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Chicago economics — a pseudo-scientific zombie

from Lars Syll

A couple of years ago, in a lecture on the US recession, Robert Lucas gave an outline of what the New Classical school of macroeconomics today thinks on the latest downturns in the US economy and its future prospects.

lucasLucas starts by showing that real US GDP has grown at an average yearly rate of 3 per cent since 1870, with one big dip during the Depression of the 1930s and a big – but smaller – dip in the recent recession.

After stating his view that the US recession that started in 2008 was basically caused by a run for liquidity, Lucas then goes on to discuss the prospect of recovery from where the US economy is today, maintaining that past experience would suggest an “automatic” recovery, if the free market system is left to repair itself to equilibrium unimpeded by social welfare activities of the government.

As could be expected there is no room for any Keynesian type considerations on eventual shortages of aggregate demand discouraging the recovery of the economy. No, as usual in the new classical macroeconomic school’s explanations and prescriptions, the blame game points to the government and its lack of supply side policies.

Lucas is convinced that what might arrest the recovery are higher taxes on the rich, greater government involvement in the medical sector and tougher regulations of the financial sector. But — if left to run its course unimpeded by European type welfare state activities — the free market will fix it all.

In a rather cavalier manner — without a hint of argument or presentation of empirical facts — Lucas dismisses even the possibility of a shortfall of demand. For someone who already 30 years ago proclaimed Keynesianism dead — “people don’t take Keynesian theorizing seriously anymore; the audience starts to whisper and giggle to one another” — this is of course only what could be expected. Demand considerations are simply ruled out on whimsical theoretical-ideological grounds, much like we have seen other neo-liberal economists do over and over again in their attempts to explain away the fact that the latest economic crises shows how the markets have failed to deliver. If there is a problem with the economy, the true cause has to be government.

Chicago economics is a dangerous pseudo-scientific zombie ideology that ultimately relies on the poor having to pay for the mistakes of the rich. Trying to explain business cycles in terms of rational expectations has failed blatantly. Maybe it would be asking too much of freshwater economists like Lucas to concede that, but it’s still a fact that ought to be embarrassing.

shackleIf at some time my skeleton should come to be used by a teacher of osteology to illustrate his lectures, will his students seek to infer my capacities for thinking, feeling, and deciding from a study of my bones? If they do, and any report of their proceedings should reach the Elysian Fields, I shall be much distressed, for they will be using a model which entirely ignores the greater number of relevant variables, and all of the important ones. Yet this is what ‘rational expectations’ does to economics.

G. L. S. Shackle

  1. John Doyle
    June 26, 2019 at 3:59 am

    Amazing! It couldn’t possibly be worse from any economist. Lucas thinks welfare state activities hold up recovery and the market economy should be unimpeded. He really does economics a grave disservice. Does this bozo represent the Chicago school? Even it’s followers would hardly stand behind the dysfunctional society that already results from this kind of thinking in the USA. It reminds me of Samuel Butler who said the US was the only state to go from barbarism to decadence without any intervening civility.

  2. Helen Sakho
    June 27, 2019 at 1:08 am

    Barbarians are turning in their graves at the audacity of these economic fascists.

  3. Ken Zimmerman
    June 27, 2019 at 11:51 am

    Neoliberalism is above all else a theory of political economic practices proposing that human well-being is best advanced by liberating individual entrepreneurial freedoms and skills within a strong institutional framework of private property rights, free markets, and free trade. The only role of the state is to create and preserve this institutional framework. The state must guarantee, for example, the quality and integrity of money. It must also set up those military, defense, police, and legal structures and functions required to secure private property rights and to guarantee, by force if need be, the proper functioning of markets. Furthermore, if markets do not develop in areas such as land, water, education, health care, social security, or environmental pollution, they must be created, by state action if necessary. But otherwise the state must not intervene in markets (once created), baring some sort of emergency. According to neoliberal theory, the state cannot possibly possess enough information to second-guess market signals (prices). And state intervention in markets will bring in powerful interest groups who will inevitably distort and bias markets for their own benefit (particularly in democracies). Neoliberalism also claims that markets provide the only guidance needed by humans for any kind of actions. Markets replace ethics, religions, family life, and society (if such ever existed). The tool used by neoliberalism to achieve these changes is contracts. The good of all humans is maximized through extending the reach and frequency of market transactions, bringing all human actions into the domain of the market. This demands information technologies capable of accumulating, storing, transferring, analyzing, and applying massive databases to guide decisions in the global marketplace. This explains neoliberalism’s intense interest in and search for new information technologies to create what some call a new kind of ‘information society.’ These technologies compress the expanding density of market transactions in both space and time. They produce a particularly intensive burst of what some have called ‘time-space compression’.

    If all this sounds familiar that’s because many of us have heard it all before. Since the 1970s dozens of books, academic and non-academic papers, magazine articles, and lately internet postings have come out explaining how we all now live in a postmodern age. Neoliberalism is simply the next step in that rant. As you can see from the description above and will be confirmed by just a little research on postmodernism, neoliberalism is just one more utopian fantasy. Nothing wrong with fantasying. But when one insists on placing behind the fantasy the social, psychological, military, and police power of the only institution that historically can legitimately even kill to enforce its will, government, then that fantasy has become “Darkness at Noon.” Barbarians are in charge. They can only torture and persecute. And they passionately pursue those goals. The contrast of the barbarians with the gentleness, simplicity, and tradition of Christianity stands out. And then there’s the contrast between the trust of the rank and file fans of neoliberalism, and the ruthlessness of the neoliberal elite (e.g., economists, bankers, private equity firms). Finally, this brings us to the replacement of a generation that is intellectual, ironical, and at bottom humane with one that is unsophisticated, straightforward, and unconcerned with others’ suffering. A generation of sociopaths.

    • June 27, 2019 at 1:38 pm

      That’s a really really good summary ,Ken!

      • Craig
        June 27, 2019 at 4:56 pm

        Indeed, of the problem, which is the zeitgeist of power. The solution of course is the new zeitgeist…the natural philosophical concept of grace. Power dominates. Grace integrates, unifies and evolves whatever aspect of life it is applied to whether it is economics, the money system or one’s self awareness, and again….naturally. We ARE in all likelihood at a turning point in human history. Lets choose the higher, smarter and wiser way.

      • Ken Zimmerman
        June 28, 2019 at 1:25 am

        Craig, changing the world in total, replacing one zeitgeist with another, building the best of all possible worlds is a pursuit of humans for thousands of years. It has never and will never work out as planned. As a model consider the five great extinctions that have occurred on Earth. Each was a nearly total reset of life on Earth. But to get that reset 95-98% of all life on Earth died. It’s not that much different for cultural resets. The Nazis wanted to remake the entire world in a National Socialism image. They and their allies killed nearly 100 million people in that effort. The death of people, of nations, or even entire civilizations is not unusual in human history. From the vantage of the span of human written and pre-literate history human life is not sacred (though some religious institutions would disagree). The universe is unlikely to grant notice to the passing of Sapiens when the species goes extinct. Plans to create one more cultural utopia for Sapiens is ludicrous. All such efforts in the past failed. Why would this one, or the one after it, or the one after that succeed? And the repercussions may be cultural collapse. Changes must be gradual, building on existing culture and guided by protection of species survival. Perhaps in a million years Sapiens will have experience enough to make total changes without side effects, but in a million years Sapiens may be wise enough not to make such changes.

      • Craig
        June 28, 2019 at 4:46 am

        “changing the world in total, replacing one zeitgeist with another, building the best of all possible worlds is a pursuit of humans for thousands of years.”

        Correct, the process of a paradigm change and a new zeitgeist does take a long time…but the process at its end is very short. If you read my book you will see that we indeed are in that last phase. Our present situation meets every one of the historically verifiable signatures of IMMINENT paradigm change…..and in that same short but insightful book I show that my policies enable every one of the historically verifiable signatures of ACCOMPLISHED paradigm changes. The current monetary paradigm of Debt Only and the current zeitgeist of Power have not changed since the beginning of human civilization. Is that not long enough to endure them? Especially when we now have the technology and instant communicative abilities to bring awareness of them to nearly everyone.

        “It has never and will never work out as planned.”

        Paradigm changes are not planned. They begin as moments of increased consciousness in the minds of those who are willing and able to conceive and visualize them, along with a new insight and/or a new tool that enables that paradigm changing vision’s temporal implementation.

        “The universe is unlikely to grant notice to the passing of Sapiens when the species goes extinct.”

        Unfortunately that is a possibility….unless we recognize the new paradigm and act swiftly and definitively to implement it.

        “Plans to create one more cultural utopia for Sapiens is ludicrous. All such efforts in the past failed. Why would this one, or the one after it, or the one after that succeed?”

        Utopias are top down one size fits all conceptions that are culturally hide bound to the present paradigm and/or zeitgeist. A new paradigm is a generalized increase in benefit and hence survivability of everyone. It is also ALWAYS an inversion of present realities and attitudes toward ideas associated with the old paradigm, in this case the entire concept of utopias. The generalized monetary and economic abundance and freedom that the policies of Wisdomics-Gracenomics would create are a complete inversion of the concept of a top down utopia because they would transfer monetary power and freedom “into the many hands of the individual”.

        “Perhaps in a million years Sapiens will have experience enough to make total changes without side effects, but in a million years Sapiens may be wise enough not to make such changes.”

        We’ve had the wisdom insights and techniques to self actualize the concept necessary for the new paradigm for probably well over 10,000 years. We just have to contemplate and rationally define its aspects and then align policy with it/them.

      • Ken Zimmerman
        June 28, 2019 at 10:14 am

        Craig, reversing Voltaire, you think doubtless that all is not for the best in the moral and physical world, but that the changes you offer will make a world where nothing could be better than as your new system creates it. Past experiences are that wholesale changes in cultures, or the replacement of one culture in favor of another disrupt, often deeply people’s faith in culture and thus in the reality of their lives. Even if what you propose is worth this risk, and I don’t believe it is, how will your new world defend itself? Without public support, and a willingness to change their lives, and I’ve seen no plan from you to gather that, it will be another dead end. But worse, this will leave people’s lives in bedlam. That’s a heavy moral cross you’re taking on.

        Although the novella Candide was partially written for entertainment purposes, it was written primarily to satirize the views of Leibniz’s philosophy. Voltaire looked at the world with the idea that there could be something done about all the evil in the world. He achieved his goal of satirizing Leibniz by tearing apart Pangloss’ philosophy, using Martin as a contrast to Pangloss, showing the destruction caused by natural disasters, and the brutality of war. The satire remains incomplete, however, since Voltaire’s placed in the position of saying nothing can be done about the evil in the world. Craig you’re now front and center in this 500-year dispute.

      • Craig
        June 28, 2019 at 5:10 pm

        Ken, You have completely misjudged me. I have always been skeptical and iconoclastic, and I’ve lost none of the insight or intellectual capability those traits can endow one with. I just haven’t so worked myself into contending orthodoxies and intellectual bamboozlement over complexities that I can’t discern the difference between a data point and a paradigm change. Such inability to so discern can turn a radical into a Whigish advocate for no REAL change or terminal caution when survival depends upon deep and definitive action/policy.

      • Ken Zimmerman
        June 29, 2019 at 3:48 am

        Craig, I recognize your commitment. It’s your recognition of the difficulty of convincing others to put into practice what you are committed to I question.

      • Craig
        June 29, 2019 at 4:36 am

        Why would I not be confident in a message that was the monetary and economic problem resolving integration of the opposites of self interest and the survival of the other (other human beings, other species and the ecological survival of the planet)?

        Remember I’m not just hung up in data gathering and theoretical modeling I’m utilizing philosophy….and not the sophistry and confusion where one thing appears to be another, but rather the pinnacle concept of wisdom, the utterly integrative, unifying of the truths in opposites natural philosophical concept of grace.

        Do yourself a favor and do a thorough and objective exegesis of the many aspects of that concept and how they apply to, integrate and resolve the apparent contending dualities in economics, politics, quantum physics etc. etc.

      • Ken Zimmerman
        June 29, 2019 at 7:27 am

        Craig, the concepts you discuss sound interesting. I’m not focused on them, any of them. I’m focused on the relationship between you and the people who will either adopt or not the proposals you make here. Donald Trump promised every working- and middle-class American an immediate $4,000 increase in income from the tax law Trump got enacted. Trump was, of course lying. Why would not these same people take your proposal as just one more lie? If I were them, I might. Particularly, if you don’t give solid and specific reasons that your proposals will help me, specifically.

      • Craig
        June 29, 2019 at 7:58 am

        For instance grace effectively integrates/is both benevolence and sovereign power. Policies of grace would be those that expressed both of those aspects in consistent and actual ways. Grace is love in action/policy. It’s high and yet also completely real and pragmatic as love which is the ultimate wisdom actually is. As I have posted here many times wisdom is the best integration of the ideal and the pragmatic.

        This isn’t mambee pambee nonsense or supernatural dogmatism its well observed behavioral science. Of course it takes internal work to make it individually self actual and well developed, but the real point is that SYSTEMICALLY, POLICIES aligned with the concept do have ACTUAL, REAL and logically aligned effects.

        Economics and most other systems are based on less workable and far less ethical concepts for reasons which boil down to irrelevance and stupidity like cynicism, apathy, indecision and very often simply ignorance of the concept and its aspects.

        Grace as in Abundantly Direct and Reciprocal Monetary Gifting as in a 50% discount/rebate monetary policy at the point of retail sale resolves both income scarcity and price and asset inflation. Look at its immediate, ongoing, empirical, mathematical and temporal universe effects. And its economically and politically opposing agenda integrative “knock on” possibilities as well.

  4. Craig
    June 29, 2019 at 8:10 am

    When you go to Wal Mart and buy $100 worth of groceries for $50 that doubles your purchasing power. If you make $40,000/yr. you now can purchase $80,000 worth of goods and services. Both of these are the result of one policy. Look at it. Do the math. Look at your pocket book and see that it empties two times slower than it did before that policy.

    • Ken Zimmerman
      June 29, 2019 at 9:14 am

      Craig, let’s look at it this way. How do you convince Walmart to sell today for $50 what it sold for $100 last week? Will Walmart’s suppliers make up the difference? Will the government? Will charities? If what you’re proposing is a planned economy where markets do not set prices, but the government does, I can accept that as a proposal. Please explain.

      • Craig
        June 29, 2019 at 5:56 pm

        You’re COMPLETELY misunderstanding what the policy is and does. It’s a Discount/REBATE policy. The enterprise discounts their prices to the consumer and the monetary authority/central bank REBATES every cent of the discount BACK to the enterprise so that they can be made whole on their margins and overheads.

        The policy, because it actually doesn’t take effect until the very end of the economic/productive process, does not interfere in price discovery in any way. As consumption/possession has occurred no additional inflation can occur. It’s NOT quotas or price controls it’s individual and commercial monetary ASSISTANCE/GIVING/GIFTING.

        Wal Mart would be convinced to opt into the policy because it will double the amount of individual money actually available for their goods and services….and because if they don’t then they will have to get $100 dollars for $100 of groceries from the consumer while their competitors will only have to get $50.

        Because the 18 and older individual with their $1000/mo. dividend now can purchase $2000/mo. worth of goods and services the legislature can eliminate all transfer taxes for welfare, unemployment insurance and social security so it helps reduce costs for all enterprises and every working individual which will expose commercial greed if despite such cost REDUCING benefit they try to raise their prices. You tax any arbitrary non-economic price rises all to hell and the president or whomever gets up on the bully pulpit in a public news briefing and blasts any enterprises “who make such arbitrary non-economic decisions to destroy the additional purchasing power of you Mr. and Mrs. America” and then those enterprises lose the most valuable business commodity they have….their good will toward their customers.

        Do you see it now?

  5. Craig
    June 29, 2019 at 9:51 pm

    Steve Keen just posted this video on his patreon page. It’s both enlightening and yet leaves out the most problematic and important issue regarding money and monetary systems. And that is the fact that IN A MONETARY ECONOMY its perfectly alright to have profit making productive/commercial agents BUT IT IS COMPLETE IDIOCY TO THINK THAT YOU CAN HAVE A PROFIT MAKING MONETARY AND FINANCIAL SYSTEM. Why? To start out it ignores Lord Acton’s obviously true dictum that power corrupts and absolute power corrupts absolutely. It also ignores that in a monetary economy….money is the most powerful economic factor. Why do we think finance presently “owns the joint”, and why would it be any different in any future profit making monetary system? And why would any central bank that was “independent”…read: the handmaiden of the too big to fail banks, ever tolerate policies that didn’t benefit private finance????.

    We need to make the monetary system a fourth non-profit making branch of government with STRICT and absolute arm’s length independence from the other three branches of government that issues money as debt BUT IS PRIMARILY BASED ON MONETARY GIFTING.

    And never mind obsessing about inherently insecure distributive ledgers. Focus instead on DIRECT AND RECIPROCAL MONETARY GIFTING AT THE POINT OF RETAIL SALE WHICH RESOLVES BOTH THE COSTING PROBLEMS OF PRIVATE FOR PROFIT MONEY SYSTEMS…AND THE SCARCITY OF INDIVIDUAL DEMAND AS WELL.

    • Craig
      June 29, 2019 at 10:01 pm

      Amend that last paragraph to say:

      And never mind obsessing about inherently insecure distributive ledgers. Focus instead on DIRECT AND RECIPROCAL MONETARY GIFTING AT THE POINT OF RETAIL SALE WHICH ACCOMPLISHES MONETARY DISTRIBUTISM BY RESOLVING BOTH THE HIGH COSTS OF HIGH TECH CAPITAL INTENSIVE ECONOMIES, THE IDIOTICALLY HIGH COSTING PROBLEMS OF PRIVATE FOR PROFIT MONEY SYSTEMS AND THE SCARCITY OF INDIVIDUAL DEMAND AS WELL.

      • Ken Zimmerman
        June 30, 2019 at 12:09 am

        Craig, I believe I understand what it is you propose. It is as I suggested a move to a gift-oriented economy. My issues are still relevant. Perhaps more so.

        If implemented, business would probably go along, since it has the potential to increase profits. But you suggest changing the basic structure of not just the economy but of the nation. This is a problem, particularly in the US. When unemployment hit 9.2% in May 1975—the highest since the beginning of WWII—labor and business leaders insisted on government intervention. But President Ford, following the advice of his economic advisors, opposed government intervention at all costs, including wage and price controls of the sort imposed by Richard Nixon in 1971. Framing the question as one of freedom versus authoritarianism, Ford announced that the nation faced a critical choice. “Shall business and government work together in a free economy for the betterment of all? Or shall we slide head-long into an economy whose vital decisions are made by politicians while the private sector dries up and shrivels away?” Ford’s blunt opposition between the “private sector” and “decisions made by politicians” assumes that American economic and political spheres operate separately and speaks to Republicans who lined up behind Barry Goldwater in 1964. In 1964 Goldwater roared, “The good Lord raised this mighty Republic to be a home for the brave and to flourish as the land of the free. It was Americans’ job to keep it that way. I would remind you that extremism in the defense of liberty is no vice.” Attacking the New Deal and the Great Society, and likely also your government-centered gift economy, Goldwater warned, “Those who seek to live your lives for you, . . . those who elevate the state and downgrade the citizen, must see ultimately a world in which earthly power can be substituted for divine will. And this nation was founded upon the rejection of that notion and upon the acceptance of God as the author of freedom.” These sentiments are even stronger today among Republicans, who see no place in America for non-divine government. Craig, what’s your plan to bring Republicans along on the ride you propose?

        And then you say,
        “Because the 18 and older individual with their $1000/mo. dividend now can purchase $2000/mo. worth of goods and services the legislature can eliminate all transfer taxes for welfare, unemployment insurance and social security so it helps reduce costs for all enterprises and every working individual which will expose commercial greed if despite such cost REDUCING benefit they try to raise their prices. You tax any arbitrary non-economic price rises all to hell and the president or whomever gets up on the bully pulpit in a public news briefing and blasts any enterprises “who make such arbitrary non-economic decisions to destroy the additional purchasing power of you Mr. and Mrs. America” and then those enterprises lose the most valuable business commodity they have….their good will toward their customers.”

        Long list of potential problems here. First, you’ll need some sort of adjustment process to ensure that the money “in people’s hands,” the ordinary not rich type still is a livable amount. That’s a political football that’s gonna be difficult to carry. Especially if all transfers are eliminated. Second, exposing commercial or any other form of greed isn’t doing much today to create policies to curb it. How do you plan to change this? Third, taxing “any arbitrary non-economic price rises all to hell” is a nonstarter today. The only taxes likely to pass now and for the foreseeable future are those that make the rich richer. Fourth, Trump and the “bully pulpit” is a joke, right? Finally, “good will of and for customers” is from another era. One before giant tech firms, 24-7 real-time monitoring of everything and everyone, and before targeted polling.

  6. Craig
    June 29, 2019 at 9:53 pm

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