Teaching vampire squid economics

26/02/2014 § 6 Comments

I’ll be doing a little teaching this term. As those of you who teach know, there isn’t really anything that’s ‘a little’ teaching. With a new prep, there’s a lot of worrying and wondering and researching.

And then Matt Taibbi (old place, new place) comes along and makes it even harder.

I’m a little late coming to this, because I wanted to say more about it but the clock has run out, but Taibbi had some frightening reporting a couple of weeks back about the concentration of economic power:

Today, banks like Morgan Stanley, JPMorgan Chase and Goldman Sachs own oil tankers, run airports and control huge quantities of coal, natural gas, heating oil, electric power and precious metals. They likewise can now be found exerting direct control over the supply of a whole galaxy of raw materials crucial to world industry and to society in general, including everything from food products to metals like zinc, copper, tin, nickel and, most infamously thanks to a recent high-profile scandal, aluminum.

How should I teach this?

Because a) this is going on so students are hearing/reading about it and should have tools to understand it, and b) I believe that it is economically important.  I’m just a humble microeconomist mostly interested in decision making by individuals, so these sorts of corporate organisations aren’t really my bailiwick, especially when they start getting crossed with macroeconomics like fiscal policy. But the main theories of micro are mostly about not having control over markets. I’m just preparing a lecturing on supply and demand, and looking at using the Pit Game (pdf). These vampire squid schemes — and other major events like Enron, which cost California something like US$40 billion, around 80% of the entire New Zealand economy at the time — lead me to wonder about the balance of time spent on theoretical market efficiency versus actual commercial behaviour.

It also leads me back to Galbraith, who discussed the attitudes of the men running corporations in his day. They believed it was their function, not the market’s, to allocate returns to shareholders, management and labour. Other centres of power, such as labour unions, were therefore not anti-competitive, but a necessary countervailing power for an economy that was already far from a market solution.

I propose a new class: Vampire Squid Economics (Econ 20X). Each lecture centres on a case study: Enron, Goldman Sachs I and II, AIG 2008, etc. Prereqs are intro micro and macro. Heck, we could even develop a common syllabus and offer it across the country. Then I can park all this messy reality somewhere and get back to teaching theory.

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§ 6 Responses to Teaching vampire squid economics

  • Andrew says:

    I know you will have already thought this through and I don’t have the time to do my ponderings any serious justice here but it seems that Marx had this fairly pegged around the movement of capital, specifically the process of the accumulation of wealth. The management tool used for this appears to be classic and sensible vertical integration, which explains much of the acquisition decision-making of the likes of the banks. Is this beyond a 101 course??

    • Marxian theory tends to be beyond a 101 course. It doesn’t slot neatly into the rest of the curriculum, and it doesn’t provide a complete alternative, either (e.g., issues with labour theory of value and calculation of Surplus Value). So it would end up being a bit like a sociology or philosophy course — here are the interesting bits from this thinker, here are the bits that don’t work. And that style doesn’t fit the standard economics textbook, although it would suit a history of economic thinking course (which I would dearly love to make all Commerce students take — lack of demand for my product be damned!).

      Vertical integration is an interesting way to approach the problem. These conglomerates are integrating financial dealings with production of goods and services to increase their profits. So what we have is the intersection of two areas in which intro micro is weak. First, we tend to leave finances out of production — everything is treated on a commodity basis. Secondly, we tend to look at arms-length, market transactions more than transactions internal to a business. So, there isn’t a great way to talk about vertically integrating financial and production decisions.

      So, Marx focuses on M – C – M, or even M – M. Micro tends to focus on C – C, with C – (M) – C as a ‘veil of money’.

      Zizek in Parallax discusses this, too, but where do I start?

      • Andrew says:

        Hmmm… So the necessity for a ‘complete alternative’ is a key characteristic I guess of the rationality of the current economic pedagogy, rather than an unsettling and then subsequent enjoyment of the symptom as Zizek would argue (though maybe not in Parallax). How about starting from the position of the hysteric? Obviously not those terms, but using the structure of the discourse of the hysteric to problematise the reification of ‘commodity’ that the master of micro obviously relies on. Thus the hysteric would reply to the micro-economic master from the position of the split subject (the split here signifying the contradictions inherent in the corporate practices of the banks)… and say “that solution doesn’t work”. The students would obviously be uncomfortable but… hey! That’s what actual education requires?? Sorry to be useless in practical terms here :-)

      • Not useless at all, because it goes to the heart of the pedagogical problem (as opposed to the economic theory problem). Can I make students uncomfortable? Does the university permit me?

        Economics seems to teach answers and solutions — intro textbooks seem to soothe students. Yes, there’s work involved to learn the theory and diagrams, but always in the service of finally having learned. This is, I think, the real ‘physics envy’ of economics. Other social sciences are happy to ‘problematise’ and leave students with a question rather than an answer.

        I was thinking my first lecture would have an early point that I don’t know — that economics is contested. Maybe I should tell the students that they are looking at me as the one who is supposed to know, but that I am refusing that position.

        What is education without transference?

      • Andrew says:

        If there’s no transference there’s no education. Instead there’s indoctrination in the sense of the master’s university. It’s a very uncomfortable position to assume docta ignorantia, I tend to rotate through subject supposed to know and mute mirror… !

  • Paul Walker says:

    What exactly is “frightening” about the concentration of economic power? And I’m not sure that Galbraith has much to tell us that’s useful. His ideas on firms and industrial structure were wrong at the time he wrote and the years since have been no kinder to him. Lord Desai once summed Galbraith up in a radio interview as “the Jeffrey Archer of economics”!!! That did seem a bit unkind.

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