Home > Uncategorized > “A primer for the perplexed”

“A primer for the perplexed”

from Peter Radford

That’s the subtitle of Robert Skidelsky’s little book “What’s Wrong With Economics”?.  A primer for the perplexed.  With the U.S. election past us, I decided to start reading some of the books that had accumulated in my “to read” pile.  Skidelsky being one of my favorite authors I started with his.  The problem is that perplexity is insufficient to describe my usual emotion or state of mind whenever I engage with economics.  So, here I am, a mere fifty or so pages in, and already I am experiencing that same exhaustion I have felt these past few decades any time I wander into the morass that passes for economics.  Time and again I do this to myself.  It seems such an important topic.  It seems so relevant and useful to understand.  It seems so necessary for anyone who wants to think about the policy or policies we need to further the lot of our fellow citizens.  But.  Then economics slaps you on the side of the head.

Just what purpose does all this nonsense have?

It employs lots of economists.  So that’s useful.  It is the intellectual equivalent of digging holes and then filling them in.  No long term use comes from the endeavor, but paychecks are cut and unemployment is lower.

I know.  I know.  I am being a tad critical.

Which is why it’s useful to read someone like Skidelsky.

He is clearly exasperated too.  He feels what I feel: that there’s a whole lot of gibberish masquerading as pseudo-science.  And yet, below all that mathematical disguise are a few useful nuggets, that might, in the right hands, contribute to our collective aim.  The problem is that sifting those few nuggets from the vast pile of chaff is no mean task.  It is a task that leaves many of us mightily perplexed.

Just how did this discipline get to be so warped and littered with irrelevancy?

I cannot answer that.  I am too jaded by the nonsense and the overly inflated sense of self importance that the discipline is weighed down with.  It just isn’t worth the time.  Is economics simply a whole basket of mathematical techniques?  In which case it is a branch of mathematics and ought to conform itself appropriately.  Is it a coherent body of thought distinct from the other social sciences?  In which case it ought to pay attention to its boundaries and conform them to the thought in its related disciplines.  Is it simply ideology?  In which case it ought to come clean and subject itself to the disciplines of political theory.  I could go on.  So could you.  Your list is probably better than mine.  I think one reason the the flummery that passes for economics survives is precisely because no one quite knows what it’s all for.  The answer seems to slide about before us.  Economists have a bevy of answers, each contingent upon the circumstance of the question.

Ultimately economics is, of course, what economists do.  Whether it’s useful is not for them to say.  We consumers of the product, to use a clever intellectual device used by economists themselves, are the ones who decide.  What’s the saying? “The consumer is king [or queen depending on your point of view]”.  If so, economics lacks — how should I say this?  — credibility.

Nonetheless Skidelsky gives it his best shot.  The problem with demystifying economics, so as to clear the fog of perplexity, is that it runs the risk of exposing what remains as something open to ridicule.

Take equilibrium as an example.

Never has a concept been more debased than that of equilibrium.  Skidelsky devotes a short chapter to trying to explain what it means to economists and how odd it is that they still cling, despite all the evidence, to it.  Skidelsky tells us that Schumpeter saw equilibrium as the “magna charta ” of exact economics.  There is nothing exact about equilibrium in the real world economy, but in the confines of the straight jacket imposed on the test economies that economists study, it is of critical importance.  It is a way of imposing order where there is none.  Apparently Samuelson  said that: “There may have been an initial period of trial and error, of oscillation around the right level, before price finally settles down in balance”.  Notice his hesitation, there may have been.  You can sense the economist in him screaming in horror that there may have been a disturbance in the price system.  Surely this is an error.  Prices are just wonderful.  Whatever they are.  Wasn’t a Nobel prize awarded to someone for arguing that prices always reveal the truth?  No matter what they are.  A Nobel prize, dammit, that’s proof right there that economists are right.  Markets are “efficient”, remember ?

Snark aside, the desperate clinging on to equilibrium despite the apparent constant disequilibrium around us can be quite baffling.  It’s a sifters economics defies any conclusion that might move it beyond that desperation.  For instance, I still regard the so-called socialist calculation debate of the 1930s as one of economics’ low points.  Not because of the debate itself, but because of what was learned: nothing.  The discipline has done this a few times: whenever its preferred theory, concept, or idea takes a beating, it moves on and ignore the argument.  As if nothing happened.  In this case the argument was about a logical extension of the Walrasian vision of general equilibrium.  The entire concept of GE obviates the need for markets.  As was pointed out in the controversy, a central planner could, with the necessary information, execute an equilibrium solution.  So what’s all this hoo-ha about markets?  It was Hayek who tried to resolve this inconvenience by arguing that the information is so diffuse throughout the economy that it is impossible, in practical terms, for such a central planner to gather and process the data.  Only the markets can undertake such a task.  Phew!  Market ideology can rumble on.  Except: notice that caveat is not based on any logic, it might be theoretically possible for a central planner to do the job.  It’s just that it isn’t practical.  Hmm.  What about “big data”?  What about our current computing power?  Is it getting closer to practical possibility nowadays?

No.  It isn’t.  I would agree with Hayek on this.

But there is another problem that follows from the Hayekian position:  how would we ever know if the current situation represents an equilibrium of the sort economics postulates?  Surely we can never “know”.  The information, as Hayek argues, is simply too diffuse.  We have no idea of whether there is an equilibrium.  It’s impossible to tell.  That’s the essence of Hayek’s position.  Not one, not even the cleverest economist, can gather enough information to know whether there is an equilibrium.

This was, as I have argued many times, decisively proved by Arrow and Debreu.  Their triumphant work on GE concluded that the entire concept is a fantasy and only exists under such ridiculous restrictions, that it is patently absurd to consider it a useful concept.  Or, at least, that would have been the conclusion had the entire effort not been wrapped in such glittery mathematics that the process swamped the conclusion.  Indeed, this is an iconic display of what perplexes us all about economics:  here is a magnificent disproof of GE for all to see.  The concept is throroughly debunked and ought to be discarded as an irrelevancy, or as an example of a bad turn in the history of the discipline.  Instead, economists become bewitched by the virtuoso mathematics and logical chicanery and prefer to continue as before, only now secure that GE can exist, even if only in their dreams.

There is, as Skidelsky tells us, a slight variation on this story, one that is a better explanation of the continued existence of GE in the vocabulary of economics: it was ideological necessary to move on, even with the absurdity of the Arrow-Debreu assumptions.  After all, if there is no “proof” that markets are naturally “self-balancing”, and if governments are not simply an example of a friction in the magnificent market machinery, chinks in the market edifice open up.  And economics wanted to avoid accepting that as fact.

Don’t forget the moment and the historical context in which both the socialist calculating debates and the Arrow-Debreu tour-de-force were taking place.  It was necessary, in the minds of the leaders of the discipline, to construct a market based, anti-statist, theory.  They were willing to shed their pretense to science in order to create a more ideologically tenable home base.  Which is where, by and large, economics remains.  Is it inevitable that economics is ideological?  Is it because of this inevitability that it has wrapped itself in excessive mathematical adornment in order to disguise itself as a pseudo-science? What nuggets its masters have turned up during its history can we trust?

Perplexing indeed.

  1. Herb Wiseman
    November 20, 2020 at 6:57 pm

    Several years ago an economist professor in my hometown and I got into a verbal dust-up about economics. He objected to some of my statements that were not supported by his economic ideas. Over a period of several weeks we jabbed back and forth at each other until he finally made the statement that Economics is NOT a science. It is an art form. My rejoinder, which ended the exchanges, was “Precisely, and that is the reason we should ignore economists’ recommendations or predictions and read the entrails of chickens.” Then I saw this short video the other day!

    Apparently one cannot post a video link here. South Park — American Economics might amuse you.

  2. Herb Wiseman
    November 20, 2020 at 6:58 pm

    Let me try the video link again.https://www.youtube.com/watch?v=wz-PtEJEaqY

  3. deshoebox
    November 20, 2020 at 11:01 pm

    For anyone perplexed by the apparent inanity of contemporary economics, I recommend the book, The Corruption of Economics, by Mason Gaffney and Fred Harrison. Excellent history of the systematic distortion, suppression, and expurgation of good thinking about economics. My own study of the subject led me to think the essential problem with contemporary economics is that its
    basic assumptions are all or nearly all demonstrably false. You all know that you can logically prove anything (or its opposite) if even one of your premises is false but you won’t be able to tell if your conclusion is true.

    • November 21, 2020 at 12:45 am

      When it comes to the theory of the consumer in microeconomics, all of the premises are demonstrably false.

    • Econoclast
      November 21, 2020 at 6:52 pm

      Thanks for mentioning the Gaffney-Harrison book, which I highly recommend. I have felt that Mason Gaffney has never gotten his due, and it might be because he is such a strong supporter of Henry George, one of the banes of neoclassical economists. I believe the neoclassical ideology to have been created in reaction to both George and Karl Marx (the former disliked the latter), as well as to create the emperor’s new clothes to hide the power of the predatory corporate capital that rules today.

      I have been rereading some of John Kenneth Galbraith’s books to counter some of the perplexity I find among my friends and associates. I find these quite prescient. Perhaps a return to focus on institutions is, at long last, warranted?

      • November 21, 2020 at 10:59 pm

        I’ve also heard it said the Jevons branch of neo-classicalism was a reaction to John Ruskin’s “Unto This Last”, which had been censored. Ruskin had to publish it privately, whereon it became a best seller.

        I share your enthusiasm for Galbraith.

      • Econoclast
        November 22, 2020 at 6:11 pm

        I’d understood that about Jevons as well.

        Gaffney/Harrison also cite John Bates Clark and Richard Ely as co-founders of neoclassicism, whereby they define land as capital, thus forcing the planet into the category of an exploitable resource. One reason why the economics profession is wrong: the proper relationship is the economy a subset of the environment, not vice versa. Ecological economists excepted, of course.

  4. November 21, 2020 at 9:58 am

    Do I detect in Skidelsky’s subtitle a reference to E F Schumacher’s “Guide for the Perplexed” (Jonathan Cape, 1977, subtitled by the publisher: “author of Small is Beautiful”)? The key to that is that there are Four Fields of Knowledge, leaving us with Two Types of Problem.

    “First, we dealt with ‘the World’ with it’s four Levels of Being; second with ‘Man’ – his equipment wherewith to meet the world: to what extent is it adequate for this encounter”?

    Schumacher, like Keynes, was man enough to be able to change his mind. He started off a Marxist, learned to appreciate the World through Buddhists, and in his old age learned through Catholic Christians to appreciate Mankind.

    “Where we are dealing with somewhat complex beings, like humans, or complex systems, like societies, it may still take a little time for sufficient data to be assembled and analysed”.

    For the insights of Chesterton, that is, to bear fruit in the Myers-Briggs Personality Indicator and the understanding of how the four parts of our brains learn to work together and with others to provide the aims and PID corrective feedbacks which guide our own activities and our communal subsystems. What we are still poor at is listening to the feedbacks!

  5. Ikonoclast
    November 21, 2020 at 9:24 pm

    The ecological consequences of the current pandemic will be much more important than their economic consequences. And yes, climate change trumps all of that. The economy depends on the biosphere of course. There are so many ramifications to what is happening now it means that looking through an economic lens simply cannot capture what is going on. I am not sure how any economic analysis could capture the enormity of it all.

    Take horseshoe crabs for example. Their extinction could stem from both climate change and the current pandemic. The pandemic, as a zoonotic, disease was unleashed by our depredations of and intrusion into remaining wild habitats in China. Now, horseshoe crabs will be vital in the search for and provision of a safe covid-19 vaccine. How so? Read on.

    https://www.nationalgeographic.com/animals/2020/07/covid-vaccine-needs-horseshoe-crab-blood/

    I note this oddity because it relates back to Liebig’s Law of the Minimum. Growth (or even maintenance of growth to date) is dictated, not by total resources available, but by the scarcest vital resource as limiting factor. The thing is, it is difficult to predict what will be the limiting factor in any complex process without extensive, nay absolutely comprehensive knowledge, of the ramifying human production web and the ramifying natural world web (organic life and inorganic processes and systems) which supports it and impinges on it.

    Could horseshoe crab numbers prove to be the limiting factor in producing vast amounts of vaccine, presuming a vaccine can even be created? Will marine heatwaves multi-decimate horseshoe crab numbers just as we need vast amounts of horseshoe crab blood? We can’t know the answers to these questions yet. The horseshoe crab could prove to be another real limit or just a suitable emblem perhaps of real limits. Ancient endowments of all kinds (horseshoe crabs are ancient) being pushed to their own extinction limits will in turn begin to illustrate the veracity of Liebig’s Law of the Minimum in new, shocking and unpredictable ways.

    There is no way economic analysis or economic prescriptions (economics is mainly a prescriptive discipline) can capture all of this. It’s even proving extremely difficult for science to capture all or even enough of it. Emergent phenomena in natural systems are surprising us all of the time. The only safe course would be to shrink our global footprint well below all estimates of a safe footprint precisely because of this very issue of “Liebig Limits” lurking everywhere in a system pushed close to its overall limits.

    The reason this self-limiting course of action is sadly impossible (apart from basic human need and greed) is geostrategics. No nation is willing to unilaterally shrink its population and economy whilst others insist on their right to keep growing. Of course, the USA is currently unilaterally shrinking its population and economy but it is not doing so intentionally. It is doing so mainly out of sheer idiocy and delusion. Perhaps we have to grimly hope that in the same way rampant capitalism ruins the ability of the Chinese people to think clearly and behave rationally. It is showing every sign of doing so. China tops the world count, in absolute terms, of obese people. China is insisting on its right to grow (for social and geostrategic reasons) to a per capita wealth level (read impact on biosphere level) equal to that of contemporary and now declining USA. Growth to that level is not remotely possible. A myriad of limits great and small now impinge on us. The year 2020 is the year we hit our limits. Climate Change is “Big Halsey”. Zoonotic disease is “Little Fauss” (pronounced “little force”). While your eyes are on Big Halsey (as they should be), a million Little Fausses (little forces) are coming to get you. You will need more than the nine eyes that each horse-shoe crab has.

    Economics is, as Canadian philosopher John Ralston Saul said, a discipline of only fourth or fifth order importance. What are more important are democracy, science (especially impact science), moral philosophy (ethics) and a disinterested concern for the public good rather then the promotion of self-interest. The correct move is probably to turn our backs on current economics all together. There is a need to radically destroy (bourgeois) economics as a discipline and to instead take direct action and also enact laws essentially annulling bourgeois economics altogether.

    Bourgeois economics can be annulled by annulling the possession of private productive property. The need for reasonable modicums of personal property would remain. Personal property is socially productive but not directly economically productive. A simple example of this theory is that you could own a house, unit or flat to live in but you could not own extra ones to rent to other people. They would simply own their own domiciles also. Redistribution would be straightforward. Simply confiscate all productive assets from people who own too much. You own your own house plus nine more you collect rent from? Too bad, those extra nine house will be taken from you and given to nine families who possess no domicile. That gives a flavor of the radical annulment of capitalism which is required.

    • November 21, 2020 at 10:46 pm

      The story of the horse-shoe crabs is news indeed. I total agree with where you are going, Iconoclast, in your last two paragraphs, though I proposed getting there by cooperative ownership and rationing credit rather than confiscation, so that to spend more the wealthy have to sell back their property, while domecile ownership must die with its owner unless a widow or child living there takes on responsibility for it. What we see here in England is that large unproductive estates can form wild-life oases and provide rewarding jobs, so softly softly catchee monkey. What I’ve also argued is that those in a position to implement these changes need to be able to see the problem whole in order to see the need for them. That overview is what I’ve been working on these last forty years, despite it “taking two to tango” and not having a partner.

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