Creating an Economics for the 21st Century

guest post from Rob Johnson

In the wake of the 2008 financial crisis, many of our policy makers and top economists are still stumbling in the dark.

One needn’t look far for proof. The symptoms of their failure are everywhere. Financial markets remain too volatile and crises too common. Inequality is raging and increasing around the globe. And environmental damage continues unabated, with rising climate volatility belying claims that we can experience sustained and broad based prosperity without major changes in the global economy.

A key part of this problem – and one that hasn’t been adequately explored – is the economics profession. 

Destroying the lair of the budget-balancing cretins

from Dean Baker

By now almost everyone knows of the famous Excel spreadsheet error by Harvard professors Carmen Reinhart and Ken Rogoff. It turns out that the main conclusions from their paper warning of the risks of high public sector debt were driven by miscalculations.

When the data are entered correctly, this hugely influential paper can no longer be used to argue that the United States or other wealthy countries need fear a large growth penalty by running deficits now. There is no obvious reason that governments can’t increase spending on infrastructure, research, education and other services that will both directly improve people’s lives and foster future growth.

With the advocates of austerity on the run this is a great time to pursue the attack. The public should understand that the often expressed concerns about long-term growth, the future, and the well-being of our children are simple fig-leafs for inhumane policies that deny people (a.k.a. the parents of our children) work and redistribute income upward.

Economic Thought: Special Issue on Ethics and Economics

Economic Thought - History, Philosophy, and Methodology
An open access, open peer review journal from the World Economics Association
Vol 2, No.1, 2013 – Special Issue on Ethics and Economics

Download issue in full (PDF)

Ontological   Commitments of Ethics and Economics Karey Harrison	Abstract	Download   PDF
Codes of Ethics   for Economists: A Pluralist View Sheila C Dow	Abstract	Download   PDF
No Ethical Issues   in Economics? Stuart Birks	Abstract	Download   PDF
Professional   Economic Ethics: Why Heterodox Economists Should Care George   DeMartino	Abstract	Download   PDF
And the Real   Butchers, Brewers and Bakers? Towards the Integration of Ethics and Economics Riccardo   Baldissone	Abstract	Download   PDF

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Error Correction and Ethics

from Peter Radford

You probably have missed it, but there is a major furor within the economics profession concerning the findings of an academic paper written by Carmen Reinhart and Kenneth Rogoff in 2010. The profession issues a torrent of papers annually, most of which remain scarcely read and massively under-appreciated. Probably deservedly so since the sole objective of most is to meet the check-box requirement of publication that dominates academia. This desperation to publish to build reputation and to demonstrate mastery of the subject to a determinedly self-referential peer group is one of the causes of the rapid decline within economics: it encourages ever more fragmentation of the subject into ever less relevant sub-disciplines, and has resulted in a near total elimination of a common understanding – or common memory – of its development.

It has also produced sloppiness.

The R-R paper has now become a cause-celebre of such sloppiness.

This would not normally be worthy of passing along to a broader audience – who cares what academic economists write after all? – were it not for the particular topic that R-R covered. 

Standard & Poor’s

from Peter Radford

It is good news that Standard & Poor’s is being sued by the government. S&P was complicit in the market rigging that led us to the bubble and the destruction of a boatload of wealth. It has escaped, thus far, any serious damage from its involvement in the creation of crisis and deserves to be taken down a peg or two. The amount of damages being sought is roughly equivalent to one year’s income of S&P’s parent company McGraw-Hill. That’s not enough to put the company out of business, but it is noticeable.

Anyone who is committed to a free market system will applaud the suit. Market rigging is about as serious a problem as can be imagined in a free market.

Wall Street speculation tax: a way to address corruption

from Dean Baker

Over the past week, the business news has been filled with stories about major British banks manipulating the LIBOR rate. While these stories are undoubtedly confusing to most of the public, which is not generally familiar with the intricacies of different interest rate indexes, the basic story is fairly simple: Big banks were caught lying about interest rates in order to make big profits.

For the most part the victims were other high-rollers who were taking the other side of bets on complex financial derivatives. However there were also pension funds and even governmental units such as school districts and park services that were persuaded by their financial advisers to get into this high-stakes game. These folks were among those who lost because of the LIBOR liars.

A Fundamental Problem 

Bain Bashing – The Folly of Modern Business Theory

from Peter Radford

We are entering the season of Bain bashing. Rightly so too. Romney’s long association with Bain and its activities, and his reliance on his business experience as a primary quality for election as president, bring Bain into focus. Its way of doing business, and its view of the world now need scrutiny because of the Romney connection. But I would suggest, they need scrutiny anyway. For Bain is just another of the very many manifestations of the post Reagan style of capitalism that pervades our economy. So its beliefs, its methods, and its results stand as exemplars of that era. Since that era just produced an economic depression, a great gulf in incomes, inequality, and rampant banking errors we are justified at offering a critique. If we indict Bain, we indict Romney. So let the Bain bashing commence.

A Reply: Economics and Ethics

from Peter Radford

A correspondent of mine suggests we need to define both economics and ethics better if we are to resolve my ongoing angst with the state of the two combined.

This is true.

Ethics is, I think, well defined. The literature is full of notions of ethics and its evolution. Behavior that was once ethical is no longer so. Behavior that was once unethical is now acceptable. Clearly ethics is a relative and socially determined concept with changing views altering where its boundaries are. Currently there are behaviors falling outside those boundaries that economists seem blithely to continue to accept. This I attribute to the general out of date nature of the discipline. Remember that economics has successfully sealed itself off from reality, other disciplines, and society at larger for a while now. Instead it has taken on board its own vision of society, its own view of human nature, and its own calculus of how people interact. This allows it to have its own ethical standards separate from those being developed in the outside world.

Thus economists can genuinely argue that competitive pressures will reduce the incidence of unethical behavior. After all they invoke those pressures to resolve practically every other social problem, so why not ethics? Those of us less convinced by the ubiquity and efficacy of market forces would prefer to see a more interventionist element to ethics – a set of rules perhaps – to establish boundaries of behavior.

This is problem enough. More problematic is defining what economics is at all.

Pay-to-play economists

from David Ruccio

In an excerpt from his new book, Predator Nation, Charles H. Ferguson, the director of Inside Job, describes how “significant portions of American academia have deteriorated into ‘pay to play’ activities.”

Academics on industry payrolls are now so numerous and powerful that they can often prevent universities, professional associations, and academic journals from adopting or enforcing strong conflict-of-interest policies. They also have a chilling, even dominant, effect on several areas of academic research and policy analysis.

The sale of academic “expertise” for the purpose of influencing government policy, the courts, and public opinion is now a multibillion-dollar business. Academic, legal, regulatory, and policy consulting in economics, finance, and regulation is dominated by a half dozen consulting firms, several speakers’ bureaus, and various industry lobbying groups that maintain large networks of academics for hire specifically for the purpose of advocating industry interests in policy and regulatory debates.

He illustrates his argument with two examples, both economists: one a Republican (R. Glenn Hubbard), the other a Democrat (Larry Summers).

Libertarian Chaos

from Peter Radford

There’s not much to say. After all the brinkmanship and game playing over the debt limit last year, and after being ridiculed by pretty much everyone, the Republicans are back at it. In an election year and with last year’s plunge in the polls as evidence that voters just don’t agree with their tactics.

What am I missing?

Apparently nothing.

The Republican extremist caucus in the House is setting its eyes on another confrontation with Obama over the debt ceiling. They want another deal. This after reneging on the last deal only a few days ago.

Are they kidding?

No they’re just extremists.

Academic Spring: phase two

from Edward Fullbrook

In case you have not been watching this Spring’s coming, since the spectacular Harvard development of two weeks ago, another large tree, the UK government, has bloomed.  Its Minister of State for Universities and Science announced last week that beginning in the near future all UK publicly funded academic research will be available on the Web free of charge to anyone anywhere in the world.  This is not a politician’s pipe dream; Jimmy Wales, the co-founder of Wikipedia, has already been hired to set it up. 

In effect, the right-of-centre government minister said enough is enough, that this is a business model too odious to be tolerated.  No longer will The Big Five (Elsevier, Wiley, Springer, Sage and Francis and Taylor) be allowed to stop society from freely accessing research funded by the UK taxpayer. 

What, when combined with Harvard’s, are the implications of this new initiative?   Six points come to mind.

Harvard University urges faculty members not to publish in or serve paywall journals

from Edward Fullbrook

7 May, Academic Spring: phase two

The world campaign to stop the annual siphoning of billions of dollars of taxpayer and charitable funds from research and education into the coffers of Elsevier, Springer and Wiley reached a major threshold yesterday.      

A memo from Harvard‘s faculty advisory council to the university’s 2,100 teaching and research staff called upon them for immediate action.  It listed the following points: 

WEA conference “Economics in Society: The Ethical Dimension” has begun (list of papers)

from Edward Fullbrook

The World Economics Association’s first online conference “Economics in Society: The Ethical Dimension” begins today. The first batch of papers has been posted, and discussion on them is now open.  The conference will run for one month, with its 24 papers being released in groups over the first week.  

If you go to the conference site and register by leaving your email address, you will be notified each time a new group of papers is posted and opened for discussion.  Similarly, you may sign up to be notified each time a new comment appears on a particular paper or group of papers.  And of course you are encouraged to participate in what is an important and long overdue public discussion.

The conference organizers Peter Radford, Alan Freeman and Grazia Iletto-Gillies have assembled the papers from contributors from around the globe.  The conference is designed to encourage economists to reconnect with the ever-present ethical dimensions of economics ignored and forgotten until today by the economics establishment.  Among other issues, the conference will address the ethical questions concerning the causal role played by the economics profession in the Financial Crisis and ethical dimensions regarding North-South economic relations.      

The group of papers posted today is as follows:

Economists: A Profession at Sea

from Edward Fullbrook

This week’s Time magazine, of all places, has a splendid hard-hitting longish article by Robert Johnson (Institute for New Economic Thinking).  It includes an acknowledgement that a prestigious segment of the profession has been financially corrupted.  Here is some of the article followed by a link to the remainder.

How to keep economists from missing the next financial crisis.

By Robert Johnson

After the financial crisis of 2008, the Queen of England asked economists, “Why did no one see the credit crunch coming?” Three years later, a group of Harvard under­graduate students walked out of introductory economics and wrote, “Today, we are walking out of your class, ­Economics 101, in order to express our discontent with the bias inherent in this introductory economics course. We are deeply concerned about the way that this bias affects students, the University, and our greater society.”

What has happened? Rebellion from both above and below suggests that economists, who were recently at the core of power and social leadership in our society, are no longer trusted. Not long ago, the principal theories of economics appeared to be the secular religion of society. Today, economics is a discipline in disrepute.

World Economics Association – Two announcements

The WEA’s forum for the open review of proposed articles for the World Economics Journal and for Economic Thought is now open. It is located at http://discussion.worldeconomicsassociation.org/. 19 submissions have been posted so far. You are encouraged to read and comment on papers that interest you.

The WEA’s first online conference – “ Economics in Society: The Ethical Dimension ” – is now set to begin on March 1st. The cut-off date for submissions (a wide diversity of papers has already been received) is February 19th. For details, go to http://weaethicsconference.wordpress.com/. Leave your email address and you will be kept informed.

“The deafening silence” of economics journals

Here is a Google translation of a French article that appears today at  http://www.snesup.fr/Presse-et-documentation?aid=5960&ptid=5 , Syndicat national de l’enseignement supérieur.

Economists deaf, dumb magazines?

If journals have little interest in the crisis, it is basically because the rating system encourages faculty members to focus on abstraction. 

Australian Government Agency Admits Ban on Heterodox Economic Analysis

from Peter Earl

In some of the first posts on this blog I reported on  how Australia’s Commonwealth Scientific Research Organization (CSIRO) was attempting to censor and ban from publication Clive Spash’s peer-reviewed paper ‘The Brave New World of Carbon Trading”. Though Spash eventually resigned from CSIRO and the paper was published in New Political Economy in 2010 (vol. 15, no. 2), CSIRO’s attitude towards dissenting views has recently become even clearer and more disturbing.

CSIRO, a government funded public research agency that employs about 6,500 people, was required to answer a series of questions

Technocrats, Ethics, and Radical Economics

from Peter Radford

Right at this moment the lives of hundreds of millions of people, or at least their immediate economic prospects, are in the hands of a narrowing number of technocrats and politicians. That the technocrats have been given control in two Euro Zone countries is an affront to democracy. That the technocrats are, by and large, economists, does not bode well.

Punishment and reward in economics

from David Ruccio

The discipline of economics has an extraordinary system of punishments and rewards, which is regulated by a combination of external surveillance and internal monitoring.

Some mainstream economists (like Alan S. Blinder and David Card [ht: sg]) are severely punished for stepping just a bit out of line, like arguing that some jobs will be lost as a result of external trade or that minimum jobs do not cause unemployment.

An open letter to Greg Mankiw

The following letter was sent to Greg Mankiw by the organizers of yesterday’s  Economics 10 walkout by students at Harvard

Wednesday November 2, 2011

Dear Professor Mankiw—

Today, we are walking out of your class, Economics 10, in order to express our discontent with the bias inherent in this introductory economics course. We are deeply concerned about the way that this bias affects students, the University, and our greater society.