Home > Uncategorized > Why a global disaster that could easily have been prevented took place.

Why a global disaster that could easily have been prevented took place.

from Edward Fullbrook

Steve Keen has a new book out: Can we avoid another financial crisis?  Keen, as you probably know, was one of those economists – Nouriel Roubini, Dean Baker, Ann Pettifor, Michael Hudson, Wynne Godley and others – who warned well in advance that the Global Financial Crash was coming if preventive measures were not taken.  How did these economists clearly see the crash coming when neoclassical economists did not, not even the day before it happened?  Keen’s new book reminds me that a few years ago in an interview I offered an explanation when answering the following question.

The first distinction you draw is that the old paradigm (OPE) is anti-pluralist (as in classical physics), while the new paradigm (NPE) is pluralist (as in modern physics). Can you give me a concrete example or two that illustrates what this means?

Of the ten points that I listed to distinguish between OPE and NPE, the most important is the first: monism versus pluralism.  Why?  Because it is this choice that sets down the general framework under which the pursuit of knowledge is conducted.  And this choice, in terms of its effect on the advancement of knowledge and thereby human welfare, is, as I will illustrate, absolutely enormous.

There is a famous quote from Albert Einstein that points to the reason why for the advancement of science this choice is so critical.   “Whether you can observe a thing or not depends on the theory which you use. It is theory which decides what can be observed.”

It just happens that the lead news story today in the UK illustrates Einstein’s proposition.  It goes like this.  

In 2007 a three-year-old British girl was kidnapped in Portugal while on holiday with her parents.  The British Metropolitan and Portuguese police have been investigating the case ever since.  Until recently their investigation was guided by the theory that the girl had been kidnapped at about 9:15pm.

But the Guardian reports:

  • “In the light of what police describe as “a revelation moment,” altering six years of thinking about the case, investigating officers now believe Madeleine could have been taken up to 45 minutes later in the evening.”

The Chief Inspector explained that this new theory means:

  • “that from 9.15pm we’re able to allow the clock to continue forward. In doing so, things that were not seen as significant or have not received the same attention are now the centre of our focus.” (my emphasis)

Whereas the 9:15 theory:

  • “meant the focus was always done and dusted by about quarter past.  Now it (the new theory) takes us forward to 10pm.”

And low-and-behold, since 2008 the Met has had in its possession efits compiled by private detectives investigating on the basis of a different theory.  They are efits of a man seen carrying a child near the scene of the crime at about 10pm.  The police are now hopeful not only of finding this man, but also finding Madeleine alive and returning her to her parents.

Many, and probably most, of the wonderful advancements of modern science have, as Einstein and other greats so deeply appreciated, came about in a similar way, that is by altering the “focus” or “theory” or conceptual framework through which a particular realm of the real-world is viewed.  Frequently – and this is a key point –  new theories are advanced not on the basis of challenging existing ones but rather on the hope that using different preconceptions of a given realm (for example 10:00pm versus 9:15) will enable investigators to see new things.  In modern physics this had led to the development of major theories pertaining to the same general realm but which differ in terms of their theoretical preconceptions or, if you prefer, axioms.  Sometimes these differences are not directly contradictory, but in other cases, including some of great importance, they are.

Should multiple theories, contradictory or not, pertaining to the same realm be allowed and encouraged?  Monism says no; pluralism says yes.

Most modern physics would not exist without belief in a pluralism more radical than any ever dreamt by any economist.   The conceptual frameworks of its two basic theories for describing the universe, the general theory of relativity and quantum mechanics, not only differ fundamentally, but also their basic concepts directly contradict each other.

  • General relativity conceives of space and time as continuous; quantum theory conceives of them as discontinuous.
  • General relativity conceives of matter as particulate; quantum theory conceives of it as a wave-particle duality.
  • General relativity conceives of physical objects as having actual properties; quantum theory describes them as having only potential properties within the given physical situation.
  • General relativity conceives all physical reality as determinate and all events as in principle having a causal explanation; quantum theory admits indeterminacy and events incapable of causal explanation.  

I defy anyone to imagine conceptual differences greater than these.  This radical pluralism is physics’ response to the complexity of the object, the universe that they wish to understand.  Their wildly divergent methods of approach offer different points of view on that object, like observing Michelangelo’s David from the front and from the rear, thereby revealing different primary dimensions of the physical world.   

This of course is not to deny that some physicists, Einstein being one of them, have dreamt of finding a way of reconciling these two great theories.  But that is not the point.  The point is modern physics’ paradigm of radical pluralism, which has prevailed for a century has enabled an enormous advancement of knowledge.  If instead a monism like that of Old Paradigm Economics had been allowed to prevail in physics, the world as we know it today would be very different.  Indeed, the IT device on which you have accessed this would not exist.

In the years leading up to 2008 the approaching Global Financial Collapse was not visible through the Old Paradigm Economics window.  But in those years a number of economists, including Steve Keen, Nouriel Roubini, Dean Baker, Ann Pettifor, Michael Hudson and Wynne Godley, warned that there would be a GFC if corrective measures were not taken.  And their predictions were not off-the-cuff but based on sophisticated analysis.  But it was not analysis based on Old Paradigm Economics and therefore, like the efits of the private investigators of the Madeleine case, was given no attention.  In consequence a global disaster that could easily have been avoided took place.

  1. April 18, 2017 at 5:10 pm

    A marvelous, thought-stimulating article. Thank you!

  2. April 18, 2017 at 5:46 pm

    Thank you for this cogent reminder. If we’re willing, it can help us keep our heads on straight.

    I hate to say it, but I don’t agree with the last sentence: “In consequence a global disaster that could easily have been avoided took place.” Because during this period of rule by predatory corporate financial capitalism, fact-free narcissistic culture, and cash-drenched politics, I’m not at all sure “easily” would have been likely.
    I say this with much respect for the work of Keen, et al, and for your work (and let’s not forget Hyman Minsky).

    Books on political economy I read these days usually are structured like this: 8 chapters of problem discussion and 1 chapter of proposed solutions. As if to say, about chapter 9, “I’ve bummed you out about these difficult problems, now I want to leave on a positive note and suggest some solutions”.
    Sometimes I read chapter 9 first.
    In each case I come away with this: most of the ideas are good, and, in former years, possible to implement. But not now. Everything is collapsing and reform, tinkering, incrementalism, whatever, won’t cut it. Regulations in the era of fact-free and post-truthiness? Not likely.

    Naomi Klein, in her book This Changes Everything, says we must choose between incremental change and drastic change. I agree. Yet, frankly, I don’t see planned revolution likely any more than I see reform working. I see painful collapse that will produce diverse revolutionary forces and who can see the outcome of that? I see drastic change, and I am dismayed about the legacy we’re leaving our grandchildren. I see this because capitalism will collapse from its inherent instability, from its dependence upon unsustainable growth, and from its monstrous hubris that blinds so many people to its realities.

  3. April 18, 2017 at 7:42 pm

    This post is unfortunately like too much of economics, in that it preferences stories that support its preconceived conclusions over observed facts. Physics is in fact not pluralist at all: there’s only one theory of physics that matches the facts, and that theory is the standard model of quantum field theory. In this astounding theory there are eighteen quantum fields which span all of space and time, and that is the whole of reality. Everything else is consequences of the interactions of those fields at larger and larger and larger …and larger scales. This theory isn’t perfect by any means, and there are many proposals to fix its problems, but the key distinction from what’s described the post here is that no physicist is happy with the plurality of different proposals. For physicists, pluralism is a problem to be fixed, not a heterodox paradigm to be advocated. And all physicists agree on the way to fix the problem, which is to conduct experiments and adjust the theory so that it predicts the data. Sometimes it takes 50 years to validate a theoretical construct, as it took 50 years between Peter Higgs’ proposal of the mechanism that carries his name and its confirmation by two different kinds of detectors in the Large Hadron Collider at CERN.

    Physicists are persistent in their commitment to the experimental method, while far too many economists have little commitment to reality. They are committed to their pet theories, or to their opposition to some other economist’s pet theories, and if the world doesn’t act that way, well that’s the world’s problem, not economics’ or economists’ problem. This is a shame.

    Econnomists who want to make comparisons to physics should stop referring to the archaic ideas of Einstein that are now more than 100 years old, and look at 21st century thinking. Sean Carrol’s book “The Big Picture” has an up to date perspective and has many videos on youtube aimed at general audiences. David Tong has a nice lecture on youtube with the same modern approach.

  4. April 19, 2017 at 1:01 am

    i think each of your 4 points about physics actually are disputed in physics; eg last one ‘quantum mechanics admits indeterminacy’. I think people might admit that, but i also think now the majority opinion now (and recentkly supported by some new experiments)–almost a ‘consensus’—is that quantum mechanics is deterministic (tho they admit there are so far always loopholes in these experiments). (Discontinuitiy is another one. QT is discontinuous inn some ways (‘quantized’) but continuous in others–one has a continuous space-mater-time field . Its like a guitar string—notes are discontinuous but the string is continuous. Shrodinger has to me the best conceptual solution and he regreatted using term quantum jump).
    (i personally think there is o way so far to determine if QT is determinsitc or probabilistic. its like asking if mind exists, or instead if matter doesnt.)

  5. April 19, 2017 at 6:15 am

    I’m not an economist. I operate a small consulting company with 10 staffers. We’re all anthropologists, historians, and one literature major. We began an office pool in 2005 betting when the financial crisis would hit. Most bet on 2006 or 2007. If an office full of anthropologists and historians could come this close to the actual date, why couldn’t almost every economist? We also bet on how many of the bankers and “traders” selling fake investments that would bring on the crisis would go to jail. Two was the highest bet anyone would accept. Again, we got it right. Scary that we made these predictions and economists did not.

    • April 19, 2017 at 4:13 pm

      “We’re all anthropologists, historians, and one literature major.”
      And that is why you were able to become “Justaluckyfools”.
      ‘Only a fool should attempt to predict an outcome; if by chance correctly, justaluckyfool.
      Albeit still a fool.’

      • April 20, 2017 at 6:09 am

        Justaluckyfool, we made no forecasts about the upcoming financial crisis. We set up an office pool betting on when it would happen. There was no doubt by anyone at the company that the crisis was near. After all, the monetary value of worthless pieces of paper kept rising, banks are wagering on just about everything using money from ordinary bank depositors, and regulation of financial trading is wholly “missing in action.” It does not require the brains of an Einstein to conclude that this thing had to explode soon.

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