Neoliberalism’s conception of economic reality as . . .

December 3, 2021 Leave a comment

from Lukas Bäuerle and PNLE

The most powerful and at the same time dangerous aspect of neoliberal thought is its conception of economic reality as governed by a separate sphere of absolute truths. In aligning with a long-standing tradition of perennial philosophies (lat. perennis: constant, lasting), neoliberalism has set out to reconfigure our world according to an image that was dead from the very outset. The myth neoliberalism is operating on philosophically is the idea of a world of hidden truths and principles behind the ambiguous and chaotic phenomena we are experiencing in daily life. There is a logic behind the chaos, reigning independently of time and space. This proposition is not just “talk” – it is a deep-seated ontological frame of contemporary economic thought that has found its way into the discipline’s textbooks and, hence, has to be learnt by millions of students around the globe semester after semester (i.e. in Mankiw, 2021, 2ff.). “Stop engaging with reality and start thinking about economic laws working behind the curtains” is what students face but a lot of them intuitively reject (Pühringer and Bäuerle, 2019).

The power of neoliberal thought, then, lies with conquering the public imagination through institutionalized impact and installing the fixed imagery of a narrowly interpreted “Market Mechanism” working miraculously backstage in the theatre of social reality. 

Post-Neoliberal Economics by [Edward  Fullbrook, Jamie Morgan]

Amazon is not identical with your corner shop.

December 2, 2021 2 comments

from Gerald Holtham (originally a comment)

Radford’s points are true but the microfoundations movement in macroeconomics is guilty of greater intellectual crimes than merely attempted reductionism. It is not as if the foundations are built on extensive empirical study of the decision-making elements in an economy. We have a representative consumer who behaves according to the axioms of rational choice under conditions of certainty equivalence. Similarly there is a representative firm modelled in the same way. So we start with illegitimate aggregates, illegitimate because the behavioural reaction functions are not strictly linear so the aggregate would behave like an individual only if all individuals were identical. Spoiler alert: Elon Musk is not absolutely identical with the homeless guy in the doorway. Amazon is not identical with your corner shop. Moreover, there is no empirical basis for the supposed individual behaviour anyway, since empirical work from the Allais paradox on has often found the axioms of choice are violated in the case of the consumer.. And companies do not generally have a set of well defined strategies before them and know the consequences of each at least probabilistically. People do not operate under conditions of certainty equivalence and how they actually deal with uncertainty is not considered or explored. These are not microfoundations. They are not really micro and are themselves without any empirical foundation. Yet every macroeconomist who produces a theory or proposition is encouraged to jump through the pointless hoops of showing it is consistent with optimisation by non-existent representative agents. I wonder if there has ever been a greater distortion of a serious discipline. Read more…

Mainstream economics — a harmful fantasy

December 1, 2021 11 comments

from Lars Syll

The New Economics: A Manifesto: Keen, Steve: 9781509545285: Public Policy: Amazon CanadaAnyone who accepts the Neoclassical definition of ‘rational’ has, to some significant degree, lost touch with reality. So, I was expecting an ‘irrational’ reaction from this young zealot to my talk …

He tried to engage me in further debate after the session, and shouted ‘But we have to make some simplifying assumptions!’ at me as I left the seminar room. My riposte, cast over my receding shoulder, was ‘Mate, you have to learn the difference between a simplifying assumption and a fantasy’.

Many mainstream economists working in the field of economic theory think that their task is to give us analytical truths. That is great — from a mathematical and formal logical point of view. In science, however, it is rather uninteresting and totally uninformative! The framework of the analysis is too narrow. Even if economic theory gives us ‘logical’ truths, that is not what we are looking for as scientists. We are interested in finding truths that give us new information and knowledge of the world in which we live. Read more…

More is different: a redux

December 1, 2021 12 comments

from Peter Radford

“Formation is the vanishing of being into nothing, and the vanishing of nothing into being”

Hegel loved his dialectics.  But it isn’t just contrasts that illuminate reality.  It is connections also. Connections matter.  Single things are interesting.  Perhaps even intriguing.  But it is the way in which things connect that leads us to the better understanding of our surroundings and of ourselves.

Our modern world rests largely on a web of technology that mediates our existence and removes us from our primitive origins.  We pride ourselves on this web.  Our ability to render nature compliant and exploit both our context and our intellect to produce comfortable lifestyles is the essence of modernity.  Any brief study of the past two hundred years will astonish us at the gulf in everyday existence between now and then.  We really do seem to have broken the Malthusian grip that nature held us within for so long.

A great part of that ability to break free consists in our imposition of reasoning on the problems previously preventing us from escape.  We learned to abstract.  We learned practical problem solving.  We learned both to reduce problems to solvable sizes and then to reconstitute solutions from those now-known component parts.  We created, to borrow from Brian Arthur, a reliance on modularity: we learned to build technologies from various parts.  And each part itself was itself modular.  The implied reductionism in this prompted the illusion that the method for superior knowledge was always through breaking things apart and re-assembling them once we knew what each part did.  

Economics took heed of this method and ran with it as if the economy was a technology comprised of parts easily assembled back into a whole.  Economics is justifiably proud of its internal logic.  But is it something that matches reality well? Read more…

New WEA book

November 30, 2021 Leave a comment

Kindle $8.00
US UK DE FR ES IT NL JP BR CA MX AU IN

Paperback $22.00
US UK DE FR ES IT JP CA


Contributors:
 Richard Parker, Richard B. Norgaard, James K. Galbraith, Lukas Bäuerle, William E. Rees, Jayati Ghosh, Richard C. Koo, Neva Goodwin, Max Koch, Jayeon Lindellee, Johanna Alkan Olsson, Katharine N. Farrell, John Komlos, Clive L. Spash, Adrien O.T. Guisan, Andri W. Stahel, Jamie Morgan, Edward Fullbrook

 

If you feel that there is nothing new or liberal about neoliberal economics, and that neoliberal economics is to understanding capitalism what astrology is to understanding the Cosmos, read this book!   Yanis Varoufakis

In fighting COVID-19, intellectual property, not antitrust, is the real problem

November 30, 2021 1 comment

from Dean Baker

Former New York Times reporter Donald McNeil had an interesting Medium piece on how antitrust law could be impeding the development of effective treatments for COVID-19. McNeil argued that COVID-19 treatments that were developed by Pfizer and Merck, and are now in the final stages of testing, may work best when taken together.

He argues that this may be the case because the drugs use two fundamentally different mechanisms for attacking the virus. By using the two in combination, we would be maximizing the likelihood that at least one would be effective. This has been the approach followed with effective H.I.V. drugs, as well as Hepatitis C treatments.

McNeil argues that the reason combinations are not pursued is because of antitrust laws. If, instead of competing with their different drugs, two giant drug manufacturers, like Pfizer and Merck, were to collaborate to produce the best possible treatment for COVID-19, they would be risking an antitrust action from the government or competing drug companies. McNeil recommends waiving antitrust rules when lifesaving medications are involved.

While that would clearly be desirable in this case, it is worth stepping back a minute. Let’s imagine Read more…

Rational expectations — the triumph of ideology over science

November 29, 2021 7 comments

from Lars Syll

Senate Banking Subcommittee On Financial Institutions Hearing With Stiglitz For more than 20 years, economists were enthralled by so-called “rational expectations” models which assumed that all participants have the same (if not perfect) information and act perfectly rationally, that markets are perfectly efficient, that unemployment never exists (except when caused by greedy unions or government minimum wages), and where there is never any credit rationing.

That such models prevailed, especially in America’s graduate schools, despite evidence to the contrary, bears testimony to a triumph of ideology over science. Unfortunately, students of these graduate programmes now act as policymakers in many countries, and are trying to implement programmes based on the ideas that have come to be called market fundamentalism … Good science recognises its limitations, but the prophets of rational expectations have usually shown no such modesty.

Joseph Stiglitz 

Read more…

A golden age of macro economic statistics 3. Informal and precarious labor.

November 28, 2021 Leave a comment

In September 2021, a Dutch judge decided, in a case of the FNV Union against Uber, that Uber drivers are employees, not dependent or independent contractors. Meaning, on the micro level, that these employees in one stroke were entitled to more money, more protection and more rights. In the macro-conceptual framework of the International Labour Organization (ILO) this means that they shifted from a somewhat informal status to a formal status (see below). While it shows up, in the conceptual framework of the economist Guy Standing, as a shift from the ‘precariat’ towards the ‘salariat’:

the old salaried class has splintered into two groups: the salariat, with strong employment security and an array of non-wage forms of remuneration, and a small but rapidly growing group of proficians. The latter, which includes small-scale businesses, consists of workers who are project-oriented, entrepreneurial, multi-skilled, and likely to suffer from burn-out sooner or later. Traditionally, the next income group down has been the proletariat, but old notions of a mass working class are out-dated, since there is no common situation among workers. The earlier norm of this diminishing male-dominated class was a lifetime of stable full-time labor, in which a range of entitlements called “labor rights” was built up alongside negotiated wages. As the proletariat shrinks, a new class is evolving—the precariat”.

Source: Standing, G. (2014) ‘The precariat’, Contexts 13-4, pp. 10-12.

Source: ILO (2021), Conceptual Framework for Statistics on the Informal Economy (Geneva) p.  48.

Read more…

The fatal flaw of mathematics

November 27, 2021 11 comments

from Lars Syll

Gödel’s incompleteness theorems raise important questions about the foundations of mathematics.

The most important concerns the question of how to select the specific systems of axioms that mathematics are supposed to be founded on. Gödel’s theorems irrevocably show that no matter what system is chosen, there will always have to be other axioms to prove previously unproved truths.

This, of course, ought to be of paramount interest for those mainstream economists who still adhere to the dream of constructing a deductive-axiomatic economics with analytic truths that do not require empirical verification. Since Gödel showed that any complex axiomatic system is undecidable and incomplete, any such deductive-axiomatic economics will always consist of some undecidable statements. When not even being able to fulfil the dream of a complete and consistent axiomatic foundation for mathematics, it’s totally incomprehensible that some people still think that could be achieved for economics. Read more…

Causality as child’s play

November 26, 2021 1 comment

from Asad Zaman

1      THE DILEMMA OF CAUSALITY

Tips for teaching your child to play nicely with others | Boys TownStudy of causality confronts us with a huge dilemma. Intense controversy has raged for centuries over this topic among the philosophers. At the same time, studies of child development show that infants learn about causal concepts almost from birth, and toddlers have a sophisticated approach to causality. How can causality be easily understood by babies, but remain confusing and complicated to the best philosophers for centuries? The difficulty is compounded by the fact that philosophical approaches serve as a basis for empirical data analysis in statistics and econometrics. Even though correct estimation of causal effects is essential for policy, widely used econometric textbooks are deeply defective in their approaches to causality.

Angrist and Pischke (2017) examine leading popular econometrics textbooks and conclude that these are based on an outmoded paradigm which ignores causality. They call for a pedagogical paradigm shift. Chen and Pearl (2013) also examine six leading econometrics textbooks and come to the same conclusion: these textbooks fail to explain central causal concepts with any degree of clarity. Even though Angrist and Pischke agree with Chen and Pearl on the diagnosis, the two sets of authors offer radically different remedies. Since the 1990’s Pearl and his group have been arguing for an approach based on Directed Acyclic Graphs (DAGs) as central to understanding causality. Angrist and Pischke (2008, 2013) have written two econometrics textbooks which exposit causality using a “Potential Outcomes” approach, and make no mention of DAGs. Thus, while everyone agrees that causality is very poorly handled in econometrics, there is no agreement about the solution to this problem. This has serious implications since philosophical controversies about causality ramify to the policy context involving real data and applications.  read more

The proliferation and efflorescence of indicators

November 26, 2021 Leave a comment

from Ken Zimmerman (originally a comment)

In the early 20th century the emergence of the United States as a global force unparalleled and nearly unrivaled in material might catapulted obscure economic indicators into central, abiding elements of national life. No “man on the street” would have given a thought to gross national product or national income in the 1920s or at any point before then, and not simply because that number didn’t exist. People wouldn’t have thought of their nation or their society or their own lives in terms of the collective material production of their country. And they would not have marked success or failure by a series of indicators.

That changed markedly after World War II, for two reasons. Though the basic contours of unemployment, GDP, and inflation were formed in the 1930s, not until after the war did they coalesce into simple, straightforward statistics that could be tracked, issued, and debated on a regular, ongoing basis. In essence, the numbers were invented in the 1930s but marketed only after 1945. And with a few leading indicators in hand, people went about doing what they always do: they invented more.

Marketing was crucial; without that, the numbers might have remained useful but obscure. The proliferation of indicators after the war was driven Read more…

Is there a “policy”?

November 25, 2021 Leave a comment

from Peter Radford

I read this morning that the Federal Reserve had bought, at the peak of the recent crisis, about 40% of all US government bonds being issued.

This may, to some of you, be something of no concern.

Think again

The illusion that there are separate spaces for monetary and fiscal policy is belied by this fact.  Which one was it?  Was it the Fed flooding the economy with money?  Or was it the government issuing debt to finance economic support? I suppose it was both.  But it wasn’t fiscal policy.  The effect of all that money was simply to support asset prices.  Whether that was the intention is irrelevant.  The flood found its way into the financial system and relatively little found its way into the economy in the form of an expansion of productive activity.  We could go further: a great deal of what expansion of capacity actually occurred went abroad to build fragile supply chains and take advantage of low wages in distant parts.

What also happened was that households sat on the portion of the flood that they received as a hedge against further economic mayhem.  And when, as now, they began to feel more confident they started to spend the money on goods rather than services.  Remember that the economy is heavily skewed towards consumption, and within that, towards services.  The problem with services is that they tend to be in-person.  And being in-person is something a lot of people are avoiding right now.  So they decided to switch and buy goods instead. Read more…

What killed macroeconomics?

November 25, 2021 12 comments

from Lars Syll

The COVID-19 pandemic impelled governments to fall back on “fiscal Keynesianism,” because there was no way that just increasing the quantity of money could lead to the reopening of businesses that were prevented by law from doing so. Fiscal Keynesianism in the big lockdown meant issuing Treasury payments to people prevented from working.risk vs uncertainty

But now that the economy has reopened, the practical rationale for monetary and fiscal expansion has disappeared. Mainstream financial commentators believe the economy will bounce back as if nothing had happened. After all, economies fall into foxholes no more often than individuals normally do. So, the time has come to tighten both monetary and fiscal policy, because continued expansion of either or both will lead only to a “surge in inflation.” We can all breathe a sigh of relief; the trauma is over, and normal life without unemployment will resume.

Monetary policy works in theory but not in practice; fiscal policy works in practice but not in theory. Fiscal Keynesianism is still a policy in search of a theory. Read more…

Consumer prices 1209-2020

November 24, 2021 1 comment

from Jonathan Nitzan and Shimshon Bichler

This long-term consumer price series shows that, after 1900, inflation changed in two important ways: Read more…

For nearly the last 45 years the US has taken the wrong road

November 23, 2021 6 comments

from Ken Zimmerman (originally a comment)

I shall be telling this with a sigh

Somewhere ages and ages hence:

Two roads diverged in a wood, and I—

I took the one less traveled by,

And that has made all the difference.

Robert Frost.

Frost’s poem is usually interpreted with a positive spin. I give it just the opposite interpretation here.

Commenting today on the world around us is difficult because for nearly the last 45 years the US has taken the wrong road. On the economic side the US has tried to force a brutal neoliberal agenda down the throat first of the world’s poorest nations, then the USSR after 1990, then the developed nations, and finally every non-wealthy American citizen. That effort increased world poverty, especially among children, even in the US, destroyed the US as a manufacturing nation, put the final nails in the coffin of the American middle-class and decimated American workers, deeply embittered three generations of Americans, and facilitated the rise of China as an economic, political, and military world power. Read more…

The sabotage of efficiency

November 23, 2021 3 comments

from Peter Radford

Sabotage.

Not the sort of sabotage we associate with plucky heroes undertaking dramatic action like blowing up railway lines and so on.

No, the sort of sabotage that is a great deal more subtle.  The kind that is summed up by the metaphorical boiled frog.  The slow devious and underhanded chipping away at something termite-like until the edifice is more fiction than fact.

That sort of sabotage.

The sort of sabotage that Thorstein Veblen wrote about a hundred years ago in his curious collection of papers later accumulated into the volume entitled “The Engineers and The Price System”.  I must admit that every time I read those papers I come away with a furrowed brow.  What on earth was Veblen getting at? Read more…

The real issue is what we mean by growth 

November 22, 2021 Leave a comment

from Gerald Holtham (originally a comment)

People have come to expect and hope that life will be better for their children than it was for them. That can be true of some people in upwardly mobile families in societies with social mobility. If material welfare is stable in such a society, however, upward mobility must be matched by downward mobility. Therein lies a difficulty; the rich and powerful will not readily accept such an outcome for their offspring. Economic growth is the solvent that dissolves this incipient social conflict. Everyone can share in increasing material affluence. It is common to blame capitalism and the system does exemplify the problem but it goes deeper. It will occur in any society, however organised, where people’s expectations are for improvements in life and where they do not accept their lot or social position passively. Religion used to preach acceptance: “the rich man in his castle, the poor man at his gate; God made them high and lowly and ordered their estate.” With the decline of religious faith that no longer washes.
Of course one theoretical solution is the reign of perfect fairness and a high degree of equality where people accept a stable no-growth economy. Good luck in turning that into a successful political programme.

So the real issue is what we mean by growth. Read more…

More than economists

November 22, 2021 3 comments

from Lars Syll

Veblen, Keynes, and Hirschman were more than economists because they practiced their economics from a standpoint outside the profession, using it to criticize not only the assumption of rational self-interest, but also the consequences of economists’ indifference to “preferences.” Veblen’s standpoint was explicitly religious; he was still of a believing generation. Keynes, too, was an ethicist. G.E. Moore’s Principia Ethica remained what he called his “religion under the surface.” Hirschman wanted a “moral social science” that would be continually sensitive to the ethical content of its analysis …

Prof. Lord Robert Skidelsky (C. 1953-58), OB of the Month, July 2012 - Old  Brightonians - The Alumni of Brighton CollegeThese three economists’ frequently mocking style was their way of establishing their distance from their profession. Their irony was not ornamental but actually shaped the substance of their arguments. This style limited their impact on economics, but made them highly influential outside it, because critics of economics sensed something transgressive about them.

Systematic thinkers close a subject, leaving their followers with “normal” science to fill up the learned journals. Fertile ones open up their disciplines to critical scrutiny, for which they rarely get credit.

Robert Skidelsky

Pixies and economic theory

November 21, 2021 2 comments

from Ken Zimmerman (originally a comment)

When I was 12 and my sister 5 she was convinced that pixies lived in our backyard and protected our house from the coyotes, raccoons, and bobcats that were a problem for city neighborhoods all over Texas due to the drought.  I tried to convince her otherwise but couldn’t.  I agreed to go with her every night before her bedtime to search for the pixies. Never found them and by the time my sister began the new school year she had forgotten about pixies. This is my way of saying human life and knowledge begins and moves on through experience. Despite her detailed description of the pixies she  and I could not experience them. Pixies, like economic theories can be beautiful and fascinating when those who believe in the tell us about them. But we can’t know a pixie till we can see, touch, and judge a pixie. So it is with economic theories. Till we can see and measure a theory operating in events and actions we can observe directly or indirectly, we can’t know it’s value or usefulness. Can people become so enamored of a theory or strongly want to believe it is right that they blindly accept it? Yes. Should they? No. This is a warning economists should particularly take to heart.

Weekend Read – Imagine if stopping climate change was more important than making climate change billionaires

November 20, 2021 2 comments

from Dean Baker

We are still getting through a worldwide pandemic that has taken tens of millions of lives. While we did develop effective vaccines, they were not produced and distributed quickly enough to prevent enormous loss of life. This is a tragedy that should force us to ask how we could have done better.

On the other side, some people did manage to get enormously rich from the pandemic. Specifically, those who had patent monopolies on the mRNA vaccines did very well, as the stock prices of both Pfizer and Moderna soared during the pandemic. Back in April, Forbes identified 40 people who became billionaires as a direct result of their ownership of stock in companies that were profiting off the pandemic. Three of these were from Moderna alone. The number has surely grown, as the stock market has gone up further in the last seven months.

The reason why the Moderna billionaires might be especially upsetting is that so much of what they did was with government funding. The development of mRNA technology, beginning in the early 1980s, was accomplished almost entirely on the government’s dime. While Moderna did do further research to develop a foundation for producing vaccines, the money to actually develop and test Moderna’s vaccine came entirely from the government through Operation Warp Speed. The government also signed a large advance purchase agreement, which would have required it to pay for several million Moderna vaccines, even if other vaccines were superior.

In spite of all this government assistance, Moderna was allowed to gain control over key patents and other intellectual property claims. It can therefore restrict the distribution of its vaccine and charge whatever price it chooses.

In short, we structured the relationship with Moderna so that it was able to profit enormously. Read more…

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