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Reformist Economics

from Peter Radford

“… the act of judgement that leads scientists to reject a previously accepted theory is always based upon more than a comparison of that theory with the world. The decision to reject one paradigm is always the decision to accept another, and the judgement leading to that decision involves the comparison of both paradigms with nature and with each other.” – Thomas Kuhn, The Structure of Scientific Revolutions

I will break my recent silence – I am still burrowing down into the issue of inequality – to make a comment on the skepticism I see concerning the Institute for New Economic Thinking.

It is justified.

Let’s think about this a moment.

If we are to set up an institute to support change, provoke discussion, and otherwise meddle about with the established way of thinking, and thus to earn the moniker of “newness”, we ought not to pack our agendas with a steady stream of establishment figures. That is not the way to revolution. It might, however, be the way to raise esteem and thus get the institution media attention.

Newness in economics is devilishly hard to locate. This is due, possibly, to the continued warring amongst longstanding points of view that have neither been reconciled nor defeated. Indeed, from my perspective, it is practically impossible to kill off an economic idea once it has attached itself to an ideological flag. If the flag persists so does the idea. No manner of empirical refutation is sufficient to get rid of old economics. There is always someone ready to argue its case or to critique the efficacy of the data. The entire economics enterprise is riddled through with such ideas lingering on in the shadows until they can jump back onto the stage suitably re-burnished. People call these ideas zombies for good reason. Society deserves more from its economists, but, unfortunately, has to settle for this constant recycling.

This doesn’t mean that no progress has been made over the last two to three hundred years. Not at all. We have a ton of valuable insights to arm ourselves with. Smith’s passing comment on the wonders of the invisible coordination of an economy gives us an opportunity to ponder on the powers of decentralized, one might say disorganized, organization. Then there’s Ricardo’s look at marginal production in land and its subsequent generalization into a whole edifice of like minded thinking on all sorts of economic matters. There’s the Marxist critique of capitalism and its socially destructive tendencies that are being borne out once more in our contemporary rise of inequality. And there are many more.

But Kuhn is right. Theorists are highly conservative people. They cling on to their theories despite a tide of empirical contradiction. Especially if they feel that no convincing alternative is available. After all it would be an odd economist who was willing to admit that all the currently available theories are wrong and that the profession has no much to say about the economy after all. Except for those insights of course, none of which are capable of carrying the burden that subsequent acolytes have attempted to pile on them.

An example: free market economists have taken decentralized organization and made it into something it cannot possibly be as long as people are involved. In the headlong pursuit of supposed scientific credibility they have erected an enormous intellectual superstructure on the flimsiest of bases. The whole thing totters and falls when poked at, which is why they don’t poke. Or, rather, they only poke behind closed doors where outsiders can’t see how frail the enterprises is. Meanwhile their ideas do enormous damage to everyday folk who suffer the consequences of policies the depend on the purity of theories that are partial at best.

The same is true for all stripes of economic theorizing. They are all incomplete, incoherent together, and can only be described as works in progress. None are “right”, but most are useful in one way or another. As long as you don’t take any of them too seriously, and as long as you admit their severe limitations, you can get a pretty good feel for the economy. Just don’t accept any of them as being “true”.

Which brings us back to the INET and to the reform of economics in general.

The crisis in economics – and there is one – was caused by the loss of pragmatism and a great forgetting of crucial lessons. The hubris of mid-20th century economics was that it forgot its many flaws. It pressed its claims way beyond any sensible limit. It forgot the essential contingency of its greatest insights – Smith, Ricardo, Marx et al were explaining what they saw before them. These were not eternal claims, but were historically rooted observations that may or may not be relevant in other times or circumstances. This hubris was part of a great up-swelling in confidence based upon a very small data set. Theory after theory was accepted because it passed muster when applied to a short time span. Few economists, apparently, thought to look back into deep history or to test theories against longer spans of time. So we ended up with a slew of ideas that stood up well in the short run and which were then accepted as being applicable more generally.

We ended up with theories to explain the exceptions and none to explain the rule.

So, when the latest exception blew up in our faces – the so-called great moderation – the economic orthodoxy which seemed to explain it so well, was suddenly revealed to be just another side bar. We can, apparently, explain yet another special case. We cannot yet explain anything more.

If Kuhn is correct and changes in theoretical paradigms depend on the availability of credible alternatives at the moment of crisis, then any institute of new economics ought to be searching the landscape for those new ideas and not rolling out proponents, no matter how notable, of the old. Plus it ought to fend off  the descent into blandness that seems inevitably associated with institutions everywhere – INET, to my eye at least, seems a little too eager to appear credible to those whose very ideas it purports to debunk, it lacks edge, and its efforts look highly sanitized to avoid overt conflict with the old establishment. The subject matter it deals with doesn’t look very controversial and already it seems destined to be just another island in the economic archipelago rather than an agent for change.

All in all the INET has little new about it, but is certainly more. Plenty more because of its ample financial support. Its bulk runs the risk of squelching smaller and less well funded alternatives and it could do its credibility a load of good were it it to provide wider support for the search for newness.

I won’t carp any more. George Soros is entitled to his vanity and his efforts. But as a person who made his fortune playing with financial hedges of various sorts he ought to recognize the value of variety and of competition. He could, for instance, back many horses in the race for the new. He could fund the grassroots of economics rather than its alternative establishment. He could fund dissident academic departments. He could do all manner of things that would be “new”.

What he is doing isn’t.

  1. April 2, 2014 at 4:14 pm

    Toward new and fresh :

    “These considerations suggest a new approach to understanding the Earth System, which builds on earlier theories of ‘Gaia.’ The original Gaia hypothesis stated that the Earth System is a highly integrated complex system in which life evolves in a way to maintain the biogeochemical, climatic and other physical conditions that are necessary conditions of its viability … In this approach, the transitions between different stages of the evolution of the Earth System are seen as sequences of thermodynamic equilibria … The new approach … defines the Earth System as as a non-equilibrium system; the evolution of this system drives the emergence of new states which are even further from equilibrium. This reflects the workings of the Second Law visits expression of the maximum power principle and the maximum entropy production principle. So, in this new view, Gaia is a self reinforcing non-equilibrium system. Life – and human technology – is the mechanism of physiosemiosis that drives these sequences of non-equilibrium steady states.”

    Foundations of Economic Evolution, by Hermann Carsten Hermann-Pillath, pp128

  2. Marko
    April 2, 2014 at 4:18 pm

    Along the same lines , I find it depressing that this year’s Minsky Conference is populated by folks from the Fed , WSJ , NYT , FT , AEI , Brookings , JP Morgan , and the U.S. gov’t – not exactly bastions of ” new economic thinking “. I can only hope they attend with open minds rather than open wallets…..


    Hollande is now a supply-sider. Who’s next to get bought off , Bernie Sanders ?


  3. davetaylor1
    April 2, 2014 at 7:50 pm

    “Newness in economics is devilishly hard to locate”. Really? I would have thought looking at what is being offered you and comparing it with what other people are saying is not devilishly hard. Khun is right. “The decision to reject one paradigm is always the decision to accept another, and the judgement leading to that decision involves the comparison of BOTH paradigms with nature AND with each other.”

    As a non-celebrity, all I will say of INET is that I didn’t even get the courtesy of an acknowledgement when I offered them some new economic thinking.

    Reading Garrett Connelly’s comment, Herman-Pillath’s offering may be (reasonably) new to economists, and his new word “physiosemiosis” may give them food for thought (though Shannon discovered hardware switching circuits doing logic 76 years ago) . However, I think it is missing the point. One has to deconstruct evolution to before the time when the coherently radiating energy of the Big Bang reached the surface of space to form the “spray” distorting the electromagnetic waves still reaching us aeons later. Put another way, information science is about a bit of chaos and redundant information obscuring a lot of coherently channelled information, and not about a lot of chaos generating coherent symmetries and structures. It is about using “redundant” information to correct errors. In terms of Gaia and non-equilibration hypotheses, the non-equilibration effects are occasional diversions from a stable course, like a ship changing course to avoid an iceberg or a firm moving into new markets to avoid financial difficulties.

    To make sense of the Gaia hypothesis as Herman-Pillath presents it, one has to think not in terms of thermodynamic equilibria but of the localisation of energy by self-capture by end- rather than surface tension, i.e. spray in the circuital form of something like a superconducting current or a magnet with a keeper on it. These “particles” create different imbalances which at each transition “between different stages of the Earth System” have been offset in different ways, much as successful navigation involves not just a true course but corrections in light of PID feedbacks. Easier to see than explain? Lovelock’s explanation of the formation of tubular then cell structures internalising imbalances and circuits is a wonderful help in imagining this.

    By way of a contribution to “new economics” I’ve been arguing for years that Adam Smith’s “invisible hand” anticipated the idea of price control via negative (P) feedback from customers, and that Keynes added correction of the “sideways” (I) drift into unemployment. The growth of debt-financed enterprise left investors at risk of the icebergs of bankruptcy, and the growth of financial (D) management of investment portfolios has completed the system. But it has also changed the nature of the beast. The change of course now is not to safely taking on responsibility for supplying a new market but to reliably making more money: that having its own quartet of loans, the marketing of them, insurance and derivatives – the latter again changing the nature of the beast by generating theories and portfolios of fiction rather than fact.

    The Kuhn quote above doesn’t distinguish “normal” from “revolutionary” science. In economics I suggest they amount to pursuing “micro” and “macro” economics: the one using theory to index an existing book, the other revisiting reality in light of more fundamental theory (e.g. of the dynamics of communication) in order to rewrite the book.

    • April 9, 2014 at 2:25 pm

      The point of Hermann-Pillath’s effort, which I am far from finishing, is that random chaos present the opportunity for new combinations of information to meet and form new and more complex hybrids, be it in the flow of economic history or genetic code. He does a good job of grounding economic mathematics in more humanly relevant thermodynamic laws and entropy. New combinations of thought are a product of distributed intelligence which resides somewhere outside the brain, which is physical inference device (PID). A more exact parallel here is language, which also resides somewhere outside the physical brain. True, this is not a new idea, Benjamin Franklin, for example, argued brilliantly against patents for very similar reasons. Hermann-Pillath’s Foundation of Economic Evolution starts with a genesis story at Big Bang and is not shy of modern mathematics, I highly recommend it as a foundation for new economic thinking which includes the economy in a modern democracy, which I have gradually come to see as most likely consisting of seven branches, the institutional aspect.

  4. Peter Meier
    April 2, 2014 at 7:53 pm

    I find this whole anti-INET debate really rather shallow. I am sure the scholars who received funding, including many people who have been far from being shy about questioning the status quo in economics, are very greatful for the support. The people in the comments section here seem to have a quite childish approach. Bringing about change will not happen over night, and certainly not by shutting out established “mainstream” economists, whether they work at central banks or elsewhere. As a matter of fact, this attitude is ideological and unscientific, i.e. exactly what many rightly criticise about the profession’s status quo. Just my two cents.

    • davetaylor1
      April 3, 2014 at 7:08 am

      Peter, your comment is refuted by the facts. For a start, the debate is not anti-INET, it is more expressing disappointment in light of what we have found. You say: “Bringing about change will not happen overnight, and certainly not by shutting out established “mainstream” economists”. As I said, they shut me out – even though I’ve been pondering the issues as a scientist for sixty years; not me them. Peter Radford’s comment is reflecting on the significance of that, while Marco’s is agreeing with Peter in light of the evidence he’s seen. Garret and I are discussing the point of INET: the type of “new thinking” needed by economic professionals who, if they are not overseeing building on sand, are measuring up castles in the air. Foundations are deep, not shallow, and debate between people who already have some understanding of what they are talking about can be summary without being simplistic. If ours has taken you outside your comfort zone: tough! Consider whether you might be the kettle accusing the pot of being black.

    • davetaylor1
      April 3, 2014 at 7:15 am

      PS. Your Freudian slip: “greatful” instead of “grateful”?

  5. robert r locke
    April 3, 2014 at 9:50 am

    “The entire economics enterprise is riddled through with such ideas lingering on in the shadows until they can jump back onto the stage suitably re-burnished. People call these ideas zombies for good reason. Society deserves more from its economists, but, unfortunately, has to settle for this constant recycling.”

    Peter, why not do with economics what Hegel did with Philosophy, make “economics” the “history of economics” because there never has been an acceptance of a “new paradigm” in economics, neoclassical economics is not an example of one; historians know that its “triumph” was the result of a constellation of geo-political events that have run their course.

    • robert r locke
      April 9, 2014 at 7:02 am

      “… the act of judgement that leads scientists to reject a previously accepted theory is always based upon more than a comparison of that theory with the world. The decision to reject one paradigm is always the decision to accept another, and the judgement leading to that decision involves the comparison of both paradigms with nature and with each other.” –
      Thomas Kuhn, The Structure of Scientific Revolutions

      Kuhn’s comment does not apply to economics. There has never been a “decision” to reject one paradigm for another (in this case neoclassical economics) by “economists,” only by some economists. Anybody who knows the history of economic thought knows this. That even real world economists believe that neoclassical economics was accepted as the new paradigm shows what lousy historians they are. That is why I say you do not have economics, only its history and those who are ignorant about it are condemned to repeat it.

  6. April 3, 2014 at 9:57 am

    Agree Peter that there has been no new economic thinking, only pretense.

    If you want to prevent something from being done, be the first to volunteer to do it. When you are seen to be the prime mover or doer of that something, then just pretend you are doing it. This robs most people the opportunity to work on it, as they are waiting for you to deliver. When nothing happens after some time, you just make excuses for why the job is very difficult.

    I have seen this ploy used so often, particularly in politics and government, that one wonders why more people are not completely cynical about these initiatives. The INET and for that matter all other similar initiatives, as agents of change, have not delivered any thing remotely new as Peter has noticed. (Peter Meier, what is really new in more than 5 years?) There has been no more “availability of credible alternatives”, only resurrection of old ideas which have failed historically, and therefore cannot be real alternatives.

    The number of economic religions has remained the same. For decades, it has been mostly a flip-flop between neoclassical economics and Keynesian economics. Currently Keynesian economics is in charge again, but with new forms of market manipulation for the sake of government economic management. Few economists (particularly, the INET Keynesians) are commenting or complaining about expansionary monetary policy, negative real interest rates, quantitative easing, etc, except for the uber-Keynesian Krugman, who rants that the Keynesian measures are not bold enough.

    Whenever I see well-known names at a conference, I lose interest immediately, because I have already heard or read what they have said: garbage. None of them had tried really to “rock the boat” and called for heads to roll (not literally). Nothing has changed. They cannot be serious. If George Soros really wants change he would have to support genuinely new ideas by making the financing decisions himself, like a true modern Medici, not relying on an organization with inherent political bias to it for him. For a genuinely new attempt without a compromising organizational structure attached, see:


  7. April 3, 2014 at 7:30 pm

    This is not a new phenomenon, but what i see from INET is that actually its really just another ‘old boys club’ (though of course nowadays ‘the boys’ can include people of any gender, race, etc.—-but generally tends towards a status quo reproduction). It doesn’t appear to have much of anything ‘new’ nor ideological—left, right, pro- or anti-capitalism, or finance…). The faces and names i see tghere include galbraith (liberal) , s keen (minskyiite or keynsian, also on rwer), duncan foley (i gather a marxist who dabbled in entropy),, amartya sen (who like rawls writes from the ivory tower about the misery of poverty and what could be done about it—eg attend an inet conference, jeffrey sachs who shifted from privatizing russia (with obviously nearly utopian future evolution into the putin era, to reinventing himself as did Soros, Bill Gates or Carnegie) as a promoter for allieviating poverty as directed by Columbia U) . It may not be too different from the UN, where you have all these heads of states and diplomats, who may disagree on details capitalism, communism, fascism, etc.) but all agree on important things like luxury hotel suites and alkl the other amenities.

  8. Random Comment
    April 3, 2014 at 11:35 pm

    The fact that Soros, who recently praised “the remarkable transformation of Central Europe’s economies in the 1990s” (remarkable, alright!), is involved tells you everything you need to know. INET has some interesting people on board, Stephen Marglin’s done some stuff with them, but I agree with what you are saying. INET doesn’t seem particularly interesting.

  9. April 7, 2014 at 12:16 am

    As for INET, I agree it’s disappointing. On the flipside, where does the aspiring heretic go nowadays to find company and scientific community to develop their radically different conceptions of economy? Here (WEA)? A friendly academic department? Your favorite tenured economist whose ideas have common starting points to yours?

  10. davetaylor1
    April 7, 2014 at 7:32 pm

    Pavlos, I suggest the point of Robert Locke’s response is that you shouldn’t be looking for the company of a professional economist. At http://www.asepp.com, Lyonwiss is right in principle (if, I am prepared to argue, not in detail). If economics is a science then we need to agree on what science is. At #3 above I’m arguing that economics not a science, it is a control system, and the science of control (cybernetics) is not the science of random motion (Maxwellian physics or the Santa Fe understanding of complexity) but of guided motion carrying a mixture of meaningful signal and distortion (i.e. Heaviside’s simplification of Maxwell’s theory as applied to electric circuits, where (as in Shannon and Weaver’s information science) the aim was the revealing of truth by the elimination of distortion. (Would that THAT had happened in the garbage now masquerading as economics).

    Anyway, I’m primarily a scientist – a seeker after truth rather than an aspiring heretic – and only secondarily an economist (as a Catholic citizen working on the fringes of engineering and financial management). For 60 years I’ve had your problem of finding “company and scientific community”), so with Christian timescales much longer than those of Robert and Lyonwiss, I turned first to Aristotle via Aquinas, then to Schumacher via G K Chesterton’s Distributism. I dallied with J S Mill, looked at Marx and thanked Keynes, but for a radically different (because much more human and wider) concept of what an economy should be I settled on Ruskin’s 1860’s “Unto This Last” and “Crown of Wild Olive”, which his publisher censored in light of the City of London’s outcry against them. Long before this, however, I had immersed myself in philosophy of science and found a dispute between Continental rationalism and atheist David Hume’s rationalistic perversion of Bacon’s original empiricism – inventing new jobs by taking things to bits to see how they worked – which in the aftermath of the Reformation had widened medieval science by adding back the love of neighbour. (Theological medieval science had focussed on the love of God). I belatedly found “company and community” among Tony Lawson’s Critical Realists, where Sy’s one-level model of science in Lyonwiss’s blog is beginning to catch op with the DREI(c) and applied RRREI(c) phases of Bhaskar’s scientific “Dialectic”: if not with St Paul’s and Adam Smith’s notion of specialisation, Chesterton’s rooting it in different uses of brain structure and mine in computer architectures, programming grammars, observation of scientists and Boulding’s “The Image”.

    Too much to say. But why seek heretics when the need is to go back to scientific basics? Have another look at what I wrote at #3.

    • April 7, 2014 at 10:10 pm

      Why then… “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha’‘
      Why not ‘due examination ‘of :
      … Prof. Michael Hudson ; http://www.globalresearch.ca/index.php?context=va&aid=28938 . “…. The Mathematics of Compound Interest A syndicate of less than one hundred American capitalists, if allowed to collect interest on their capital at a low rate and re-invest for 150 years or less, would at the end of that time own the earth and all real and personal property thereon. This is a simple mathematical proposition, capable of exact demonstration, and any one who doubts the truth of this statement may set all doubts at rest by computing compound interest on one and one-half billions of dollars for one hundred and fifty years, at five per cent per annum. …Flürscheim elaborated that “All exertions, all improvements in the methods and tools of labor, the strictest economy, the severest self-denial, are powerless to compete with the rapidity of self-increase possessed by capital placed at compound interest, and they cannot keep up with its demands.” To illustrate the dynamic at work, he composed an allegory (pp. 327ff.). Many ages after man was driven from Paradise and told “to earn his bread by the sweat of his brow, mercy began to prevail. A loving angel was sent down by the Great Master, charged with the task of lightening the burden. The angel’s name was Spirit of Invention. He began his work by teaching man to make useful tools” and tame animals, and in time to mobilize water power, air and wind power, fire and steam power to drive machinery. “It seemed that at last the golden era had come of which men had dreamed for ages past,” but “that envious spirit, that fallen angel, Satan,” was jealous that his own empire would soon be over for ever.
      Why not..
      …“Capitalism is the “best” system to date devised by mankind. As it is administrated, perhaps, is where the “flaw” is manifested. If capitalism used its Central Bank properly,that is for the betterment of the common good, with equality and justice for all, capitalism would be the best ways and means to help “form a more perfect union….”, Pontifical Council.
      Precisely. Soddy/Pontifical Council are/were perfectly conceptually aligned with Social Credit in this regard. However, power and profit require a symmetrically separate and equally powerful countervailing administrative agency that acts “in the betterment of the common good, with equality and justice for all,”BFWR commented on ” Is economics ripe for disruption? . .”
      If it were possible to sum up the single greatest flaw to capitalism ,it would be :It allows for the “most powerful force in the universe”… to quote( Einstein ? ),” compounding interest ,” to be used against that society.The lender becomes the owner of all the money based upon the act of compounding at any rate within a long period of time.

      …As Soddy said, every monetary system must at long last conform, if it is to fulfil its proper role
      as the distributive mechanism of society. To allow it to become a source of revenue to private issuers
      is to create, first, a secret and illicit arm of the government and, last, a rival power strong enough
      ultimately to overthrow all other forms of government.”

      He got it wrong ! They are no longer secret and illicit !

      Frederick Soddy writings, namely “The Role Of Money”
      (Entire book as a free download… http://archive.org/details/roleofmoney032861mbp

  11. April 9, 2014 at 11:03 pm

    F. Beard on Are New-Keynesians accidentally discovering Keynes?

    F. Beard
    April 9, 2014 at 5:06 pm | #1
    Reply | Quote

    When I hear the word “interest”, I am disgusted that we live in a usury-soaked world and there’s no excuse since common stock is an endogenous money form that requires no borrowing, much less at interest – that shares rather than concentrates wealth and power.

    But what’s worse is the glaring, stinks-to-High-Heaven, hypocrisy of government backing for what should be 100% private businesses, the banks. For Heaven’s sake, if an endogenous money form REQUIRES government privileges, isn’t that a dead giveaway that it is morally bogus?

    Do I even have the stomach to jump down in the sewer and consider the “natural rate of interest?” No I don’t, not today, since usury is PERMITTED (Deuteronomy 23:19-20) from foreigners but what isn’t permitted, even from foreigners, is government-backed, systematic THEFT, especially from the poor.

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