Home > Uncategorized > Economics — enslaved by the wrong theory

Economics — enslaved by the wrong theory

from Lars Syll

The more I learned about economics, the more I discovered a landscape that is surpassingly strange. Like the land of Mordor, it is dominated by a single theoretical edifice that arose like a volcano early in the 20th century and still dominates the landscape. The edifice is based upon a conception of human nature that is profoundly false, defying the dictates of common sense, before we even get to the more refined dictates of psychology and evolutionary theory. Yet, efforts to move the theory in the direction of common sense are stubbornly resisted.

kickThere is plenty of dissent among economists, and some of the best are working the hardest for change. The folks who award the Nobel Prize in economics don’t like the edifice that much either, and often add their weight by awarding the prize to the contrarians. Yet, even with all that talent, effort, and the prestige associated with the Nobel Prize, the edifice remains standing in one spot like a volcano adding to its own height and spewing out toxic policies. Why does it resist change? One reason is ideological, as we shall see, but another reason involves path dependence. Neoclassical economics provides an outstanding example of the “you can’t get there from here” principle in academic cultural evolution. It will never move if we try to change it incrementally. It must be replaced wholesale with a more realistic conception of human nature.

David Sloan Wilson

Indeed — mainstream economics has to be replaced wholesale!

What most mainstream economists try to do in face of the obvious theoretical and behavioural inadequacies of the theory, is to marginally mend it. But that cannot be the right attitude when facing scientific anomalies. When models are plainly wrong, you’d better replace them! Instead of mending the broken pieces it would be much better to concentrate on developing descriptively accurate models.

Let me just take one example — expected utility theory — to show how right Wilson is in his argumentation.

Expected utility theory is seriously flawed since it does not take into consideration the basic fact that people’s choices are influenced by changes in their wealth. Where standard microeconomic theory assumes that preferences are stable over time, behavioural economists have forcefully again and again shown that preferences are not fixed, but vary with different reference points. How can a theory that doesn’t allow for people having different reference points from which they consider their options have a (typically unquestioned) axiomatic status within economic theory?

Much of what experimental and behavioural economics come up with, is really bad news for mainstream economic theory. It unequivocally shows that expected utility theory is nothing but transmogrifying truth.

But mainstream economists do not see this​ since they have the weird idea that economics is nothing but a smorgasbord of ‘thought experimental’ models. For every purpose you may have, there is always an appropriate model to pick.

But, really, there have​ to be some limits to the flexibility of a theory!

If you freely can substitute any part of the core and auxiliary sets of assumptions and still consider that you deal with the same theory, well, then it’s not a theory, but a chameleon.

The big problem with the mainstream cherry-picking view of models is of course that the theories and models presented get totally immunized against all critique.  A sure way to get rid of all kinds of ‘anomalies,’ yes, but at a far too high price. So people do not behave optimizing? No problem, we have models that assume satisficing! So people do not maximize expected utility? No problem, we have models that assume … etc., etc …

A theory that accommodates for any observed phenomena whatsoever by creating a new special model for the occasion, and a fortiori having no chance of being tested severely and found wanting, is of little real value. It must be replaced wholesale with more relevant and realistic theory.

  1. John Doyle
    November 24, 2019 at 10:16 pm

    Indeed!. The resistance to grinding down the Mordor like mound comes from its size and the dependency it fosters in academia and the media and on down into politics.That Upton Sinclair comment that you can’t get someone to change their mind when their job depends on not changing it is just so on the mark, it really means only revolution will make a difference.

    Somehow the current criticisms emanating from blogs such as this one will be having an effect, but until academia gets the message change will be slow, glacial. Bill Mitchell told me it wouldn’t happen in his lifetime [he’s 64] but I believe now he’s underestimated the path and that it will not take that long. I certainly hope so as the current mess is so very destructive of society by virtue of economic malfeasance.

    MMT is the new path we need to foster. It is the soundness of economics at its basic level that forms the framework for change.

  2. Econoclast
    November 24, 2019 at 11:32 pm

    I strongly recommend reading Wilson’s two-part essay, the first essay linked in Lars’ posting. The second essay concerns Nobel-winner Elinor Ostrom. Wilson’s essays are insightful and even-handed. However, for at least 150 years there has been an intellectual war going on between anti-capitalists such as I and those supporting the power of predatory corporate capital, and Wilson seems to gloss over the conflict: “There was nothing sinister or self-interested about … the laudable attempt to place economics on a mathematical foundation using physics, not biology, as the inspiration.” Likely nothing sinister in the motives of such as neoclassical founder Leon Walras. However, much as Ayn Rand and her malicious followers cherry-pick the ideas of founder Adam Smith, those supporting the power of predatory corporate capital have advanced Walras’ and Jevons’ ideas to weave the emperor’s clothes, orthodox economics. They’ve been remarkably successful in distracting us all from real economics and the subject of ruling power.

    There have been frequent calls in this blog to create a new paradigm to replace the old, and appropriately so. Yet we continue down the same paths, even while criticizing. An essay today from Nobel-winner Joseph Stiglitz offers a good example. He rightly and articulately explains why the main metric used to measure economic progress, GDP, does not do so and calls for an alternative. In spite of the fact that much interesting work has proceeded to fashion a better metric, Stiglitz cites nothing about this and ends his essay without directing the reader to the work being done, simply saying we must do better (https://www.theguardian.com/commentisfree/2019/nov/24/metrics-gdp-economic-performance-social-progress).

    While I’m at it, I advocate that in this blog we have a good debate about Robert Skidelsky’s, “Money and Government: The Past and Future of Economics”, mentioned in a recent Lars Syll posting. I read a review and did something I’ve never done before, buy a book based solely upon one review. I have read enough to recommend this book highly. But let’s have a good debate about it in this blog.

  3. Yoshinori Shiozawa
    November 25, 2019 at 2:02 am

    >> It must be replaced wholesale with more relevant and realistic theory.

    Yes, Lars is right. As he seems to have no intention to propose or even suggest a theory (or set of theories) that can replace wholesale the mainstream economics, I propose one. It is not yet unified in a single coherent theory but gives an easy wholesale overview of an alternative economics.

    (1) Microeconomics (price theory and how market economy works)
    Shiozawa, Morioka, and Taniguchi (2019) Microfoundations of Evolutionary Economics
    https://www.researchgate.net/publication/334508762_Microfoundations_of_Evolutionary_Economics

    (2) Macroeconomics
    Mac Lavoie (2014) Post-Keynesian economics: New foundations

    (3) Evolutionary economics
    3a Richard Nelson et. al. (2018) Modern evolutionary economics; an overview
    3b Geoffrey Hodgson (2019) Evolutionary economics: Its nature and future

    (4) Economic history and historical works
    Lipsey, Carlow and Bekar (2005) Economic Transformations: General Purpose Technology and Long Term Economic Growth

    A brief notes on each numbers:
    (1) This new book of ours presents a theory of price and quantity adjustment at a very fundamental level, which is free of neoclassical holy trinity. i.e. rationality, equilibrium and methodological individualism and can replace Arrow and Debreu equilibrium theory on how large market economy works with minimally rational human agents. This theory provides microfoundations which Post Keynesian and evolutionary economics has been lacking.

    (2) This is rather a summery of already huge Post Keynesian literature. Post Keynesian economics comprises Minsky and MMT as parts of their financial economics.

    (3) Evolutionary economics is spreading into various fields. (3a) shows state-of-the-art evolutionary economics. (3b) is a concise introduction to evolutionary economics and prospects on its future. Evolutionary economics strongest filed is the analysis of technological change. (1) opens the possibility to relate technological change with economic growth.

    (4) Evolutionary economics emphasize appreciative and history-friendly theorizing. (4) gives hints how evolutionary economics explains long term economic change.

  4. Ken Zimmerman
    November 25, 2019 at 12:34 pm

    Perhaps I misunderstand the purposes of the WEA. My understanding is that the WEA wants an open debate among the theories, Marxist, game theory, behavioral, actor theory, etc. that involves students as well as professors and other professional economists. The current crisis, as Lars describes it, seems an inviting opportunity to get that debate underway. Both sociology and anthropology went through such a debate. It was more helpful than harmful, sometimes brutal, however.

  5. November 25, 2019 at 1:49 pm

    To what extent might it be that Mandeville’s “Fable of the Bees, Private Vice, Publik Benefits” is still burried deeply within the woodwork of our thinking, but lives on through Smith’s “Invisible Hand” and the Mont Pelerin Society? https://web.archive.org/web/20060510150308/http:/pedagogie.ac-toulouse.fr/philosophie/textes/mandevillethefableofthebees.htm

  6. Laurent Leduc
    November 25, 2019 at 3:01 pm

    I’m relatively new to this blog and suspect most of you are familiar with Kuhn’s The Structure of Scientific Revolutions. Yet Kuhn was inspired by Ludwik Fleck’s The Genesis and Development of a Scientific Fact which is too often overlooked. I suspect that in economics the difficulty lies in the “power of the textbook”. How can we get students and professors weened off the textbook?

    • Yoshinori Shiozawa
      November 26, 2019 at 5:47 am

      Dear Laurent,
      Tony Lawson is a methodologist of economics and a great figure among heterodox economists. Lars Syll depends much upon him. Lawson often refers to Fleck’s The Genesis and Development of a Scientific Fact. In this sense, Fleck (at least his name) is rather well known among readers of Lars’s post series. But I am not sure if Fleck’s insight is effectively used in the economics methodology arguments. Contributions and opinions like Michael Joffe (who posted the next answer) seems quite rare. His article

      Causal theories, models and evidence in economics—some reflections from the natural scieces
      https://doi.org/10.1080/23322039.2017.1280983

      is an insightful paper and taught me much. He also give us several positive suggestions for considering future research. I recommend all participants here to read the paper.

      • November 27, 2019 at 10:22 am

        Yoshinori, thanks for the recommendation. I found Joffre exceptionally clear on the difference between a theory and a model, i.e. fundamental scientific theory and models left arbitrary by lack of applied science narrowing their axioms down to observable specifics.

      • Yoshinori Shiozawa
        November 27, 2019 at 12:39 pm

        Thank you, Dave. I believe we should all read Joffe’s paper (paper by evidencebas on November 25, 2019 at 3:18 pm)
        and argue the methodology of economics.

        What Joffe teaches us is very different from the methodology among common economists (mainstream and heterodox). Standard methodology is too much influenced by the extraordinary success of Newtonian dynamics. However, economy is a complex system. To attack such an entity, it is more plausible to learn from the history of biology, life science, climatology, geoscience and cosmic science.

        Joffe was first trained as phiologist, then became expert in epidemiologist and then trained again to be economist. He has a very good background to argue more plausible research program of economics.

      • Yoshinori Shiozawa
        November 27, 2019 at 12:40 pm

        Sorry. Joffe was first trained as physiologist.

      • Craig
        November 27, 2019 at 6:54 pm

        99% of the complexity in economics will be eliminated and/or integrated positively and constructively when we recognize that private for profit money creation is NOT a legitimate economic business model, is an incredibly stupid and glaringly contradictory monopoly in supposedly free enterprise profit making economic systems and that the monopoly paradigm of Debt Only as the sole form and vehicle for the distribution of credit/money needs to be integrated with the new monetary paradigm of direct and reciprocal monetary gifting.

        “It’s the monetary and financial paradigm, stupid.”

        BZZZZT! Okay, everyone can go back to figure, figure, figuring on lower levels of analysis than the entire pattern/paradigm.

  7. November 25, 2019 at 3:18 pm

    I agree with the need to start from scratch. With what? There are some suggestions so far in the comments. I’d say, any new (or old!) idea needs to meet the criteria that (a) it fits well with the evidence, (b) deals with the actual causal mechanism, not e.g. “as if”.

    In Lars’ post, he mentions “the basic fact that people’s choices are influenced by changes in their wealth”. Spot on! Also, it’s not just changes in a person’s wealth (or income), but the inequalities between people. This is the germ of a new type of analysis (I’m nervous about the word “paradigm”). The new concept to be introduced here, as fundamental to the economy, is *buying power* – I’ve made a small contribution along these lines in http://www.hrpub.org/journals/article_info.php?aid=6179. Among other things, it’s implicitly an answer to The fable of the bees, although I don’t mention this in the paper.

    The notion of economic power is much broader though – my next project will be on corporate power, and its basis. Note here that the new theory needs to focus on evidence-based causation, *not* ideology! – some of the findings may be uncomfortable to our ideologies. When this happens, it shows that you are doing “science” not ideology. The difference between this approach and standard micro theory is that it gives a central place to flows and stocks – these are present in macro, e.g. as aggregate demand, but missing in micro theory (not necessarily in the practical work of micro economists though!). It shows that traditional micro theory is merely decision theory – it ignores what the decider is deciding *about*. So in practical applications, we find Willingness to pay, but not Ability to pay.

    On the question of GDP, I totally agree with the comment that it also needs to be rethought from scratch. It’s true that Stiglitz’s Guardian article falls short on proposing new ideas, but to give him credit, he and others proposed that stocks should be measured, crucially including those of environmental importance, so that a decline in what some call “natural capital” would be recognised. This was in his report for the Sarkozy (!) government. It’s an idea that could form part of a total rethink. My next project is to devise a measure of national wealth/income that focuses on outcomes – whereas GDP, even at it’s best, is only about outputs. Very broad measures, such as wellbeing, happiness or health are good, but their connection with the economy, and of particular parts of the economy and economic policy, is unclear.

    Anyone interested in these ideas, please email me at m.joffe@imperial.ac.uk.

    Finally, I am attracted both to evolutionary theory and to MMT. But what evidence is there that they are correct?

    Mike

    • Yoshinori Shiozawa
      November 27, 2019 at 12:46 pm

      Dear Mike,
      I have sent an e-mail yesterday. Have you received it? Please also read answers Yoshinori Shiozawa November 26, 2019 at 5:47 and after.

  8. November 26, 2019 at 3:25 am

    If you look in the right-hand column you’ll see a green cover with an apple. It starts from scratch, using clear observations and modern concepts. It is very broad, despite its brevity.

    Those looking for/advocating a new start might have a look.

  9. Ken Zimmerman
    November 26, 2019 at 12:34 pm

    evidencebasedeconomics, appreciate the comments. Fleck’s “The Genesis and Development of a Scientific Fact” shows how difficult, sometimes impossible it is to meet the objectives you set. “I’d say, any new (or old!) idea needs to meet the criteria that (a) it fits well with the evidence, (b) deals with the actual causal mechanism, not e.g., “as if.” Fleck’s book examines the creation of facts about diseases and their causes, specifically one disease, syphilis. Although he examines only western notions, he does examine them historically. Fleck’s work shows two things. Causality in social sciences can never solely be a question of statistics of any sort. Although, statistical results can often be more helpful in real situations than specifics of a single event. Second, “Most facts have many different, possible, alternative explanations, but we want to find the best of all contrastive (since all real explanation takes place relative to a set of alternatives) explanations. We soon find, however there is no means, and never has been for humans to pick the “best” explanation. We need to reconsider causation. Causation is not a thing. It is a story. A story that explains within the framework of a specific culture how events or actors relate to one another, and how both relate to human society. For example, every society has a creation story that explains the origins of that society and its place in the “universe.” That’s causation, a story. This is from Fleck’s book, “In the context of our special investigation, I believe that the concept of syphilis is unattainable except through a study of its history. It has already been demonstrated here that Spirochaeta pallida alone cannot define the disease. Syphilis is not to be formulated as ‘the disease caused by Spirochaeta pallida. On the contrary, Spirochaeta pallida must be designated ‘the microorganism related to syphilis.’ Any other definition of this microbe is hopeless, and further, because of the question of germ carriers, cannot serve to define the disease unambiguously.” And on the flexibility and volatility of these stories Fleck says, “People argued against Columbus. ‘Could anyone be mad enough to believe that there are antipodes; people standing with their feet opposite our own, who walk with their legs sticking up and their heads hanging down? Is there really a region on earth where things are upside down, where trees grow downward, and where it rains, hails, and snows upward? The delusion that the earth is round is the cause of this foolish fable.’ “Today we know that the real cause of difficulty here was the absolute meaning of the concepts ‘up’ and ‘down’—a problem that dissolves under a relativistic formulation. The same difficulty arises even today if such concepts as existence, reality, and truth are used in an absolute sense.” This uncertainty has not, however stopped people creating causation stories and forming strong collectives to support and defend them.

    • November 27, 2019 at 2:41 pm

      Ken says: “Causation is not a thing. It is a story. … The same difficulty arises even today if such concepts as existence, reality, and truth are used in an absolute sense”.

      I beg to differ, though the differences in what we take as axioms stem from different philosophical choices of starting point: raw energy, energetic particles or imagining the latter.

      In my book, causation is not an imaginary story about the effect of the motion of one material object on another, it is a name for a type of event, including that in which raw energy is localised by chasing its own tail to become a particle. Existence and reality are specific and general names for the persistence in time of energetic motion (“the conservation of energy” whether or not so localised), while truth is a name for a logical (word) relationship such that the set denoted by one word is truly a subset of that denoted by another. Historically, the paradigmatic example has been a true wife giving birth to only her husband’s children.

      • Ken Zimmerman
        November 28, 2019 at 9:15 am

        Dave, you “beg to differ.” Then you lay out your version of a causation story. Fleck describes dozens of stories humans created over the last 1,000 years about the cause of diseases. All were real at the time they were created and used. Just like those we use today.

      • November 28, 2019 at 10:36 am

        Pathetic! But given your axioms, Ken, what caused Fleck’s causes not to be what the earlier stories imagined they were?

      • Ken Zimmerman
        November 28, 2019 at 11:38 am

        Dave, agreed, pathetic. As to Fleck’s causes, the historian would point out different time, different place. The anthropologist would point out cultural changes. What’s your story?

        As to your contention that “Economics is a PID servo’, steering activity by OUR using error correcting logic.” Which economics is that? The economist’s, the banker’s, the baker’s? And similarly, which logic is that? These are not self-evident terms. Their meanings evolve with use and interaction. Who gets to decide which economics and which logic prevail? In some instances it could be democratic. In America, particularly of the last 50 years it’s decided by those with the most money. Digits in a bank account, or private wealth fund.

    • December 3, 2019 at 5:16 pm

      Sorry to have missed all this discussion – I was frantically busy all of last week and until yesterday.
      I want to agree with what you said Ken: “Causality in social sciences can never solely be a question of statistics of any sort”. In my work on evidence-based economics, I emphasise the importance of multiple types of evidence, and finding congruence between them – see my website https://evidence-based-economics.org/, especially section A with short articles/blogs discussing such issues. This is true in a natural science like biology as well: statistics showing the association between cigarette smoking and lung cancer, plus the complementary mechanistic knowledge on how tobacco smoke causes cancer. In particular, it is necessary to seek evidence both on the characteristics of the phenomenon (here, the statistical association) and on the responsible mechanism (carcinogenesis). When both types of evidence support the same hypothesis, it is a good indication that one is onto the true hypothesis.
      I haven’t read Fleck, but *if* he is using the history of syphilis in western thought to try and say that we never find the truth, he is simply wrong. I don’t know that much about syphilis, but I can say that diseases like measles and smallpox are well understood causally. This is not the sort of thing that will be “overthrown” by a new “paradigm”. It is secure knowledge. Many philosophers are still ignorant of the cumulative nature of science. (Nevertheless, they still benefit from the growth of science-based medicine, when they need it. And from the eradication of smallpox!) You might say, well I’m just choosing the best-understood infectious diseases. Yes I am, to make the point that true causal knowledge is sometimes attainable. If syphilis is not in this category, all I an say is, hard cases make bad law.
      Is such causal knowledge possible in economics? Yes it is, but the right methodology is needed. There is a lot more to say on this than I can fit in here. But briefly: (a) start from examining the phenomenon, not from some imaginary a priori model; (b) gather as much evidence as possible, of multiple different types; (c) attempt to explain the diverse evidence, especially trying to find the actual causes and their mechanisms; (d) in the economy, there will always be multiple causation (“open systems”) – the same is true in biomedicine; (e) pay special attention to the interaction of causes, e.g. feedback loops – most regularities in the economy are in fact the result of causal loops bringing about some type of feedback.
      The idea that any set of observations can be explained by many theories, and it is nearly impossible to find the right one: this is true in some circumstances. But often the opposite is true: can any of you tell me a theory in the literature that explains the mechanism of modern economic growth that fits with the spatial and temporal evidence of where and when it happened?
      On the idea that causation is just a story – implying that it can be *any* story, e.g. various traditional creation myths (all of which are known to be false by the way): [I have deleted what I just wrote, because it was offensive].

      • Ken Zimmerman
        December 5, 2019 at 1:52 am

        Evidencebasedeconomics, the words you write are telling. Regarding causation in general “it is a good indication” is really the best we humans can do. Historically linking concepts, actions, terms, etc. to one another is how humans establish explanations. Of course, history also shows that more than once humans change their minds on the linkings or sometimes decide to begin again. That’s judgment. It is not reducible to certainty of any sort. Within these limits “true” causal knowledge is possible. But it’s always contextual and contingent. I know social scientists, including economists are often educated to believe that “correct” methodology and theory can fix this issue. That education is wrong. They cannot fix it. And often make the situation worse as economists become blinded to the many judgments they make to reach “facts.” Contextuality and contingency. Keep those notions in mind. As to creation “myths” they’re often shown to be limited, particularly by later generations who did not create them. This is the case whether the myths are created by ancient Vikings or by modern scientists. On the latter, consider the origin mythology for modern microbiology. It’s changed several times since Pasteur. Hasn’t affected the work of microbiologists thus far.

      • December 5, 2019 at 4:02 am

        Any reason why this discussion has to be so convoluted.? for me MMT is reality based, but evidence based works also. Then we should discuss the evidence. The subsequent lengthy commentary about esoterics etc is skewing the story away from the basics.. It doesn’t need a life of its own. We’ll get a lot further if we can work out how to describe the, say, creation of the money supply in as brief a way as possible. That way we can cut through the crap that surrounds the mainstream. Otherwise we are participating in the confusion

      • Ken Zimmerman
        December 5, 2019 at 1:06 pm

        John, unless you assume that there is only one reality, I must ask upon whose reality is MMT based? Or, to make it more comprehensible to a social scientist, upon what data is MMT based? Humans have found many ways to bring order to the phenomenological flow of existence, and money is one of the most important. Money’s importance is that it is itself a metaphor; it stands for something else. More specifically, money is a metaphor that can stand for almost anything else. It allows humans to structure life in incredibly complex ways that were not available to them before the invention of money. This metaphorical quality gives it a focal role in the organization of meaning in life. Money represents an infinitely expandable way of structuring value and social relationships—personal, political, and religious as well as commercial and economic. The struggle to create money, to make it serve one group of interests or another is never ending. Throughout history, whenever one faction or institution seemed to have won control of money, an outside player invented another form based on a new technology, and another struggle erupted. Every culture organizes life around a few simple principles, activities, and beliefs. The other institutions and activities of the society hang from that core like branches from a tree trunk. The center of those principles, activities, and beliefs in the modern world is money. Money has created a unified world economy. Although fluctuations in politics, religion, technology, and even the weather can play a role in any of these endeavors, money constitutes the basis of the entire system and forms the crucial link in establishing value, facilitating exchange, and creating commerce. Money unites them all together into a single global system. It is the tie that binds us all. Thus far money has move through two generations. First, the invention of coins in Lydia nearly three thousand years ago resulted in the first system of open and free markets. The second generation is the invention of banking and the paper money system. This helped destroy feudalism, changed the basis of organization from heredity to money, and changed the basis of economic power from owning land to owning stocks, bonds, and corporations. Now we’re entering the third stage of money’s history. The era of electronic money and the virtual economy. The rise of electronic money will likely produce changes in society as radical and far-reaching as the two earlier monetary revolutions caused in their own eras. The new money is likely to lead to sweeping changes in the political systems, in the organization of commercial enterprises, and class organization. Virtual money promises to make its own version of civilization that will be as different from the modern world as from the world of the Aztecs or the Vikings. And of course, as in the prior two monetary revolutions, people will invent and use dozens of variations of the main cultural configuration of money for special purpose projects and varying special interests.

      • Craig
        December 5, 2019 at 6:15 am

        @John Doyle

        Excellent suggestion. KISS is always a good policy. How about:

        1) Loans create deposits

        2) Private banks create 97+% of loans, a virtual monopoly on credit creation

        3) Even the money created by governments via the FED as deficit spending is created as debt.

        4) Hence the monetary paradigm/pattern is Debt Only

        5) A monopoly on both credit creation and also on the ENTIRE pattern of Debt Only, that is as the sole FORM and VEHICLE for the DISTRIBUTION of money/credit is probably

        a) the stupidest,

        b) most naive, (in view of the fact that money in a monetary economy is both the means of security, and the ability to deny it is the power to deny both individual survival and the continuation of commercial enterprise) and

        c) blatantly contradictory fact in an alleged competitive free market economy.

        6) Finding a way to place the power of money “into the many hands of the individual” in such secure abundance that there is no longer “the reserve army of the unemployed” that can be extorted and cowed, that also more abundantly benefits 99.9% of enterprise, that resolves the deepest problems of the current paradigm by literally inverting its realities of individual income scarcity, systemic austerity, balkiness and tendency toward recession or worse and finally of price and asset inflation….would seem to be the order of the day.

      • December 5, 2019 at 6:55 am

        Thanks, Craig. I concur mostly. Obviously your last point depends on the political scene. I read a view today that sheets a lot of blame to the Supreme Court decision which made donations to political parties an “expression of free speech” [instead of corruption] and another one. [I’ve lost the link]So much for the Supreme Court protecting citizens rights! Otherwise economics can move mountains.

      • December 5, 2019 at 7:00 am

        Here is that article,[Truth dig] Why Have No Republicans Turned on Trump? – Truthdig

      • Craig
        December 5, 2019 at 9:39 am

        Yes, Citizens United is a huge political problem and needs to be amended big time. Political partisanism/polarization/obsessive contentious dualism is a sign of advanced civilizational deterioration, and synthesis/integration of the particles of truth in that dualism enabled by the new insight and/or tool that always accompanies paradigm changes is the only solution to the idiotic duel to the death of pols.

  10. November 26, 2019 at 6:03 pm

    Kick it over, indeed!! But who is supposed to be doing the kicking?? (Post) Keynesians?.. I’m afraid that when one’s point of departure is a static Y=C+I, there is nowhere to be got from there in a dynamically operating economy either. When Keynes tried it on p. 104 of his GT, he encountered a riddle. Small wonder when his objective (dynamic) point of view, “Consumption – to repeat the obvious – is the sole end and object of all economic activity”, is supposed to be squared with his subjective Y=C+I… Give it up, friends, as long as you’re seeking salvation through paradoxes, you’re fighting a losing battle.

    For a fresh new start, may I suggest going back a couple of hundred years to a (political) economist, who made his analysis of how an economy works _dynamic_ from its very core. His name is Sismondi, and I’ve translated the essence of his magnum opus in reflection of statically indeterminate economic values from his point of view; which is dynamic-Keynesian, in the above sense. In addition to that, annotations were inserted to help that endeavour a bit further along. http://www.vcn.bc.ca/~vertegaa/sismondi.pdf

  11. Yoshinori Shiozawa
    November 27, 2019 at 6:01 pm

    Dear John

    I have read your translation of (part of) Sismondi’s New Priciples and your often long annotations. It may be your style of thinking and explanations, but I wonder whether you cannot explain your idea more concisely and incisively.

    Dear readers
    I also want to ask all readers here: Who has coined the term “Say’s law”? Is it Keynes or is there any predecessor to him? Suppose someone has coined this term. Is it the same idea that John Baptiste Say wanted to express in his famous chapter on Débouchés?

    It seems to me that Keynes attacked self-invented scarecrow.

  12. November 28, 2019 at 9:15 am

    Back to the original: David Wilson saying “The more I learned about economics, the more I discovered a landscape that is surpassingly strange. Like the land of Mordor, it is dominated by a single theoretical edifice”; and Lars Syll saying that “mainstream economists do not see this​ since they have the weird idea that economics is nothing but a smorgasbord of ‘thought experimental’ models. For every purpose you may have, there is always an appropriate model to pick.”

    My contribution thanking Yoshinori: “I found Joffre exceptionally clear on the difference between a theory and a model, i.e. fundamental scientific theory and models left arbitrary by lack of applied science narrowing their axioms down to observable specifics”.

    So Wilson is seeing the reigning theory [equilibrium occurring automatically as a Lockean balance of forces] and economists not, i.e. seeing only their imaginary models. I will add that the philosophical starting point of this was Locke’s Newtonian massive particles, as “transmogrified” by Hume’s “black box” psychology pursuading him it was all imaginary. In his student Adam Smith the theory of the tendency to a balance of power (not to mention its bias in favour of the powerful) has been reduced to an imaginary “invisible hand”), giving way to making models empirically, i.e. of what one is conscious of – which in real life depends on what one is looking at.

    My argument is that “the wrong theory” is actually the wrong philosophical starting point. Mine, “raw energy”, leaves room for radio waves carrying information and human brains able to detect, remember and act upon it rather than the trivial forces of the carrier. The “right theory”, given this starting point, is not an automatic balance of power, it is one in which equilibrium can be achieved by humans responding to messages from the present, the remembered past and what can be seen of the approaching future; controlling their own actions as a means of controlling activities they may well be working on cooperatively with others. I can explain how this works (its epistemology), but in short, the “right” theory” is the ontological one: “Economics is a PID servo”, steering activity by using error correcting logic.

    Unlike Mordor, this is not a single theoretical edifice. It is a structure or network of communication channels from which bits may be missing, and information carriers whose message may be garbled. I myself worked with such control systems back in 1960, in which correction of speed errors had to leave enough of an error to drive the system (analogous to “the reserve army of the unemployed”). Where more accuracy was necessary, this standing error was offset by its rolling average (based on remembering it over a period of time). In 1968 I saw Keynes attempting the same logic: adding the error signal in the form of sustained unemployment left by steering the economy solely by prices. Back in 1956 I had been introduced to pre-war Practical Radio use of positive feedback to boost the efficiency of amplification, and saw the net effects of this were to reduce the bandwidth of the signal (i.e. strip off the harmonics which gave the sound its quality, c.f. small shops disappearing from town centres) and when too much was used, to turn the amplifier into an oscillator (as rediscovered by chaos theorists). The answers to that was to control the efficiency of the amplifiers with negative feedback to make them predictable, leave out the “reaction” (positive feedback) and add Dolby hi-fi (negative feedback overall as well as in each amplification).

    Radio communication is not of course economics, but the argument is that these are different applications of the same fundamental theory, as are its generalised embodiment in a PID servo integrated circuit microchip and its long established paradigm of “cybernetics”: the method of steering ships in an unpredictable sea. You want to see the evidence for this? Look around you. Look for it in its many practical applications, not in economic text books.

    • November 28, 2019 at 10:21 am

      I seem to have omitted a key word, “our”, which allows me to emphasise the point: “’Economics is a PID servo’, steering activity by OUR using error correcting logic”.

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