By Max Lockie
Lopamudra, or Lopa to those acquainted with her, has been at the New School for Social Research’s economics department since 2007. She was kind enough to grant Canon some of her time this semester to engage with the issue’s theme as well as to discuss her own work on disaster economics and the welfare state, the conomics department at the New School, and the discipline at large.
What is your understanding of the terms liberty and liberalism and how they have changed over time?
When we talk about liberty, especially in terms of economics, basically we think of it in terms of freedom of choice. Freedom of choice not only in the space of commodities, but also in the space of the options we have for our life. So it’s not just a matter of choice of commodities but also a choice of actions, or a choice of outcomes. Sometimes it may also be a choice of plans towards reaching those outcomes, so that we are talking about not just the actions, but the right way of doing actions and then the outcomes that would be realized. When I talk about liberty, I will be using the term in this very general sense, in terms of a broader freedom of choice.
But traditionally, this sense of liberty has been understood as freedom of choice in the realm of commodities, in which everything has an exchange value associated with it — every good. Those goods may be the outputs of a production process or the inputs towards a production process. The commodity may be labor power itself and also the outcome that comes from using that labor power. It can be capital itself and what comes out from using capital, etcetera. This is the traditional way in which liberty is understood; when we are talking about commodities we are talking about what is happening during exchange. For most economists, this idea of commodities developed with the development of capitalism and with the Enlightenment. We are talking about what is happening in the realm of the market place then.
The interesting thing about economics and the market is the following: in economics, the market is understood as an institutional set-up where exchanges take place. It is understood in terms of exchanges taking place between people who demand and people who supply. The interesting thing about people who demand is, we distinguish between the notions of want and need from demand in the following manner: demand is essentially want or need backed by purchasing power. So when we are talking about the realm of exchange within the market place and the freedom of choice that is taking place in this exchange of commodities, we are already always ruling out those people who would not have the means to participate in this market place, those who did not have the tickets. Even if they if they have needs and wants, if they do not have purchasing power, they are not taken into consideration. This leads to larger questions about people who have needs and wants, who should have the freedom to choose to fulfill those needs and wants but cannot because we are talking about the realm of the market, about the realm of commodity exchange, and about purchasing power, which would allow participation in that realm of exchange. We are already stifling the freedom of choice of this huge group of people who are unable to participate in this.
If that is the case, the very notion of liberty, as a freedom of choice, has to be expanded to a notion of liberty more familiar to a perspective of analytic philosophy or social justice. With this, you associate the view of liberty and freedom, not with the ability to purchase, but with that of fairness and of distributive justice and with how things should be done in a normative manner. Rather than looking at a descriptive or positive analysis of freedom of choice, the emphasis can be on how people can participate in a market place. If this is the case, then we are brought to the question of what exactly do we mean by liberalism. Now, we are not talking about liberty as freedom, but as a normative, prescriptive way of looking at the issue of liberty as an issue. There are basically two ways in which we can study the issue, the first can be the codification of belief as to how you allow this notion of liberty to be realized in the actual real world. From an economist’s point of view, this may actually relate to on one hand, issues of prescriptive analyses such as policy making and decision making. If something is not correct, what should be done to correct those things — those are the normative kinds of judgments you have to make.
On the other hand, if it is the case that you believe you stand for liberalism, and that you understand that liberalism as the space of exchange, market, and commodity is only a restricted subset of a broader notion of liberalism — that you contribute to — you can ask other questions, such as how do you free this notion from being attached to the freedom of choice and the market place?
This raises the issue of equality, which has to be studied form the perspective of distributive justice, or normative justice. Then liberty is not just a matter of freedom of choice in the realm of commodities but also freedom of choice as to the realm of capabilities to attain those commodities, freedom of choice in the realm of decision-making on the larger scale, so you’re just not choosing apples and oranges, you’re just not buying things, but also bringing this issue to a very broader perspective, allowing for broader questions. What would be the decision-making process in a democratic society? What would be the way in which we would be looking to the least well-off people? What would be the ways in which people who do not get to participate in the market place have their interests protected by a democratic liberal society? A progressive society? What society believes not only that equality is established through market exchanges, but also that equality is established from other completely ethical, normative, decision-making judgment criterions, such as fairness and justice?
With these inquiries, then, you do not just focus on people who keep bleeding the market place, but rather can ask questions about why there are people who are denied that freedom of choice — liberalism — and why are they kept outside the market place. It’s a very long convoluted answer to the question, but that is how I’d place liberty and liberalism.
The notion of a welfare state is a notion of a state that is not a coercive power, but rather a representative state, a representative of the collective aspirations of the people. My state is not my ruler, but my state represents my collective interest, my interests as part of a collective, and my interests as a social being. There are certain things which as an individual are not within my capacity to generate and yet I have rights to enjoy those things. For example, I have the right to enjoy clean water and clean air; I have the right to enjoy access to food through the market place, etcetera. Those should be the concerns of the liberal welfare state, so that when I enter into a social contract with that state, it will not only provide me with a stability, but also would allow me to pool risk, which as an individual I cannot bear by myself, but which can be a collective responsibility, a social responsibility, of the collective to which I belong to. And when I talk about public goods, these are not just physical material goods I am talking about — I mean public good also in terms of well-being. The only reason for a state to exist is to ensure the good for the greater and greater good for all.
Public good is not just a matter of building roads and building dams, to protect me from disasters and to take me from one place to another. It is not just to provide me with military protection or what have you, but to ensure that I have my basic needs fulfilled and basic capabilities in terms of health and education and other things, so that I can participate in the market place — if we are talking about a market economy. So that I can have freedom of choice, so that I can have my ability to exercise my freedoms. That would be my notion of the public good.
It’s really the failure of this welfare state that the Occupy Wall Street movement is all about, from my perspective. It is a collective movement, a movement of different kinds of aspirations and different forms of anger and forms of protest, but as far as I’m concerned, it reminds me of the failure of the social welfare state to provide me with my basic needs. A failure of the state to provide me with the sense of liberty and right and justice and a failure of the state to keep its promise of egalitarianism, of equality, of justice, of fairness. If that is the case, what good is the state to me?
This is a matter of citizen’s protest, so it’s not the protests of people that are ruled by a state. I would consider this to be the citizens of a state asking for their basic rights, and exerting themselves in ways in which they are heard, and exerting themselves and their rights and their voices in ways that could not be heard otherwise, which is not reflected in other forms or given other outlets for citizens to let the state know of their aspirations. For me the Occupy Wall Street movement is a rejection of a system, a state that has failed its citizens, which has gone back in its promise of social contract. It has gone back on its promise of public good. It has therefore relinquished its right to exist.
I would not consider the Occupy Wall Street movement as a clamor for policy twinkling, or for state spending increases, or punishing bankers, or immigrant rights, or the right to work, or the right to represent, or the right not to endorse a war which is extremely costly and completely useless — these may all be very true. But from my perspective, the movement is basically allowing the state to know that the citizens, the people who have actually made the state possible to exist, are not happy with what has then developed.
The tradition of the NSSR economics department has been this: there has been an essential focus on historiography and on methodology of analysis and a focus on tracing the past development of economic conditions in terms of what has been realized in the past. So historical trajectory, the role of institutions, and the role of structures in explaining, and not only explaining the causality but also giving a sense of the patterns in which things have emerged. This is unique in the tradition of the New School. More often than not in the American academia you’d see the focus on methodological individualism when you talk about economic theories, or economic policies, or economic perspectives. So the unit of analysis always is this atomistic individual which is a notion that we have adapted from a Newtonian mechanistic view of the world, where we find individuals behaving as if all decisions are rested on the individual. The choices that they make are coming from the preference functions that they have, which we do not know why they have those preference functions, and also constraints that are imposed by the world outside, including other agents with whom they interact.
In the presence of these preferences, which are endogenous, and yet do not explain where they are coming from, in the presence of the constraints which are being imposed from outside, people make choices. That’s the way in which most economic theory — be it macroeconomics, be it microeconomics, be it other forms of economics — are understood in most of the departments across the country. New School turns this idea on its head and looks at the structures and patterns which already always exist and places the individual as a participant of this larger system and allows the preference patterns. The focus is not so much about where the preference pattern is coming from, etcetera, but how the structural constraints, the structural patterns, the themes of society is shaping the choices that people make and is shaping the larger issues that affect a group, a society, a community.
So here comes the second distinction between other departments and our department. In other department the unit of aggregation would go from individual to collective, so you aggregate from down to up. The decision-making unit is the individual. Here we have a completely different notion of aggregation, we’re looking to the systems, the social, and the collective, and then we see that how decisions at the social, at the collective, and the structural level are affecting individuals. And sometimes we also see how the rational perspective, which may or may not be true at the individual level, does not tally up to the rational process of decision-making at the collective level. The other thing is the focus more on the macro- rather than the micro-scale of analysis.
There’s also is a third pattern. There is an overarching and overwhelming presence of understanding of classical political economy. Not only that of Smith and of Ricardo, but specifically that of Marx, as a critic of that classical political economic understanding. And the entire body of knowledge that is embodied by faculty members and presented to the world, it draws its connection — its historical connection — right from the inception of the economic writings of Adam Smith and follows it downwards. So when we present a particular way of looking at the world we are connecting the here and now with the methodological tradition that we have inherited. We are not upstarts. We are people that believe in this tradition, and believe this body of knowledge to be true and we draw that connection with that body of knowledge.
Then there is a fourth element: a larger focus, a larger commitment, to explain the world out there, to engage with the world out there, to engage with the empirical realities of the world.
Lastly, there is a fifth element. Irrespective of which particular methodology we might choose, irrespective of which particular sub-discipline that we are committed to, irrespective of what is our main epistemological question that we ask in terms of our research and teaching, each and every faculty member in this department can be considered to be progressive, liberal, and committed to progressive, liberal ideas. You know, it’s a huge spectrum. You’ve got the extreme left to left in the American sense, but this is a larger predisposition, which is true for each and every faculty member of this department, which is something completely unusual, that you don’t come across a department which is really committed to the ideas of social justice, equality, progressiveness, progressive policies not only in terms of implications of those things, but also all the ideas which are sacred in terms of the classical liberal thoughts and the not-so-classical liberal thoughts — that entire spectrum. It’s a very unusual thing. The divisions have more to do with the methodologies rather than overarching conclusions that are drawn. I think this is a remarkably positive thing for any department to have, and it’s a really wonderful, cohesive, cogent force that pulls together all of the people that you see around here — this collective good, this collective existence — which I find completely remarkable. Yes, it’s a good department to be in.
I think there is only one purpose of an academician, and that is ruthless criticism of all that exists: to play the role of a court jester, to lay bare the macabre, the absurd, and the unacceptable in a way which then comes up as a jarring thing. So, the only rule of an academician would be that of discernment, that of critical analytical thinking. That doesn’t mean that you have to be probing and prodding and that you have to be the most difficult person in the room. But, to keep questioning oneself and to keep questioning the world around you that you have sought out to explain and prod. That is, I suppose the only function. There is no other function. And as an economist, that too, is the function.
But my colleagues might be saying that it’s just not a matter of critical analytical thinking, but there might also be a role to be played as somebody who brings about change, either as a policy maker if you want to maintain the system, or as a radical revolutionary if you want to change the system. People do think about those ways, too. I suppose that is also true but that would be true for any individual, not just the academician. For the academician the individual role, whether or not you accept a system, or reject a system, even when you accept a system, the role would be to keep that discernment alive, to play the role of a position party in a classical, liberal, democratic society.
The work of academic economists must not be to go out there and tell people, “I know better than you.” Not to be the specialist, not to be the purveyor of knowledge, and not to be the source to which people come when they have questions. Not to be the Pope.
This ties up to the other idea of liberalism, then, that of methodological pluralism. To accept the idea that there can be alternative explanations of causality and correlation and covariance that exist out there in the factual world; to be willing to engage seriously with others, just not to come and say that I have seen it and known it and now you should come to my pulpit and be on the receiving end. That would be the other thing, to be generous in mind and heart. That is the best thing that any academic economist can be doing.
This is a very big view of mine, but I have actually listed four growth areas. So, the conventional way in hich economics goes now is with this preoccupation with equilibrium. Does equilibrium exist? What is equilibrium? Is the equilibrium stable? Those kinds of questions. So I think the movement is going to be more towards disequilibrium studies, and on the processes that do take us to equilibrium and the processes that do not. And this acknowledgement that there will be systemic states which are disequilibrium states where there will be no equilibrium. So the search for those things is completely elusive, and redundant, and useless. So that is one thing — shifting away from equilibrium to disequilibrium. Disequilibrium anti-arguments concern overshooting and undershooting of equilibrium processes.
The second thing would be a transition from the individual to interactions. Recall, I have mentioned that in mainstream economics and economics in general the individual is considered to be the decision-making unit, but that the follies are becoming very problematic. So, to understand individuals in a process of interaction and how that might actually affect the preference patterns or typographies of individuals and change them accordingly, that might be a vibrant area of research.
The other thing which I think is going to be very true in terms of understanding the empirical world out there, in terms of understanding data, would be the present focus on estimation and projection and expectation, well, of prediction. I think this is going to change. We will have to understand that if there are no systemic laws to be understood, especially in the presence of disequilibrium systems, especially when interaction processes might change individuals, we will have to look into processes or patterns rather than projection or estimation.
So we could look back and this could be a study in retrospect, and we can see why a particular outcome has emerged from a process of causality, but it’s going to be very difficult for us to project that into the future and to try to estimate and predict what is going to happen in the future. Larger patterns can be told, the average trends can be told, but the realization of actual things, they cannot, based on my assumptions that there are going to be systemic disequilibriums and that there are going to be processes which will change. There will be processes of aleatory uncertainty, so there are going to be chances and coincidences. Rationality might emerge through interaction rather than being given a priori.
There is a fourth thing. I think the focus over here nowadays, the focus that we do, is on averages and central tendencies, either in terms of large data or in terms of the methodologies through which we talk about that large data. I think the focus is going to be more on variances or on dispersions rather than on central tendencies, and I think this is also tied to the idea of liberal ways and of pluralistic ways. When you allow for dispersion to exist and when you accept that to be the reality — rather than the average tendency or the central tendencies of a data set — it is coming out as a political project. It is political when you allow this pluralism, this dispersion, this diversity to be the main subject of your study rather than the average expected or representative person. There may be completely other things which I know nothing of, but I think these are the four main things.
Disasters, yes, this is what I do. Then again I understand natural disasters as outcomes, rather than the extreme events that cause those outcomes, so I would not consider an earthquake to be a disaster. I would consider a disaster to have taken place if there is a deviation from a systemic condition. For me a disaster is a process that has unfolded and was triggered by an extreme thing. It’s a matter of perturbation that spreads from something which has been injected in a system, triggered in a system, and then that perturbation then amplifies and globalizes and spread across a system until the system itself flips over to something else. For me, that triggering event is not the disaster but what comes out as a result of it in a particular system. Then if that be the case, do I consider climate change to be a disaster? If it brings about such a huge perturbation, then yes, and there are already signs and signals that there are going to be such perturbations, not only in the natural physical world but also in human society, in the social system.
And economists, are they sufficiently capable of dealing with natural disasters? No. Three reasons: the way we understand natural disasters, climate change, or any other natural disaster is with methodologies that are all geared towards talking about averages or central tendencies, or the expectations. We are not methodologically sophisticated enough to talk about events which have very low frequencies but can have huge impacts or discontinuities. All of our analyses of risk and of cost-benefit are really focused upon marginal changes, which are reversible changes, and which can be undone as we proceed. That is the basic idea behind risk analysis and cost-benefit analysis. All these analyses fail when we talk about these kinds of huge discontinuities, especially since all of our risk analysis is based upon probability of occurrence of a loss. And that probability of occurrence is really based upon what has been the past realization of this event, so you have a frequency distribution which is known to us. But if you are talking about things like climate change, where there is going to be essentially a threshold of change in the system, you are going to see events which you have never realized in the past which means there is no frequency distribution to fall back upon with which to do this risk analysis. So methodologically, no, you do not know how to deal with this thing.
The other thing, the other issue about climate change that one finds distributional issues. As a researcher, you definitely see the people who are less well-off who will be affected by these things, by these catastrophic events. But we don’t get to talk about these distributional issues at all in the media. All we talk about is what would be the way to tax a particular nation or whether or not you’d allow the market to come into place. Talk about tradable permits, if you would allow the market or the state to function either by taxation or by allowing exchange of tradable permits. None of these issues are looking into what would be happening to the least well-off people.
And it’s really an issue of normative justice, that of global warming and its effects. It’s not an issue of market versus state. Because we know that the well-being of a nation may not reflect the well-being of the nationals. So there can be macro interests that are represented but there can be inequality of distribution and of impact and risk coming out of these huge changes.
In my opinion, precautionary principles and foresight principles are the only way to go. Risk analysis cannot work. Cost-benefit analysis cannot work when we talk about issues of climate change. The only way we can think about it is either in terms of the relation principle of minimization strategies so that you go by the processes of precautionary principle.
A huge impression, in two ways, though I don’t engage him in my work. Remember as I said in mainstream economics in most of the departments in America, you assume the individual is the decision-making unit. How do you identify the individual? You identify this person by his preference pattern. Had you been a marginalist you would have said that you identify an individual by its utilitive function, but a more sophisticated analysis would be to show how you identify an individual in terms of his preference ordering. And we do not know where this utility is coming from and where this preference is coming from. We also make sure that this preference and utility is distinct from the income level of this individual as a different analytical category, because it is the income and the expenditure pattern which acts as a constraint on the preference pattern. Together, choices will emerge. Veblen presents two extremely insightful critiques of this interpretation which really devastate the entire neoclassical project of the individual rational decision-making agent.
Veblen says that these preferences are emerging through a process of interaction on how you see other people, and how that affects your preference pattern. And, it’s really your income that is determining your preferences. So we really have a problem of indeterminacy. We cannot then keep the means of earning things apart from our preferences for those things when we are talking about and this really brings a neoclassical economics to a critical methodological point. And it’s a very serious criticism about that.
In this letter, is he telling us how difficult it is to formalize the ideas, is that the idea?
Alright, so, that is one lesson for academic economists to keep in mind: to be humble.