet Union. Putin treats narrow economic motivations with disdain. His creeping invasions are not cheap, the occupied areas are mostly in dire economic straits, and retaliatory sanctions will create economic hardship for all of Russia.

For Putin, power is clearly more important than prosperity. His propaganda machine is trying to persuade the Russian people to think the same way. That creates a good test for the neo-Marxist reading of history. Russia is sufficiently rich and large to tough out widespread foreign hostility, especially with some help from China and other sympathetic governments. However, tight sanctions will make the Russian people poorer. Will they put up with the required economic sacrifices, or will they eventually prefer greater prosperity to national pride?

Central bankers’ reward for failure

Edward Hadas
Aug 28, 2014 09:12 UTC

Economic systems that work well do not have many heroes. The elevated status of the world’s central bankers – seen in the close attention paid to their annual get-together last weekend in Jackson Hole, Wyoming – is a sign that the financial system works badly.

Most of the modern economy flourishes without much help from professional economists. That would have pleased John Maynard Keynes. The British economist thought his peers should be like dentists – “humble, competent people” who could deal effectively with specialised problems. Such technicians do in fact take care of the production and distribution of goods and services, the allocation of incomes, the protection of the environment and even the development of new products.

These practical, almost anonymous experts have been a huge success. The prosperity of developed economies is fantastic by any historic standard, and many goods and services are available to rich and poor alike. The system deals fairly easily with innovations, changes in taste, natural disasters, military action and pretty much every sort of disruption – except severe financial problems.

Time to retire unemployment

Edward Hadas
Aug 20, 2014 09:25 UTC

Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Give Janet Yellen credit. The chair of the U.S. Federal Reserve is keen to use monetary policy to help get more people into good jobs. Her priority – work is more important than finance – is reflected in the subject of this week’s get-together for the world’s central bankers: “Re-Evaluating Labor Market Dynamics.” One item should be on the agenda of the distinguished guests at Jackson Hole, Wyoming: how to replace the concept of unemployment.

The suggestion may sound frivolous, but the idea of a simple measure of unemployment is tied to a wrong view of how modern economies work. The unemployment rate made sense in developed economies a century ago, when workers were men who wanted full-time jobs as soon as they finished school, and to continue until they died or retired. In that world, unemployment was easy to define – working-age men without a job.

Do autocrats and strong economies go hand in hand?

Edward Hadas
Aug 15, 2014 08:52 UTC

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By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Are authoritarian governments bad for the economy? Turkish voters do not seem to think so. On August 10, Tayyip Erdogan won an absolute majority in the country’s presidential election. Observers say that the country’s increasing prosperity is a big part of his AK Party’s appeal. Erdogan is not the only popular authoritarian around. Viktor Orban, who reportedly endorsed “illiberal” government, wins similar majorities in Hungary. If Russia had an election today, President Vladimir Putin would win big. And Xi Jinping, who seems to be making one-party rule in China more authoritarian, would undoubtedly triumph if the government bothered with elections.

The success of such leaders irritates many Americans and Western Europeans, who believe that genuine multi-party democracy is the natural political arrangement in the modern world. Clearly, though, most voters in some countries want authoritarian leaders who tolerate no effective opposition and who impose their vision on the nation.

Growth in a rich and crowded world

Edward Hadas
Jul 23, 2014 14:23 UTC

Perky, productive robots, or nothing more than a few new smartphone apps? Cascading innovation, or just a few tweaks? Economists and technologists are debating what the future holds.

Pessimists like Robert Gordon of Northwestern University see decades of slow growth ahead, with little scope for big leaps forward. The optimists, among them Erik Brynjolfsson and Andrew McAfee of the Massachusetts Institute of Technology, expect new technological glories. Both sides are more wrong than right.

Everyone is wrong when the wrangling is numerical. Arguments based on GDP and productivity growth are too circular to resolve anything. A main cause of any slowdown in reported productivity numbers is a judgment that innovations are becoming less valuable. So a reported slowdown cannot logically be used to support the argument that technology is advancing more sluggishly.

The stupidity of student debt

Edward Hadas
Jul 2, 2014 14:31 UTC

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The fast increase in loans to pay for higher education is a trend that is moving in the wrong direction. The idea that borrowing should play an important role in financing higher education, now standard thinking in the United States and the United Kingdom, is financially dangerous and economically wrongheaded.

Overall, American households are deleveraging. Most notably, U.S. mortgage debt outstanding has fallen to 51 percent from 71 percent of GDP since the end of 2008, according to survey data from the New York Federal Reserve. However, over the same period the ratio of student loans to GDP increased to 5.7 percent from 4.3 percent. The $1 trillion now outstanding is economically significant. In England, the ratio of student loans to GDP is only about half as high as in the United States, but the 80 percent increase over the last five years has been even faster.

Market failure can be sign of fatigue

Edward Hadas
Jun 11, 2014 14:17 UTC

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Modern economies work to meet consumers’ needs. So if needs are not met, that must be an economic failure, right? Healthcare suggests otherwise. Sometimes, unhelpful ideologies get in the way of economics delivering the goods.

Chronic fatigue syndrome (CFS) – also known as myalgic encephalopathy (ME) – is a case in point. The economic benefit of treating this difficult condition should be material for patients, drugmakers and society. Yet the treatment is poor.

A corporate abdication of corruption

Edward Hadas
Jun 4, 2014 14:39 UTC

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Allegations of corruption did not exactly cost King Juan Carlos the Spanish throne, but they probably played a role in his decision to abdicate. A popular desire for change was fuelled in part by claims of a 5.6 million euro fraud by his son-in-law, Inaki Urdangarin, who denies any wrongdoing. The resulting dynastic change may be considered a sign that corruption has become less acceptable. That would be a misreading.

Actually, it is hard to decide whether corruption is waxing or waning globally, because the concept is hard to define. A Danish anti-corruption group’s explanation captures the ambiguity: “Corruption is a broad term covering a wide range of misuse of entrusted funds and power for private gain… A corrupt act is often – but not necessarily – illegal. In handling corruption you will often face grey zones and dilemmas.”

The problem with the Piketty problem

Edward Hadas
May 28, 2014 14:06 UTC

If a man is suspected of murder, arson and speeding, any prosecutor who focuses only on the last charge risks ridicule. That imagined situation has some bearing on recent criticism of Thomas Piketty, the best-selling French anti-inequality economist. The accusations are largely restricted to ways in which he has exceeded the limits of his data.

The Financial Times, the most prominent critic, has identified possible compilation mistakes and biased adjustments in Piketty’s statistics on the history of wealth distribution. This is potentially a bit sloppy, but beyond that it’s hard to get too excited. Revising the questionable numbers would not change the basic conclusion that wealth has become more concentrated in most countries over the last three decades.

More importantly, though, all Piketty’s wealth data suffers from a much more fundamental error: It cannot be telling us what he says it does. In his widely praised book, “Capital in the Twenty-First Century”, he concludes that elites are becoming wealthier and more powerful at the expense of the rest of the population. However, wealth information alone, based on the market value of financial holdings and other real assets, can’t validate that claim. Incomes and, importantly, social factors also need to be considered.

Three Ms for economics re-education

Edward Hadas
May 21, 2014 15:10 UTC

Many economics students are unhappy with what they are being taught. A network of 62 groups from around the world has drawn up a petition calling for more “pluralism” in instruction. The malcontents find the dominant neoclassical model too narrow and want to know why so few experts predicted the 2008 financial crisis. They also want less abstract theory and more study of actual economies. The reproaches are just, but the students’ reform agenda is insufficiently radical.

They underestimate the scale of the intellectual scandal. The profession’s ignoble tradition started in the 19th century, when most political economists, as they were then known, failed to notice that industry was leading to massive improvements in the standard of living. Today’s practitioners know much more, but they still struggle to explain the most basic phenomena – prices, wages, money, credit, unemployment and development.

Pluralism, the study of alternative schools of economic thought, would help, but not much. With the partial exception of the still underdeveloped study of institutional economics, the available alternatives to the neoclassical synthesis largely rely on the same erroneous assumptions that humans are rational and that market forces almost exclusively shape economies.

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