The humanities is necessary but not sufficient for social transformation

I am researching a project at the moment on the role of humanities (and social sciences) in enhancing standards of living and rendering societies open, empathetic (to the disadvantaged) and dynamic. It is in the face of trends within Universities to concentrate funding and attention on the so-called STEM disciplines (Science, Technology, Engineering and Mathematics) and contract funding for the humanities (and social science). The funding cuts undermine the viability of these areas and whole departments have been closed – having been declared by the bean counters – as being uneconomic. This is reinforced by conservative neo-liberal political diatribes which seek to construct the humanities/social sciences as bastions of “left-wing” radicalism and post-modernist degradation (for example, eschewing studies in sexuality, gender, ethnicity etc). There is strong evidence available to show that studying the humanities is a socially transformative endeavour (for example, the Clemente program). But like all “individual” initiatives, there is a danger that the reasoning used to justify them will fall foul of compositional fallacies. We have to defend the humanities to enrich individuals. But we also have to use that empowerment to challenge the elites on the macroeconomics battleground. The two motivations are self-reinforcing. The former is not a sufficient condition for social transformation.

I discussed the neo-liberal attack on higher education with an emphasis on how universities around the world are being squeezed by the managerial bean-counters (in the face of government cutbacks to education) to eliminate liberal arts/humanities curricula in these blogs – I feel good knowing there are libraries full of books and Education – a vehicle for class division and Technocrats move over, we need to read some books.

I was further reminded of this theme when I was listening to the radio yesterday (December 17, 2012). The segment – Liberal Arts Degrees for the Disadvantaged – was broadcast on ABC Radio National’s Life Matters Program – presented by Natasha Mitchell. This is a daily program that is broadcast nationally in Australia.

The segment discussed the so-called Clemente Course in Humanities – which is described as a:

… a ground breaking university education program, which aims to break the cycle of poverty, inequity and social injustice for Australians facing multiple disadvantages and social isolation.

The – Clemente program – was developed by the late US author – Earl Shorris – and his definitive work on the topic was published in 2000 – Riches for the Poor: The Clemente Course in the Humanities – by W.W. Norton & Company.

An introductory article by Earl Shorris – On the Uses of a Liberal Education: As a weapon in the hands of the restless poor – was published in September 1997 in the Harper’s Magazine.

You might also like to read a more recent article by Earl Shorris in the Harpers Magazine (December 2011) – American Vespers – The ebbing of the body politic.

I will come back to that soon.

As a field of study, economics has always occupied a conflicted place in our tertiary institutions, although the experience varies across different countries. Economics is unambiguously a social science, with dimensions from the humanities (philosophy, history) being crucial partners in the learning experience.

However, as the neo-liberal era unfolded the social science dimensions of the discipline and certainly its links with the ancillary disciplines from the humanities have been attacked and in many cases abandoned. Economics has increasingly been seen as part of a “business” program, with the focus being on the corporate sector, rather than a study about broad society.

Subjects such as “business economics” and “international business”, which are largely void of any discipline basis, have being developed to replace or water down the standard curriculum in economics principles. What remains of the principles subjects is a potpourri of nonsense parading as New Keynesian economics (at the macro level). The microeconomics subjects are similarly business-oriented.

Economics as taught in our universities is now mostly devoid of any interaction with the real world and serves to perpetuate the neo-liberal agenda, which is to dismantle government influence on the resource allocation and to bias the distributional system to deliver increased benefits to the rich and to deny opportunity for the poor.

Please read my blog yesterday – What have mainstream macroeconomists learn’t? Short answer: nothing – for more discussion on this point.

As part of this purge on the broader social science elements of economics, the related links to philosophy and history have been culled. Economics students rarely are exposed to topics relating to the philosophy of science, about the role of ideology and subjectivity, and are taught “business economics” and “Dynamic Stochastic General Equilibrium” theory (or its simplified child at the undergrad level) devoid of any historical context.

When there is some historical content provided, it is typically revisionist to reinforce the ideological agenda being pursued rather than reflect what probably happened in any particular historical epoch. The classic example at present is the discussion about the Great Depression, which has been spawned by the current crisis.

Apparently, the Great Depression demonstrated how efficient the market was; how badly government intervention is; and how the provision of tens of thousands of public works program jobs didn’t happen; and how a proportion of workers – ranging from 15 to 30 per cent depending on which nation we are talking about – suddenly preferred leisure over work and quit their jobs to enjoy unemployment as their chosen state.

The legitimate study of history is always interpretative but it is never just making stuff up!

So while economics was traditionally a broad study of society and part of a well-rounded education encompassing readings in the humanities and other social sciences, the neo-liberal era has recreated it as a narrow area of study, which serves to reinforce the idea that capitalism is good and government intervention of any kind is bad.

Even the so-called progressive economic writers lapse back into this role – reinforcing the mainstream narratives and undermining the progressive aspects of their work.

Two major examples of this appeared in the last week.

Last week, the Japanese economist Richard Koo published his latest Nomura Report (private subscription) and is now suggesting that inflation rates in the US, Europe and Japan of the order of 500 to 1000 per cent “could” occur as a result of the recent non-standard monetary policy initiatives (quantitative easing) once “private loan demand recovers”.

I analysed Richard Koo’s substantive ideas in this blog – Balance sheet recessions and democracy.

Koo has contributed valuable insights to the understanding of how Japan descended into its so-called “lost decade” and the role that positive budget deficits have played in that nation.

GDP growth in Japan has been very low since its property market exploded in the early 1990s. Neo-liberals have argued that this is evidence that the deficits were wasteful. But Koo says that the only thing that kept the economy from falling into a deep depression was the deficits.

His work has demonstrated that when the neo-liberal lobby started to gain traction and forced the Japanese government to attempt to cut its net spending (in 1997), the Japanese economy went backwards again. History tells us that these attempted cut-backs only increased the deficits – via the automatic stabilisers! An understanding of Modern Monetary Theory (MMT) allows us to comprehend why that happened.

Richard Koo’s analysis of the link between the private sector using loose credit to underwrite expansion of spending and the increased precariousness of private balance sheets as the precursor to recession also separates him from the mainstream macroeconomic analysis, which largely ignores the credit cycle. In this sense, his work is much more in the Minsky tradition and is consistent with MMT.

Koo’s work has also concentrated on the way in which the private sector, as a reaction to this credit binge, starts to save more and refrains from any further (significant) borrowing even though interest rates are low. So monetary policy will not stimulate investment.

As a result, he has consistently advocated using fiscal policy to stimulate aggregate demand. and to thus ensure that production capacity is fully utilised. He has argued that when a “balance sheet” recession occurs, governments will need to support aggregate demand via deficit spending for extended periods so that the private sector can reduce its indebtedness and render its balance sheet less precarious.

In that sense, his work runs counter to the mainstream dislike for fiscal policy and the incessant demands from my profession for fiscal austerity. Richard Koo understands that if the private sector is to reduce its indebtedness, then the public sector has to increase its debt given the current, voluntary (and unnecessary) practice of issuing debt to the private sector to match deficits.

But even though many progressives have held Richard Koo out as some sort of visionary, it doesn’t take much to see this representation is unsustainable. In the 2009 blog I linked to above I noted that just because he advocated using fiscal policy to stimulate aggregate demand, we shouldn’t “get the idea that Koo is a Keynesian”.

I also said that Koo is no modern monetary theorist given he believes in a government budget constraint (GBC) – automatically associated deficit spending with borrowing (even when he is talking about economies with near zero interest rates and therefore no need to borrow to maintain interest rate targets). I concluded that there is much in Koo’s analysis that I disagree with. Most of these disputed points arise from his erroneous assumption that the government needs to finance its spending. It clearly doesn’t need to do that if it is the monopoly issuer of the currency.

His latest offering confirms that he operates in the mainstream framework and while insightful in many ways remains part of the problem.

Consider his warning in his latest Nomura Report:

But nightmare scenario awaits when private loan demand recovers. The problem is what happens when private loan demand recovers. Loan books could grow more than tenfold in the US and five fold in Japan and Europe if bank reserves remain at current levels, triggering inflation rates of 500% to over 1,000%.

To avoid this outcome, central banks will have to mop up excessive reserves by raising the statutory reserve ratio, raising the interest rate paid on reserves, and selling government bonds. All of these measures will serve to lift interest rates, sending bond yields sharply higher and triggering a possible crash in the bond markets.

The Report is aimed at the incoming Japanese Government, which has stated it will loosen the inflation target that the Bank of Japan considers appropriate. The aim is to stimulate the flagging real economy.

He seems to think that quantitative easing is “extremely dangerous” and the “real danger posed by this policy will become apparent only after private-sector balance sheets are repaired, and then it will happen suddenly”.

What he has in mind is mainstream textbook monetary economics. Apparently, the “excess reserves” held at the BOJ “could become a time bomb”. Why? Allegedly, because they currently are sitting idle because there is no private demand for credit.

He constructs quantitative easing as the BOJ “financing the entire deficit” which will result in having to “to supply reserves equal to more than ten times the required amount”. What is the required amount? Some volume that is “required to maintain Japan’s money supply”.

The reality is of-course that none of this is an accurate depiction of what is happening or will happen.

First, the monetary base (reserves) responds to the money supply not the other way around. There is no money multiplier given that loans create deposits and banks then source reserves from wherever they can get them, the BOJ being, typically, the final guaranteed source.

Second, banks do not lend the reserves they hold with the BOJ. Reserve balances held at the central bank are used for clearing purposes to ensure the payments system functions. Banks may hold excess reserves – that is, funds not required to maintain their expected clearing house obligations each day. But that doesn’t given them any extra capacity to extend loans.

Why not? Because they know they can always get reserves from the BOJ whenever they are short. Capital constraints aside, the bank’s loan portfolio is only constrained by the number of credit-worthy borrowers that seek funds. The banks will typically extend loans to any such borrower, although its assessment of what constitutes credit-worthy varies over the financial cycle.

Third, what happens if there is a sudden burst of demand for loans – the trigger that Richard Koo thinks will provoke a 1000 per cent inflation rate?

It is quite simple. We have to divorce that from the balance sheet dynamics that have accompanied the quantitative easing (and related programs) given the discussion in the first two points.

Having said that, of there is a renewal of interest in private borrowing on a large-scale, the banks will start extending loans which will create new deposits and enhance the capacity of the private sector to spend (invest or consume).

In the first phase of this cycle, excess productive capacity will be absorbed by the growth in nominal aggregate demand and unemployment will fall as firms increase production.

At some point, if private demand continues to accelerate, and remember it won’t be because the central banks have expanded the asset side of their balance sheets (that is irrelevant), then economies might reach full employment and then nominal demand growth will generate inflation.

Governments have all the fiscal tools they need to counter that development should it occur.

Richard Koo thinks that the central banks have three options to resolve this danger. They will have to raise reserve requirements to drain the excess reserves, engage in large-scale sale of government bonds or raising the rate paid on reserves.

He wrote that:

All of these measures will serve to lift interest rates, sending bond yields sharply higher and triggering a possible crash in the bond markets … A sharp increase in government bond yields could lead to fiscal collapse in countries with a large national debt. For Japan, where the national debt amounts to 240% … the results would be catastrophic.

Which completes the circle of mainstream myth making.

The central bank may want to raise reserve requirements or pay more on excess reserves but that will do nothing to reduce the bank lending rate should there be renewed demand for borrowing from the private sector. To repeat: bank lending is not reserve constrained.

Please read the following blogs – Building bank reserves will not expand credit and Building bank reserves is not inflationary – for further discussion.

Further, the central bank can set whatever interest rate it chooses. And, for sovereign governments an increase in bond yields (as the price of bonds falls due to increased supply) does not lead to any increased threat of insolvency. The government would just be providing more income flows to the private sector. If it felt those income flows were threatening price stability it could simply control the yields on the debt or sell the debt to the central bank. Even in Japan, those options are legally available without any change in law.

Interestingly, Koo has been very critical of US economist Paul Krugman, another so-called progressive voice in the current debate. During the Japanese “lost decade”, Koo has argued that Paul Krugman dramatically failed to understand the nature of their problem and recommended a reliance on monetary policy.

While Paul Krugman is now advocating expansionary fiscal policy, he was not always of this persuasion. During the Japanese crisis in the 1990s he was a fierce advocate for quantitative easing.

In 1998, he wrote that there was a spending gap in Japan and that low nominal interest rates were not providing a stimulus. He also indicated that fiscal policy would possibly work but “there is a government fiscal constraint” and the Japanese Government would only be wasting its spending.

He concluded that given that Japan was stuck in a liquidity trap:

… the only way to expand the economy is to reduce the real interest rate; and the only way to do that is to create expectations of inflation

He was completely wrong in this diagnosis. The only thing that got Japan moving again in the early part of this Century was fiscal policy. Richard Koo understood that much – that the failure of monetary policy to stimulate the economy at the time was not because there was a liquidity trap.

In that context, Paul Krugman’s latest New York Times article (December 17, 2012) – That Terrible Trillion – is apposite.

I won’t analyse it in detail but his intent is to disabuse readers of the idea that there is some sort of fiscal crisis about to explode. The problem is that in attempting to allay the fears that such an outcome will occur, he suggests that such an outcome will occur. So it only comes down to a timing issue rather than a matter of substance.

We read:

What the Dr. Evil types think, and want you to think, is that the big current deficit is a sign that our fiscal position is completely unsustainable. Sometimes they argue that it means that a debt crisis is just around the corner, although they’ve been predicting that for years and it keeps not happening … But more often they use the deficit to argue that we can’t afford to maintain programs like Social Security, Medicare and Medicaid. So it’s important to understand that this is completely wrong.

Now, America does have a long-run budget problem, thanks to our aging population and the rising cost of health care. However, the current deficit has nothing to do with that problem, and says nothing at all about the sustainability of our social insurance programs. Instead, it mainly reflects the depressed state of the economy – a depression that would be made even worse by attempts to shrink the deficit rapidly.

The problematic clause relates to the admission that “America does have a long-run budget problem”, which really contradicts the rest of the argument – which is largely unproblematic.

If there is no sustainability problem in the short-run – because the US issues its own currency – then how is there a sustainability in the long-run. What is the nature of the alleged “long-run budget problem”.

That the proportion of public spending in total spending will be higher because a higher proportion of citizens will be relying on public spending? Even if the dynamics turn out to be true and that is contestable, how is that a problem for a sovereign government?

There is no private/public mix that is safe and there is no threshold mix, beyond which it is unsafe and problematic. The long-run problem facing the US in the context of an ageing population and the rising cost of health care is to ensure there are enough real resources available to be allocated to satisfying the needs of this cohort.

That challenge is not a budget problem. It is a real problem relating to productivity and resource availability, which will ultimately also become a political problem if there are competing and incompatible demands on the available resources at some future point in time.

If the government can pays its bills now it will also be able to pay them tomorrow. That is the capacity that a currency-issuing government possesses – now and later.

So even the more progressive voices in economics lapse back into the neo-liberal mantra when their “special cases” are stripped away. Both Richard Koo and Paul Krugman ultimately think that deficits are to be used, not generally, but when special circumstances occur.

In that way, their arguments can be subsumed back into the mainstream paradigm. And so economics remains a vehicle for the neo-liberal agenda rather than as a progressive force combining social science views of the collective – which make society rather than the corporate sector the object of analysis – and the humanities (the importance of ideology and history).

The attack on the humanities has been driven by the erroneous claims that budget austerity is important and quality education should be more market oriented. The anti-intellectual agenda is based on the false claims that governments are financially constrained.

Richard Koo’s latest Report confirms he is working in that paradigm.

By appealing to this myth lots of questions about motivation are avoided. Neo-liberals promote the myth that some activity is “too expensive” or “not productive enough” and we are thus shoe-horned into that way of thinking.

The neo-liberal era has successfully imposed a very narrow conception of value in relation to our consideration of human activity and endeavour. We have been bullied into thinking that value equals private profit and that public life has to fit this conception. In doing so we severely diminish the quality of life. The attack on the humanities is a symptom of this trend. So the first line of attack for those wanting to defend the humanities is to expose the lies about the fiscal constraints.

But, typically, one way the humanities have attempted to defend themselves is to claim that such study is good for the corporate sector.

While it is clear that well-educated workers are important for private firms that should never be the criterion upon which we justify the support of our higher education institutions. Those sort of arguments may be applied to vocational training institutions but not our educational institutions.

Part of the attack on our universities in the neo-liberal era has been to blur the distinction between training and education – and by way of pursuing the lowest common denominator – subjugate the educational elements of our tertiary systems to the training elements. The rise of “business schools” over the last twenty years is the obvious example.

These schools provide little in the way of education. They have systematically attacked and downgraded the traditional educational disciplines of economics for example. In place of these more “difficult” learning tracks, universities have introduced “training” course in business which are nothing short of comical in their intellectual depth. It should be noted that I am making no comment here about the institution where I work. I am talking about sector-wide trends and specific trends within universities can be easily researched and you don’t need me to articulate them for you.

Which brings me to Earl Shorris and his Clemente program. I don’t attempt to provide a full analysis of the program but rather leave you with these thoughts.

In an interview in 2000 – Social Transformation through the Humanities: An Interview with Earl Shorris – we learn that the “Clemente Course in the Humanities:, is a “college-level course in the humanities for people living in poverty”.

The program is conceived as being “radical” and provides free education in areas such as “Plato and Shakespeare for people living in poverty”. It runs counter to all the current neo-liberal precepts about addressing poverty, which usually focus on forcing the poor to undertake training courses (with the risk of losing income support if they do not) to render them more suitable for the corporate sector.

Economists have contributed to the literature that justifies this “blame the victim” approach. The OECD has exemplified this conceptualisation of poverty in its 1994 Jobs Study, which is the model for labour market activism – the so-called supply-side response to unemployment.

Earl Shorris was asked what the rationale for providing access to the humanities to the poor was. He replied:

I’ve argued that the humanities provide the most practical education. If we can stipulate that knowing is better than not knowing, then the comparison is between education, as in studying the humanities, and training, as in learning to operate a computer or mop floors or pull a tooth or make out a will. We can start from the simplest kind of training, that is, training to repeat the least complex task, which might be mopping floors or repetitively entering numbers into a computer. Such work is poorly paid, with little or no chance for advancement. Historically, the poor have been trained to do such tasks as a way of maintaining a low cost labor force. During the industrial revolution, an ethic (Weber’s Protestant Ethic and the Spirit of Capitalism is the best description of it) developed that kept the poor “happily” at their labors.

Training for complex tasks, such as dentistry or engineering, is more demanding, but nevertheless training, in that it teaches the student to do something that has been done before: pull a tooth, build a bridge, and so on. Compare even that kind of training to education in the humanities-philosophy, art, history, literature, and logic, in Petrarch’s formulation. The distinction is between doing and thinking, between following and beginning. Nicolaus Copernicus, a Polish student of the humanities, with no formal training in astronomy, quite literally turned the universe inside out. Few ideas in modern history have had more influence on scientific thinking than the Copernican Revolution. Similarly, Descartes, whose method is at the base of technological activity, was not himself a technologist or even a scientist; he was a philosopher. If America is to remain a leading nation, it will do so because of the humanities, not because of training, even of the most sophisticated kind.

Let’s apply that practicality to a person living in the second or third generation of poverty. If one has been “trained” in the ways of poverty, left no opportunity to do other than react to his or her environment, what is needed is a beginning, not repetition. The humanities teach us to think reflectively, to begin, to deal with the new as it occurs to us, to dare. If the multi-generational poor are to make the leap out of poverty, it will require a new kind of thinking-reflection. And that is a beginning.

That is a very powerful argument in favour of expanding the humanities and eschewing vocational training as the means of resolving poverty and unemployment. I urge you to read the whole interesting interview.

Understanding the dynamics of the education/training distinction and the way the neo-liberal elites have biased our educational institutions towards training and away from broader educative endeavours is a crucial starting point for a truly progressive fightback.

Further, the empirical evaluations of the Clemente program across the world are very favourable. It seems to create conditions for mobility. The ABC Radio National program I referred to above focused on the Australian context.

Earl Shorris noted that “the poor need not be relegated to training” and they their worldly experience “permits them to understand great works at a deep level”. Further:

… the Greek experience that led to the invention of democracy can be reproduced through the teaching of the humanities. In ancient Greece, the humanities led to reflective thinking, which in turn led the Greeks to examine the polar opposites of social life: order and liberty. Upon reflection, they chose the middle way, auto nomos, or self-government, which we call democracy. In the same way our students come to the political life of citizens.

… the problem for the poor lies not in the poor themselves, but in the way the society has cheated them.

Which expands the notion that the study of humanities is an essential underpinning for an informed citizenry. If we can divert the population into vocational (corporate) training (which is largely what STEM is about) then the broader questions of accountability and hegemony are made more obscure.

I usually do not want to embrace conspiracy theories. But the attack on the humanities is probably motivated by the desire to reduce the capacity for reflective thinking, which might lead to the population becoming more broadly skilled and less fooled by the lying mantras of the elites.

And … seeing the poor as broad citizens capable of exercising informed political judgement rather than as low-skill vocation fodder would also be a deeply disturbing for the elites.

As a last point, the idea that the humanities can empower the poor as individuals to better participate in the society and enhance the moral basis of human life is sound and to be encouraged.

But, like all “individual-based” solutions, the dreaded fallacy of composition applies. If the economy is being subjected to a macroeconomic aggregate demand constraint then there will always be unemployment and so activities and initiatives that improve “individual” capacities will just shuffle the queue of disadvantage rather than eliminate it.

That is why those who want to promote the humanities have to also help society understand that the fiscal austerity mantra and the perpetuation of the claim that sovereign governments are financially constrained are lies, which serve to maintain a given class balance and elite hegemony.

Conclusion

We have to defend the humanities to enrich individuals. But we also have to use that empowerment to challenge the elites on the macroeconomics battleground. The two motivations are self-reinforcing.

That is enough for today!

(c) Copyright 2012 Bill Mitchell. All Rights Reserved.