The values of a market society

February 21, 2020 Leave a comment

from Asad Zaman

Continued from previous post on Subjectivity Concealed in Index Numbers. Because modern epistemology rejects values as being just opinions, and only accepts facts as knowledge, values have be to disguised in the shape of facts. What better way to do this than by embodying them in cold hard and indisputable numbers? This post discussed how the GDP embodies the values of a market society.

From the sixteenth to the eighteenth century, the values of European societies were radically transformed by a complex combination of forces. Traditional social values, originating from Christianity, can be roughly summarized as follows:

  1. Community: All members are part of a common body, striving together for common goals.
  2. Social Responsibility: All members must take care of each other.
  3. Duties: Duty to society takes precedence over individual rights.

The transition to a market society led to a new creed, described by Tawney (1926) as: “The Industrial Revolution was merely the beginning of a revolution as extreme and radical as ever inflamed the minds of sectarians, but the new creed was utterly materialistic and believed that all human problems could be resolved given an unlimited amount of material commodities.” As Polanyi (1944) has explained, . . . read more

We need a ‘Fridays for Keynesianism’ movement!

February 20, 2020 4 comments

from Lars Syll

Basically, the classical model is a model for a corn economy: households decide whether to consume the corn or to save it. If it is saved it can be supplied to investors who sow the grains, repaying to the households one period later the credit amount plus interest.

keynes_vert-b496c6e9f20ef97ddbb4491927240bb38e458854-s800-c85In the Keynesian model the ‘funds’ exchanged on the capital market are made up of money—‘funds’ are bank deposits. Funds are not created here by a renunciation of consumption but by the banks granting credit …

In the classical model, there is a strict crowding out of private investors on the capital market by government deficits. The all-purpose good, which functions equally as ‘funds’ and as investment good, can only be used once.

In the Keynesian model, on the other hand, ‘funds’ (money) and investment goods are independent of each other. Therefore there is no crowding out on the capital market, if deficits are financed by banks or the central bank. This is the fundamental insight of Modern Monetary Theory … Read more…

Wealth has always been about power

February 20, 2020 4 comments

What has confused economists for centuries is that they’ve focused on what’s inside the fence of property rights, not the fence itself. And who can blame them? Historically, the things that were owned were easy to see. In contrast, the act of ownership — the institutional fence of private property — was abstract. And so economists tied wealth to property, not the property-rights fence.

The confusion dates back to the physiocrats. They saw agricultural land and proposed that it was the source of all value. The physiocrats couldn’t see that it was the landowner’s (institutional) fence that made him wealthy, not the land itself.

Then came the neoclassical economists. They saw capital (machines and factories) and proposed that it was a source of value. The neoclassical economists couldn’t see that it was the capitalist’s (institutional) fence that made him wealthy, not capital itself.

Then came the digital revolution. New companies emerged (like Facebook and Google) that owned nothing but algorithms. Wealth had suddenly become non-material. Or so it seemed to economists.

In reality, wealth had always been non-material — a social relation of exclusion. The digital revolution just laid this fact bare because it emptied out property, leaving only the fence of property rights. The digital revolution got rid of land. It got rid of physical capital. It got rid of all the physical things on which to pin wealth. All that was left (in digital tech firms) was the fence of property rights. And this fence was put up around the most non-material of things — ideas themselves.

Blair Fix

Subjectivity concealed in index numbers

February 19, 2020 Leave a comment

from Asad Zaman

This continues from the previous post on Lies, Damned Lies, and Statistics.


More than 1.5 million copies sold, more than all other textbooks of statistics combined. Online copy

The vast majority of our life experience is built upon knowledge which cannot be reduced to numbers and facts. Our hopes, dreams, struggles, sacrifices, what we live for, and what we are ready to die for – none of these things can be quantified. However, as we have discussed, logical positivists said that what cannot be observed by our senses cannot be part of a scientific theory. As a result of this false idea, later disproven by philosophers, the attempt was made to measure everything – numbers were assigned to intelligence, trust, integrity, corruption, preferences, etc. – even though a long-standing tradition, as well as common intuition, tells us that these things are qualitative, and not measurable.  read more

What is truth in economics?

February 18, 2020 42 comments

from Lars Syll

28mptoothfairy_jpg_1771152eIn my view, scientific theories are not to be considered ‘true’ or ‘false.’ In constructing such a theory, we are not trying to get at the truth, or even to approximate to it: rather, we are trying to organize our thoughts and observations in a useful manner.

Robert Aumann

What a handy view of science …

How reassuring for all of you who have always thought that believing in the tooth fairy make you understand what happens to kids’ teeth. Now a ‘Nobel prize’ winning economist tells you that if there are such things as tooth fairies or not doesn’t really matter. Scientific theories are not about what is true or false, but whether ‘they enable us to organize and understand our observations’!

What Aumann and other defenders of scientific storytelling ‘forgets’ is that potential explanatory power achieved in thought experimental models is not enough for attaining real explanations. Read more…

But more of what?

February 18, 2020 3 comments


      Source: Nitzan and Bichler, Capital as Power

In 2005, Microsoft’s market value was 2,583% greater than that of General Motors. Mainstream economists would say that Microsoft therefore had more property than GM. But more of what? Nitzan and Bichler point out that when we look under the hood of market value, there’s nothing ‘real’ to back it up. Microsoft, for instance, has only 18% as many employees as GM. And it owns only 3% as much equipment (in dollar terms).

Read more…

Lies, damned lies, and statistics

February 17, 2020 Leave a comment

from Asad Zaman


From Ancient Greece to the late 19th century, rhetoric played a central role in Western education in training orators, lawyers, counsellors, historians, statesmen, and poets. However the rise of empiricist and positivist thinking marginalized the role of rhetoric in 20th Century university education. Julie Reuben in “The Making of the Modern University: Intellectual Transformation and the Marginalization of Morality” writes about this change as follows:

“In the late nineteenth century intellectuals assumed that truth had spiritual, moral, and cognitive dimensions. By 1930, however, intellectuals had abandoned this broad conception of truth. They embraced, instead, a view of knowledge that drew a sharp distinction between “facts” and “values.” They associated cognitive truth with empirically verified knowledge and maintained that by this standard, moral values could not be validated as “true.” In the nomenclature of the twentieth century, only “science” constituted true knowledge.”   read more

Econometrics — a matter of BELIEF and FAITH

February 17, 2020 4 comments

from Lars Syll

economEverybody who takes regression analysis course, studies the assumptions of regression model. But nobody knows why, because after reading about the axioms, they are rarely mentioned. But the assumptions are important, because if any one assumption is wrong, the regression is not valid, and the interpretations can be completely wrong. In order to have a valid regression model, you must have right regressors, the right functional form, all the regressors must be exogenous, regression parameters should not change over time, regression residuals should be independent and have mean zero, and many other things as well. There are so many assumptions that it is impossible to test all of them. This means that interpreting a regression model is always a matter of FAITH – we must BELIEVE, without having any empirical evidence, that our model is the ONE TRUE VALID model. It is only under this assumption that our interpretations of regression models are valid … Read more…

Challenges of complexity economics

February 16, 2020 Leave a comment

from Joachim H. Spangenberg and Lia Polotzek and WEA Commentaries 

In recent WEA Commentaries, the issue of complexity theory and its implications for economics have rightfully gained some prominence. However, while the authors picked up some relevant points, the issue deserves a more comprehensive treatment in new economics, beyond mobilising some arguments to bolster ongoing debates. It should be recognised instead that complexity requires a different way of thinking, and of asking questions in economics. Only then the specific tools used in complexity research, unconventional as they are from a standard economics point of view, come into play. Thus we will briefly describe what we see as core elements of complexity, the corresponding world view, and the tools used.


Complexity economics is a genuine theoretical approach based on applying complexity analysis to the economic system; it requires a world view different from the one of neoclassical economics, moving from reductionist linear thinking to non-linear approaches of conceptualising the economy.  read more

We shouldn’t have to beg Mark Zuckerberg to respect democracy

February 15, 2020 11 comments

from Dean Baker

Last month George Soros had a New York Times column arguing that Mark Zuckerberg should not be running Facebook. (Does the NYT reserve space on its opinion page for billionaires?) The gist of Soros’ piece is that Zuckerberg has made a deal with Trump. He will allow all manner of outrageous lies to be spread on Facebook to benefit Trump’s re-election campaign. In exchange, Trump will defend Zuckerberg from efforts to regulate Facebook.

Soros is of course right. Zuckerberg has said that Facebook will not attempt to verify the accuracy of the political ads that it runs. This is a greenlight for any sleazebag to push the most outrageous claims that they want in order to further the election of their favored candidate.

This will almost certainly benefit Donald Trump’s re-election, since the one area where he can legitimately take credit is in pushing outlandish lies. No one has pushed more lies more effectively than Donald Trump. The free rein promised by Zuckerberg is a re-election campaign contribution of enormous value.

While Soros is right on the substance of the issue, he is wrong to focus on the personality of Mark Zuckerberg. It would be good if we had a responsible forward-thinking person, who cared about the future of democracy, running Facebook, but that is not the normal course of things in a capitalist economy. Read more…

The transnational corporation and economics

February 14, 2020 Leave a comment

from Grazia Ietto-Gillies and WEA Commentaries 

There is now a very large body of literature on theories of the transnational corporation (TNC) and the subject has reached a suitably mature stage to have a history of economic thought about it.2 The first theory of the ‘International Firm and its Operations’ was developed in 1960 by Steven Hymer, a Canadian student working for a doctorate under the supervision of Charles Kindleberger at the Massachusetts Institute of Technology. A British scholar at the University of Reading was, contemporaneously. researching the effects of American investment in the UK. John Dunning later developed his own very successful theory (1977 and 1979) and continue to do theoretical and applied research in the field till his death a few years ago. Many theories and studies have been developed on both sides of the Atlantic in the intervening decades, in particular the so-called ‘Internalization theory’ by Peter Buckley and Mark Casson (1976) also at the Reading University. The theory has recently been updated by Casson (2018).

The subject of ‘International Business’ is now well developed and most theories of the TNC are developed and taught in its multi disciplinary context. However, the study of TNCs has not been fully accepted within the academic economics profession – including the non-orthodox academics – and is . . .  read more

Econometrics and the Axiom of Omniscience

February 14, 2020 4 comments

from Lars Syll

Most work in econometrics and regression analysis is — still — made on the assumption that the researcher has a theoretical model that is ‘true.’ Based on this belief of having a correct specification for an econometric model or running a regression, one proceeds as if the only problem remaining to solve have to do with measurement and observation.

aWhen things sound to good to be true, they usually aren’t. And that goes for econometric wet dreams too. The snag is, of course, that there is pretty little to support the perfect specification assumption. Looking around in social science and economics we don’t find a single regression or econometric model that lives up to the standards set by the ‘true’ theoretical model — and there is pretty little that gives us reason to believe things will be different in the future. Read more…

Failure of Turing’s conjecture

February 13, 2020 1 comment

from Asad Zaman

Note that this is a very POSITIVIST idea —
if the surface appearances match, that is all that matters.


I quote a passage from Pearl: The Book of Why, which provides a gentle introduction to the newly developed field (largely by him) of causal inference via path diagrams:

In 1950, Alan Turing asked what it would mean for a computer to think like a human. He suggested a practical test, which he called “the imitation game,” but every AI researcher since then has called it the “Turing test.” For all practical purposes, a computer could be called a thinking machine if an ordinary human, communicating with the computer by typewriter, could not tell whether he was talking with a human or a computer. Turing was very confident that this was within the realm of feasibility. “I believe that in about fifty years’ time . . . . read more

Trade Wars: The economic and political theoretical implications and their impact on multilateralism – A Call for Papers

February 12, 2020 Leave a comment

new issue of WEA Commentaries

February 12, 2020 Leave a comment

WEA Commentaries

Volume 10, Issue 1  –    February 2020
download whole issue

Simpson’s Paradox 
          – Asad Zaman
How International Corporations Could Be Taxed and Why the US is Working to Prevent It
          – Norbert Häring
The Transnational Corporation and Economics 
          – Grazia Ietto- Gillies
Challenges of Complexity Economics
          – Joachim H. Spangenberg and Lia Polotzek
WEA Commentaries Appoints New Co-Editors
WEA contact details

Please click here to support the WEA

We can develop new drugs without patent monopolies # 54,217

February 12, 2020 5 comments

from Dean Baker

It is often said that intellectuals have a hard time dealing with new ideas. This is perhaps nowhere better demonstrated with the fixation with patent monopolies as the primary mechanism for financing the development of new drugs.

Bloomberg gave us a beautiful example of this narrow mindedness with a column from Max Nisen on the possibility that China may require the compulsory licensing of a patent on a drug developed by Gilead, in order to produce a treatment for the Coronavirus. A compulsory license means that sacrificing the monopoly Gilead had expected, which means it will only get a small fraction of the revenue it might have otherwise anticipated. Nisen is concerned that this lost revenue will reduce expected profit in the future, meaning that companies like Gilead would have much less incentive in developing cures for epidemics like the Coronavirus.

While drug companies do operate to make a profit, the part of the story that Nisen misses is that the profit does not have to be gained through patent monopolies. Suppose that the U.S. and other governments put up research funding, which private corporations like Gilead could bid on based on their expertise and track record. In this case, a condition of the research is that all patents would be in the public domain (the companies were already paid for their work) and all results would be fully public as soon as practical. Read more…

Econometrics — fictions masquerading as science

February 11, 2020 19 comments

from Lars Syll

rabbitIn econometrics one often gets the feeling that many of its practitioners think of it as a kind of automatic inferential machine: input data and out comes casual knowledge. This is like pulling a rabbit from a hat. Great — but first you have to put the rabbit in the hat. And this is where assumptions come into the picture.

As social scientists — and economists — we have to confront the all-important question of how to handle uncertainty and randomness. Should we equate randomness with probability? If we do, we have to accept that to speak of randomness we also have to presuppose the existence of nomological probability machines, since probabilities cannot be spoken of – and actually, to be strict, do not at all exist – without specifying such system-contexts.

Read more…

Mistaken methodology of econometrics

February 11, 2020 1 comment

from Asad Zaman

This is the continuation of a sequence of posts on methodology of economics and econometrics (For previous posts, see: Mistaken Methodologies of Science 1Models and Realities 2Thinking about Thinking 3Errors of Empiricism 4Three Types of Models 5Unrealistic Mental Models 6The WHY of Crazy Models 7The Knowledge of Childless Philosophers 8Beyond Kant 9,). In this (10th) post, we consider the methodology of econometrics, which is based on Baconian or observational models. That is, econometric models tend to look only at what is available on the surface, as measured by observations, without attempting to discover the underlying reality which generates these observations. This is an over-simplified description, and we will provide some additional details about econometric methodology later.

The methodology of econometrics is rarely discussed in econometrics textbooks. Instead, students are taught how to DO econometrics in an apprentice-like fashion. All textbooks mentions the “assumptions of the regression model” in an introductory chapter. In later chapters, they proceed to do regression analysis on data, without any discussion of whether or not these assumptions hold, and what difference it could make to the data analysis. The student is taught – by example, not by words – that these assumptions do not matter, and we can always assume them to be true. In fact, as I learned later, these assumptions are all-important and these actually drive all the analysis. By ignoring them, we create the misleading impression that we are learning from the data, when in fact, the results of the analysis come out of the hidden assumptions we make about it. Once one realized this clearly, it becomes EASY to carry out a regression analysis which makes any data produce any result at all, by varying the underlying assumptions about the functional form, and the nature of the unobservable errors. This issue is discussed and explained in greater detail in my paper and video lecture on “Choosing the Right Regressors“.  The fundamental underlying positivist principles of econometric methodology, which are never discussed and explained, can be summarized as the following three ideas: read more

The left becomes center: financial transactions taxes and beyond

February 10, 2020 4 comments

from Dean Baker

Last week, Antonio Weiss, along with co-author Laura Kawano, released a paper advocating a financial transactions tax (FTT). I have long been an advocate of FTTs, so I’m always glad to see another paper making the case.

However, what made this paper especially noteworthy is Weiss’s background. Weiss had been a top Treasury official under President Obama, and previously a partner at the investment bank, Lazard, so he is not the sort of person who would typically be expected to support a FTT.

Even more striking is the fact that the paper was published by the Hamilton Project at the Brookings Institution. The founder and main funder of the Hamilton Project is Robert Rubin. Rubin has a long career in the financial sector, including top positions at both Goldman Sachs and Citigroup.

Between his jobs at these two Wall Street behemoths, Rubin held top positions in the Clinton administration, serving as both head of the National Economic Council and Treasury Secretary. There is probably no one who has been more visibly associated with the idea of giving the financial sector free rein than Mr. Rubin. For this reason, it is really remarkable that a paper advocating a FTT would come out of the Hamilton Project. Read more…

Understanding income: You can’t get there from here

February 10, 2020 3 comments

from Blair Fix

You can’t get the right answer when you ask the wrong question.

This truism, I’ve come to believe, explains much of what is wrong with economics. When it comes to studying income, economists ask the wrong question. Economists, I argue, have mostly asked: is income fair? The problem is that this is a moral question, not a scientific one. It has no scientific answer.

When the wrong questions get entrenched

You can’t get the right answer when you ask the wrong question. This principle seems trivial. Of course you need to ask the right question! The problem, though, is that when you do science it’s rarely obvious which question is right. Compounding this problem is the fact that scientists are, well, human.

Once we (scientists) pose a question, we get engrossed with answering it. The problem is that it’s not easy to answer a question while simultaneously being skeptical of it. It’s like adding two numbers while you think about multiplying them instead. It’s an exercise in cognitive dissonance.

Here’s how you can make this exercise even more difficult. Join a group in which everyone else asks the same question. This, in a nutshell, is what it means to belong to a scientific discipline. A discipline is a group of people who agree on the questions they’re asking. Particle physicists, for example, agree to ask “what are the fundamental constituents of matter?” Evolutionary biologists agree to ask “what are the determinants of evolution?” Economists, I’ll argue, agree to ask “is income fair?” Read more…