The following paper appeared in 2005 in what is now the Real-World Economics Review http://www.paecon.net/PAEReview/issue31/Lee31.htm It is worth reading today no less than it was then.
Teaching Heterodox Microeconomics
Frederic S. Lee (University of Missouri-Kansas City, USA)
Microeconomics is an important, though not a very popular, field of research in heterodox economics. This is due, in part, to the underlaboring role of micro-entities, such as the business enterprises, costs, pricing, profit mark ups, wage rates, markets, and investment, in most of the research conducted by heterodox economists in macroeconomic theory, monetary theory, and economic policy. Given its theoretical importance, it is surprising that the number monographs devoted largely to delineating a heterodox microeconomic theory are so few.1 One reason for this is that some heterodox economists believe that it is necessary for all economic students to learn neoclassical microeconomic theory; and the learning of heterodox microeconomics is of second-order importance. The unintended consequence of this attitude is that there is little interest among heterodox economists to delineate a comprehensive microeconomic theory. A second reason has to do with the role of microeconomic theory in heterodox economics. In particular, microeconomic theory is correctly viewed by most heterodox economists as providing a non-reductionist foundation to macroeconomic and monetary theory. And it is these theoretic areas that contribute most to macroeconomic policy issues in which they are interested. Given this macro-policy concern, there is little interest among heterodox economists to engage in the near thankless and largely obscure task of foundation building.
World student movement could become major player in the struggle to bring pluralism and freedom of inquiry to economics
from Edward Fullbrook
An emergent worldwide grassroots movement of economics students, the International Student Initiative, has the potential of becoming a major force that could work alongside the academics’ World Economics Association (now 13,000 strong) to break the neoclassical stranglehold on economics and to bring the real world back into the classroom. Launched in May, the ISI already boasts 65 associations of economics students from 30 countries, 5 continents and representing 13 languages groups. For the most part they are based in individual universities. Together they constitute a coordinated grassroots base that has the potential of serving as the launch pad for a massive worldwide student rebellion in the coming academic year, one that would see 100s more of these associations formed, each focused on reforming the economics curriculum of their university.
The formation of these student associations can be greatly facilitated by encouragement and moral support from faculty members. If you would like to help please go to http://www.isipe.net/supportus/
Below is the ISI‘s manifesto, a partial list of the student organizations, a partial linked list of their websites, and a linked list (67) of media coverage. Here to begin with is a world map showing ISI associations to date: Read more…
Here are some highlights from a strong post from Steve Denning on Forbes blog that condemns Joseph Stiglitz for shielding the “villains”.
Joseph Stiglitz, who this week offers his final entry in the New York Times’ series, The Great Divide, with the conclusion that inequality is not inevitable. The United States that was once a “shining city on a hill” has now become, he writes, “the advanced country with the greatest level of inequality.” In effect, it’s a choice that our society can make one way or the other. As a result of the actions of many individuals, our society has chosen inequality.
And Stiglitz names those responsible for this choice. They include CEOs, bankers, private equity titans, venture capitalists, politicians, deregulators, lobbyists, the Supreme Court, and those who run corporate welfare, the prison system, the high-price justice system and the unequal health system.
The missing villains: economists
Yet there is one category of actor curiously missing from Stiglitz’s list of villains: his fellow economists.
from Edward Fullbrook
The Boston Consulting Group (BCG) is a leading player in what is called “the global wealth-management industry” and which in effect is plutonomy’s tactical cavalry in financial markets. BCG have just “released” a report disclosing that in the year 2013 the wealth of the world’s people worth $100 million or more increased 19.7 percent. That compares, they say, to 3.7 percent for the wealth of sub-millionaires. Naturally they are overjoyed at this latest redistribution.
“Wealth” meaning what? Like most people and as also with the symbol “capital”, they use “wealth” to stand for two different things, and also like most people, economists especially, they often lose track of which referent they are trying to talk about. But we can overlook that here because the 19.7 percent and 3.7 percent refer to financial wealth and, with exceptions, that is all plutonomists and their agents really care about.
The report documents how the upward redistribution of wealth to the 0.1 percent and especially to the 0.01 percent is accelerating, in other words, how the plutonomist programme (pre-Piketty it was never reported by mass media) is now restructuring the world at an even faster rate. Here is a taster of how they see the next five years. Read more…
from Edward Fullbrook
Plutonomists, like real-world economists, know that the main determinant of income and wealth distribution is the legal framework in which an economy functions. The Plutonomy Movement, by far the most powerful political force of our age, is founded on the underground application of this basic principle. Occasionally this becomes manifest when one of plutonomy’s strategic documents is leaked. Such an event happened last week when the Bank of American Merrill Lynch report “Piketty and Plutonomy: The revenge of inequality” found its way into non-plutonomist hands. In addition to posts on this blog, there was coverage in the Chinese and the Australian press and Brad Delong posted an excerpt from the report including three graphs. Here is another excerpt, very brief, and number 42 of the report’s 45 figures. Red indicates “regulatory legislation” and green “deregulatory legislation”. Read more…
from Edward Fullbrook
Bank of America Merrill Lynch has released a report titled “Piketty and Plutonomy: the Revenge of Inequality”. Here is a bit about it from the South China Morning Post.
It is interesting but not wholly surprising to see that Hong Kong has topped another index which it may not be so proud of. It leads the rankings of an analysis which shows the wealth of the uber-rich as a proportion of an economy’s gross domestic product. According to a Bank of America Merrill Lynch report, the net worth of Hong Kong’s billionaires in 2013 represented 76.4 per cent of the city’s gross domestic product.
Sweden’s billionaires were a distant second accounting for 20.7 per cent of GDP. Next was Russia with 20.1 per cent, Malaysia 18 per cent, Israel 18 per cent, Philippines 16.5 per cent and Singapore 16.3 per cent. US billionaires accounted for 13.8 per cent of GDP, Britain’s 6.2 per cent, China’s 3.5 per cent and Japan’s 1.9 per cent.
The report, titled Piketty and Plutonomy: the Revenge of Inequality, examined Thomas Piketty’s highly successful tome, Capital in the Twenty-First Century. Analysis of plutonomy – where economic growth is powered by and largely consumed by the wealthy few – is critical, the authors say, for understanding the complexities of today’s markets, as they go on to enumerate 10 implications of plutonomy for investors.
Piketty projects that the global private wealth to national income ratio will rise from 440 per cent in 2010 to record highs of 500 per cent by 2030, levels that were last seen in 1910. Hong Kong is also highly placed in terms of income inequality when ranked in terms of relative Gini coefficient levels. Hong Kong is third after Colombia and Brazil. One of the report’s conclusions is that unless there is policy intervention, in the longer term “emerging markets are likely to become entrenched and egregious plutonomies”.
more on Bank of America’s plutonomy report soon
from Edward Fullbrook
This appeared on my screen last night.
The Plutonomist Manifesto
- Because democracy is our worst enemy, we must work to convert every democracy in the world to a fake democracy.
- We, The One-percent, achieve these conversions of the system of government through three forms of targeted ownership.
a. Owning mass media, the internet and the Web.
b. Owning all major political parties. We achieve this ownership by making the electoral process extremely expensive, thereby making election dependent on our financial support.
c. Owning economists. In today’s world the economics profession determines what the electorate sees and does not see regarding the economy. Therefore it is imperative that we control it. We achieve this by maintaining remunerative revolving doors, by financing think tanks and university economics departments, by funding Trojan Horse organizations to co-opt non-One-percent economists, and by our Nobel Prize.
- In countries with real democratic traditions, plutonomy revolutions are achievable only by using Trojan Horse Methods (THMs). Subversion rather than violence or open campaigning is our means of conquest.
- The use of THMs means that sometimes we must be seen to give support to our opponents.
- We must be vigilant against leakages (for example, the Citigroup documents) of the existence of our program.
- When approached always give lip-service in support of democracy.
- The middleclass is both our means to success and our ultimate obstacle. It is they, not the poor, who have what we want. Hence the necessity of THMs.
- Ridicule all suggestions of our existence as the work of conspiracy theorists, and label people who support middleclass interests over ours as “leftists”.
- Channel funds to the emerging neo-fascists parties in the US and EU countries because their shenanigans camouflage our redistributions.
- We must work to expand and refine our armoury of redistribution mechanisms.
- The success we have had in the USA and the UK in redistributing middle-class income and wealth to ourselves must now in the next 15 years be duplicated across Western Europe, most especially in France and Germany.
- Our goal of receiving forty percent of income and owning 80 percent of wealth is achievable in most countries of the world my mid-century.
REDISTRIBUTION – REDISTRIBUTION – REDISTRIBUTION
from Edward Fullbrook
We economists use the sign “capital” to designate two fundamentally different but related things, rather as “Thomas” may be the name of both father and son. The latter type of double reference, for various reasons, does not generally cause serious problems. But the double and sometimes triple use of the sign “capital”, and often in the same paragraph, has caused centuries of confusion for the economics profession and now at escalating cost to humanity. In my mind I try always to use “capital-1” for physical capital and “capital-2” for market-values of capital-1. But when reading and the two semiotic objects are signified by the same sign on the same page, this, for me at least, is not easy.
Thomas Piketty has written an important book, and now James Galbraith has rendered it an important service. Piketty’s Capital, left to its own devices, continues economics costly tradition of conflating “capital-1” and “capital-2”. But Galbraith’s review essay in Dissent comes to the rescue. Here are a few quotes. Read more…
An international student call for pluralism in economics
It is not only the world economy that is in crisis. The teaching of economics is in crisis too, and this crisis has consequences far beyond the university walls. What is taught shapes the minds of the next generation of policymakers, and therefore shapes the societies we live in. We, 42 associations of economics students from 19 different countries, believe it is time to reconsider the way economics is taught. We are dissatisfied with the dramatic narrowing of the curriculum that has taken place over the last couple of decades. This lack of intellectual diversity does not only restrain education and research. It limits our ability to contend with the multidimensional challenges of the 21st century – from financial stability, to food security and climate change. The real world should be brought back into the classroom, as well as debate and a pluralism of theories and methods. This will help renew the discipline and ultimately create a space in which solutions to society’s problems can be generated.
United across borders, we call for a change of course. We do not claim to have the perfect answer, but we have no doubt that economics students will profit from exposure to different perspectives and ideas. Pluralism could not only help to fertilize teaching and research and reinvigorate the discipline. Rather, pluralism carries the promise to bring economics back into the service of society. Three forms of pluralism must be at the core of curricula: theoretical, methodological and interdisciplinary.
from Edward Fullbrook
Now Paul Krugman has gotten into the Piketty act. The just published issue of the New York Review of Books features a long review essay by Krugman (it’s open-access) on Capital in the Twenty-First Century. Here is how it begins.
Thomas Piketty, professor at the Paris School of Economics, isn’t a household name, although that may change with the English-language publication of his magnificent, sweeping meditation on inequality, Capital in the Twenty-First Century. Yet his influence runs deep. It has become a commonplace to say that we are living in a second Gilded Age—or, as Piketty likes to put it, a second Belle Époque—defined by the incredible rise of the “one percent.” But it has only become a commonplace thanks to Piketty’s work. In particular, he and a few colleagues (notably Anthony Atkinson at Oxford and Emmanuel Saez at Berkeley) have pioneered statistical techniques that make it possible to track the concentration of income and wealth deep into the past—back to the early twentieth century for America and Britain, and all the way to the late eighteenth century for France.
from Edward Fullbrook
Merijn is ahead of me as I have only just ordered Thomas Piketty’s Capital in the Twenty-First Century. The book is receiving masses of favorable media attention in the West, including from The New Yorker, the Financial Times, the Economist and The Observer where yesterday Piketty and his book occupied the cover of the newspaper’s review section. This attention is surprising given the book’s central message (one often expressed on this blog), that capitalism has now failed the world and that inequality is now accelerating at a very dangerous pace and that the rule of the ultra-rich over the everyone else is a form of gangsterism. The Observer’s feature writer went to the École d’économie de Paris to interview Piketty, and here are a couple of quotes.
from Edward Fullbrook
An invitation to speak at next year’s ASSA annual conference in Boston has reminded me of attending the same event in Boston twenty years ago and of a short article I wrote about it (“No Reality, Please. We’re Economists”, The Times Higher Education Supplement, March 25, 1994). The observations I made then seem no less pertinent today. Here is a draft of that article.
The American Dream and the Boston Economics Party
When at this year’s American Economic Association meetings a speaker used the word conscience, embarrassment fluttered through the hall. “The c-word” is taboo among economists. Its effect on our notion of “rationality”, which admits only isolated self-interest, is like a lighted match in a gas tank.
The unfortunate speaker (he was later publicly admonished for his impropriety) was one of 7200 economists from over 50 countries gathered in Boston for a three-day bash of reading and listening to learned papers. Astonishingly, this global event for “the queen of the social sciences”, addressed scarcely a word to the world’s mounting economic ills. Read more…
From Edward Fullbrook
Asad Zaman has just published an illuminating paper related both to Bryant Chen and Judea Pearl’s recent RWER paper “Regression and causation: a critical examination of econometrics textbooks” and to topics frequently discussed on this blog. Titled “Methodological Mistakes and Econometric Consequences”, Zaman’s paper appears in the current issue of the International Econometric Review. Here is an open-access link to the paper and below is its introduction.
The rise and fall of logical positivism is the most spectacular philosophical story of the twentieth century. Rising to prominence in the second quarter of the twentieth century, it swept away all contenders, and became widely accepted throughout the academia. Logical positivism provided a particular understanding of the nature of knowledge, as well as that of science and of scientific methodology. The foundations of the social sciences were re-formulated in the light of this new understanding of what science is. Later on, it became clear that the central tenets of the positivist philosophy were wrong. Logical positivism had a “spectacular crash,” and there was some dispute about who had “killed” logical positivism1. As a logical consequence, it became necessary to re-examine the foundations of the social science, and to find new bases on which to re-construct them. This has occurred to differing degrees in different disciplines. One of the most recalcitrant has been economics. As discussed in Zaman (2011), the foundations of economics continue to be based on erroneous logical positivist ideas, and hence require radical revisions. Read more…
from Edward Fullbrook
In the run-up to the annual Davos get-together of the world’s hyper-rich and their most-favoured agents, OXFAM has issued a report titled “Working For The Few”. Commenting on it, today’s Guardian notes that
. . . if they fancied a change of scene then the richest 85 people on the globe – who between them control as much wealth as the poorest half of the global population put together – could squeeze onto a single double-decker.
The OXFAM report emphasizes how democracies round the world are increasingly under threat due their subversion by the ultra-rich. Here is a key passage from the report. Read more…
from Edward Fullbrook
The case for Lawson’s significance that I argued five years ago and appears below seems to me even truer today.
Tony Lawson has become a major figure of intellectual controversy on the back of juxtaposing two relatively simple and seemingly innocuous ideas. In two books and over fifty papers he has argued:
- that success in science depends on finding and using methods, including modes of reasoning, appropriate to the nature of the phenomena being studied, and
- that there are important differences between the nature of the objects of study of natural sciences and those of social science.
Taken together, these two ideas lead to the conclusion that the methods found to be successful in natural sciences are generally not the ones that should be used in social science.
By relentlessly focusing on this pair of ideas, Lawson has in a short space of time changed one of economics’ key conversations. His chapter, “A Realist Theory for Economics”, published in Roger Backhouse’s 1994 landmark collection New Directions in Economics Methodology, stands out like someone standing alone at a party. As recently as then the ideas of three thinkers, none of them economists, none social scientists and all of them dead, dominated economics’ literature on methodology. The index of Backhouse’s wonderful book powerfully illustrates this. It lists 47 pages that refer to Thomas Kuhn, 69 to Karl Popper and 73 to Imre Lakatos. Twelve of the book’s sixteen chapters (excluding Lawson’s) refer to one or more of the three and eight, as well as the back cover, to all three. Lawson does not refer to any of them. More significant, Lawson’s key reference point is ontology, a word that, except in the Introduction when Backhouse is introducing his collection’s odd man out, appears in none of the other chapters. Notably, when Lawson first uses “ontology” he feels it necessary, despite his highly specialized audience, to explain what the word means: “enquiry into the nature of being, of what exists, including the nature of the objects of study.” [Lawson 1994, p. 257]
Thirteen years later and anyone in economics who knows anything about methodology knows what “ontology” means. Read more…
from Edward Fullbrook
Last year at a cocktail party at an IDEAs’s conference in India I was introduced to the recently retired editor of a leading Indian newspaper. When he asked me what newspapers I read regularly and I answered the Guardian and the Observer, he replied that his favourite columnist in the whole world wrote for those papers. I said so also does mine. Inevitably we warmed to each other when our number-ones turned out to be the same: John Naughton.
What is especially odd about this – the editor’s background was also economics – is that Naughton’s one and only topic is IT. But I have finally found a way to justify plugging him on this economics blog. Here is his column from yesterday’s Observer.
What’s Twitter’s real value? Don’t ask an economist.A national economy is an unimaginably complex system. And yet we compress all its complexity into a single measure, and then focus obsessively on that. If you want a metaphor for this, think of King Kong spending most of his time staring at a pinhead, worrying about whether it is moving or not. That pinhead is GDP or, to give it its full moniker, gross domestic product. Read more…
Yesterday in the New York Times‘ “Business Day” section there appeared a long article titled “The Time Bernanke Got It Wrong“. It compares Ben Bernanke’s level of professional competence at understanding financialized economies to Steve Keen’s. Here is an excerpt.
One economist who would have expected that development was Hyman Minsky. In 1995, the year before Minsky died, Steve Keen, an Australian economist, used his ideas to set forth a possibility that now seems prescient. It was published in The Journal of Post Keynesian Economics.
He suggested that lending standards would be gradually reduced, and asset prices would rise, as confidence grew that “the future is assured, and therefore that most investments will succeed.” Eventually, the income-earning ability of an asset would seem less important than the expected capital gains. Buyers would pay high prices and finance their purchases with ever-rising amounts of debt.
When something went wrong, an immediate need for liquidity would cause financiers to try to sell assets immediately. “The asset market becomes flooded,” Mr. Keen wrote, “and the euphoria becomes a panic, the boom becomes a slump.” Minsky argued that could end without disaster, if inflation bailed everyone out. But if it happened in a period of low inflation, it could feed upon itself and lead to depression.
“The chaotic dynamics explored in this paper,” Mr. Keen concluded, “should warn us against accepting a period of relative tranquillity in a capitalist economy as anything other than a lull before the storm.”
When I talked to Mr. Keen this week, Read more…
from Edward Fullbrook
Frederic S. Lee, Xuan Pham, and Gyun Gu have published a paper in the Cambridge Journal of Economics that connects well with the recent post Doctor X, “pure shit” and the Royal Society’s motto. Regrettably the paper is behind a paywall, but below is a long press release for the new paper.
UK economics is becoming increasingly homogenised, and runs the risk of becoming “a purely quaint academic subject with no connection to the real world,” according to the authors of a new paper published in the Cambridge Journal of Economics today (Monday 8 July). Crucially, this homogenisation may mean that significant economic events that don’t conform to mainstream economic ideas may be missed. Read more…
Issue no. 64, 2 July 2013
You can download the whole issue as a pdf document by clicking here
In this issue:
Is it a bubble? download pdf 2
Steve Keen — A bubble so big we can’t even see it download pdf 3
Dean Baker – Are the bubbles back? download pdf 11
Ann Pettifor – The next crisis download pdf 15
Michael Hudson – From the bubble economy to . . . . . download pdf 21
Rethinking economics using complexity theory 23
Dirk Helbing and Alan Kirman download pdf
The fate of Keynesian faith in Joseph’s countercyclical moral 52
Douglas Grote download pdf
A constructive critique of the Levy sectoral financial balance approach 59
Brett Fiebiger download pdf
Capturing causality in economics and the limits of statistical inference 81
Lars Syll download pdf
Money as gold versus money as water 90
Thomas Colignatus download pdf
Constant returns to scale: Can the competitive economy exist 102
M. Shahid Alam download pdf
Reassessing the basis of corporate business performance 110
Robert Locke download pdf
Capitalism and the destruction of life on Earth 125
Richard Smith download pdf
Past contributors, submissions and etc. 152