Home > New vs. Old Paradigm > DSGE is a plutocratic tool

DSGE is a plutocratic tool

from Peter Radford

Hah! That caught your attention.

People who criticize General Equilibrium – henceforth GE – often fail to mention one of its major benefits to mainstream economists, one that explains its tenacity despite its obvious irrelevance as a real economic artifact.

This is that it is a weapon that allows economists to expunge politics from their subject.

Ever since Adam Smith’s fateful reference to the invisible hand, economists have been obsessed with finding an alternative to overt power relationships as a way to distribute resources and hence wealth in a social setting. Any conversations about power relationships invokes politics, since the latter is the rightful study of said relationships. This would establish political theory as a competitor to economic theory as a source of social welfare allocation. It would also alert the democratic citizenry to the positive role they can play in that allocation.

Economists have long tried to rid their subject of the supposed taint of overt politics and thus establish as a purer – in their eyes – and more scientific subject. Presumably this is because they see the study of politics as somehow unscientific.

But behind this so-called scientific agenda lurks a shadowy figure: it is the rejection by classical economists and their heirs of democracy. After all democracy is the tyranny of the masses, which to those struggling to throw off the tyranny of autocracy was an equal evil. If democracy is to be denied, if the masses are to be kept away from deciding the allocation of wealth, then some other force has to be located that can accomplish allocation in a less tyrannical way. 

Note that the ironic motivation was, from the beginning, political. The newly emerging intellectual tradition in the 1700′s  found its deepest resonance amongst the merchants, landowners, and traders who felt oppressed by the vestiges of autocratic monarchies, even though those monarchies had in many cases seen their power severely trimmed. Indeed it was exactly because the first tentative steps had been taken to diffuse power into the merchant and landowning class that the freedom existed to push further into what became republican thought.

The best way to locate a system that can allocate wealth within a society and yet prevent its domination by the masses is to push the politics off center stage. Politics can never be fully eliminated, all human activity is political in nature, but it can be argued to be superseded as long as the force doing the supersession is presented as inevitable.

To be inevitable such a force needs to be scientific. It must be so ever present and pervasive that it appears futile to interfere with it. Further, it must be so perfect that any interference violates that perfection and thus can be represented as a diminution or loss of benefit.

The invisible or hidden hand of the market was conceived for just this purpose.

It is argued, though has never been proved, to provide society with an allocation of wealth that cannot be improved upon. Especially it cannot be improved upon by the overt and direct methods of politics.

Its strength is its anonymity. It does its great work in the background unbeknownst to all those who participate in its activities. The active pursuit of individual goals is translated – in the background – into an unsurpassed social benefit. That is to say individual goals, however dispersed and contradictory they may appear, are collected, collated, and harmonized without any active debate, argument, dissension, or need for compromise. In short the very heart and soul of social arbitration – what we call politics – is displaced and made redundant.

A purified market economy, economists argue, has no need for politics. Indeed politics can only degrade and never improve the outcomes of the purity of a free market.

GE is simply the formal descendant of this vision. Dynamic Stochastic General Equilibrium – DSGE – is the more modern and more formal next generation.

We must remember, though, the anti-tyrannical origins of this great theme of economics. GE beguiles us precisely because it allows us to pretend that social harmony is achievable without politics. It allows us to pretend that politics can somehow be erased from society and thus from human interaction.

In this way GE is a parallel to Marxist theory: they both posit the ultimate extinction of politics from economic allocation.

Both are idealist illusions presented to us to divert our attention from the growth and meaning of democracy.

The history of democracy is the history of inclusion. Of the constant extension of the rights and burdens of citizenship. And, consequently, of the right to dare to be equal and the right to engage in politics. This inclusion invades and degrades whatever existed prior to it. The ever growing voice of the newly empowered threatens to overwhelm that of the previous generation.

In the realm of economic allocation this growing voice may express a desire for a greater share of society’s wealth to be dispersed. Since the first economists were representatives of landowners and merchants such a tide or force had be resisted.

And preferably scientifically, since that would hide the political objective: to preserve the allocative status quo.

Most subsequent economists working in the GE/DSGE tradition find it convenient to ignore the essential anti-democratic core of their endeavor. They simply argue they are being scientific. But others have been overt. Hayek and his heirs, especially Friedman, had no compunction or pretense. They openly presented the hidden hand as a socially virtuous force and were quite clear about the perils of political interference. They elevated GE/DSGE, as it has become, to the level of a faith or dogma. One cleansed of the dirty influence of the very forces that, at the individual level, Smith identified as the material essential for input into the hidden hand’s magical transformative process. In their view that transformative power has supplanted, because of its universal efficacy, the need for politics. It has especially supplanted the need for democracy, since the democratic impulse includes the rudeness we know as a desire for equality. Or, at least, greater equality.

That the outcomes of a society built upon an anti-democratic formula may be unpleasant to the masses, that they may render some into permanent poverty, or others into permanently inherited wealth, is never touched upon by the faithful. Their faith protects them from such moral quandaries. Their belief in magic and in the scientific nature of GE/DSGE provides them a shield against criticism. They know, above all, that whatever those outcomes are, however apparently unpalatable, they are the ‘optimal’ we can expect. To suggest otherwise is an example of our lack of understanding of the ‘laws’ of economics.

Thus for us to suggest a positive role for the government in the day-to-day allocation of wealth is to deny the scientific verity of a two hundred year old tradition.

That even a cursory study of GE/DSGE reveals it to be bogus, that its basic assumptions belong in the realm of fantasy, or that for it to produce its perfect outcomes it has to be rigged – should I say stapled? – in mid air so that it can be untainted by the realities on the ground beneath, is of no concern to the faithful. It is what they ‘know’.

That the outcome of the actual economic process in which we are active benefits only a small minority is also of no concern to the faithful. For they long ago left behind any pretension of the study of real economies. Instead they are content in their faith to provide exactly the same service that their intellectual ancestors sought to provide: a justification for the elimination of politics from the social allocation of wealth.

So, just as the history of democracy is the extension of inclusion, the history of market magic economics is its counterbalance. It is the history of exclusion. It is a defense of the plutocracy via an attempt to neuter the role of government as an active economic agent.

“We the people” is a concept that undoes the pretense, however elegant its math may be, of any theories sitting atop that defense.

We the people assert the right to interfere in the allocative outcomes of the economic process. Indeed we are the active agents within that process. Are we not?

  1. November 8, 2014 at 5:55 pm

    Thank you Peter Radford,

    The recent US election also provided some interesting experiences here in a small rural New England town. A citizen took it upon himself to gather petition signatures at the polling place. Before long the police and Town Clerk were involved evicting him.

    He said he was where the police said he should be. The Town Clerk said he was on the front steps blocking the door. He said he was lured in by the desire of the citizens to sign the initiative petition and that he was in a twirling dance of people’s petition power beyond anything before experienced.

    The insight is elections were probably once a very fun voting party. Now few go vote because it’s no fun and the political parties in collusion with the bureaucracy hurry one in and then home to an isolated experience of watching talking heads tell us what we did at the polls and why.

    Our petition now has enough signatures and a few of us learned just how much fun voting could be.

    Here’s the socio political econ project http://www.greenfieldzerowaste.org

  2. merijnknibbe
    November 8, 2014 at 6:40 pm

    Interestingly, the ‘welfare functions’ in DSGE models generally assume that government consumption (i.e. expenditure on primary and secondary education and such activities) does not increase welfare, though there is, theoretically, nothing that prevents DSGE economists from assuming it does. Except for, of course, the points mentioned by Peter – politics and political choices will enter the model.

  3. November 8, 2014 at 7:43 pm

    Peter Walras, the father of GE, was no representative of landowners and merchants. He was a qua economist, qua scientist,who wanted to complete the dreams of his father and produce something Newtonlike (that was the definition of science then). In the context of the 1870s, the pursuit of a GE was a legitimate objective for an embryonic science. The sad part comes later as modern economists failed to recognize that 1) output series of the their construct were not ergodic; 2) there was no guarantee of a stable equilibrium in complex nonlinear constructs, and; 3) the equilibrium price vector could not be verified empirically for the lack of proper metrics for some magnitudes, among other difficulties relating to the sheer sizes of some matrices..
    Your assessment may well be true today because human always find a way to degrade any good intention. For example, Bachelier (circa 1900) naively assumed that prices series were Brownian-motion-like. But, there is no excuse, except political, for the Chicago School to repeat that mistake in the 1950s so as to claim that markets are efficient, and repeat it again in the 1980s with “neoliberalism’. Look at the results!

  4. charles fasola
    November 9, 2014 at 1:16 am

    What a great expose of the myth of free and unfettered markets. A society functions solely for public good and purpose only when it is based upon inclusion and mass participation. When one’s concept of it is based upon individualism and fantastic economics devoid of respect for humanity or humane and compassion the end result will be societal collapse, then the jungle. Their dogmatism and greed blinds the believers in such moronic ideas as the existence of a magical invisible hand to the realities of where those beliefs eventually lead and to where the inevitable end game leads. Pitch forks and guillotines?

  5. Macrocompassion
    November 9, 2014 at 7:03 am

    Here the language makes it hard to appreciate what is being claimed. One thing is clear however. There is a need to separate the microeconomics from macroeconomic thinking. And here the two ideas are hopelessly muddled up!

  6. Lyn Eynon
    November 9, 2014 at 10:52 am

    In a subject so intimately concerned with the material foundations of human life, we should always ask of any theoretical proposition or policy recommendation: cui bono?

  7. November 9, 2014 at 2:41 pm

    While critiques of DSGE are legend today, that the model can be expanded to become more workable and economically useful is demonstrated by the IMF’s Benes and Kumhof in their The Chicago Plan Revisited effort. Their research models our national economy in comparing debt-based versus non-debt based money systems, by using the standard DSGE model platform of the IMF, but by adding the economic elements usually limited to the more sophisticated “Systems Dynamic” economic modeling; those of money, banking and debt.
    Having set the DSGE’s mark for utility in a modern monetary economy, the discussion of lesser DSGE models has decreasing relevance to where we’re headed, and they should be updated to include the important monetary economic parameters that Benes and Kumhof have added.
    DSGE modeling has newer meanings and implications today, thanks to Benes and Kumhof, and these are ignored at continuing risk of our economic peril.

  8. November 9, 2014 at 4:02 pm

    Agenda pushers, hijackers, and scientists
    Comment on Peter Radford’s ‘DSGE is a plutocratic tool’

    It is trivial but worth repeating: political economics and theoretical economics are different things. The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the economy works. The core problem of economics as a science is, of course, that by its very nature it is closely entangled with politics. The biggest threat to theoretical economics is that it gets hijacked by those with a political agenda. It does not matter whether this agenda is good or bad in preset moral terms. Science is committed to its own criteria or it ceases to be science.

    But are we not all inescapably involved in the struggle between good and evil? Politics, religion, and philosophy say so. But even if this were true this would be no justification to hijack science or to let it be hijacked. What has to be recognized is that science is about true/false and not about good/evil. This distinction is part of the demarcation problem, which is the fundamental problem of methodology (Popper, 1980, p. 34). Since the ancient Greeks the first act of science is to throw out politics, religion, and philosophy.

    Because there is theoretical and political economics there are two types of inquirers.

    “A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. … A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent.” (Haack, 1997, p. 1)

    Let us make no mistake: politics is legitimate, to influence public opinion is legitimate, yet all this has nothing to do with science.

    “Apologetics may be a laudable objective. Its practical importance is unquestioned. People need to be shown that the institutions of their own society are good, those of others bad. But there is no place for apologetics in science. Scientific economics inquires only into the How and Why, not into the Good or Bad, of what is. From the scientific point of view preoccupation with Good and Bad is worse than useless since it not only fails to illumine anything but keeps the lightbeam of inquiry from being turned in directions where answers to significant questions can be found.” (Murad, 1953, p. 2)

    The classical economists started openly as agenda pushers. They had only different agendas.

    Smith: “But in the introduction to Book IV we read that Political Economy ‘proposes to enrich both the people and the sovereign,’ and it is this definition which expresses both what Smith wanted above everything and what interested his readers more than anything else.” (Schumpeter, 1994, p. 186)

    Mill: “… John Stuart Mill wrote …, that in the years around 1830 his circle (the so-called Philosophical Radicals) had adopted the following programme: they wanted to achieve an improvement in human society by ‘securing full employment at high wages to the whole labouring population’.” (Popper, 1994, p. 188)

    The rest: “The old-fashioned political economist adored, as alone capable of redeeming the human race, the glorious principle of individual greed, although, as this principle requires for its action hypocrisy and fraud, he generally threw in some dash of inconsistent concessions to virtue, as a sop to the vulgar Cerberus.” (Peirce, 1931, 1.75)

    Marx and Keynes, too, were noteworthy agenda pushers. The same holds for Hayek and Friedman. All these economists used economics for political purposes. This is unacceptable. Note well, it does not matter what the respective agenda is — each attempt to instrumentalize science is unacceptable.

    Since Adam Smith all economists are committed to science as they understand it.

    “Now there is simply no doubt that whatever was the source of inspiration for Jevons, Menger and Walras, all three invoked whatever physics they knew to lend prestige to their theoretical innovations. … Adam Smith, Ricardo, James Mill and McCulloch had been just as eager in earlier days to invoke the name of Newton to legitimize their theoretical claims.” (Blaug, 1989, p. 1226)

    What exactly does this commitment entail?

    “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994, p. 31)

    Therefore, the core question of theoretical economics is not who benefits from a theory. The core question is how the actual economy works. By consequence, the decisive argument against DSGE is not that it benefits the Plutokrats but that it does not meet the criteria of material and formal consistency. DSGE is simply out of science.

    Egmont Kakarot-Handtke

    References
    Blaug, M. (1989). Review. Economic Journal, 99(398): 1225–1226. URL http:
    //www.jstor.org/stable/2234120.

    Haack, S. (1997). Science, Scientism, and Anti-Science in the Age of Preposterism.
    Skeptical Inquirer, 21(6): 1–7. URL http://www.csicop.org/si/show/science_
    scientism_and_anti-science_in_the_age_of_preposterism.

    Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.

    Murad, A. (1953). Questions for Profit Theory. American Journal of Economics
    and Sociology, 13(1): 1–14. URL http://www.jstor.org/stable/3484955.

    Peirce, C. S. (1931). Collected Papers of Charles Sanders Peirce, volume I. Cambridge, MA: Harvard University Press. URL
    http://ssmith.no-ip.org/ebooks/_staging/pdf/Charles%20Pierce%20-%
    20Collected%20Papers%20Vol.%201.pdf.

    Popper, K. R. (1980). The Logic of Scientific Discovery. London, Melbourne, Sydney: Hutchison, 10th edition.

    Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality., chapter Science: Problems, Aims, Responsibilities, pages 82–111. London, New York, NY: Routledge.

    Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford
    University Press.

  9. Ack Nice
    November 10, 2014 at 3:57 pm

    (No, really – if you don’t stop me, I’m seriously writing your name in for President in 2016, Peter Radford.)

    There are those who argue that the market is the best mechanism for justice. And they are right that the invisible hand of the free market is a very useful, automatic tool for the adjustment of supply and demand. If the ratio of supply to demand goes up, prices fall, and supply drops. If the ratio of supply to demand falls, by increase of demand or decrease of supply, prices rise, ideally drawing in more suppliers seeking the greater profits, and the ratio returns to moderation. This is the invisible hand, the automatic adjustment of supply and demand. And it is superior, more efficient and cheaper, than state control of supply and demand.

    But economics has been reluctant to admit and describe its failures. It has been supported by those wishing a free hand to make unlimited profits. The overpaid and overpowerful have invoked the freedom of the market, the value of the invisible hand, to inhibit the intervention of government in the failures of the invisible hand to provide justice. The governments have been in the hands of the overpaid, and the governments have therefore generally failed fully and adequately to prevent the gross injustices of the free market, although the purpose of government is justice, since the very existence, and the life quality, of everyone in the state depend entirely on it. The powerful have had a free hand to subvert the working of the invisible hand, and to profit from those cases where the invisible hand fails to work for justice, and from those cases where the invisible hand can be manipulated to work for injustice.

    Thus, in the beginning of the industrial revolution, when cheap labour was desired, the rural life of the people was strangled by the grabbing-up of rural land by the land-rich and power-rich, forcing people into the cities and factories in such oversupply that labour was dirt-cheap, and children were working 10 hour days in evil conditions, and profits were enormous. The invisible hand would have operated to reduce the labour supply and raise wages, but the rural alternative was closed to the people. The people were enslaved, herded into the cities. Protesters were massacred. Inequality of money breeds inequality of money. Inequality always grows. Money is power, power is money. Britons, singing ‘Britons never will be slaves’, were enslaved even more. This forced the people in self-defense to organise, form trade unions, and struggle for many decades for an enlargement of their far-too-small share. Then the unions became powerful enough to get into bed with the ruling classes, including the Mafias, and start robbing the workers.

    In the 19th and 20th centuries, the lower classes gained back some of their rights by organising. The same pattern is seen and will be seen in the relation of the first world and the third world. The third world countries will increasingly organise amongst themselves and thus gain ground against the ruling countries. We can already see this in some of the oil-producing countries, and in the coffee producers and banana producers. The Latin American left is organizing, unifying. The pushback will continue. Continuing rough seas for all.

    Again, in the beginning of the 19th century, the ruling classes created scarcity by preventing grain imports in times of low supply of grain, in order to profit from high prices. And it happened recently in Australia with bananas: the local crop failed (plantations wiped out by hurricane), and imports were prohibited. The price of a banana went to Aus $3 / US $2-3.

    Today, the ruling classes promote large farms, which are far less productive than small farms, and promote government subsidies not to grow food, in order to profit from the manipulation of the market to inhibit the free working of the invisible hand in adjusting supply and demand for foods. Higher profits and more starvation. Small-farm Sudan and China are 30 times as productive per acre as the big-farm USA. (See World Book of Rankings.) In the Philippines, for one example, small farmers are being coerced off the land to make big farms, which will increase scarcity of food, and thus increase profits and starvation. Again, these farmers have nowhere to go but the cities, and make labour starvingly cheap. The poor are ever being forced to pay unnaturally high prices for food, keeping them poor and enslaved. The ruling class has ensured that the invisible hand works for them. Scarcity has been created because the law of supply and demand means that a small ratio of supply to demand means high prices, big profits, big legal theft – robbery – big violence, chaos, social disorder. Thus we have extreme range of political power, the decline and fall stage of the human empire.

    When the social system of extreme overpay and underpay has crumbled society, we have order, egalitarianism, the absence of tyranny and slavery, but historians call it anarchy, dark ages. The fall of extreme rich-poor society is the rise of egalitarian order, as we can see from the fact that the so-called dark ages were the mother of the social order of the later times. In the so-called Dark Ages, the Irish had their egalitarian golden age, when the boast was that a princess could walk the length of Ireland wearing all her jewels and not be robbed or molested. Social organisation was able to rise again out of the dark ages, when the fall of the rich-poor society had led to egalitarianism, the soil of re-growth. Every empire has been strong and grown, though small, in its egalitarian beginnings, and has been weak, and fallen, though large, in its tyranny-slavery end. The state built on injustice cannot stand. To have a sustainable human empire, to avoid the endless cycle of growth and bust of all empires so far, with vast unnecessary suffering and violence, we have to bow to the good sense of equality, justice, control of legal theft. We can smooth out the murderous rollercoaster of history by recognizing the simple sense of maximum fortune, which puts a totally effective limit to all forms of theft, legal and illegal, which puts a limit to the growth of tyranny and slavery, of violence and endless escalation of violence.

    Economics has recognised and admitted the invisible hand, without recognising and admitting and studying its failures and manipulations by ruling classes. In the occasional absence of monopoly, the invisible hand tends to reduce prices where there are big profits by drawing in other profitseekers, willing to get a share of the market by lowering prices. But economics has never focused on the limitations of the efficiency of the invisible hand. It has never for instance explored the implications of the time interval for the invisible hand to operate. In the time period between the emergence of a new high-profit product, and the slow reduction of prices by competition, there is a time period of decades in which high profits are being made, in which legal theft is operating.

    And economics has never recognised or admitted that the invisible hand brings prices towards justice without ever arriving. The closer the prices get to justice, the more slowly prices move towards justice. As the difference between price and total costs becomes smaller, there is less incentive for competing sellers to lower prices to get a larger market share. Several competitors may coast along forever getting prices still above total costs.
    The fact of legal theft should not be in dispute. It is obvious from the fact that some are increasing ‘their’ fortunes by up to US$100 million per day. The description here of the mechanisms of legal theft is only to reinforce the point which should have been obvious to all and should have been opposed by all.

    New technology always offers golden opportunities for legal theft and acceleration of violence. New technology is necessarily a situation of small supply and high demand. Everyone wants the new product, whether machine-made clothing, electricity, cars, or computers. And the supply is limited as long as the industry is setting up, gearing up and growing towards meeting demand.

    And, especially with new technology, people have no idea of the costs of providing the product. And people are excited by the novelty, and are therefore careless of cost.

    And the patents associated with new technology are monopolistic. Japan has a two-year limit on patents, whereas the rest of the world has had 70-year limits on patents. A patent that may have cost the person 10 years of work to create is a license to legally steal from the social pool of wealth for decades. The developers of the Tetrapak carton are richer than the British queen. Entrepreneurs and inventors who would have returned to work on new ideas are lost to production for 70 years of overpay. The sacrifice in producing ideas is only the time spent by the individual. The sacrifice, and therefore the just reward, is not properly measured by the size of the impact on society. The sacrifice is justly measured by the worktime. Market forces greatly overpay and underpay for invention, which net impairs invention, greatly. Besides, size of impact on society cannot be measured. Therefore size of impact cannot be used to justify egregious overpayment, with its consequent accelerating violence.

    Monopoly of course means freedom to get high prices. Depressions are caused by monopoly extracting overprices till the people are poor, causing boom and bust. The stockmarket booms with the monopolistic high prices, and then busts when the nation has exhausted its money, and monopolistic profits can no longer be taken.

    The depression is a mini-parallel with the rise and fall of empires. Concentration of wealth. Extreme wealth and poverty. The free play of legal theft. Legal theft makes many poor, driving them to borrow, which means they give aid to the lenders in the form of the excess of the sum of the repayments over the loan. In the unlimited-fortunes society, poverty makes poverty as surely as money makes money. In the 1930s depression, there were many rich, spending up large, because they happened to get out of the stockmarket before the bust, and could then buy things at the deflated prices.

    Even governments have been wise and impartial enough to see the legal theft in monopoly, and to take partially effective steps against it. But even governments, who have been clear that monopoly is wrong, have been unable to root out every element of monopoly from society. They are lucky if they are powerful enough to inhibit the grossest appearances of monopoly, despite the political muscle of the biggest monopolists. But what of the subtler and smaller degrees of monopoly? There is a limit to which a government can economically search out all the price cartels and monopolies. And what of implicit price cartels, where the competitors, without formal agreement among themselves, decide to prefer to share the market rather than grab a bigger market share by lowering prices closer to fair return? The costs of government investigating all businesses for too great a gap between company income and outgo are prohibitive, and are politically uphill in unlimited-fortunes systems. But setting the just maximum fortune prevents with one swipe all forms of legal theft, all the products of thieving ingenuity, past, present and future, from getting out of hand.

    Again, in new technology, the advantage of the headstart of the first in the field means that they have financial power to buy out competitors, to undersell them into bankruptcy or cheap sale, and so on.

    The market, with unlimited fortunes, can never claim to serve justice, and thus to serve the survival of states and the welfare of humans. Largely because of payment for scarcity, which is clearly not payment for contribution to society by work. Scarcity is not work. It takes only an annual average profit rate of 36% a year to turn 5 million into 50 billion in 30 years. It is the scarcity of PCs that has enabled the Bill Gates super-overfortune, not his work or talents, real or assumed.

    It takes only a 7.2% interest rate, and 100 years, to multiply money 1000-fold. Without self-work. With others’ work.

    One need only create or obtain a unique and desirable item in order to get a license to take from the social pool of wealth without putting in by work. A highly desirable work of art, a rare stamp, and the person has a license to eat without working. Forcing many others to work without eating. Forcing everyone to be embroiled in violence, war and crime. Forcing everyone to finance the ever-greater cost of invention of ever-greater weaponry, and to finance the repair of all the destruction.

    People are not prone to giving money to strangers in return for nothing. Therefore it takes only people seeing that they are giving billions to strangers in return for nothing, for them to stop.

    Giving money to the underpaid is not giving money in return for nothing, it is giving money for sacrifice made, it is increasing justice and decreasing violence, increasing quality of life.

    It is only confused ideas that stand between people and prosperity, peace, and happiness. To illustrate, compare the human attitude toward how economic systems work to our attitude toward how automobiles work. Cars obey strict, fixed mechanical laws – but does anybody use that fact to argue that we should just get in the car and let it obey those mechanical laws by taking us anywhere it will at any speed? No. We don’t just contentedly say that an automobile must follow mechanical laws – and then just leave it alone to go where it will. On the contrary, we move its steering wheel and its throttle until we have produced conditions under which the iron mechanical laws it obeys carry it where we want to go at the speed we want. We do not consider it dangerous to interfere with the conditions in which its mechanical laws work. We get rid of danger by understanding these laws.

    And our bodies obey physiological laws – but do we let that fact convince us that diseases cannot be treated? No. When we are ill and call in a doctor, he seeks for the cause of our condition – whether it is a germ infection, an internal injury – and he tries to remove that cause. He does not doubt that in sickness as in health our bodies obey physiological laws – but he is certainly not content simply to say that, and then do nothing about it. By medicine, by surgical operation, or by other treatment, he puts our bodies in conditions in which physiological laws will work for and not against our health. (Note that behind the doctor’s work is that of a great army of research workers who showed no reverence for modes of treatment (like bleeding) which merely had the recommendation that they had long been practiced. They boldly challenged every ancient habit of thought in the science of healing until it proved itself to be of value.)

    Why should we adopt toward economic problems an attitude so different from our attitude towards illness, and car driving?

    Why? Tell me – why?

    Why is it that it has occurred to so few people that they are working fulltime, and billionaires are working fulltime, so there has to be gross legal theft?

    We need only a broad social grasp and acceptance of the reality of legal theft to reap an almost infinite harvest of human happiness. Our happiness must increase by as much as the happiness would increase if a government stopped stealing most earnings off most people and giving it all to 1%. Because the global unlimited-fortunes system is stealing most earnings off most people and giving it all to 1%. Goods are given in extravagant abundance to a few, while others have so little share in the global wealth that they have little more than shelter and the food necessary to sustain life. There is little attempt at conscious control. Political economy remains largely a theoretical science. When we (rude egalitarians) dare suggest that poverty (economic inequality taken to extremes, underpay taken to extremes) is an evil whose causes must be discovered and, at all costs, removed, we are told that there is no other choice, the life of societies follows unchangeable economic laws with which it is dangerous to tamper.

    As to this purported danger of interfering with the conditions under which economic laws act, I say we would be wise to be asking whether it is not much more dangerous to leave them uncontrolled when we see and experience the terrible effects in human misery which follow at present from their action.

    A car can only be driven in safety by conscious and intelligent control. Our experience of car driving has shown us that the relaxation of intelligent control means inevitable disaster, and that a car which is allowed to obey merely mechanical laws obeys them by crashing.

    “The invisible hand” is just one of the many ways that people have been bamboozled and confused into accepting wealth and poverty as if these material outcomes were inevitable. There are plenty of various other attempted excuses for higher-than-average hourly pay, amongst them are: responsibility, business risk, experience, skill, merit, talent, brains, brawn, beauty, ‘hard work’, etc. None of these excuses stands up to seriously rational, careful, unbiased scrutiny.

    Intelligent thought and conscious control is required in driving cars, in healing bodies, and in producing and justly distributing economic reward. We can solve the problems of war and poverty if we approach economics – with its rules, its mechanics, its laws – in the same spirit as we have approached disease, and car driving.

    A really educated democracy, distrustful of emotional phraseology and all the rest of the stock-in-trade of the exploiters of crooked thinking, devoid of reverence for obsolete institutions and ways of thinking as embedded as they are unexamined, could take conscious control of our social development and could destroy these plagues of our civilization – war, poverty, crime, crises – if it were determined that nothing should stand in the way of their removal – no old traditions and none of the ancient privileges which are called “rights” by their holders. That would be a beneficent revolution that we can have if we are willing to doubt what we are told is undoubtable, if we are willing to strive to become big-picture thinkers “preoccupied with comprehensivity” (as R. Buckminster Fuller warned us we must become or go extinct), if we prioritize correctly, if we stop aiming at consequences and learn instead to attack the root cause of poverty and inequality – and if we want it badly enough. But the revolution must start in our own minds.

    It is an example of our psychological bias to seeing little things and overlooking big things, seeing branches not the tree, that we can see the Great Train Robbery theft but not see the annual theft of US$70 trillion. If we can learn to see the annual theft of US$70 trillion, every family can get on average US$70,000 a year more of their earnings, and 100-fold happiness.

    The increase of happiness we can have is proportional to the injustice we have. We have super-giga-astronomical injustice. We have a fraction few families with tens of billions each in their overheaped treasurechests, and while these few are busy choosing which high-end faucets will go in the sixth bathroom in their fifth house (and being the self-selected deciders of everything from what seeds a poor farmer will have available to plant to what a poor woman’s birth control will be or not be to what children will be and won’t be taught in schools), we have old women who did a lifetime’s hard work going blind from the cataracts they can’t afford a few hundred dollars to have fixed.

    Are we right or are we wrong to allow this?

    If we are wrong to allow this, when should we stop allowing?

    The first question the economists should have to ask themselves is this: Do you care more about being criticized than you care about finding out if you really have been getting your thinking wrong?

    Same question we humans should all be asking ourselves…

    (Thanks to Robert H. Thouless and his book “Straight And Crooked Thinking” for an idea and a few words worked in to the above.)

    • November 11, 2014 at 1:49 am

      There is nearly twice the direct productivity per hectare for undisturbed indigenous agriculture. Add in a stable to gently declining population and page one of this story is just taking off.

      So economists yearn to be based in physics yet when it smacks them straight on they freeze.

      Get real. We are cosmic powered biology, we are the cosmos looking at itself. Economics begins with a standardized accounting system for keeping the household in order. Many applied economic ideas make better sense analyzed in heat flows and thermodynamics, accommodating the most healthy happy life out of a healthy happy planet as possible. Maximum utility ad infinitum.

  10. chdwr
    November 11, 2014 at 2:32 am

    Ideas, actually new ideas that is, at least to economics, are exactly what economics requires for its evolution. New ideas always disrupt, especially to asymmetric powers amazingly hiding in plain sight, but whose powers are entrenched by the the most subtle and prevalent tendency of humanity…the blindness and mental conditioning known as orthodoxy. At this particular moment of history the two most important questions to ask in economic thinking are where is the current power and which niche of its edifice is the one that will transform the entire nature of profit making systems?

  11. davetaylor1
    November 11, 2014 at 10:30 am

    “It is trivial but worth repeating: political economics and theoretical economics are different things. The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the economy works”.

    Let me say first, what a splendid piece this was by Peter and what an interesting survey by Ack of what it has meant in practice.

    Egmont, going back to basics is not, in my opinion, trivial, but rather, a vital tool for keeping one’s eye on the ball and maintaining the courage to believe one can get one’s head round the essentials. Here I disagree with you on one word: not “the” economy but “an” economy.

    One has to have defined what an economy is (its objectives) and how to achieve them (what is possible given the available logic, mathematics, instrumentation and resources) before one can decide e.g. whether what one has is a theory of an economy or of a plutocratic tool. A scientific theory of economics is to Macrocompassion’s excellent flow diagram of what we have as physics is to how a steam or internal combustion engine works, and hence the possibilities of a fossil fueled train, bus or car. One needs to go back much nearer to basics to prevent what one has setting the agenda and preventing one seeing e.g. the possibility of an electric car: of renewably independent personal as well as bulk transport. Likewise with political economics. A scientist of economics needs to go back to the basics of the physics of information if he is to be able to see the possibilities of something even more simple and more elegant than what can be hung on Macroocompassion’s model of the distribution of power and products: in political economics, the renewable possibilities of self-government as well as of fragile and ultimately destructive empire-building, with the organisational principle of subsidiarity leaving today’s centralised government as a shell on the periphery.

  12. November 11, 2014 at 2:41 pm

    Start again
    Second comment on Peter Radford’s ‘DSGE is a plutocratic tool’

    If, as Nixon’s adviser Roger Stone once quipped, politics is Hollywood for the ugly, then economics is science for the confused.

    “Thousands upon thousands of scholars, as well as thousands of statesmen and men of affairs, have contributed their efforts to the attempt to understand the course of events of the economic world. And today this field of investigation is being cultivated more extensively, than ever before. How is it, then, that in all these years, and with all the undoubted talent that has been lavished upon it, the subject of economics has advanced so little?” (Schoeffler)

    Could it be that there is something deeply wrong with economics? Could it be that economics has never emancipated itself from agenda pushers of all sorts? Could it be that economists have caught themselves in the endless circle of apologetics and debunking? Could it be that economists feel quite at home in the ‘thickness of confusion’ (Suppes)?

    Economists owe the world the true economic theory, that is, a theory that satisfies the scientific standards of material and formal consistency and that explains how the economy works.

    When Joan Robinson summarized the output of political economics she needed only six words: Scrap the lot and start again!

    If she had to characterize the current DSGE discussion one word would be enough.

    Egmont Kakarot-Handtke

  13. Bruce E. Woych
    November 11, 2014 at 5:41 pm

    Economics exists in spite of economies; The great deception is that economics is a real economy.

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