Home > Uncategorized > Weekend Read – Hockey Stick or Growth Illusion?

Weekend Read – Hockey Stick or Growth Illusion?

from Asad Zaman

Most economists are committed to Friedman’s methodology which advocates a nominalist philosophy of science. Theories do not aim to discover hidden real structures which explain the observations. Instead, they aim to “save the appearances”: provide a good match to the observations. Although a small minority of voices has advocated a realist methodology – Bhaskar Roy, Peter Manicas, Tony Lawson, and some others – the vast majority remains unconvinced. One important reason for this is the Duhem-Quine thesis. Any given set of core assumptions about hidden reality can be put into conformity with any collection of observations by suitable auxiliary assumptions. Furthermore, the protective belt for core theory can accommodate any incoming stream of contrary observations. Peter Manicas in History and Philosophy of the Social Sciences has argued that the conclusion from this is that we should abandon the quest for certainty, instead of the quest for realism. However, his arguments are unfamiliar and ignored. Although I agree with Manicas, it is not my purpose to argue for realism in this post. Rather, I want to consider more carefully the consequences of the Duhem-Quine thesis – we can find an infinite number of essentially different models to fit any finite collection of data.

The problem with nominalist methodology arises due to epistemic over-stretch: after fitting a nominal model, you claim real properties for it. The most familiar example is that of regression models. Even though these are fitted purely on the basis of correlations, using them for policy invokes an unjustified and unjustifiable causal interpretation. If a curve fits the data well, this is not sufficient to authorize forecasting or policy based on the curve; an infinite number of curves can be found which fit the data perfectly, and yield radically different policies and forecasts.

Many authors have noted that “fitting the data” or “saving the appearances” is a non-requirement — it means nothing. Theories are NOT required to fit the data, since they can be saved by a protective belt of auxiliary hypotheses. In econometrics, one can do this by adding a dummy variable for an outlying observation. If you add sufficient number of dummies, all observations can be fit to any theory. Of course, such OBVIOUS massaging of the data would call attention, but one can mimic this process in many different not-so-obvious ways. Complex assumptions regarding the nature of the error process is the most common method in econometrics to get any data to conform to any theory. Romer realized, to his shock and horror, that his Chicago school teachers had no concern at all to match the data. When the regressions started showing lack of fit to their theories, they shifted from regression methodology to “calibration” — the data was destroying too many good theories!!! A previous post on Quotes Critical of Economics and also Romer’s Trouble With Macro quotes numerous economists on how “post-real” theories show complete lack of concern for reality. The core of microeconomics, utility theory, is another post-real theory. Even though actual human behavior is strongly in conflict with this theory (see Behavioral vs Neoclassical Economics), micro textbooks all over the world continue nonchalantly to ignore this voluminous empirical evidence, and proceed to teach the theory exactly as if it is the gospel truth.

In my paper entitled “Models and reality: How did models divorced from reality become epistemologically acceptable?” RWER Issue 91, I have shown current economic methodology puts no requirements on theories to match data. This leads to the important question: “What ARE the requirements placed on “successful” theories?”. A deep insight of Karl Marx provides the answer: capitalism works not by forcibly exploiting the laborers, but by making them think that this exploitation is a natural and essential component of well-designed system which delivers optimal results. Successful economic theories must satisfy two requirements: they must protect the interests of the small minority (the top 0.01% who benefit enormously) but at the same time, the theories must have universal appeal, in order to generate the consent of the bottom 90% to be exploited by the system. This means the ability to deceive the masses is a core requirement for successful theories. I have spelled out how central economic theories today are designed to have both of these characteristics (see Economic Theories of the 1%: Blindfolds Created by Economics).

The Global Financial Crisis has peeled away the blindfolds created by neoclassical theories and exposed the ugly realities of racism and increasing inequalities. A 2015 survey by Federal Reserve Bank of Boston revealed that the median net worth of black families in Boston was $8, while that of the white families was $247,500!. The rags-to-riches story is an essential element of the deception which makes the inequalities palatable to the masses. The illusion that anyone can make it big – the Horatio Alger myth — fostered and sustained by Hollywood has been shattered by increasing awareness of deeply entrenched inequalities. The following graph provides shocking evidence of the (lack of) social mobility of black families:

Similarly, the article “Never Mind the 1%, Let’s Talk about the 0.01%” graphically shows the amazing levels of increasing inequality. All of the gains from growth go to a tiny percentage of the population, while standards of living have declined for the masses (see Eight Graphs that tell the story of US Economic Inequality). So much so that life expectancies have gone down in the USA due to suicides (see Suicides Fuel Decline in US Life Expectancy)

As the multiple illusions which sustain capitalism are breaking down under the impact of severe shocks to the economic system, a new line of defence is being prepared — see Soros’ INET: The Trojan Horse of the Financial Oligarchy) In this new line, we start with a frank admission of all the failures of capitalism on multiple fronts – thereby disarming the attackers. Then we portray the past century as a spectacular success in wealth creation. We can label this the “hockey-stick” defence. The hockey-stick is portrayed in the chart labelled as Figure 2 taken from [Snowdon, Brian (2006) The Enduring Elixir of Economic Growth. World Economics 7:1], who writes that “Economic growth, not redistribution, is the single most powerful mechanism for generating long-term increases in income per capita.” The passion behind the propaganda is so powerful that the trivial and trite nature of this tautological truism – growth rate of any criterion is obviously the most powerful mechanism for increasing this same criterion – is not obvious to the learned author. The statement would have some bite it said that the growth rate is the most powerful mechanism for eliminating poverty – but then it would be manifestly false.

The argument is basically that all sins of capitalism should be forgiven, in light of this spectacular performance in terms of growth. There are many lines of attack one can take against this argument. One of the natural lines is to focus on increasing inequality and poverty, and this has been explored widely. My paper “Evaluating the Costs of Growth” RWER #67 2014 is devoted to an alternative line of attack. This says that growth is measured by computing the income generated, but without subtracting the costs to the environment. If we measure both, then the growth record turns negative. The central message of the ten page paper is well captured and summarized in the cartoon:

So how can we enable the masses to see through the “Growth Illusion”? How can we counter the deliberate deceptions that sustain capitalism by preventing masses from realizing their common enemy, and diverting their attention to false demons to blame for their misery (see The Shifting Battleground)? To understand the answer, we must differentiate between policy/plan and strategy. Planning can be done by describing a sequence of steps which will take us to the desired goal. But strategy must be used when there is an active and vigilant enemy who has the job of preventing us from reaching the goal.

For strategic analysis, we must examine the tools being used for brainwashing the masses. Even though economic theory is taught at universities to a small number, this is the central tool of propaganda – simplified versions, reduced to slogans and soundbites, and Hollywood movies, spread the message to the masses. How can we interfere with this educational process, and create enlightened alternatives to the ideological indoctrination into capitalism at modern universities? A while ago, my paper on “Challenging the Economics Curriculum: Creating Challengers and Change” was published as a chapter in a volume on this topic by Madi & Reardon. But the obstacles in the path of change are huge! The orthodoxy has a vested interest in keeping the ivory towers of academia free of the weeds of heresy. In the past, there used to be some tolerance for dissent, but capitalists have captured this frontier as well and commercialized it heavily over the past several decades. Non-conformity and dissent have no place in universities which are meant to turn out standardized parts – human resources — for use as cogs in capitalist machine for the production of wealth.

As I wrote in Radical Paradigm Shifts, it is a nearly hopeless task to deprogram minds which have been conditioned to believe in economics. Examining the history of dramatic failures of very sophisticated schools of heterodox economic resistance to the mainstream, I have come to the conclusion that heartlands of capitalism are too well guarded. Any strategy for change must be based on reaching the victims of capitalism. Within the center, these victims (the bottom half) are fed on a constant diet of soma, and are watched vigilantly for changes in thought patterns. Revolts like Occupy Wall Street, Black Lives Matter, and the like are easily snuffed out by professionals and experts in discontent management. Thus the task of saving the planet, and future of humanity, from the ravages of capitalism falls to the periphery, or the hinterland, where the forces of capitalist propaganda are not so deeply embedded into the institutional structures.

Towards this end, I have been working on developing online courses which provide radical alternatives to conventional economics. We hope to provide them at nominal cost to large numbers of students and teachers in the over-exploited world (as opposed to under-developed; billions of dollars flow from the poorest countries to the richest every year). Among the most powerful messages I have found to inspire students to change is the idea that human lives are infinitely precious. To convince us that we are commodities for sale to the highest bidder in the labor market, our education robs us of our true identities. A powerful antidote is to “Learn Who You Are“.

  1. Edward Ross
    July 10, 2021 at 2:20 am

    Thank you Asad, excellent article the question is how to get it out to the masses Ted

  2. Jamie
    July 10, 2021 at 9:30 am

    And for the problem of what needs to be unlearned:

    “Teaching climate complacency: mainstream economics textbooks and the need for transformation in economics education.” Globalizations,

  3. Ken Zimmerman
    July 11, 2021 at 9:08 am

    Theories are analytical tools for understanding, explaining, and making predictions about a given subject matter. In the social sciences this includes individual actions, societies, all related institutions, etc. Theories help to direct our thinking and provide a common framework from which people can work. Oftentimes through the process of using a theoretical framework, we discover that it lacks explanatory abilities. When that happens, it is modified or even abandoned. No need to delve into the metaphysics of reality. Or reality at all. This is a blind and never ending alley.

    • July 11, 2021 at 9:25 am

      Exactly Ken – eat more soma, and enjoy your dreams!

  4. Ikonoclast
    July 11, 2021 at 11:04 am

    Yes, that is an excellent essay by Asad Zaman. I view the nominalist – realist debate from a priority monism and complex systems point of view.

    On the Philosophy Side.

    Classical systematic philosophy, as pre-scientific philosophy, found its raison d’être in wonder and its method in systematic doubt. This combination generates the insight that thorough-going truth and firm knowledge are seldom immediately obvious and therefore are matters worthy of extensive investigation and deep thought. Skepticism, of received or dogmatic authority, but also of data from the fallible senses and the deceptive appearances of the world, must be systematically applied, as methodical doubt, to beliefs and purported knowledge. Methodical doubt mandates methodical investigation. In this context, two broad domains present themselves to us for investigation, namely the world and what humans say about it. Further, there is (rightly or wrongly) a sensed split between the appearance of the world and the deeper reality of the world and indeed this split appears in many human discourses about the world. Appearance is of the surface; superficial, incomplete and often misleading. The full reality is that which is hidden beneath; deep, complex and unknown until investigated.

    The difference between a surface and the reality beneath, turns out to be the same as the difference between a system’s boundary and the internals of the system. Examples of such boundaries are available to ordinary perception everywhere in the natural world. One can note the surface of a lake or the skin of an apple as examples of surfaces and thus of system boundaries. Boundaries immediately present interesting and sometimes contrasting characteristics. A boundary may be permeable, semi-permeable or impermeable. We might also use the broader terminology of penetrable, semi-penetrable or impenetrable. The act of penetrating a boundary leads to a discovery of some things beneath or beyond the boundary, which otherwise could not be known. Diving through the surface of a lake may reveal fish or no fish in the middle depths and a lake bottom of sand, mud or weed. Biting through the skin of an apple will reveal edible pulp in the case of a good apple or inedible pulp in the case of a bad or unripe apple. Details of the skin (colours, wrinkles, depressions) may or may not have already revealed some information about the nature of the pulp within. A surface or boundary may convey almost no information, some information or considerable information about the system’s “depths”, depending on the boundary’s nature and its relation to that which lies below or beyond it. Sooner or later, we reach boundaries where we cannot penetrate any further into the nature of things.

    This common and repeated human experience, that boundaries are both revealing and concealing, can (along with over-philosophizing perhaps) lead to the reverse of reification which is a kind of second order and reversed ideational movement which can be termed an idealisation or essentialisation of the real as something “ideally real”: that which is essentially posited to be beyond all boundaries of empirically accessible existence. Reification (also known as the fallacy of misplaced concreteness or hypostatization) is a fallacy whereby an abstraction (abstract belief or hypothetical construct) is treated as if it were a physically real process or entity. An “inverted reification” or essentialisation, in my definition, is the fallacy whereby the mind’s models of concrete real objects, real processes or real systems, especially the mind’s most abstract philosophical, mathematical or mathematico-deductivist models, are intellectually fetishized and then considered and treated, not as concretely real like an ordinary reification, but as ideally real (existing in an ideal realm both external to the (naïve) mind and beyond all empirical boundaries) and somehow “more real than the real” in some pure or idealist sense. A prime candidate for a general instance of this inverted reification is Plato’s Theory of Forms. It is assumed that, beyond the presumed final boundary, which we cannot penetrate, there must be a fundamental difference from ordinary nature; a fundamentally different realm where there exist only ideal forms without substance, like the perfect sphere. for example. or its mathematical description at least; which perfect forms somehow inform or determine all of detectable nature and somehow participate in creating real forms which are the imperfect reproductions of the perfect or ideal forms.

    The state or nature of reality beyond that final boundary is assumed to be qualitatively and profoundly, that is to say absolutely, different from the real and in all ways ideal. Yet these pure, ideal forms posited to exist outside all reachable or detectable reality look suspiciously like, indeed identical, to the most abstract models developed by the human mind. The Occam’s razor alternative is to assume that, right across the system of existence, a condition of complex system monism pertains; a single system of sub-systems without any assumption of substance difference or connection difference even at unseen levels or at space-time distances beyond the bounds of human experience.

    Second order, inverted reification, growing out of the ambiguity which the experience of knowable surfaces and unknowable depths presents to the inquiring mind, is very possibly the psychological, and perhaps even the evolutionary-psychological (evo-psych), precursor of religious and mystical feelings as qualia and of dualism as a philosophical, rationalizing response. The brain, or rather mind-processes in the brain, seek correlative certainties for pragmatic processing reasons. The mind seeks, it can be argued, for a kind of meta-certainty; that is a certainty that its set of certainty and reliability models for interacting with the world possess cross-consistency. Unresolvable ambiguity in this arena potentially involves the mind, which is seeking a degree of certainty and equilibrium, in endless loops or recursion difficulties, manifested as paralyzing indecision, inaction or crises of mental health, social confidence or religious or idiological faith. At some point, the mind must accept some a priori premises with “truth warrants” as the philosophers term them but without absolute proofs.

    One the Economics Side.

    Classical and conventional economics are simply faiths. What is more, they are faiths which demonstrably run counter to a (great) number of scientific, empirical discoveries. Point one, if one is going to have a faith, one should admit it is a faith. Point two, that faith had better not run obviously counter to empirical discoveries, nor fall to fallacies like circular proofs and self-refutation. I will come back to these fallacies in another post if I can. Conventional economics does not admit it is a faith or belief system generated by finding regularities after making its own prescriptions and then calling these “laws”. Conventional economics claims to be “scientific” by discovering these “laws”. But one cannot claim as a law (a fundamental law of nature) a regularity which only occurs because humans have made rules (prescriptions) and other humans are largely induced or forced to obey them.

    It is not a fundamental law of nature that humans drive automobiles on the right side of the road; this is after inventing automobiles of course. We can see the proof of this in that people in some countries drive on the right side of the road (eg. USA), some drive on the left side (Australia) and some who once drove on the left now drive on the right (Sweden). Thus, certain regularities of human behavior are generated by human custom and regulation (soft rule and hard rule prescriptions). The rules of property, the rules of money and the rules of markets (they all have rules) are what generate the regularities of behavior in those arenas to a very considerable extent. One can argue not to a total extent because real conditions affect people as they try to obey rules or to exploit and game rules.

    But capitalist ideology likes to pretend that the rules of property, money and markets, which rules vary from jurisdiction to jurisdiction in any case, are either natural (that is the right to exclusive property is somehow a natural law) or they are the only prescriptions which result in a workable, efficient economy. Thus these rules are taken as irrefutable and inescapable axioms from which must flow all the theorems of economics. This makes conventional economics a prescriptive, not a descriptive discipline. It cannot be a science. It therefore must be an ideology or a religion. As I tend to say, (and I say it as an agnostic) an ideology is just a religion without a god. This isn’t quite right however. The “god” reappears usually as a human person (the cult of personality) or as an irrefutable “law” which again like the “laws” of conventional economics is a non-natural, non-empirical “law” held to be fundamental without evidence.

    Instead of taking property as a right and a “law”, we would be better off taking Robert Ardrey’s perspective of property as territory (see “The Territorial Imperative”). Possession of some physical territory is indeed an imperative for physical beings like humans. However, humans are also a social and eusocial species who build, under conditions of civilization, complex built environment systems; predominantly domiciles, work places and travel and communication infrastructures. Some of these territories are shared, must be shared, like roads, public utilities, facilities, amenities, parks, spaces and so on. They are public possessions, not private possessions. Also, when we see what one man or one woman truly needs (and their children if any), how can we justify billions in private wealth, vast private lands and estates etc. when others starve? We cannot. But it is handy for the rich capitalist or oligarch to have his justifying ideology where the human created rules are sacrosanct and thus no outcome of them can be criticized. Since rules to concentrate wealth do concentrate wealth, no surprise there, this amounts to a system of automatized ethics. The outcome is automatically right and justified by the axioms of the system.

  5. July 19, 2021 at 4:56 pm

    Good piece of writing on the fallacies of orthodox ‘economics’.
    Mind you, even this is quite typical of the whole genre of ‘economics’ writing, which seems to be mostly about who can use the most words to make the simplest concepts seem complicated!

    Any normal scientist only needs to look at the ‘hockey stick’ graph to see the standard model is impossible on a finite planet!

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