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Eight elementary errors of economics

from Geoff Davies

The Global Financial Crisis, the extreme inequality of wealth world-wide, the materialism of modern life and the dire state of the planet are not accidents, nor just unavoidable consequences of the nature of things.  They are the result of the modern practice of economics, which makes elementary errors of accounting, evidence, perception and theory. 

Many of these errors have been noted for decades, but only by a dissenting fringe of economists and informed others.  Their message is drowned out by the relentless repetition of the mainstream free-market mantra.  Though many people are uncomfortable with economists‘ pronouncements, and some are aware of some of the errors, few seem to realise how many and how basic the errors are, nor how far-reaching are the consequences.  Here are some of the main errors, spelt out in simple terms. 

• The measure of success is growth of the Gross Domestic Product.  Yet the GDP is simply the total of all activity involving money, with no account taken of whether the activity is useful, useless or harmful.  The costs of disasters, pollution and “defensive expenditures” like insurance are added to the GDP.  A proper accounting would use a balance sheet and subtract the costs from the income, as every shopkeeper understands.  As a result unpaid activities like volunteer work, growing backyard vegetables or a mother’s loving care are neglected and implicitly discouraged, though they may contribute something like a third of net national benefit.  Exploitative and polluting activities are implicitly encouraged because they boost GDP. 

• Clear evidence of poor performance is ignored.  Growth, unemployment and inflation measures in the neoliberal era, since 1980, have never been as good as those in the 1950s and 1960s, when governments involved themselves substantially in the economy.  From 1953 to 1974 unemployment averaged 1.3% and inflation averaged 3.3%, and from 1960 to 1974 growth averaged 5.2%.  If free-market fundamentalists were right then government intervention would have kept the economy well below this performance.  In fact such figures are now treated as impossible even with free markets. 

• Money and debt are excluded from economic models.  I’m not making this up.  Money is excluded because economists treat economic exchange as barter, claiming money is only a neutral intermediary.  Debt is excluded because private debt is claimed to have little influence on economic performance.  Economists claim “one person’s debt is another person’s asset”, so net spending power is not changed by loans.  That would only be true in a barter economy, or if banks only loaned from savings deposits.  Yet it is easily verifiable that banks create new money to make loans, so purchasing power is boosted and money is no longer neutral.  Because banks have been deregulated and the banks’ incentive is to increase debt, private debt has increased dramatically over recent decades.  It was the collapse of a mortgage debt bubble in the US that triggered the GFC.  Their discounting of debt is why most economists failed to see the GFC coming, and have little idea how to recover from it, as they are demonstrating in Europe. 

• Modern free-market theory, called the neoclassical theory, predicts the economy will always be close to equilibrium.  If that were true it should tick along steadily and sudden changes should only occur in response to large external events like natural disasters or wars.  Yet many times over the past two centuries financial markets have suddenly collapsed without any external cause.  Some of the more recent examples occurred in 1987, 1997, 2001 and 2007.  In 1987 stock prices dropped by 30-40% in a day, though thirty percent of the world’s factories had not been bombed overnight. 

• The neoclassical theory is based on assumptions that are patently absurd or clearly shown by other disciplines to be untrue.  Among the patently absurd, it is assumed our collective guesses about the future are accurate, yet people in 1890 could not have conceived how aeroplanes, two world wars, nuclear weapons, computers and digital communication would radically transform the world. 

• Economists assume there are no economies of scale beyond a point of diminishing returns, ignoring the lesson of Henry Ford’s assembly lines.  Economies of scale allow the biggest firm to undercut other firms and grow faster, until it dominates a market.  The existence of many such dominating firms, such as Microsoft, McDonald’s and Facebook, is also ignored. 

• It is assumed that people are innately individualistic and competitive, but psychologists have clearly documented our tendency to favour cooperation by punishing cheaters, even at a personal cost.  Almost every mammalian species lives in groups, and social groups have an innate, and healthy, tension between individualism and cooperation.  Most people understand they are better off if they balance their own wishes with those of their family and community.  Economists treat us like reptiles. 

• It is assumed we are coldly “rational” calculators, yet we are obviously strongly motivated by love, envy, fashion and insecurity, and marketers ruthlessly exploit these foibles.  Psychologists have also clearly documented our tendency to other “non-rational” behaviours such as being risk averse.  Neither the fashion industry nor the marketing industry would exist if economists were right. 

The consequences of these eight errors are not trivial, they radically distort our perception of the behaviour of economies.  Free-market theorists allow that there are “market imperfections”, but don’t appreciate that abandoning any of their central assumptions leads to radically different predictions of pervasive instability and erratic behaviour. 

If we use more defensible assumptions we are led to expect a quite different kind of system, a complex self-organising system, that is always far from equilibrium.  Such systems are more like living systems in being unpredictable in detail yet having fairly clear general character.  Economic management needs to recognise quite different points for effective intervention.  Markets are indeed powerful, but they need to be carefully nudged and guided into behaviour that is beneficial. 

This is not socialism, which is government ownership of large parts of the economy.  Rather, it is the use of incentives like taxes and subsidies more coherently and with better understanding than we do now.  Government is the obvious means to effect this management.  There is also a case for “natural monopolies” to be returned to government ownership.  The market-fundamentalist claim that government is always inefficient is clearly nonsense.  Any large organisation is prone to inefficiencies, and plenty of private examples can be placed next to public examples.  Try calling Telstra. 

The subject of economics needs to be fundamentally re-thought.  Free-market theorists think they are doing science because they use mathematics.  Yet to real scientists mathematics is only a tool.  The essence of science is the perception of patterns in the world, which are expressed as hypotheses, and the testing of the predictions of hypotheses against new observations of the world.  The perception of a pattern is not a rational process, it is a creative process.  Mathematics is useful to draw out the implications of hypotheses after they have been conceived. 

Economics got infatuated with the mathematical part of science and completely missed the testing part.  The equilibrium prediction clearly fails the test of comparing to real economies, as the examples of market crashes and economies of scale show.  To continue with this failed theory is to practice pseudo-science. 

The highly influential economist Milton Friedman even claimed that good theories can result from obviously wrong assumptions, and that in fact the better the theory the more incorrect are its assumptions.  Scientists can only be astonished by his confusion.  Scientists do understand that every theory is only an approximation to observed reality, but the art of good science is to find theories that economically yield predictions that are usefully accurate over a broad range of conditions.  Theories based on inappropriate or absurd assumptions can only have superficial or limited coincidental resemblances to reality, as further investigation will reveal. 

A new conception of economic behaviour based on complex systems is developing rapidly on the fringes of economics.  Many useful detailed insights are recounted in Eric Beinhocker’s book The Origin of Wealth (Harvard Business School, 2006).  There are also immediate overarching implications.  For example, there is not just one way to organise economies, there are many ways, and they can be tailored to the wishes of each human culture.  Economies can be subordinate to societies, and treat people humanely.  Economies could even be brought into compatibility with the living world, on whose health our survival totally depends.  The larger implications are developed in my book The Nature of the Beast: How economists mistook wild horses for a rocking chair (_ HYPERLINK “http://betternature.wordpress.com/nature-of-the-beast/” __eBook_)

____________________________

Dr. Geoff Davies is a retired geophysicist at the Australian National University and the author of Economia: New Economic Systems to Empower People and Support the Living World (ABC Books, 2004) and The Nature of the Beast: How economists mistook wild horses for a rocking chair (_HYPERLINK “http://betternature.wordpress.com/nature-of-the-beast/”__eBook_)  He blogs at _HYPERLINK “http://betternature.wordpress.com/”__http://betternature.wordpress.com/_.

  1. June 7, 2012 at 10:03 am

    You’ve left out land. The importance of land and natural resources were removed from the economics text books a long long time ago.

  2. June 7, 2012 at 10:15 am

    Reblogged this on defytheeconomy and commented:
    Loved this actually.

  3. Pavlos
    June 7, 2012 at 2:56 pm

    An excellent analysis.

  4. Jorge Buzaglo
    June 7, 2012 at 3:46 pm

    ”The highly influential economist Milton Friedman even claimed that good theories can result from obviously wrong assumptions, and that in fact the better the theory the more incorrect are its assumptions. Scientists can only be astonished by his confusion.”

    Neoclassical economics has more in common with ideology or superstition than with science. Neoclassical economics is the theology of capitalism, and its absurd assumptions are its Credo. Neoclassical economics is the basic intellectual glue and opiate holding the system together. It has much the same role as organised religion in pre-capitalist society (e.g. feudal Europe).

  5. severn
    June 7, 2012 at 4:04 pm

    Here is another scientist (by training) who has long been astonished by some of the things that economists claim. You’ve summarised my misgivings very well in your ‘eight errors’.

  6. robert r locke
    June 7, 2012 at 6:58 pm

    When I was young, we read Max Weber’s The Protestant Ethic and the Spirity of Capitalism and Tawney’s Religion and the Rise of Capitalism. Those very influencial books stated that capitalism rose from religion. Economics is another matter. It claims to be a science and is, therefore, like all science, excludes theology and ethics from its purview. Don’t confuse economics with capitalism. Capitalism does have a moral dimension; it has a lot to do with human endeavor, creativity, entrepreneurialism, and freedom (the bourgeois virtues), economics, i.e., neoclassical economics doesn’t. It justifies human degradation, slavery, and the destruction of the human habitat..

  7. June 7, 2012 at 7:38 pm

    “Capitalism does have a moral dimension”. Capitalism is the ownership of land and capital goods by a separate class to the workers who use them to create wealth, i.e. money making money. Where is the morality there?

    • robert r locke
      June 8, 2012 at 6:17 am

      I’ll let my wife answer that, Carol. She lived in Communist Poland from 1959-1990. For the past ten years she has been runninng a small hotel in Gerrmany — she owns =- working night and day and making nothing but losses. She isn’t doing it for he money. She says, although she does not make money, she does it with the hope that she can create jobs for others for the future. If she made a lot of money, could she keep it, yes, she answers, I take the risk and do the work. I do the worrying. But I make it a point to pay the workers a decent wage. .. Under socialism people had security, enough money, normal life, apartment, public transport, education. But I was not sattisfied, there was not enough money, everywhere I looked I saw how thiings could be better organized but could do nothiing about it; lots of corruption by party bureaucrats, mediocre living standards, same furniture in every store, had a vacation but took it in company places where we always met the same people, and a general lack of entrepreneurial spirit that suffocated the community. Capitalists didn’t own the land, but there was very little improvement in public owned places. When the change came here, in Germany, the local people had no iniative; people from the outside came, bought up the old town, renovated it, and turned the town into one of the fifty most beautiful in Germany. See any virtue in this story and where is it. Wife says, there are two kinds of people, those who are creative and are not afraid to take risks, not expect profit immediately, and then there are people who are not creative, have no ideaa what to do, but can be good workers and they have a right to live well too but they cannot create the society which rewards tthem. It’s the people, not land ownership, the first is capitalism or socialism,, the second,is economics, a sterile discussion. That’s why I say don’t confuse capitalism with economics. And Carol, read history not economics,, history is about people, economics is ideology.

      • June 8, 2012 at 8:48 am

        Are you presenting your wife as a typical capitalist?

      • Alice
        June 8, 2012 at 1:04 pm

        Id actually have to agree with that. We have the tax and no tax ideologues. The individual liberty ideologues. The land tax ideologues. The shrink the government ideologues. The free the trade everywhere idealogues.
        We have had enough ideology to sink the titanic and we just sank it.

        The world is not that simple r locke but I reckon your wife has a better idea.

  8. henry1941
    June 7, 2012 at 8:31 pm

    It would help if economic theories began with the natural resources of the planet: air, water, minerals in the ground, fish in the sea, the bare surface of the earth. All of these things count as “land”. Nothing can be done without access to a place to do it. Even a street beggar needs a decent pitch. Yet, with the exception of the body of theory developed first by the Physiocrats and then by Henry George, land is ignored.

  9. Herb Wiseman
    June 7, 2012 at 11:53 pm

    I once had an exchange of letters with an economist where I wanted to make the same points as this article. In response to his eventually admitting that economics was not a science I said that the predictions of economists were not much better than reading the entrails of chickens.

  10. robert r locke
    June 8, 2012 at 11:41 am

    No Carol, Vera Locke is a unique person; history and biography are about uniqueness and specificity–that’s why economists don’t like it — to the point that they affirm the truth of economic principles even when they are counterfactual. Vera is entrepreneurially gifted and did not fit into the socialist or the US style capitalist systems. =- If you want to know more about her specific journey read Discovering Vera. Do you include entrepreneurs under capitalists? In my experience what I think you call capitalists, are the rentiers. Entrepreneurs have ideas, they make the world go around, they change things.

    • June 8, 2012 at 4:24 pm

      Entrepreneurs perform work – they are part of the labour force, the active part of the economy. Capital and land owners are not; they are rentiers. Of course, entrepreneurs can also be capitalists but they only earn their share of the profits from their own labour.

  11. Luis Enrique
    June 8, 2012 at 2:38 pm

    this is garbage and can only have been written by somebody who bases their views on what other equally ignorant people write about economics as opposed to actual knowledge economics

    • Emily
      June 9, 2012 at 4:20 am

      Luis, could you elaborate? The blog post laid out arguments and evidence, but you did not explain your own conclusions. It would be more helpful to the discussion if you provided your own evidence and arguments, rather than simply presenting ad hominem attacks.

    • robert r locke
      June 9, 2012 at 4:43 am

      Luis, I’m an hiistorian not an economist. I learn about people; in this specific instance I do not learn economics but what economists say economics is — that’s history. From reading the economists who contribute to this blog, I have concluded that economics is ideology and not a sciience. You don’t learn economics to know that, you look at people who call themselves economists. If you economists start saying that economics is a science, then I’ll say so, my proof being the unaminity of economists’ opinion. Right now all we have is history, no science. Sorry.

      • Alice
        June 9, 2012 at 10:38 pm

        Half the problem with modern mainstream economics is that they discarded their historians robert r locke and in so doing turned the once queen of the social sciences into its handservant.
        Good on you that at eighty you are still writing history and a brickbat to those here who have attempted to disparage Robert r locke’s knowledge as not being “of economics”.

        How very tiresome the machine economists are.

      • ???
        June 10, 2012 at 1:24 am

        “From reading the economists who contribute to this blog, I have concluded that economics is ideology and not a sciience.”

        That’s because the economists on this blog have an axe to grind. Everything is about how the mainstream is wrong, with very little in the way of constructive research. My undergrad department was firmly heterodox, and every end-of-year department dinner was an excuse for backpatting and saying “Wow, those mainstream economists are the worst,” even though they had no better direction to take the discipline.

  12. June 8, 2012 at 11:24 pm

    Robert, Carol –
    It’s good that you defined your terms “capitalist” and “entrepreneur”. I avoid the word capitalist because it can mean many things, as you have demonstrated. I agree an entrepreneur can be good, so long as the activity is beneficial and not exploitative, whereas a rentier is, at least in part, a parasite.

    As to ethics and morals, the neoclassical theory attempts to exclude them, but it embodies a brutal individualist ethic more suited to reptiles than human beings.

    A proper science of economics for human beings will include ethics, morality, love, cooperation because those are intrinsic parts of being human. That may not be everyone’s impression of “science”, but for me science is about understanding the world as we find it, and there are things about our societies and the way they make their living (i.e. their “economy”) that demonstrate regularities that are the basis for understanding. However the study of any living thing or system has to be done with humility, looking for tendencies rather than the “laws” of the physical world. These ideas are expanded in my book.

    • Alice
      June 9, 2012 at 10:48 am

      Geoff – you say”: A proper science of economics for human beings will include ethics, morality, love, cooperation because those are intrinsic parts of being human.”

      there is no science on these matters and if you leave it to an economist to start creating a scioence of ethics, love, co-operation and being human – you will leave it wide open to personallly biased measurement abuse (where someone profits) and that is anti science.

      There is no science possible on the intrinsically positive aspects of human behaviour such as ethics and love and co-operation and further you cannot even measure the drivers of these. We can only be inspired by writers in these areas not counters (which the current generation of econs are).

    • ???
      June 9, 2012 at 7:36 pm

      Geoff–

      The point of the economics discipline is not to tell each individual story (as robert locke seems to want to do with his wife), but to understand greater phenomena. Love, ethics, morality (as for cooperation, how has economics not studied this, via game theory?) are all important to the human experience. But an economic model doesn’t need to capture the entire human experience–it just needs to be useful and consistent. We can leave the individual story-telling to anthropology, which does it best. (This is absolutely not a knock against anthropology–hearing those stories is a great way to discover leads to thinking about greater phenomena)

      As for “As to ethics and morals, the neoclassical theory attempts to exclude them, but it embodies a brutal individualist ethic more suited to reptiles than human beings.”, are you serious? The tragedy of the commons, when purely self-interested behavior leads to collective degradation, is taught in any introductory game theory class.

      To be honest, this entire article strikes me as wholly disingenuous (or at least willfully ignorant). Of course, it’s perfectly rational for you to behave as such: If mainstream economics isn’t the soulless beast you paint it as, then the “Real-World Economics Review” is just a bunch of disgruntled outsiders taking potshots, no?

    • robert r locke
      June 10, 2012 at 5:52 am

      I cannot argue with economists about the validity of economics as science. I’m not qualified. Buy I can say from reading much more than this blog that economics as science is in shambles. The problems are epistemological and include not only economics but all social science. If you get into a room with philosophers of science and ask them if economics is a science, they’ll laugh you out of the room. Almost every manuscript that I prepared and sent to publishers for review has fallen into the hands of social scientsts. I anticipated the rejections: no clear methodology, outcomes not clearly stated, etc. So I took to introducing my manuscripts with prefaces about what people say is wrong with social science methodology. That pretty much silenced them. By heading them off at the pass,I got an historical work through on its historical merits But it is a hard slog. Years ago, I talked with people in the National Science Foundation, Economics division, about getting a grant to do an historical analysis of what people have said are the epistemological weaknesses of economics. I was told not to even bother to apply, because the people who process the grants are neo-classical economists and econometricians. So the very people who would be the subject of my inquiry blocked even considering funding for it. This happened long before the Real-World Economics movement. But I doubt if things would be better today, for the reason you give, real world economists haven’t come up with a better or any alternative. So what? I’m sorry if the formal discipline of neo-classical economics is not an empirical science. At some times in history it has seemed to be more than at others. Most recently (in the past 20 years) it has not been very useful at all; especially in explaining the sort of entrepreneurialism that created the Information Revolution. That’s no small thing because the IR is tthe most siginicant event in human history over the past 100 years. I saw a “desperate” economist call together a large group of economists in Stockholm (1998) to discuss this problem, the problem of what he called the Experimentally Organized Economy, and the uselessness of economics to analyze its dynamic. Precisely nothing came of it. I know, I was invited for some unexplained and unexplanable reason, and witnessed the debacle first hand..

  13. robert r locke
    June 9, 2012 at 5:01 am

    Can’t argue with you Geoff, those distinctions are the ones I make, with Katja Schoene, in our 2004 book, The Entrepreneurial Shift (Cambridge UP). But I shift the terrms a little, using Greek Gods for reference points, Dionysius for the Entrepreneur and Apollo for tthe managerial caste, for I make managers and managerialism the parasitical class. These are not categories economists deal with very well — the dynamism of the entrepreneur escapes them, despite Schumpeter. What their theories cannot accommodate, economists mostly ignore, but it is one thing to ignore something because it is irrelevant, another to ignore it because it won’t fit into theory or mathematical models.

    • my name doesn't matter
      June 9, 2012 at 7:22 pm

      Why don’t you shill your books a little more, robert locke? You’ve barely done it so far!

      • robert r locke
        June 9, 2012 at 9:46 pm

        I write books, do you? So what I say on this blog is backed up by a lot of thought and explanation. Blog’s can only touch on a subject; but I want you to know that there is a lot behind what I say, a lot of effort and thought. I’m not just talking off the top of my head. I published my first book in 1974, on which I worked twelve years before I thought I got it right. I published my last one in February 2012. I’m a serious man not some huckster., That’s why I cite my work. Economists, who don’t read history, understandably won’t know them unless I poiint them out to them. If the blog audience were historians I wouldn’t have to do it.
        As an historian I really don’t belong here but Edward Fulbrook asked me in because he wanted to pitch a large tent, I’m not sensitive about the insults economists have hurled at historians because I can’t take economics in its present state seriously. But I do take humanity seriously that’s why I’m an historian, and I’m trying to get my economist colleagues to take economics seriously, too, instead of making it the mouthpiece of the rich and privileged. How presumptious of me, and how foolish, at age eighty, to keep at it.

      • ???
        June 9, 2012 at 10:37 pm

        robert, there’s no economists hurling insults at historians in this thread. Rather, you’re the one making such statements as “What their theories cannot accommodate, economists mostly ignore, but it is one thing to ignore something because it is irrelevant, another to ignore it because it won’t fit into theory or mathematical models.” Geoff talks about love here, but love is something that is extremely individualized; how would you have a macroeconomist incorporate the relationships of every human being into their analysis? The point of simplified models is for descriptive generality. Most economists aren’t claiming perfection (unfortunately, the ones who do are often the ones who are screaming about it in the public sphere), just a general understanding.

        Historical analysis isn’t perfect, either. How do you analyze the 2008 crisis with respect to past events? It’s not like CDOs were something that were around in previous financial crises. The euro hasn’t been around for that long, either. You can only use past events that are good enough analogues. Simplified economic modeling uses the same kind of approximation.

        As for more insults, you call us “mouthpiece[s] of the rich and privileged.” Every discipline has it’s shills–would you discredit biology based on creationist biologists or climate science based on the few climate change denialists? Many economic researchers are working for the betterment of humankind, just as you are. Just because they use different modes of analysis, and reach different conclusions than you, doesn’t mean they’re selling out to the rich.

  14. MichaelWStory
    June 9, 2012 at 8:26 am

    There are a lot of problems with most of these assumptions:

    • The measure of success is growth of the Gross Domestic Product.

    Economists developed this measure, but it is a very rough tool and its limitations are acknowledged by the field. If politicians over rely on it, that does not say anything about econ as a field of study. Does the fact that life expectancy makes no measure of quality of life invalidate medicine?

    • Clear evidence of poor performance is ignored. Growth, unemployment and inflation measures in the neoliberal era, since 1980, have never been as good as those in the 1950s and 1960s, when governments involved themselves substantially in the economy.

    In the fifties and sixties the economy was better in the West only- by being so far ahead of other countries it was easy to out-compete. Most countries will not remember this period as a golden era. Now as development raises capabilities and living standards across the world Western workers are less in demand.

    • Money and debt are excluded from economic models. I’m not making this up.

    You are making this up. There are plenty of economic models which deal with debt and the money supply. What is true is that printing money is not counted as evidence of productivity or development- otherwise ZImbabwe would come top of development indices.

    • Modern free-market theory, called the neoclassical theory, predicts the economy will always be close to equilibrium. If that were true it should tick along steadily and sudden changes should only occur in response to large external events like natural disasters or wars. Yet many times over the past two centuries financial markets have suddenly collapsed without any external cause. Some of the more recent examples occurred in 1987, 1997, 2001 and 2007. In 1987 stock prices dropped by 30-40% in a day, though thirty percent of the world’s factories had not been bombed overnight.

    Stock prices are the cumulative predictions of all participants in the market. If there is widespread disinformation or ignorance which changes quickly then participants’ predictions will also change quickly. It could have nothing to do with the physical infrastructure, as this is only one aspect of the expectation of performance.

    • The neoclassical theory is based on assumptions that are patently absurd or clearly shown by other disciplines to be untrue. Among the patently absurd, it is assumed our collective guesses about the future are accurate, yet people in 1890 could not have conceived how aeroplanes, two world wars, nuclear weapons, computers and digital communication would radically transform the world.

    Evidence? Who assumes our collective guesses about the future are accurate?

    • Economists assume there are no economies of scale beyond a point of diminishing returns, ignoring the lesson of Henry Ford’s assembly lines. Economies of scale allow the biggest firm to undercut other firms and grow faster, until it dominates a market. The existence of many such dominating firms, such as Microsoft, McDonald’s and Facebook, is also ignored.

    This is the most nonsensical point. If you think that economists have ignored Henry Ford, you are misinformed. What you are saying is that the big companies you name did not reach the point of diminishing returns. If you can understand that at some level of car production between zero cars per year and infinity cars per year, it would become more difficult to produce each additional car (for example, when every acre of land is already covered in car plants) then you too, assume that there are no economies of scale beyond a point of diminishing returns, just like those foolish economists.

    • It is assumed that people are innately individualistic and competitive, but psychologists have clearly documented our tendency to favour cooperation by punishing cheaters, even at a personal cost. Almost every mammalian species lives in groups, and social groups have an innate, and healthy, tension between individualism and cooperation. Most people understand they are better off if they balance their own wishes with those of their family and community.

    Now in balance this is probably more valid- levels of cooperation differ widely between societies and are strongly correlated with economic success and political stability (compare Norway with Greece). There are economists studying these effects but there is a lot of political pressure to not look into this area as it has major implications for immigration and development policies.

    • It is assumed we are coldly “rational” calculators, yet we are obviously strongly motivated by love, envy, fashion and insecurity, and marketers ruthlessly exploit these foibles. Psychologists have also clearly documented our tendency to other “non-rational” behaviours such as being risk averse. Neither the fashion industry nor the marketing industry would exist if economists were right.

    In what sense would anybody regard ignoring somebody that you love as ‘rational’? The motivations from your goals are different to the means by which you go about achieving them. Most people are pretty rational about how to spend their money to maximise the benefits, whatever their motivation is. I would also query that risk aversion isn’t rational- it is simply a preference which people express with their spending.

    • davetaylor1
      June 9, 2012 at 11:31 am

      • The neoclassical theory is based on assumptions that are patently absurd or clearly shown by other disciplines to be untrue. Among the patently absurd, it is assumed our collective guesses about the future are accurate, yet people in 1890 could not have conceived how aeroplanes, two world wars, nuclear weapons, computers and digital communication would radically transform the world.

      “Evidence? Who assumes our collective guesses about the future are accurate?”

      Those who assume economist’s advice or point movements in GDP or overblown stock market valuations are honest enough to be acted on.
      But I agree Geoff is barking up the wrong tree pursuing accuracy.

      More to the point is economists assuming their monetary compass points North, when if they had known what they should have about the real world they would have realised it simply aligns itself between North and South, and astronomical evidence (the North Star) – to say nothing of damage reports – shows they have got it wrong. As of now are urging Governments to steam as hard as they can in the opposite direction to the one they should be going in, i.e. towards increasing austerity instead of balanced reductions in paper valuations of asset worth and debt.

    • June 10, 2012 at 8:28 am

      MichaelW
      I agree with many of your specific comments, but you seem to miss the implication, which is that they undermine the whole free-market story.
      1. GDP – yet there is not a chorus of economists telling politicians to stop using GDP. Also economists are thick in Treasury and Finance departments and they still don’t use a better measure.
      2. My point was that government “intervention” did not degrade the economy as the neoliberal ideology claims. I regularly get excuses in response to this point, but are any documented and quantified? Has anybody systematically compared the past three decades with the post-war decades? Rather there seems to be collective amnesia, why else would it be claimed that unemployment can’t fall below a level taken these days to be 4 or 5 percent – NAIRU, is that what it’s called?
      3. I’m referring to many economists’ dismissal of private debt, their evident blindness to the mounting debt that presaged the GFC, and the role of paying debt down in depressing the US economy now. So my comment seems to apply to the main “forecasting” models. If there are some academic models with money and debt then good, why aren’t they being used to better “predict” the economy? I’m following Steve Keen here. Keen criticises the recent paper by Eggertson and Krugman (and so do I), which claims a great advance by having *two* representative agents, one owing and one owed. (The whole representative agent approach is invalid anyway if there are third-party interactions – see below.)
      4. Equilibrium. Anyone with common sense would agree with what you say about stock markets. But the neoliberal ideology currently ruling the planet promotes “free” markets, on the basis that free markets give optimal performance, and the optimal performance is obtained at an abstract theoretical state of equilibrium. If indeed stock market participants do not have full and accurate information then you cannot prove the market will come to equilibrium, therefore you cannot claim the performance will be optimal, or any better than other ways of running markets (such as imposing a transaction tax to remove the profit from rampant speculation, which is parasitic and destructive and pulls markets well off optimal).
      5. People who use rational expectations theory assume our collective guesses about the future are accurate. That is the way economists managed to allow for the flow of time and still claim an equilibrium. I believe Arrow and Debreu got a well-known prize for the result. If the future is unknowable, guess what – no equilibrium.
      6. To get the neoclassical equilibrium result you have to assume no economies of scale beyond an ill-specified “point of diminishing returns”. This point has to be at a small enough scale that there are still many firms in the industry, otherwise “competition” is impeded and oligopoly or monopoly result. Oligopoly is common, and economies of scale up to large scale are pervasive. Therefore no equilibrium, no “free-market is best” ideology.
      7. The neoclassical theory assumes no third-party interactions. But if I cooperate with you then you lose the prediction of equilibrium.
      8. If I follow the latest fashion then I’m being influenced by a third party. If I buy something because of a psychologically persuasive ad on TV then ditto. No equilibrium. I put “rational” in quotes because I don’t define it to have economists’ meaning either. On risk aversion, psychologists have shown our preferences are asymmetrical – we are more reluctant to risk losing ten dollars we already have than we are to take a risk to win ten dollars we don’t have. It is not the kind of risk aversion economists call “rational”.

      Evidently many economists don’t believe all the assumptions I have mentioned, including you. What you evidently haven’t realised is that without them there is no basis for claiming free markets are best. Yet that claim has been dominating the planet for three decades now (and influential before that of course) and doing great harm in the process – because you get many “invisible foot” results along with some “invisible hand” results. Things like environmental destruction. My own conclusion is not socialism, but that markets have to be managed so they give a desirable result. We do a lot of “managing” of markets already, but incoherently and often for the benefit of minority interests.

      And where is the chorus of “mainstream” economists crying that neoliberalism has no basis and we should stop doing what they say?

    • davetaylor1
      June 15, 2012 at 10:51 am

      Michael @ #28, @ “This is the most nonsensical point”:

      “What you are saying is that the big companies you name did not reach the point of diminishing returns.”

      No, Michael, what Geoff was saying was that “the big companies he named did not reach the point of diminishing returns” before they dominated the market, after which (within their local monopoly) diminishing real returns could (in monetary terms) be off-set by economic rent.

  15. The Protectionist
    June 10, 2012 at 3:07 am

    Geoff, I’d like to offer you a tip which might help strengthen your armor, because I fully agree with your comment suggesting economics needs to be completely rethought. If you’re willing to consider the propositions of a conservative engineer, who rejects both the mainstream and heterodox lines of thinking, check out the new website rescuingeconomics.wordpress.com. The approach is based on a simple question: is it possible only a closed domestic (protectionist) economy is a sound economy? The resulting model in defense of protectionism suggests that the fundamental error in all schools of economics is an incomplete definition of the role of money. In short, its a theoretical attempt to make sense of the tremendous prosperity achieved by protectionist countries. Unlike neo, money takes center stage in this model and turns neo on its head. The site/associated book also suggests the failure of the classical school was it inability to recognize that an export intensive society ( 1700–1900 Great Britain) is the driving force behind subsistence wages, thus turning Smith, Ricardo, and Marx on their heads too. It also makes an interesting analysis of the Euro as a form of free trade, and why this implies future failure for the Euro. Take a peek, constructive criticism is welcome–it’s an open-source attempt to build the missing school of protectionist economics. The site’s associated book (extensive preview on Amazon) is far from perfect, and targets a Christian audience, but if the fundamental logic is sound perhaps we have the missing piece of the jigsaw puzzle we have been looking for: A new definition of money. Best regards

  16. robert r locke
    June 10, 2012 at 6:07 am

    ??? Don’t be insulted, but during a long career, I have become acquainted with every justification you make in your reply. Remember I’m not jusifying some alternaive science. Historians don’t try to predict the future; their model is Thackery’s Vanity Fair. You don’t have to worry, the humanities have pretty well been replaced by social science in higher education. And managerialism. Just goggle it and see what I mean. . And the more unsure of themselves they get, the meaner they become.

  17. robert r locke
    June 10, 2012 at 8:01 am

    To ??? I’m sure you as an active working person have more important things to do than listen to a retired man. But I must reply to your objection about “What their theories cannot accommodate, economiists mostly ignore….” In 1984 (The End of he Practical Man, p. 21) I wrote approximately the same thing. “To ignore a subject because it is insignificant is not the same thing as to claim it is insignificant because it does not fit an explanatory model, even if the model is deemed ‘sufficient.'” The occasion for the remark was Donald McCloskey’s introduction of econometrics into British economic history. David Landes, known especially for his work on The Unbound Prometheus, noted that they had ignored the entrepreneurial factor; McCloskey replied “If one starts with the entrepreneurial hypothesis, there are no guides as to how to put the argument in quantitative form.” Hence my comment: “it is one thing to ignore something because it is irrelevant another because it does not fit into an explanatory model” is based on an attempt to do so. The irony is that McCloskey, after struggling mightily to introduce neo-classical theory and econometrics into economic history abandoned the entire project just months later, a renunciation made famous in McCloskey’s article, “The Rhetoric of Economics, Journal of Economic Literature, 1983),, in which McCloskey attacks the epistemology of economics. Her most recent effort is a history of Bourgeois Ethics. Where have you been for the past thirty plus years?

    • ???
      June 12, 2012 at 8:26 pm

      robert,

      To be quite honest, I don’t understand your point here. Your quote of your book seems to support the point I’ve made, that we know that things like love are important to the human experience but not necessarily economic modeling.

      As for your comment “And the more unsure of themselves they get, the meaner they become.”…well, that’s how I see most internet commenters. They’re unsure about the state of the economy (and modern economics is difficult to understand!) so they turn to mean scapegoating.

      If you think that I’m arguing for the removal of humanities from higher education, I’m not. The humanities are extremely important to society. But their methods are not ours.

      • robert r locke
        June 13, 2012 at 9:49 am

        ??? The poiint of my quote is that if entrepreneuriallsm cannot be incorporated into a mathematical model, its exclusion so weakens the explanatory power of the model as to make it of very little value in an era of great entrepreneurialism. That’s what David Landes meant when studying the industrial revolution and what Gunnar Elliasson meant when he realized that his subjedt, neo-classical economics and econometrics offered few insight into our era, that of the Experimentally Organized Economy. One cannot simply brush there concerns aside as if they did not matter.
        I am also arguing that the historical methods can and should be yours. For that to be true you’ll have to concede that there is no such thing as economics the science out there to be discovered and learned anymore than there is something out there called history to be discovered and learned. History is simply what historians say it is. Students of historiography have known that for a long time. I want you to accept this premise for economics, i.e., that economics is only what economists say it is. Then we focus on people (what historians do, study economists in thw specificity of their era) and not on protecting some system called neo-classical economics, whose historical existence cannot be denied but whose universality as science is very much in doubt. Then if economists say that ethics must be part of the study of economics, the contention is argued out by economists in open and free debate until it is clarified in each era.. That is what historians do. If history is what historians say it is, the ongoing debate among historians about a subject or issue permits them to arrive at some sort of consensus and avoid turning histtory into some sort of subjective free for all.

  18. davetaylor1
    June 10, 2012 at 8:38 am

    ??? @ #27. “Geoff talks about love here, but love is something that is extremely individualized; how would you have a macroeconomist incorporate the relationships of every human being into their analysis? The point of simplified models is for descriptive generality”.

    With respect, ???, the point of simplified models is for understanding (enabling the recognition and applicability of abstract, hidden or dynamic structure in diverse situations), not just for descriptive generality (for which words and presumably their applications must already exist). Models can point to simple examples of types of structure as well as outline descriptions of complicated constructions.

    Key phrases in SSADM systems analysis are “one to one” and “one to many”, and by applying the word “relationship” to all of a given type, e..g. ‘father’, it accomodates one or any number of them. Love is a two-way relationship which is individualised on one side but may apply to none, one, some or all on the other: “God so loved the world that he sent it his only begotten son”. C S Lewis’s book “The Four Loves” is worth a read. It models love as either familiarity (one in a disinterested crowd), friendship (side-by-side), eros (lovers facing) or self-sacrifice (follow-my-leader).

    How (as a systems analyst) I would have “a macroeconomist incorporate the relationships of every human being into their analysis” is to make their analysis structural rather than descriptive. This structure is obvious in the simple example of a household economy. It is all about “feeding the kids”, which represents all of us. Dad goes out to work and Mum distributes his produce to the kids, and old buffers like myself spend our time teaching the kids what Dad and Mum are doing and trying to devise easier ways for them to do it: four relations with six “broadband” communications channels uniting them into a system. The context is our world supplying us kids physically and our society feeding us old folks ideas. A detailed description of how the whole of our elaborate economic structure works (or due to omissions, fails to work) can be built up by elabooration of this model.

    Not that I should expect anyone here to believe me.

    • ???
      June 12, 2012 at 8:19 pm

      dave,

      I understand your point, but there is enormous heterogeneity at the individual level in objectives. For example, you’re talking about a household and a dad, a mom, and kids. Well, not every household has a dad, or mom, or kids. A household might have two fathers. It might have eighteen kids. It might have multiple families. You talk about four types of love, but those types have magnitudes and deeper complexities within them, as well. A macroeconomist has no ability to observe such relationships, nor even how they’re distributed across the population.

      Put simply, do we have a tractable way to model the economy in such a fashion? And even if we did, would it be useful, in the sense that we could derive results from it? My guess is probably not to the former (for the reasons above) and probably not to the latter (pretty computationally complex). And even if the answers to both are yes, is the tradeoff between complexity and accuracy beneficial?

      This third question is the one that gets at my point the best. As a systems analyst, you must see the point in having simplicity as a model objective, right?

      • davetaylor1
        June 13, 2012 at 2:11 pm

        Assuming you are trying to learn, ???, and not just quibbling, let’s address some issues which are clearly not obvious to you. I was not talking about individual families. I was using an normal family as already demonstrating the structure of economics (the word meaning household management). Clearly it already involves diversity of talents, specialisation of roles, the existence of subsystems each with their own aims, that there is an issue in what is the aim of the system as a whole. The allocation of Mum to distribution is normal because it respects the underlying biological specialisation of roles, not because on average that is the way it is. The allocation of Dad to physical production and Elders to intellectual development introduces information, communication, the programming and physical embedment of technique in capital equipment, and the issue of whether money is physically valuable or intellectually informative. My one little diagram of it implies all this, and above all, it shows vividly that economics is about people, whereas the Econ icon of a see-saw between supply and demand shows none of this, and as developed is solely about money (the diversity of everything else having been conflated with that) with where it comes from and the impacts of compound interest and satiation kept firmly below the horizon.

        On the four loves, you’ve been pointed in four directions. Take any two together and between them they can account for infinite diversity of directions. Likewise, electronics involves just four types of component, object-oriented scientific programming just four levels of reference to different types of object, and systems analysis four types of diagram. I could go on.

        As an electronic engineer, scientific programmer and systems analyst and I used methods which define what one is talking about, only did sums when they were necessary, and learned how achieve more than sufficient accuracy with 20% tolerances on quantitative values using error correction feedbacks. Of course I see the point of simplification, but a little structural complexity can eliminate a lot of computational complication.

        You have perhaps heard the Einstein quote: “Keep things simple – but not TOO simple”. My favourite quote here is Gleick on Feynman’s diagrams: ” Each diagram could replace an effective lifetime of Schwingerian algebra”. [Genius, p.275].

      • davetaylor1
        June 13, 2012 at 2:16 pm

        Apologies for an omission. At Four Loves above the four directions to be taken in pairs were of course North, East, South and West.

  19. June 10, 2012 at 8:53 am

    General comment –
    (does not apply to everyone who has commented here)

    On the few occasions when I have actually managed to engage some mainstream economists in this sort of debate, one of the common responses is “Of course economists know that, so what are you going on about”.

    Well, I’m going on about it because any of my points knocks the underpinning from the current ideology dominating the globe, and causing great destruction and misery.

    Apparently many neoclassical economists need to learn/remember the foundations of their own discipline.

    So if you agree these assumptions and points are nonsense, then shout it from the rooftops AND demand more sensible and humane management of our societies.

    Another frequent response is that I criticise but where is the alternative? I didn’t start down the path of writing about economics until I found a better framework that is likely to be able to accommodate these problems. It leads to a very different view of economies and how to manage them.

    So, read my book if you seriously want to see a carefully thought through alternative.

    • ???
      June 12, 2012 at 7:54 pm

      Geoff, I actually agree with you quite strongly–I think there needs to be much more public scholarship done by mainstream economists, and that we haven’t done enough to criticize the cranks in the media who misrepresent economic thought for political/personal gain.

      The problem I have with your article here is that it’s one thing to blame serious economists for public inaction (which is somewhat legitimate), but it’s another to criticize the economic theory of introductory textbooks and public shills, which is what you’ve done in this article. This is compounded by the fact that you say that you know that this isn’t what mainstream economists actually believe in this comment, so the fact that you’re conflating right-wing ideology and actual economic thought (without explicitly separating the two) is a willful misrepresentation. My frustration (and perhaps that of others you’ve talked to) is that you’re not criticizing real economic scholarship, just a toy version of it, and those without background have no idea, so they take whatever you write at face value.

      With respect to the lack of public scholarship, my guess is that it’s partially due to economists feeling frustrated over the remnants of how good a job Reagan did of publicly associating economics with his administration’s ideology (so that everyone thinks that we’re soulless Randians), and partially because academics are just very bad at public speaking/writing on average.

    • June 13, 2012 at 4:53 am

      ??? –
      Thank you for your comments, but I take issue with them, so far as I think I follow them.

      You seem to imply that “the economic theory of introductory textbooks and public shills” is fair game, but that the economics of “serious economists” is not. My fundamental point is that if you give up the neoclassical assumptions (as you must) then you lose equilibrium and optimality. This is just as true for the introductory text version as for the latest sophisticated variation. Therefore all the claims of free markets being best are lost.

      A hundred times a day it is claimed/assumed/implied that markets must be left to do what they do (with only the occasional “imperfection” needing attention). It has become one of the great myths of our society, thanks not just to the neoliberal ideologues but to the neoclassical economists before them.

      Now economists thickly populate government, business, finance etc. Yet this prevailing myth is not challenged. Rather, they all seem to believe it.

      You blame media cranks, shills, ideologues et al for propagating the myth, but what about all those economists who should know better? It’s not just that they don’t challenge it, they seem to believe it too.

      My assessment, for what it’s worth, is that the field of economics has undergone self-selection for those who are inclined to support big business, “free enterprise”, “rugged individualism” and all the rest. Not all, but many.

      So I won’t wear your charge of “wilful misrepresentation”. I am calling it the way I see it. Rand, Hayek and the rest have taken it further, but they did not invent the central free-market story.

      Finally, I find it remarkable that a field would claim its introductory texts are not to be taken seriously: “you’re not criticizing real economic scholarship, just a toy version of it”. Evidently you can only criticise the latest “advances”. Sounds like a priesthood to me. And you won’t find physics introductory texts putting forth theories that won’t withstand criticism.

      Finally finally, the disclaimer – I do not advocate socialism. I conclude that markets need to be managed, which is a very different thing. I know you didn’t say this, but this kind of discussion so easily falsely polarises into “capitalism” vs socialism.

      • robert r locke
        June 14, 2012 at 4:10 pm

        I have been puzzled for some time why in the late 18th/early 19th century people took Smith and not Clausewitz as a guide for understandiing economics. Clausewitz made great power rivalry instead of individual competition, the dynamic of development, and he included economic rivalry as part of state rivalry. If we look at the state instead of the inndividual as the basic unit, then there is all kind of latitude to include comparative institutional development, e.g., education, and other factors that economics now excludes as a normal part of any discussion about economics. Moreover, this great power rivalry mindset guides people discussing economic rivalry today, the rise of China, the BRICS, the decline of Europe, etc. fits more a Clauswitzian than a Smith economic competitive model.

      • davetaylor1
        June 15, 2012 at 8:00 am

        Robert, this is the most interesting lead on basics I’ve come across in a long time. As a Brit I’d never heard of Clausewitz, and though his primary interest seems to be war, economics AS war is certainly a valid way of looking at it. As to why people preferred Smith, my reaction is that war is not a comfortable topic, and in Britain we’d had a Civil War, beheaded the King and faced with Insurrection installed a merely Constitutional monarch, Parliamentary system and “private” Reserve Banking to avoid it. It was the latter which led to Britain (as against Germany or France) having become the leading economy. In economics, Smith, 13 years before the French revolution, would look a safer bet than Clausewitz or Quesney. [Wonderful thing, the Internet, but I find the timeline of the Events section of my old Pears Cyclopaedia a most useful summary of history]. You may remember my recent response to Peter Radford’s Ethics in which I recognised the Hume/Smith version of morality as a distinct advance on Hobbes’ Leviathon.

        http://www.clausewitz.com/readings/Bassford/Trinity/NewVers1.htm.

        This on Clausewitz (“People, Business, State”) seems to anticipate logical quantizing and Algol68’s all-some-one-none (war in the abstract) levels of reference.

  20. Alice
    June 10, 2012 at 10:47 am

    ???

    You object to robert r locke

    “As for more insults, you call us “mouthpiece[s] of the rich and privileged.”

    But the reality is you must know it is true that any ecnomist walking the halls of pwer these days at a level to influence government policy is a mouthpiece of the rich and privileged. So many have sold out, been cajoled out, been bribed out, been trained out through financial instutions that they lost whatever claim they had to be an economist for all years (decades) ago.

    You know and I know there are two streams of economics. One that is about being for the good of mankind, and one that furthers its members remunerative careers and it is the latter that usually also furthers the interests of the rich and privileged.

    A more co-opted “science” (and I say that entirely tongue in cheek) is not to be found. Perhaps auditing and accounting can be compared, when its monetary beans people need to count, but even that does not have the negative impact that economic policy for the rich and privileged does on mankind.

    • ???
      June 12, 2012 at 8:03 pm

      Alice,

      Political appointments are inherently political. Would you expect a politician to appoint the most well-respected economist in a field, or the one whose analysis supports the politician’s ideology? If only it were the former! Take a look at how Mankiw got completely disavowed by the Bush administration in 2004 when his CEA report encouraged an immigration policy that was politically intractable.

      I don’t disagree with your statement that shills exist, but your comment implies that the shills are quite numerous. I disagree with that–most economists are working for the public good. Unfortunately the shills are much, much louder, and have been given platforms to speak on.

      I’d like to pose a question to you: You talk of “any ecnomist walking the halls of pwer” being corrupt. Can you name any? On this blog I hear lots of blanket statements being thrown around with no specificity. The lack of citation of anything real here is unconscionable.

  21. robert r locke
    June 10, 2012 at 12:26 pm

    So far,for the bloggers on this post, I give Alice an A for heart and humanity, Dave a b+ for clarity of thought, the rest a c for knowing how, as we say in Hawaii, to protect their own rice bowl, and a F to myself, for lack of progress over forty years of trying, to convince economists to include history as they once did (Veblen, Galbraith, and many others) in their subject. All I have managed is to be ignored or, on the rare occasion when they raised their head to look, to be an annoyance. But I’m a happy man because at the age of 58 I found Vera.

  22. davetaylor1
    June 11, 2012 at 7:12 am

    I’m going to reply to this not in order to boast, but because it is important to understand why, given the “examination” is in words, you have awarded me a b+ and not an A+ for clarity of thought.

    By now I have a clear understanding the “mechanisms” of everything from the Big Bang to Consciousness, including why those represent limits of the possibility of knowing; but it takes two to tango, and what I am NOT clear about is how much other people understand and what their motives are. When the constructors of Expert Systems tried extract expertise, they found they had to ask the right questions.

    Also, my brain being finite, it has had to prioritize, and that is where “the engineer doing for a penny what any fool can do for a pound” comes in. It is important to understand the polarisation of electrons and protons, the Periodic Table, and how many protons there are in different types of atom, but not how many atoms there are in a factory or atoms per second in the flow of a river, not least because we cannot measure them even if we had need for such accuracy.

    So, your b+ is consistent with what others have found, and overseers have assessed as “good, but not good enough”; I saw myself as unreliable rather than outstanding. Yet at the end of both my schooling and my scientific apprenticeship, when all the pieces of their jigsaw had been put in place, my average across all subjects was better than any of my peers.

    The reason is that I think visually (seeing a lot simultaneously in two dimensions) and have to laboriously construct verbal explanations of what I can see. The reason for that (for the same reason a minority of us are left-handed) is that we have two sides to our brains, in one of which vision and in the other sound processing is dominant, but when acting together one or the other must dominate. For the survival of our species evolution has found communication significant more often than clarity of vision.

    That puts me in my place, but at this crisis point in mankind’s history it also indicates the need for economists and verbal bloggers to ask the right questions and listen to visionaries and analysts who (like of Keynes, Veblen and Galbraith) have done their homework.

    Curiously, I am happy man because at the age of 18 I found Vera, whose love gave me the self-worth I needed for 52+ years of marriage to Pat, in whose eyes for me Truth is (as the song puts it) “ever dawning”.

  23. robert r locke
    June 11, 2012 at 11:22 am

    This deserves an answer because you found me out. I am a verbal not a numbers person and words lack precision. So assigning grades verbally is impressionistic. Why not a+ instead of b+– Can’t say except I operate rather on Veblen’s principle: He never gave higher than a c to his students, whiich played havoc with grade pointt averages, because he reserved higher grades for the truly exceptional and never encountered any. Those A+s one never encounters. But the numerate object to these guesses. So, I devised a grading system where I gave impressionist grades and then placed them in a numeric scheme. The complaining stopped. Numbers hoodwink people. .

  24. Alice
    June 11, 2012 at 11:40 am

    I am actually so pleased to be given a heart and humanity award by an historian (and I know full well economics by modern standards hounded out the economics historians from the profession, to promote and quarantime its own “science” or “pure maths” “models”- – call it what you will, and good luck with that)

    When an economist stops looking at history (when many economists stopped looking at history) they are little more than fools, or they have been captured by vested interests like the rich and priviledged.

    It is impossible to imagine a future without undertanding the past.

    Thank you robert r – a warm welcome by some of us who remember what economics used to be like.

    • davetaylor1
      June 11, 2012 at 2:11 pm

      Amen to that “Thank you”, but of course the history economists should be familiar with is that of mathematics as well as that of economics.

      Mathematics used to be about arithmetic (counting), geometry (with its continuous measures), and (much more recently) algebra. After Descartes showed how iconic geometry could be translated into symbolic algebra, people used the algebraic form to simplify arithmetic and quickly forgot its formal geometric meaning. Hence the king remaining in his counting house and today’s pervasive academic fallacy: a belief that mathematics is the science of number and this the language of science.

      • Alice
        June 12, 2012 at 9:25 am

        Dave

        To me its like this – imagine 1000 years ago when we didn’t have computers that enabled wizard fast maths computations which few even trained economists really get their heads around (come on – a lot just replicate)

        So 1000 years ago a group of people decided by looking into a wooden box in which they had placed little wooden statuettes of people – in groups they called markets and then attempted to move them about according to some exogenus factor they dropped into the box of entirely their own making (which they called variables).

        From this small wooden box and what happed to the small wooden figures in the small wooden box, they decided they could predict the future of mankind and they became leaders of a cult which kings and princes followed…because they could predict the future (without anything but a wooden box of wooden people) and the kings and princes liked it because they could broadcast the movements within the wooden box far and wide (with heralds on horseback) and so the group became famous, and were paid a lot to keep predicting the future…so indeed they did.

        Of course very very few of their predictions came true because really they were no better at predicting the futire than shamans and charlatans and witch doctors and conmen.

      • ???
        June 12, 2012 at 8:30 pm

        “…wizard fast maths computations which few even trained economists really get their heads around (come on – a lot just replicate)”

        Really, Alice? Want to try and cite something specific before you make ridiculous blanket statements like this? Can you be a little more intellectual than ‘It seems illogical to me, so it must be wrong’?

  25. June 11, 2012 at 11:09 pm

    Thank you Dave et al, A very promising thread, almost gives me hope for a rebirth of economics (as ARE, actual reality economics). Got a nice insights from the answers, especially re: models. Did the science of either mathematics or geometry need a consensually sanctioned “model” or did it evolve in a “natural” progression of productive creative work — providing the structural components of a model which can never be completed (or can it)? Re: ethics, it’s too bad that modern economists are not forced to take mandatory courses in the history and philosophy of Asia and Buddhism (not identical). Then there would be much less difficulty for visionary intuitives wanting to express their insights in the retarded-retarding language of the corrupt-ecocidal paradigm of plutonomics. Bioethics is the closest many modern Westerners ever come to the integral nonduality of ethics and karma (action-reaction/interaction, the basis of thermodynamics & fluid mechanics & physics in general). Sigh… No wonder the Seers of the advanced cultures of antiquity predicted this degraded Age (Kaliyuga, the age of darkness, delusion, quarrel & strife & narcissistic egomania, AKA the 3rd Age of the Dharma) lasting so long (another +/-9100 years).

  26. June 11, 2012 at 11:15 pm

    Geof — No damning with faint (nonexistent) praise intended. Great work, great insights, great commitment, great courage, and great critique, though brief; but brevity is the soul of wit. Bravo! Now, can we please start discussing the solution? (see Awareness & Values: A theory of fundamental economics & natural values, at the Greenbook blogsite: http://mm-greenbook.blogspot.com )

    • June 13, 2012 at 4:02 am

      Michael – See my comment at June 10, 2012 at 8:53 am . My book goes into a better system at some length. See link at end of article.

  27. robert r locke
    June 12, 2012 at 11:49 pm

    ??? We are writing a blog not academic treatices, so do not expect too much meat with the generalizations. If I want to say that economists are poor mathematicians, I don’t comb through their work to find examples of it. I just consult the people who would know. By that I don’t meant economists, but mathematicians who work with economists. John Neuman in the inrroduction to Game Theory noted that neo-classical economists were poor mathematicians (written decades after Walras); more recently Mendelbrot and Taleb comment about the poor mathematical knowledge of people in finance-economics. They imply that in finance a little mathematical knowledge turned out to be a dangerous thing. I once had a long conversation with a professor of mathematics who taught mathematics to engineering students in the University of Alabama. He said that “engineers don’t understand mathematics.” So cheer up economists are not alone.

    • ???
      July 4, 2012 at 2:54 pm

      I should expect at least a scrap meat if I want to take anything you say seriously, rather than deluded rantings.

      “I don’t comb through their work to find examples of it. I just consult the people who would know.” What an interesting admission. You really don’t find it at all valuable to read the very things you’re criticizing? What a scholar!

  28. Alice
    June 13, 2012 at 2:52 am

    if ??? wants something a little meatier on the maths errors made in published economics high ranking journals he need research no further than Deirdre McCloskey who can give him the meat he wants

  29. June 14, 2012 at 1:25 am

    Love, history, science –

    First, I suppose my brief comment about love was bound to be misunderstood. I’m not proposing a science OF love. I’m proposing a science that allows that love exists. The neoclassical theory posits automatons who know everything, compute infinitely quickly, are brute materialists, and have no social relationships (i.e. are not moved by fashion, envy, sex, insecurity, love etc – hence my reference to reptiles earlier, though this demeans even reptiles). If you allow for such social relationships, you immediately have a very different kind of system from the gentle neoclassical near-equilibrium rocking chair. What you have is a far-from-equilibrium system with internal instabilities that is more like a team of wild horses. These are the metaphors I use in my book, which I am spruiking here. :-)

    Robert Locke, I certainly appreciate your perspective as a historian. It’s clear economists need to pay more attention to history in general, and to the history of their own subject.

    I’m not an economist either, I’m an Earth scientist. Earth isn’t as messy as people, but it’s a lot messier than your average physics lab and it teaches you to be a bit humble, and to know the limits of your observations and your simplified, exploratory hypotheses. It is also a historical science. (Some people claim it can’t be a science because you can’t run experiments, but that’s too narrow a view of science. You can use your observations to suggest hypotheses, and you can use your hypothesis to “predict” what more observations might yield, and so test your hypothesis.)

    However I do think it is possible to do science in the realm of economic systems. It is clear from this blog that many people have a limited idea of how science actually works. So I do not mean making precise predictions. Reductionist science has succeeded brilliantly with physical systems, but has largely failed to make progress with living systems. This is because living systems are not predictable in detail, and cannot be reduced only to their parts, but have to be viewed as a whole as well. The new understanding of complex self-organising systems seems to be capable of accommodating living systems – WITHOUT removing their essential individuality and unpredictability of detail. Without killing them, in other words.

    So by doing science in the realm of economics I mean gradually gaining an understanding of how the system works, the way you would gradually come to understand your wild horses. In time you might learn how to calm the horses, even rein them in and harness their power to your own ends – always mindful they might surprise you or get spooked.

    You might think that’s not science, that’s just dealing with life. To me science is just a highly refined version of what we all do in life, solving daily puzzles, figuring out how to deal with challenges. I could go on. Some of this is discussed at http://betternature.wordpress.com/otherbooks/economia/neoclassical-scientific/.

  30. davetaylor1
    June 14, 2012 at 9:50 am

    Geoff, being very aware of the reasons for the b+ Robert allocated me, I woke up this morning hoping I hadn’t offended ??? by wondering whether he was quibbling. Elsewhere I said people needed to ask the right questions to draw out what I’ve learned (your way) over 75 years your way, “gradually gaining an understanding of how the system works”. In his questions about love, ??? did, whether or not he was quibbling.

    Re Lewis’s “Four Loves”, the failure to understand that one needs only to refer to North, South, East and West to have the means of understanding infinite variation seems to be one of the commonest mental blocks to people who can SEE infinite variation: they are unwilling to accept simple characterisations of it. Another limitation of the literal-minded is their failure to understand maths imaginatively, and that the meaning of the imaginative is often at the abstraction level of maths.

    Being familiar with complex number early in my training in the science behind radar, and with figurative speaking as a Christian, I still only gradually learned from G K Chesterton’s ‘Orthodoxy’ that literal-minded mankind was “standing at the cross-roads” and the answer – long before mathematicians generated chaos and strange attractors out of simple equations – to how radiating energy can be localised to become things, in a quibble about Eastern philosophy involving a snake eating its own tail.

    A Chesterton theme in ‘Manalive’ is coming home by walking round the earth from East to West. I only recently saw the significance of those coordinates being measured in two-dimensional degrees rather than one-dimensional distance. Only so can the three-dimensionality of the Earth preserved in two measures of it.

    A featureless sphere with coordinates marked upon it is of course not an adequate map. There needs to be a “fourth dimension” containing all the things which need to be marked on the map, all of which can be physically characterised in three-dimensional models with up to three-dimensional features, mapped by cross-sections, architect’s “plans, front and side elevations”, engineering drawings, four-component electric circuit networks etc., right down to three stable particle types in atoms. One CAN go that deep; but of course one only goes as deep as one needs to for the purpose in hand.

    Just as the third dimension in the more or less flat surface of the earth is expressed in its curvature, so can the fourth dimension, turning the spherical map into a toroid, like a snake eating its own tail: a circuit with all the three-dimensional apparatus and cells and processes of life within. And even though the “snake” has its mouth too full to interact with anything else that way, it becomes active only when something warms it, and is detectable by its radiation of heat generated by that activity. What in general it cannot do is reproduce itself without a second snake, nor can the offspring do unless they are both male and female.

    I said to ??? “I could go on”. So I have done. The deductive logic we all try to use is no longer taught in schools, but syllogistic implication follow from only four combinations of relationships involving all, some, one and none; historically, it derives from family geneology and thus from the four types of protein molecule which suffice to encode our genes. As you say, “Reductionist science has succeeded brilliantly”, using not deductive logic but by our becoming able to “reverse engineer” the process of evolution as our exploration of the history of the universe reaches further back in time, this being the “retroductive” logic of C S Peirce and Roy Bhaskar: essentially Bacon’s “taking things to bits to see how they work”. But Bhaskar, in his ‘Dialectic’, shows how retroduction is just one of four phases of real logic, which for a 2005 Critical Realist conference I labelled [statistical] Reduction, [hypothesis-generating] Retroduction, [experiment-generating] Deduction and [quality assurance] Induction.

    ??? thinks the logic of economics is Popperian. Popper himself argues that all logic is deductive, so intuitive hypotheses and induction are illogical. Shannon showed that deductive logic can be performed by switching circuits and error-correction logic by [combinations of] information feedback circuits. That – which comes back to looking at the facts about logic as well as the evidence – I reckon that justifies my version over Popper’s. Intuition is selection by simultaneous elimination of known errors, and induction is acceptance as adequate rather than proof of perfection. This is not simply an argument about words, if economists are doing not what Popper does, but what he says.

    The proof of the pudding is in the eating. A discipline which theorises deductively on the basis of an unreal Economic Man, then acts on the theory as if it were true despite Man not appearing in it, has neither rejected errors nor subjected its data or itself to quality control, and has quite clearly not done its homework on what does and does not work.

  31. robert r locke
    June 14, 2012 at 10:37 am

    Thanks Geoff. Let’s get on with the moveable feast, the discussion that each generation carries on to identify what they are doing, when the nature of problems of each generation changes and the ability of the inherited science to focus on and deal with them need to be constantly clarififid in free and oplen debate without the limitations imposed on the discussion by a priesthood within a discipline or by the state.

  32. davetaylor1
    June 14, 2012 at 1:52 pm

    Agreed, Robert. Though I don’t suppose my typos and omissions have helped to clarify my attempts to discuss the problems in the science economists have inherited! Perhaps my most significant omission was at para 6 of #58, where on reflection the first sentence should have read:

    ” Just as the third dimension in the more or less flat surface of the earth is expressed in its curvature, so can the fourth dimension OF TIME BE REPRESENTED BY CURVATURE, turning the spherical map into a toroid, like a snake eating its own tail: a CIRCUITAL SPACE with all the three-dimensional apparatus and cells and processes and atoms of its life within it”.

    Empty a river of its content and its banks will still provide most of the information necessary to determine its capacity and the risk of it drying up or flooding, given the rainfall.

  33. davetaylor1
    June 15, 2012 at 10:10 am

    Reading http://en.wikipedia.org/wiki/Thomas_Robert_Malthus, one begins to wonder at the beginning of this:

    “The Global Financial Crisis, the extreme inequality of wealth world-wide, the materialism of modern life and the dire state of the planet are not accidents, nor just unavoidable consequences of the nature of things. They are the result of the modern practice of economics, which makes elementary errors of accounting, evidence, perception and theory”

    whether Geoff’s eight elementary “errors” are errors, or policy. If the latter, the elementary error is that of Malthus, asssuming that because men are animals they are not capable of learning. I was surprised (but in another way NOT surprised) to learn here that Malthus had been an enthusiastic supporter of economic rent.

    Henry, Carol and I suspect others too may enjoy this snippet:

    “Henry George observed with characteristic piquancy in dismissing Malthus: ‘Both the jayhawk and the man eat chickens; but the more jayhawks, the fewer chickens, while the more men, the more chickens.'”

  34. robert r locke
    June 15, 2012 at 7:26 pm

    Thanks Dave, for the comment about Clausewitz. I think I can answer my own question about why economists did not pay attention to Clausewitz instead of Smith: up to 1940 many did, not in Britain or the US, not where neoclassical economic reigned, but in Germany where the historical schools looked at economics in terms of state rivalry. One doesn’t have to look beyond Friedrich List, about whom people in German universities still write PhD theses, but one can in others – in Schmoller and Sombart, for example — also see an economics keenly aware of state rivalries. It’s in the language: When Sombart claims that “the growth of large-scale nationalistic warfare” is the root cause of economic development, since the “demand for more effective weapons, offensive and defensive, stimulated technology and invention” we have an economist thinking in the Clausewitzian mode – a mode that goes further to explain the development of Information Technology in the US than any neoclassical economists reasoning about how economic growth is ultimately driven by the search for new ideas by profit-seeking innovators.
    As an historian, I got interested in economics because I wished to explain the decline of French power vis-à-vis Geman at the end of the 19th century. That’s Clausewitzian. I could find little of use in today’s orthotodox economics to help me solve questions of comparative French and German industrialization (important to my power question). So I turned to institutional history (state’s have institutions, individual players don’t), with special focus on education, specifically the relationship between educational systems and entrepreneurialism. These should not be side issues in economics because the survival of great nations is at stake and the livelihood of the people who live within them. But the Smithian approach, individual competition within free markets, prevents the sort of broader analysis of economics from taking place that the Clauswitzian emphasis on state rivalries promotes.

  35. June 16, 2012 at 1:53 am

    Very interesting point Robert, about US motivations. They themselves made much of the moon landings as a driver of innovation (from which we are blessed with teflon :-) ), and of course the moon landings were part of the “space race” with the Soviet Union.

    I get regularly annoyed with what I call the capitalist myth (accumulating capital, investment, progress, prosperity) when the current truth is more like accumulating debt, speculation, wealth destruction, poverty for the masses.

    Anyway neoclassicists don’t even address Smith’s question (origin of the wealth of nations), their theory is about distribution of wealth, with a few ad hoc bits added to pretend they’re dealing with larger questions.

    Eric Beinhocker (see end of article) at least talks about how non-neoclassical economies can drive innovation.

  36. robert r locke
    June 16, 2012 at 6:43 am

    And a Clausewitzian mode of thinking best explains the good fortune of Australia today: Chinese leaders to build their economy need raw materials and they seek them in Australia – in order to fight off American hegemony.
    That is why I contend that the discipline of economics must be understood as a historical phenomenon specific in its Gestalt to time and place. Brits and especially Americans have a real problem with the state. Government is perceived not only as the enemy of freedom but as corrupt and inefficient. Constantly, in the new African nations, for example, we hear about how government officials are bribed and the wealth of those nations squandered; nothing much is said about those who are doing the bribing, the private sector. As for inefficiency, a litany of attacks on regulators and civil servants make government the essence of ineptitude in American minds. The study of economics grew up in a world beset with these ideas. Government was replaced by markets and the invisible hand in economic calculation. Even in the 20th century, when the visible hand of management (Chandler) replaced the invisible hand as an arbiter of economic efficiency, the anti-government view persisted because the new managerial hierarchies were in the private sector corporations and the schools that trained them were private institutions (HBS, Wharton, Univ. of Chicago), privately funded, that serve private interests, the new managerial hierarchies.
    But that’s the history of the US and the UK. On the European continent and elsewhere the attitude towards the state was quite different and towards private enterprise. Continentals never thought that private businessmen and industrialists were more than special interest groups, and, therefore, not be trusted with looking after the public interest. That was the job of the state, led by a general class (the hauts fonctionnaires, Beamtentum) that was especially trained for this task. In nineteenth century Prussia enlightened civil servants carried through the modernization of the country – in promoting a common market (the Zollverein) and in education, for another example, in the founding of the technical Universities and the Business Schools. The impulse did not come from the merchants or the university professors. The same thing happened in Japan – with a special service class the samurai leading the way during Meiji and after WWII, the civil servants in the Ministry of Finance looking after the recovery and expansion of Japanese industry (see Robert Locke, 2005, “Japan Refutation of Neo-Liberalism” RWER) People equipped historically with the analytical apparatus of neo-classical capitalism can’t really cope with these events. Or with events in China. People in the West say that the Chinese are copying “us” but the recent economic transformation of the Middle Kingdom has been carried out under the guidance of Communist Party bureaucrats, not Harvard MBAs, Not to understand that the way Americans explain economic events is peculiar and particular is a mistake.

    • davetaylor1
      June 17, 2012 at 4:36 pm

      Having read this for about the fifth time, Robert, the connection between Clausewitz and “the discipline of economics must be understood as a historical phenomenon” [lines 4-5] no longer seems obvious. Surely what Clausewitz is arguing cuts across historic forms of the economy? Do you mean “the economy”, or “the way the Americans explain the economy” [last line]? or are you restricting the concerns of the discipline of economics to an empirical view of what the economy might look like at any specific time and place?

      On leaving the UK out of this, I have to point out that we did have a specially trained administrative elite selected by examination, but its training was increasingly in sceptical philosophy and classical or Marxist methods, cut off from the old Christian roots in public service and common good. The post-war resurgence of these here transformed Empire to Commonwealth while the Continentals were transforming Fascist enslavement into Cooperation and resistance to the USSR, i.e. enforced union. I’m just hoping Greek courage will increase resistance to our enforced union as a USAE, i.e. United States of Americanised Europe.

      • robert r locke
        June 18, 2012 at 8:45 pm

        I think I mean that every commentator’s musings about economics are specific to time and place. Smith wrote about economics in the world’s greatest emporium, Clausewitz wrote from continental Europe during the upheaval of the French Revolution and Napoleon that destroyed the old regime. Place and time effected what they said. But Smith’s or Clausewitz’s specificficities can be useful for understanding the economy today, eventhough their frameworks are quite differen. Their admirers make this case..

      • davetaylor1
        June 19, 2012 at 7:27 am

        Thanks for this, Robert, and I agree with your conclusion. Sad about Greek indecision, though.

    • Alice
      June 18, 2012 at 10:56 am

      Too true of modern right wing ideology although I think they will find the private sector far worse as a master and as enemy of freedom and more corrupt and inefficient, after they have succeeeded in removing the last vestiges of government (and its corruption and inefficiency). A somewhat silly ending.

      There is no doubt that there is corruption and inefficiency in both the private sector and the public sector but traditionally / historically these two sectors were separated by something known as “the public interest”. Now that the “public interest” has been denied so comprehensively irrelevant (there is no such thing as “society” per Thatcher and “the greed of individuals is in the public interest” per the Chicago school) – well then it was OK to lose this divsion and mix the public sector with the private sector (per PPS and outsourced pubic services for a fee, in fact many new fees for services once provided for free by the public sector)

      Then it is no wonder that the following happens but Im not sure the Brits or the Americans understand the source of the problem. The eroding of the distinct division between the public and private interests, has in effect, opened the floodgates to corruption in both sectors.

      “Brits and especially Americans have a real problem with the state. Government is perceived not only as the enemy of freedom but as corrupt and inefficient.

  37. Ralph
    June 21, 2012 at 8:23 am

    I am of the opinion that we have traveled the road of money and monetary gain far too long. Currently money is deteriorating society at a rapid rate and will continue to do so. If it is such a great system why do we have market crashes like the GFC and why do we continually need adjustments?
    Money rules people and we do anything to gain prosperity (as people see it today). Governments and business today are all about growth to keep money coming in. In Australia (where I am from) we have an utterly useless government that is only about staying in power rather than assisting the people – they will tell us otherwise but they use taxpayers money like it was endless. The best proof of this is how they sold 2 government billiard tables for $5k at auction yet did reviews and audits totalling $102K to see if it was feasible, a loss of $97k to sell something for $5k and these are our leaders….
    The Australian government will give us money to have more children yet we are having problems globally with food and over-population as they advise us. The world must learn how to handle sustainable living with our planet before we keep growing and strip it, leaving us all deprived and fighting for what is left. If we need more people for growth then open the immigration gates, not the baby boom and more people overpopulating a planet under duress. The Chinese have a one child policy for a reason – may not work totally but they can see a problem which the Western world is blind to as they need more money (growth) for prosperity. The mathematics and science do not work.
    We need a drastic change from what we are doing and bring ethics back into play. My theory is that today’s technology can start rating something we have all lost – integrity!
    Rate integrity of products against cost to produce (monetary and environmentally), practicality, usefulness, longevity etc. Then we can rate product against product to get the best product for purpose, environment, planet and ultimately mankind. Eliminate useless competition and waste and bring in innovation.
    Once we rate integrity of products we can do the same with people. Integrity of how you respect goods, treat people, time given to charity, time with family and so on – the variables are endless with people.
    The reason we need to do this is because once everything has an integrity we can start fluctuating prices to suit. People with poor/low integrity can pay more for goods and services whilst products of low integrity should cost more. Bring back balance into society and strive for everything to achieve the best integrity.
    To think we can rate products, people, companies, countries and governments. We all strive to have the highest integrity to keep costs down and grow in a more planet friendly way. Eventually we rid ourselves of money and start trading with our INTEGRITY!
    Use integrity to grow, utilise technology and start gaining freedom again – start having more freedom and enjoying life again, giving prosperity to all that are willing to gain INTEGRITY. A majority of jobs are based around money or for the right to have money to live – have INTEGRITY to live together and bring prosperity to all!
    Call me crazy or misguided but I know this is the direction we require to take and new concepts are needed today. We all have visions but whose is right – I know in time we can rate our integrity against one another all striving to be the best just like people strive to be the richest today. The richest feed off the poor only to become richer.
    Special thanks to Gina Reinhardt for not training Australians for mine work but to bring in foreigners so she can profit further from “our” mineral wealth whilst leaving the Australians out of work. One person so wealthy to gain more wealth from robbing the planet as quick as she can to make a buck and leave her fellow countrymen poor – a sign of things to come from our dash for cash.

  38. June 27, 2012 at 4:57 am

    Hi Geoff,

    A constructive, sympathetic criticism: while I agree with the main of the article, I think at times the vision presented is a bit simplistic,

    If you haven’t, you should have a look at

    Christian Arnsperger, Yanis Varoufakis. (1 July 2006). What Is Neoclassical Economics? Post-Autistic Economics Review. Issue no. 38.
    http://www.paecon.net/PAEReview/issue38/ArnspergerVaroufakis38.htm

    Cheers

    • davetaylor1
      June 28, 2012 at 10:29 am

      Very interesting. So that’s what we’re fighting. What’s the alternative?

      As a basis for discussion try Jason Potts and John Nightingale, “An Alternative Framework for Economics”, Post-Autistic Economics Review, Issue no. 10 (December 2001), article 3. http://www.btinternet.com/~pae_news/review/issue10.htm

      • June 28, 2012 at 10:56 am

        Thanks, Dave.

        I’ll give it a good read.

  39. Misaki
    July 15, 2012 at 3:52 am

    The biggest error: unemployment is still high in many countries, according to polls unemployment is the most important issue (http://mikethemadbiologist.com/2012/05/29/nobody-really-cares-about-deficits-its-the-economy-stupid/), and economists have not offered a solution to unemployment that doesn’t involve higher government spending, inflation, bubbles, or trade barriers.

    Like this one: /ɯoɔ˙ʇodsƃolq˙uɐlduoıʇɐǝɹɔqoɾ//:dʇʇɥ

  40. Steve Hummel
    September 7, 2012 at 1:44 pm

    The biggest (incorrect) assumption of neo-classical economics is that free market theory is actually free. It isn’t. And it isn’t because there is an ever present commercial REALITY that exists which economists are missing or omitting. The income scarcity enforced by cost accounting convention. This makes the Quantity THEORY of money largely null, and the velocity theory of money’s circulation exposed as completely incorrect.

  1. June 9, 2012 at 8:47 am

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