A Dilemma

from Peter Radford

The recent crisis, and our not very good policy response, lingers on. The damage to ordinary people’s lives amounts to a hidden disaster that will take years to mitigate. The economics profession – and I use that word loosely because a true profession monitors itself better than economics does – has been shown as inept, fragmented, and unable to correct its evident errors. What existed before the crisis as settled orthodox theory has been exposed by events to be alchemy. But its practitioners continue to sell it as if nothing happened. This intellectual bankruptcy goes unpunished largely because economics is a small, self-contained, and self referential world. The elite schools are populated with past students of elite schools. The elite schools control the publishing process. The elite schools supply the armies of analysts at the elite institutions. The elite schools dominate the conferences. And the elite schools perpetuate the myth that they possess the central “truths” that need to be passed along to the future.

Worse, outsiders struggling to come to terms with the uselessness or ineffectiveness of the policy advice that pours out of the economics profession, have to wade through the constant internecine fighting that lurks just beneath the surface. Academic combat is laudable when it leads to progress. It is puerile when it leads to nothing but name calling. A theory failure ought to bring applause because it denotes learning. In economics it merely denotes the onset of politically motivated trench warfare. The front lines in the war never move, but an awful lot of ammunition is hurled back and forth. The collateral damage is extensive. The quality of policy advice suffers. Generations of students are exposed to alchemy and taught that markets will always turn lead into gold as long as the government gets out of the way. They are taught to ignore uncertainty; that consumers are rational; and that business firms maximize profits despite lacking the information needed to do so. If they read Milton Friedman they learn that anything goes in model building as long as it produces the “right results”, which is handy as long as you know what the right results are. And they learn that the unions that protected their grandparents wages are actually a bad thing.

Worse still is that this mess continues unabated. It proliferates.

No one understands economics.

No one.

It is not humanly possible.

The torrent of paper that the profession produces is so vast, wide, and deep that anyone trying to cope with needs a compass and  a route map. No one can read it all. Chunks get ignored and great past works get forgotten.

And who organizes the route map? Who provides the compass?

The elite schools. The very same group propagating the alchemy. They have secured the high ground. They edit and publish the top journals. they set the rules. They defy and denigrate outsiders.

So this is the dilemma:

We need academic contest, but have an elite that restricts entry and seeks to censor debate. We have enormous variety elsewhere – off the mountaintops dominated by the so-called elite. But in the valleys there is very little light. We have hundreds of “lesser” journals publishing heresies of various sorts. We have conferences to give space to different ideas.

But we don’t have resources. And we don’t have the connections the elite does.

So we need help.

What we don’t need is to create more journals, conferences, and other venues that are ever more financially marginal. We need to collaborate not splinter. We must not dissipate but concentrate. We need fewer more pluralist journals so that our voice still finds it way onto bookshelves and into libraries.

This is not easy. I am not optimistic. The rules are bent against us. The elite is already squeezing the life out of discussion through its control and willingness to deride rather than engage.

I read somewhere that in mathematics some 200,000 theorems get published each year. No one reads them all. No one. No one understands them all. No one. Can we argue that our collective knowledge is being moved ahead when we cannot even assess it efficacy? When no one even knows its extent?

In economics we have the same problem.

No one, not even the most stupendously well read, the most comprehensively educated, and the most intellectually facile can claim credibly that the flood of published work is adding or subtracting to our knowledge. It just continues unabated. Path dependent. A habit we cannot kick. And beyond our comprehension. No one can say that the answer to our current economic plight does not exist. It may. It may not.

So we need to confront our dilemma. We need to stop. We need to invoke our main strength: our diversity. To do that we need to convoke.

Less, as we are frequently told, is more.

  1. paul davidson
    July 17, 2013 at 5:05 pm

    So why not unite behind a theoretical analysis which emphasizes what we all experience everyday in our economic lives — namely the entering into legal MONETARY contracts.

    Just think — every market transaction for production and /or exchange requires a legal monetary contract. When you shop at the supermarket the supermarket is offering each item at a specific money price to move ownership of the item from the supermarket to you. When you go to the check out counter you agree, via a spot money contract, to pay the supermarket the money price asked. You then present a credit card to the check out clerk who swipes it for you. You have now entered another money contract where the credit card company agrees to pay the supermarket for you, on the spot, in turn for which you have entered a contract to pay the credit card company the money amount in less than thirty days (a forward contract) — or to make this amount into a loan contract with specified forward payments.

    Secondly, if you are employed you have entered into a forward money employment contract with your employer (university, firm) where the latter has agreed to pay you a certain sum of money at specified future dates over the length of your contract and you have agreed to provide some specified labor service (e.g., teach x courses per semester, serve on designated committees, meet with students at certain office hours, etc).

    And this universally pervasive money contracting system is basic to understanding demand for liquidity and why savings are used t purchase liquid assets, and why the sanctity of the money contract is the essence of the entrepreneurial system in which we live !! As economists we wish to understand and explain this money contractual system and its operations .

    Only one theoretical analysis provides such pavement for understanding — the Keynes – Post Keynesian theory.

    So economists of the world UNITE– you hav nothing to loose but the ignorance being spread by the elite mainstream of our profession!!

  2. July 17, 2013 at 5:19 pm

    And who controls the curriculum at the elite schools? The big banks.

    Perhaps a closer look at the design of banking would be helpful to truth-seeking economists.

    http://www.moneyasdebt.net

  3. July 17, 2013 at 5:22 pm

    I say that the economics profession is overwhelmingly corrupt, because of its coexistence in near silence with the ignorance of the people of “The Public Be Suckered” realities:
    http://patrick.net/forum/?p=1223928
    How LOUD & LONG would you SCREAM if life sciences researchers did not tell the people of findings that asbestos causes cancer, because ‘most of those victims can’t even spell mesothelioma’?

    • July 20, 2013 at 8:05 pm

      Ed, I agree. At risk of over-simplification, most thinking or research, which is not totally free, paid-for by salary, money or other means, is tainted by obligations. Nearly everything and everybody are compromised. I find that even the process of publishing an article can be corrupting. A little bend here and a little twist there, soon you are totally off the rails, intellectually speaking. There is hope if you are financially independent and you can publish on the internet. But actual change to the world will take time.

    • July 21, 2013 at 2:15 am

      The intellectual justification for lies and deception is the economic theory of expectation. In simplified terms, the theory says the future course of the economy is determined by people’s expectations. One senior government official, in censuring my research on the relaxation of lending standards in 2006, said “perception is reality” and then prohibited publication of my results. The excuse is: the truth may cause panic. Right now, you see Bernanke making serious efforts to “guide the market” and in the process, “venal journalism” is co-opted into the endeavor. Even violent crimes (e.g. war) can be committed “in the public interest”.

  4. William Neil
    July 17, 2013 at 5:51 pm

    Thanks Peter, very interesting. I couldn’t help but notice some of your language and the metaphors you invoked: the high ground, plus the military terms. I suppose that’s because I’m the author of a very recent essay which was just released, June 30-July3rd, entitled “The High Ground, Gettysburg, 1863 & “What Then Must We Do?” 2013. This is a movie review of “Gettysburg” and a book review of Gar Alperovitz’s book in one (hopefully) integrated essay. But it is really about the two antagonistic moral economies that the Civil War was fought over, what it failed to resolve, and how Lincoln’s “race of life” enshrined the political economy of the 1830’s and 40’s into the early version of the American Dream. And it also briefly reviews economist Norton Garfinkle’s “The American Dream vs. The Gospel of Wealth” which asserts that FDR’s Second Bill of Rights from 1944 (the first Right being the one to a job) was the long awaited “codification” of what Lincoln stood for in matters of the economy.

    Needless to say, I take on the economics profession and its burial of labor, Lincoln’s common man, in its econometrics – “marginalizing the marginal through micro-marginalistic formulations” – no better illustrated than the fate of the minimum wage.

    Readers who want to tackle this can get the essay at w.neil@att.net.

  5. Robert Locke
    July 18, 2013 at 9:38 am

    As investigative procedural method, do as I do. Do not start with economists — their theories so often in conflict with each other will misguide and muddle your thinking. But start the investigation with the economy. What is going on our there. Then turn to the people who actually run the economy, engineers, managers, etc. to see what they think about the problem(s) you have identified. Then read economists to find out if they help clarify the problem(s) you are investigating.

  6. Fred Zaman
    July 18, 2013 at 4:51 pm

    In solving this dilemma, real-world economists must intellectually support and join forces with the 99% movement:

    It seems clear that the hegemony of orthodox economics (neoclassical economics) can be traced to the economic and political support it receives from the nation’s de facto governing elite – the wealthiest 1% on Wall Street. It therefore should be equally clear that demolishing the infrastructure of orthodox economics responsible for this hegemony will be possible only when real-world economists integrate their work by joining forces with the economic and political efforts of the 99% on Main Street, the “99% movement.”

    How is this to be accomplished? One way might be through an “analytical amplification” of what is obvious to real-world economists, which will make “the obvious” obvious to the 99% as well; so that the 99% then can see through and dismiss the false rhetoric perpetuated in the service of the wealthiest 1% on Wall Street. And in seeing this will in turn support real-world economists in razing the economic and political infrastructure of orthodox economics — i.e. in demolishing those aspects of capitalism’s economic system in particular grounded on neoclassical dogma.

    Currently, however, it appears that what real-world economists are trying to do, and failing miserably, is to demolish the infrastructure of orthodox economics on its own terms, without any assistance from the 99% movement. This has not and will not succeed however. Real-world economists must obtain strong support from the 99% on Main Street as economic and political counterbalance against the strongly elitist support given to orthodox economics by the wealthiest 1% (especially the wealthiest 0.1% and 0.01%). Only then will progress be made in demolishing the infrastructure of orthodox economics. But, in order to get this support, real-world economists first must be willing to get their “hands dirty,” by actively supporting in both economics and politics the various causes of the 99% movement; so that the 99% then will reciprocate and join forces with real-world economists in demolishing, both intellectually and on-the-street empirically, the infrastructure sustaining economic orthodoxy.

    The RWER essay “Nash dynamics of the wealthy, powerful, and privileged…,” and related RWER blog postings of the author that have followed (and will continue to follow), are a first step in the “analytical amplification” that the 99% needs before it will be able to clearly see what is obvious to real-world economists, and then join forces with them against the economic orthodoxy of capitalism’s ruling elite. “Nash dynamics…” for the first time establishes a conceptual framework for intellectually understanding the 99% movement’s economic and political perception of reality gone wrong under corporate elite rule.

    But is anyone on RWER willing to take this first step in resolving the dilemma of real-world economists? Who desperately need help because, by themselves, they simply don’t have the needed resources (which are not more journals, conferences, or venues), and by themselves without assistance cannot achieve the objective. The ruling elite have bent the rules against a capitalist institutionalization of real-world economics; and it will take both real-world economists and the 99% working together both in economics and politics to effect a reformation thereof. Real-world economists need to confront the reality that they simply cannot do the job alone. Help from the 99% movement indeed can be made available, real-world economists need only to seek it by first giving their assistance to the 99% movement.

    • Fred Zaman
      July 18, 2013 at 9:12 pm

      A general theory of economic injustice:
      Another approach to “analytically amplifying” real-world economics for the 99% movement is to develop a “theory of economic injustice” in which relevant empirical evidence – in economics, in politics, or in both – can be explained as being the result of unseen actors operating in the background; who operate “behind closed doors” at the highest levels of society’s infrastructure, or perhaps “behind the scenes” in the infrastructure more widely distributed. Certain postulates or theorems of the theory will state the modus operandi and/or belief system of actors thus operating in the background for the purpose of creating or perpetuating economic injustice. Individuals thus specifically engaged might or might not be publicly named. A general theory of economic injustice would state the theorems at the highest, most general levels possible. Of course, what the theorist regards as objective evidence of “economic injustice” must be stated at the outset as well, as the founding postulates of the theory presented.

  7. July 19, 2013 at 7:53 am

    Economics has always had a weak foundation. In recent years, the plutocratic elite has further exploited its weakness to select and entrench those economic theories which serve its purpose. The results are a corruption of economics as an intellectual enterprise and a steady impoverishment of the majority.

    Great advances and breakthroughs in the intellectual sphere have never involved large numbers of people, let alone the 99 per cent. Even if the truth may lead to a better deal for the masses, one cannot count on them for support, as Machiavelli noted in “The Prince”.

    What we need is an intellectual elite which is incorruptible by bribery of money and career to think and rebuild economics from the ground up. Virtually every great economist, from Smith, to Keynes, to Marx, to Samuelson and to anyone else, had been unscientific and fallacious, leading to Radford’s conclusion, “No one understands economics”.

    The future does not lie with economists with agendas or fixed ideas which cannot possibly be scientific, simply because there are no scientific laws of economics, in any sense equivalent to the laws of physics. The new foundation for economics cannot possibly be found in the journals, which can only contain modern elaboration of old and defunct ideas.

    Without a new indisputable economics, “mad men in authority”, uncurbed by intellectual discipline, are having a field day thrusting real-time policy experiments for the rest of humanity to suffer their consequences.

  8. Robert Locke
    July 20, 2013 at 5:59 am

    Reference to recent debates in this blog, especially in posts Dilemma, Three Goals of Pedagogical Change, The System Behind Dr. X, Rethinking Keynes’ non-Euclidian theory of the firm.”

    Invisible versus Visible Hand

    I cannot quite understand why people in this blog wish to cling to a concept of economics based on principles that no longer describe what is going on. We are continually served up a dish of great men and villains that lived in a world of real or imagined capitalism that has little to do with today’s globalism. We get the heroes of the maxims of individualism (Hayek, Keynes, etc) thrown at us in their contradictions, and the villains, chief among them Karl Marx, continually. Almost all of these heroes and villains lived before WWII or did their principal work then. In the new world of capitalism, the forest of firms guided by the invisible hand of competition that served the needs of people best in the open market place, an to which economists cling, has disappeared. In 1977, Alfred D. Chandler, Jr. wrote a Pultzer-prize winning book, entitled The Visible Hand that described this transformation, which has fed two generations of historians’ work about the rise of the new managerialist hierarchies, whose administrative skills and vision now (for its champions) advance the commonwealth. The new heroes became the managerial class, and the superheroes the CEOs of huge corporations, at the feet of which business school deans worship, since the superheroes endow their management chairs and fund their institutions; the new villains also became this new managerial “oppressive” (to use Simone Weil’s word) caste, created by the separation of ownership from control, which replaced Marx’s older idea of the “exploitive” class of bourgeois capitalist owners. There is a burgeoning list of books about the villains of the new managerialism, including my own.
    So far, in this discussion of reform of economics as a discipline, I see no evidence that the 19th century version of economics (up to WWII) that dominates orthodox economics and its critics in this blog, has been affected by the rise of the “visible” hand of managerialism. And yet the evidence that it should be is everywhere visible.

    • davetaylor1
      July 20, 2013 at 9:06 am

      Robert, Thatcher’s “right of the manager to manage” often raises my blood pressure, so I appreciate what you are emphasising here about about the rights even of owners being over-ridden in this claim.

      As a historian, I think you in particular would greatly appreciate the lucidity of this:

      http://thearchdruidreport.blogspot.co.uk/ dated 17th July 2013

      • Robert Locke
        July 20, 2013 at 9:35 am

        Good stuff, the archdruidreport. I like the Toynbee reference in particular. When I was a graduate student at UCLA Toynbee, a very old man, gave a talk to our group in the history department library. I’ve got fond memories of this brush with a history legend. And the message of why elites fail is spot on..

      • July 20, 2013 at 7:17 pm

        Very interesting Archdruidreport. I left fusion research in the early 1980s for finance and economics, because economists then were raising influential arguments about funding in fusion research. I disagreed both about their knowledge of how research works and about their economic rationale and so, I left. Thirty years and billions of dollars later, I find only incremental progress and no breakthroughs of any sort to speak of. I could probably resume my research, if there was any support for different ideas, without having missed much.

        Meanwhile, I took economics courses, which were taught like physics and assumed economics is science applicable to finance and public policy. But in the real-world of investment and government (where I worked) where real decisions are made at the top, only lip-service is paid to academic knowledge. The reason is: while economics and finance, particularly with sophisticated mathematics of risk management, appear scientific, none of it really works. The whole edifice is really like the emperor’s new clothes, to which everyone declare admiration, but secretly ridicule.

        My request for the past few years has been to get to the bottom of all this charade. Obviously, the explanation is very broad and deep, involving philosophical errors, fallacies, widespread fraud and dishonesty.

  9. July 20, 2013 at 7:29 pm

    lyonwiss :
    Very interesting Archdruidreport. I left fusion research in the early 1980s for finance and economics, because economists then were raising influential arguments about funding in
    fusion research. I disagreed both about their knowledge of how research works and about their economic rationale and so, I left. Thirty years and billions of dollars later, I find only incremental progress and no breakthroughs of any sort to speak of. I could probably resume my research, if there was any support for different ideas, without having missed much.
    Meanwhile, I took economics courses, which were taught like physics and assumed economics is science applicable to finance and public policy. But in the real-world of investment and government (where I worked) where real decisions are made at the top, only lip-service is paid to academic knowledge. The reason is: while economics and finance, particularly with sophisticated mathematics of risk management, appear scientific, none of it really works. The whole edifice is really like the emperor’s new clothes, to which everyone declare admiration, but secretly ridicule.
    My request for the past few years has been to get to the bottom of all this charade. Obviously, the explanation is very broad and deep, involving philosophical errors, fallacies, widespread fraud and dishonesty.

    Fine Comment lyonwiss. I am a retired chemistry researcher, paying attention as best I can to one economics thing — my Comment is #3 above. I’d be delighted to learn what you might think …

  10. July 21, 2013 at 5:45 pm

    lyonwiss :
    The intellectual justification for lies and deception is the economic theory of expectation. In simplified terms, the theory says the future course of the economy is determined by people’s expectations. One senior government official, in censuring my research on the relaxation of lending standards in 2006, said “perception is reality” and then prohibited publication of my results. The excuse is: the truth may cause panic. Right now, you see Bernanke making serious efforts to “guide the market” and in the process, “venal journalism” is co-opted into the endeavor. Even violent crimes (e.g. war) can be committed “in the public interest”.

    Wow! I am seriously staggered by your explanation. Do ‘they’ post this at Arlington??? Or is it written on the record anywhere ‘official’? (I assume not, but thought I better ask.) In an earlier Comment, you expressed negatively (“charade”) re. the status quo. In case you have any ideas for being effective for much more honesty, I’d be glad to contribute … BTW, I am seeking no ‘credit’ for myself … I am just trying to clean the flag.

  11. July 30, 2013 at 4:34 am

    Peter, Paul (among others), thanks but, Peter, you should stick to critiquing The Devil you know, which makes alchemy look like rigorous experimental physics by comparison. Also, there’s no way to rigorously assess or critique “economics” (as is) without integrating ethics into the effort. That seems to require a much larger context & purview to establish the new paradigm – a seemingly unpopular pursuit, if not anathema to chronic specialists & conceited dilletantes. Oh, well – as Schumacher would say, the economic sex fiends still rule the day.

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