Heterodox Economics Newsletter

Issue 278 April 05, 2021 web pdf Heterodox Economics Directory

These days I was called by a journalist of a leading German-speaking newspaper, who asked me whether the Corona crisis has led to an increase in economic inequality and social polarization. While I have not done any systematic analysis on this issue myself, I mentioned a series of casual observations – starting with the fact that low-pay jobs in the service sector have been hit comparatively hard, continuing with some preliminary evidence that education is a good predictor for how you do in a lock-downed economy and closing by pointing to soaring stock markets* – that lead to me believe in an increase in both, social polarization as well as economic inequality** due to Corona.

On a more general level, this call made me reflect on the question, whether heterodox economics provides us with suitable theoretical intuitions to analyze a case of non-linear social change as exemplified by the Corona crisis. In my humble view, heterodox theorizing first points us to the fact that the advent of Corona is exogenous to the business cycle, but endogenous to capitalism as its emergence is deeply tied to the commodification of nature that is a key feature of capitalism and a major concern for those, who acknowledge that economic activities are always embedded in social and ecological contexts.

More specifically, we can ask for immediate predictions from different schools of thought when being confronted by such a shock. A simple Post-Keynesian account, for instance, could emphasize the importance of distinguishing between stocks & flows in the context of a strong economic contraction. Such a stance would imply to expect that those economic entities (e.g. households or firms), which cannot draw on significant stocks and whose existence, hence, most strongly depends on the continuation of flows, will be hit comparatively hard. Such entities are much less resilient in case of a contraction of flows relative to those actors that can draw on some stock (e.g. net wealth, retained earnings). Hence, stocks & flows are essential for understanding how long lock-downs can be realistically upheld. Moreover, such a simple account can also give rise to policy-rationales („try to shift the burden on those with stocks to uphold lock-downs & minimize severe deprivation“) and provide some intuitions to fine-tune fiscal policies („how to best spent money when opportunities for private consumption are constrained?“). In conjunction with the statistical fact that the bottom half of the population typically has no noteworthy net wealth, such a perspective can also help to better grasp the magnitude of the underlying economic ramifications that come with severe lock-downs.

Also, other schools & traditions can provide helpful intuitions to better understand what’s going on in a lock-downed economy. In my view, an institutional approach focusing on sectoral differences and differences in legal status & industrial relations would do well in predicting heterogenous labor-market developments across countries and sectors. A feminist economic lens would surely point us ex-ante to the fact that stereotype-based division of labor will rather be strengthened than weakened in case lock-downs also extend to schools and child-care facilities. And finally, the evolutionary economic viewpoint would remind us that the disruption of existing routines or value-chains will cause some form of reorganization of economic processes. These reorganizations can remain largely unsuccessful and be detrimental for productivity, but can also lead to unexpected innovations and improvements induced by some novel constraints. And, indeed, personally, I would definitely agree that an increased regionalization of value-chains or a more encompassing use of online-tools to circumvent business traveling is something we could aspire to.

Don’t get me wrong: I have done no systematic studies of these issues, not even a systematic literature review and everything I say here can (and probably should) be contested in some way. Nonetheless, I have found in the past year that the theoretical intuitions I gathered through my engagement with heterodox economic ideas has equipped me well for anticipating & understanding what’s going on in the unchartered waters of the ‚new normal‘.

All the best

Jakob

* Financial wealth is typically strongly concentrated on the top of the wealth distribution.
** In some countries the effect on post-tax income inequality might be remedied in the short-run by means of increased unemployment benefits or other forms of public effort.

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