Home > Uncategorized > Chicago drivel — a sure way to get a ‘Nobel prize’ in economics

Chicago drivel — a sure way to get a ‘Nobel prize’ in economics

from Lars Syll

In 2007 Thomas Sargent gave a graduation speech at University of California at Berkeley, giving the grads “a short list of valuable lessons that our beautiful subject teaches”:

1. Many things that are desirable are not feasible.
2. Individuals and communities face trade-offs.
3. Other people have more information about their abilities, their efforts, and their preferences than you do.
4. Everyone responds to incentives, including people you want to help. That is why social safety nets don’t always end up working as intended.
5. There are trade offs between equality and efficiency.
6. In an equilibrium of a game or an economy, people are satisfied with their choices. That is why it is difficult for well meaning outsiders to change things for better or worse.
7. In the future, you too will respond to incentives. That is why there are some promises that you’d like to make but can’t. No one will believe those promises because they know that later it will not be in your interest to deliver. The lesson here is this: before you make a promise, think about whether you will want to keep it if and when your circumstances change. This is how you earn a reputation.
8. Governments and voters respond to incentives too. That is why governments sometimes default on loans and other promises that they have made.
9. It is feasible for one generation to shift costs to subsequent ones. That is what national government debts and the U.S. social security system do (but not the social security system of Singapore).
10. When a government spends, its citizens eventually pay, either today or tomorrow, either through explicit taxes or implicit ones like inflation.
11. Most people want other people to pay for public goods and government transfers (especially transfers to themselves).
12. Because market prices aggregate traders’ information, it is difficult to forecast stock prices and interest rates and exchange rates.

Reading through this list of “valuable lessons” things suddenly fall in place.

This kind of self-righteous neoliberal drivel has again and again been praised and prized. And not only by econ bloggers and right-wing think-tanks.

Out of the seventy six laureates that have been awarded ‘The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel,’ twenty eight have been affiliated to The University of Chicago. The world is really a small place when it comes to economics …

  1. September 20, 2016 at 12:29 am

    well said.

    Spent 30 years studying Sweden.

    http://www.InquiryAbraham.com

  2. originalsandwichman
    September 20, 2016 at 12:29 am

    “Nine spades are a lump of leets…” Joan Robinson.

  3. louisperetzperetz
    September 20, 2016 at 9:24 am

    The last “Nobel” laureat was the french Tirole, who is a new liberal economist. A good Chicago boy.

  4. Franklin
    September 20, 2016 at 9:40 am

    Its really suprising how the Nobel community awards non sense works. Some works awarded in economics have nothing to do with real life impact but citation score

  5. Paul Davidson
    September 20, 2016 at 4:13 pm

    Franco Modigliani once told me that the people who get to vote for nominating AND electing new Nobel Prize winners were (1) elected officials of Professional organizations such as the president of the America Economic Association and (2) FORMER WINNERS OF THE NOBEL PRIZE IN ECONOMICS. No wonder why University of Chicago gets so many Nobel
    prizes when the former Nobel winners from the University of Chicago see only economists who espouse Chicago economics as the best in the profession.

  6. louisperetzperetz
    September 20, 2016 at 4:42 pm

    The worse is that economics professors are always teaching the ultraliberal theory to students. They believe that it is the good one because it seems to be reality Who said that numbers, a human invention, are the good reality? They seem to be afraid to teach the Kenesian economics theory. Of course they don’t understand it because they are no numbers in it.

  7. September 21, 2016 at 5:46 am

    Copernicus believed, and I emphasize the word believed that the solar system was heliocentric. In simple terms the Earth revolved around the Sun. He was up against a well-funded and government approved mainstream science that rejected his belief. Copernicus merely did what he could to find empirical support for his belief and waited for others to do the same. In the space of less than 100 years the heliocentric model was accepted by astronomers and physical scientists generally. This overturned views of the Earth and its place in the universe that had been preeminent since Aristotle. My point is this. It is extremely difficult, expensive, and risky to control the work of scientists to stop change in the direction of theories and tests that seem to more accurately agree with observations. So as the old saying goes – follow the money. Who has paid and what levers of power (political and physical) have been turned to keep the “official” version of economics largely unchanged in the US since the 1950s? That’s a mystery worth looking into.

  8. David Chester
    September 21, 2016 at 7:37 am

    As long as students seek to pass their examinations rather than to learn what macroeconomics is REALLY all about, and as long as the university authorities in this subject continue to keep their minds closed to how our social system is REALLY structured and how it works, there is no hope (unlike Copernicus) for some real development and understanding. All that will happen that the same errors will be repeated in every generation and the government of the national economy will continue to falter between the dictates of profound idiots understanding nothing.

    • September 22, 2016 at 5:54 am

      So your contention is that the western university system, which has only existed in its present form since the 1950s is able to do something that science and scientists educated in the teachings of Aristotle for nearly 2,000 years could not do. My question, as before what’s the source of such power today, as opposed to the opposition faced by Copernicus in the 15th century? I have a theory. But’s I’d like to hear yours first.

      • robert locke
        September 22, 2016 at 10:19 am

        Ken, you are talking about physics and astronomy, which are based on observation. It happens all the time in this blog, to take natural science based on observation and to say economics can be compared to it, when it cannot.

      • September 22, 2016 at 10:54 am

        Robert, I disagree. Observation was happening long before anyone named something scientific as a category to fit it within. And explanations of observations as well. And performing the explanations to do some sort of work evolved long before the name technology was used to summarize it. Observing can use many tools and begin from an almost endless numbers of perspectives but in all this it remains observation. What is observed varies of course and some things and events are easier to observe and perhaps less complex and thus can be described more fully. And of course some observations end in disaster due to failures of the observer (deliberate and accidental). But observing is observing. The same process underlies good and bad observations, successful and failed observations, scientific and non-scientific observations. So yes observing in social science is indeed comparable to observing in physics and astronomy.

      • robert locke
        September 22, 2016 at 5:39 pm

        I don’t have any objections to what you say about observations, My point is that economics is a formal science, as it has been presented by the neoclassical school, and I have always had trouble trying to correlate this formal science with what I observe in the historical sources.

  9. September 24, 2016 at 11:42 am

    Robert, not sure what you are saying with the term “formal science.” When I hear this term I think of disciplines concerned with formal systems, such as logic, mathematics, statistics, theoretical computer science, information theory, game theory, systems theory, decision theory, and theoretical linguistics. These are disciplines that intentionally disconnect their work from the world (the real world as those on this blog like to call it). I always compare it with the distinction between Judo katas and combat jujitsu. The first has no practical value except to train the mind and body in certain ways of thought and use of certain muscles. The second is intended to maim and kill. As to history I’ve always considered it like rondori, which is combat jujitsu practice to find comfortable and innovative styles for combat. History as combat. Works for me.

  10. robert locke
    September 24, 2016 at 8:25 pm

    Ken, the German economist, Erich Schneider, put the neoclassical economic formalism this way:

    “Theoretical propositions are always conditional propositions of the form: If A, then B. If this or that assumption is fulfilled, then this or that relationship is valid. The theoretical proposition always has the character of a logical necessity and is according to the assumptions made right or wrong. A theoretical proposition, like a dogma, cannot be denied. The most that can be said is that a theoretically correct proposition is not relevant because its assumptions do not apply to the present situation. That does not mean the proposition is wrong. It only means that the proposition does not apply to present circumstances (ist nicht aktuell).

    In their classification of sciences Peter Ulrich and Peter Hill classified philosophy, logic, mathematics, and neo-classical economics among formal sciences; among empirical sciences, (based on experimental procedures), they classified natural sciences (physics, chemistry, etc,), engineering (an analysis of technical alternatives), and management (analysis of human relational alternatives).

    Therefore, I never begin my research by studying neo-classical formalism, but by looking at the historical sources, and what contemporaries were saying about how they see problems and formulate solutions. Then, I read the economists to see what insights I can gain from them about the experiences through which collectives are living. I am invariably disappointed because I rarely find neo-classical formalism applicable to a present situation.

  11. September 25, 2016 at 5:18 am

    Robert, you and I begin at similar places. I just go further than you do. I also question the evolution of the “historical sources” and the evolution of the creation of current problems and solutions. And then I move on to research the creation of the discipline of economics and its assumptions. When I think of formal systems and formal thinking I remember my high school philosophy teacher, a Jesuit. He taught us about Aristotle and syllogisms. Aristotle’s most famous syllogism.

    All men are mortal.
    Socrates is a a man.
    Therefore, Socrates is mortal.

    In constructing syllogisms Aristotle tried to arrange them to create valid conclusions. But this validity dose not depend on the terms of syllogism being true. This syllogism is valid but not true. The premise is untrue but the form of the reasoning is a valid.

    Everything white is sweet.
    Salt is white.
    Therefore, salt is sweet.

    Actual situations are much more difficult, however. Spock’s famous logical formula – the good of the many outweighs the good of the few, or the one – may be valid logically but as the TV program (imagine that, a TV show smarter than most economists) shows repeatedly that agreement with the premise and the conclusion is affected by many cultural practices and norms. And in many situations the good of the few or the one outweighs the good of the many.

  12. robert locke
    September 25, 2016 at 9:56 am

    “I also question the evolution of the “historical sources” and the evolution of the creation of current problems and solutions.”

    As an historian I assume the evolution of “historical sources” and the evolution of current problems and solutions, on the grounds that all historical moments are unique to the demands of their time. For example, I got involved in the 1970s in the study of higher education and technological development. I knew that in the lst industrial revolution, from the sources I studied, that technological movement was done by practical men. In the Second Industrial revolution, when a science component was added to educational movement, that scientific component was added in education, especially in Germany, through the technische Hochschulen. This gave Germany great advantages in science induced and science connected industries. My book, The End of the Practical Man (1984) discussed this. This did not mean that older education and training of a practical nature disappeared; they didn’t. But a new dimension was added in the evolution of historical sources and the creation of current problems and solution, that did not exist in the 1st Industrial Revolution. The sources, engineering societies, parliamentary commissions, etc. not neo-classical economics enlightened me on these matters.

    I’m a little confused, do you mean that there is no evolution of historical sources and evolution in the creation of current problems and solutions. That’s very ahistorical.

    • September 26, 2016 at 5:16 am

      Historical sources and current problems and solutions certainly do evolve. Examining these changes are part of what we do in the social sciences and history. At least they ought to be. The reality of things and their meaning is in this evolution. And this process includes everything. Including many things historians don’t usually consider, such as forests and mountains, diseases and biology, etc.

      • robert locke
        September 26, 2016 at 8:08 am

        Right, but the study of history has changed so very much from the time since I was a graduate student, and historians now do consider forests and mountains, diseases and biology. And areas of the world and cultures with a diversity of value systems, at least in American universities, that were not covered before, and that is why, with the evolution of historical studies, it is such a dumb thing that economics has divorced itself from the study programs in history.

      • September 26, 2016 at 9:42 am

        Robert, I earned my history PhD in 1974 at a time in US history departments when social history was in a battle with the political and intellectual history traditionalists. I was able to tailor my program for that reason in ways not possible just a few years before. So I’ve included things like forests, mountains, and diseases from the very first. Just lucky. As you note now such broad social history including human and non-human actors is common place. Can’t tell you for certain why economics got stuck. Maybe it has something to do with many economists being willing to go along with being shills for banks, international corporations, and very rich people. They tell them how moral and good they are.

      • robert locke
        September 27, 2016 at 10:09 am

        ‘Historical sources and current problems and solutions certainly do evolve. Examining these changes are part of what we do in the social sciences and history”

        Here is an example of how current problems and solution evolve, drawn from my own experience in the 1990s.

        In 1996, Oxford University Press published my Collapse of The American Management Mystique, a book I researched primarily between 1990=95, which focused on the collapse of the American management mystique associated with the mass production industries.

        I notice, however, after the book was published that this American management mystique had not collapsed. Had I been wrong? No, what I said was true but it turned out to be incomplete, that is there had been a collapse of mass production in US industries, that Trump laments, and with their collapse primarily in the 1980s the managerial caste and system that created them took a hit.

        But American did not take a hit in general, because while the old mass production industries collapsed, never to be restored whatever Trump says, Americans had been primarily responsible for the creation of a new world industrial revolution in Information technology, which flourish especially during the Clinton presidency.

        I wrote another book, in 2004, with Katja Schoene,called the Entrepreneurial Shift, in the introduction of which we noted, that my previous book, the Collapse of the American Management Mystique had ignored the Iformation Revolution.

        That book’s first chapter was called “Phenomenal Silicon Valley and the Second Americanization,” meaning while American mass production management (the first Americanization) succumbed to the Japanese challenge, American entrepreneurialism created a new industry, which amounted to a second Americanization.

        I hadn’t recognized this shift until 2000 when I visited Silicon Valley to study its phenomenal effect on world enterprise.

        That’s my own evolution in a ten year period of analysis. And it should be the evolution of thinking people, so they do not cling like Trump to an antequated idea of industrial supremacy (that of the 1960s) and realize that not going back but developing future industries of the information Revolution, is what made America “great”.

        The story today, however, seems to be that the financialization of the Amerrican economy is responsible for ruining the entrepreneurialism of Silicon Valley.

      • September 28, 2016 at 12:13 pm

        Robert, a few comments. First, based on the record it appears American manufacturing collapsed as a result of a long series of events. First, labor unions secured pay increases that made American manufacturing ever less competitive world-wide. But the raises were compounded by inept management. I worked in the 1970s with management consultants who studied with Drucker. The management at GM and many steel manufacturers was so poor we recommended firing all the middle managers. Several hundred thousand in all. But this story goes on with American corporations using the foreign competition and labor union problems as excuses to end labor contracts and make deals with foreign companies (mostly Japanese.) And on top of all this Presidents Reagan, Bush, and even Clinton actually did nothing to stop the gutting of heavy industry manufacturing in the US. They also encouraged the move to financial-based business models. They might have supported the new information companies had they not been so tied to the old information companies (e.g., IBM).

        Second, after the dust settled after the 1980s heavy industry in such areas as steel making and automobile manufacturing stared up again. Generally, minus the unions and with plants requiring fewer laborers. And sometimes with foreign partners. For a while the US government was a partner for some car makers (e.g., Chrysler). We also saw the financial industry essentially deregulated. Regulation of steel plants and car makers remained fixed, though the industries changed a great deal.

        Finally, physical manufacturing is not dead in the US. It never was. And it can be brought back. This is a policy not an economic choice. What path do the guys in charge want to pursue? Right now they’re still infatuated with derivatives and hedge funds. And the payoffs are a lot better. Also, running manufacturing facilities is just not the best job for the graduates of the prestigious schools and the better families. Finance is where the glamour and status is. For the present anyway.

      • robert locke
        September 28, 2016 at 3:12 pm

        Our experiences are similar, only in the response to the Japanese challenge to their manufacturing in the 1980s, the German stakeholder system of management did much better than American managerialism in saving the country’s manufacturers. It was a matter of policy but also of the institutionalization of a stakeholder system of management than provided the superior response. Americans management responded to competition in the 1980s by making their workers pay, not incompetent managers, for the declining profits. Remember all this happened before China and the Clinton’s, the rust best was born before them..

        Physical manufacture might be reborn but it won’t be like that of the 1960s, if for no other reason because of the transformation of economies by the Information Revolution. But it also transformed finances and the Americans, as you pointed out, in their elitist greed, unlike the Germans, flooded into this financialization sector since that was were the money is.

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