Values and ideology in economics and other social sciences

December 5, 2019 Leave a comment

from Peter Soderbaum

There is a tendency in mainstream neoclassical economics to claim value-neutrality. Economics is believed to be close to natural sciences where the scholar is standing outside observing what goes on in the economy. It is believed that experiments can meaningfully be carried out to arrive at “evidence-based” results. There is a focus on markets and markets are understood in terms of supply and demand as mechanistic forces. While reference to more than one perspective can add to our understanding, any ideas about value-neutrality have to be abandoned. Values and ideology are always with us as argued by Gunnar Myrdal:

“Valuations are always with us. Disinterested research there has never been and can never be. Prior to answers there must be questions. There can be no view except from a viewpoint. In the questions raised and the viewpoint chosen, valuations are implied.

Our valuations determine our approaches to a problem, the definition of our concepts, the choice of models, the selection of observations, the presentations of our conclusions – the whole pursuit of a study from beginning to end.” (Myrdal, 1978, pp.778-779)

Rather than arguing that “our valuations determine our approaches” I would say that “our valuations influence our approaches” but otherwise I strongly support Myrdal’s arguments about the many more or less conscious choices made by the scholar. Another social scientist, Tanja von Egan-Krieger (2014) who has examined mainstream economics as well as three heterodox schools (institutional economics, feministic economics and ecological economics) refers to “the illusion of value-neutrality” in her book.

Neoclassical economists such as the leading textbook writer, N. Gregory Mankiw sometimes make a distinction between “normative” and “descriptive” statements implying that the latter can be neutral in value terms (2011, p.32). But even descriptive statements are part of some viewpoint or worldview where choices about what to describe have been made.  read more

Can a service transition save the planet?

December 4, 2019 7 comments

from Blair Fix

Let’s talk sustainability. Unless you’re an anti-science crank, you probably agree that we’ve got a problem with carbon emissions. We need to drastically cut emissions to avoid catastrophic climate change. On this we should all agree.

The question that’s open for debate is how to cut emissions. I think we actually know very little about how do to this. But even worse than knowing little is thinking we know a lot when we don’t. As the old saying goes, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

This post is about false solutions to climate change. These are ideas that seem like plausible ways to reduce carbon emissions, but that fall apart when we look at the evidence. If we’re serious about sustainability, we need to abandon ideas that won’t work. Read more…

Maurice Allais on empirics and theory

December 4, 2019 4 comments

from Lars Syll

225px-allais_pn_maurice-24x30-2001b

Submission to observed or experimental data is the golden rule which dominates any scientific discipline. Any theory whatever, if it is not verified by empirical evidence, has no scientific value and should be rejected.

 

Maurice Allais

Formalistic deductive “Glasperlenspiel” can be very impressive and seductive. But in the realm of science, it ought to be considered of little or no value to simply make claims about the model and lose sight of reality.

Mainstream — neoclassical — economics has since long given up on the real world and contents itself with proving things about thought up worlds. Empirical evidence only plays a minor role in economic theory, where models largely function as a substitute for empirical evidence. Hopefully humbled by the manifest failure of its theoretical pretences, the one-sided, almost religious, insistence on axiomatic-deductivist modelling as the only scientific activity worthy of pursuing in economics will give way to methodological pluralism based on ontological considerations rather than formalistic tractability. Read more…

Digitalization and the transnational corporations. Rethinking economics

December 3, 2019 Leave a comment

from Grazia Ietto-Gillies

Digitalization has been with us for a couple of decades and is now all pervasive. It affects every sphere of economic activity: from production to consumption to the interaction between the State and its citizens. The latter interaction is in terms of: the delivery of public services; the collection of revenue; and the development and implementation of public policies.

The transnational companies (TNCs) have been with us for much longer. Steven Hymer (1976 [1960]) – who developed the first theory of the international firm – dates the modern transnational to after the Second World War. Its very distant antecedents can be dated much further back even before the birth of nation-states. Transborder direct business operations were indeed part of the activities of the Medici bank with headquarters in fifteenth century Florence.

More recently-established companies, such as the East India Company, the Royal African Company, the Hudson Bay Company and others dating back to the seventeenth and eighteenth centuries, are sometimes considered to be the forerunners of the modern TNC. However, these companies were chartered by governments to carry trading business operations in colonies. The specificity of their operations and the fact that the charter was for business in the colonies – which were considered part of the country whose government had granted the charter – make these companies substantially different from the modern transnational corporation.  read more

What is (wrong with) mainstream economics?

December 3, 2019 11 comments

from Lars Syll

If you want to know what is neoclassical economics — or mainstream economics as we call it nowadays — and turn to Wikipedia you are told that

fundneoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits by cost-constrained firms employing available information and factors of production, in accordance with rational choice theory.

The basic problem with this definition of neoclassical (mainstream) economics — arguing that its differentia specifica is its use of demand and supply, utility maximization and rational choice — is that it doesn’t get things quite right. As we all know, there is an endless list of mainstream models that more or less distance themselves from one or the other of these characteristics. So the heart of mainstream economic theory lies elsewhere. Read more…

Dying too young

December 2, 2019 4 comments

from David Ruccio

If there ever was an argument in support of Medicare for All it’s this: despite spending more on health care than any other country, the United States has seen increasing mortality and falling life expectancy for people ages 25 to 64, who should be in the prime of their lives.

A new report published in the Journal of the American Medical Association paints a bleak picture: overall life expectancy in the United States, which had increased for most of the past 60 years, has actually fallen for three consecutive years. But this is not just a recent trend. U.S. life expectancy began to lose pace with other countries in the 1980s, and, by 1998, had declined to a level below the average life expectancy among Organisation for Economic Cooperation and Development countries. While life expectancy in these countries has continued to increase, American life expectancy stopped increasing in 2010 and has been actually decreasing since 2014.*

The recent decrease in U.S. life expectancy was largely related to increases in all-cause mortality among young and middle-aged adults, as against other groups (infants, children, and the elderly) for whom mortality rates have declined. For individuals aged 25 to 64 years all-cause mortality rates were in decline in 2000, reached a nadir in 2010, and increased thereafter. Read more…

Macroeconomic uncertainty

December 1, 2019 30 comments

from Lars Syll

The financial crisis of 2007-08 hit most laymen and economists with surprise. What was it that went wrong with our macroeconomic models, since they obviously did not foresee the collapse or even make it conceivable?

There are many who have ventured to answer this question. And they have come up with a variety of answers, ranging from the exaggerated mathematization of economics to irrational and corrupt politicians.

0But the root of our problem goes much deeper. It ultimately goes back to how we look upon the data we are handling. In ‘modern’ macroeconomics — Dynamic Stochastic General Equilibrium, New Synthesis, New Classical and ‘New Keynesian’ — variables are treated as if drawn from a known ‘data-generating process’ that unfolds over time and on which we, therefore, have access to heaps of historical time-series. If we do not assume that we know the ‘data-generating process’ – if we do not have the ‘true’ model – the whole edifice collapses. And of course, it has to. I mean, who really honestly believes that we should have access to this mythical Holy Grail, the data-generating process?

Modern macroeconomics obviously did not anticipate the enormity of the problems that unregulated ‘efficient’ financial markets created. Why? Because it builds on the myth of us knowing the ‘data-generating process’ and that we can describe the variables of our evolving economies as drawn from an urn containing stochastic probability functions with known means and variances.

Read more…

Graphics from 4 empirical muckrakers – 4. Branko Milanović — Ancient Inequality

November 30, 2019 1 comment

from Blair Fix

Branko Milanović is the oracle of ancient inequality. He has muckraked to compile inequality data for many pre-industrial societies. Here’s a chart of inequality versus GDP per capita for ancient societies:

milanovic
Ancient Inequality Data from Branko Milanović. (Source)

Read more…

Randomised controlled trials — a retreat from the bigger questions

November 29, 2019 9 comments

from Lars Syll

Unknown1Nobel prizes are usually given in recognition of ideas that are already more or less guaranteed a legacy. But occasionally they prompt as much debate as admiration. This year’s economics award, given to Abhijit Banerjee, Esther Duflo and Michael Kremer … recognised the laureates’ efforts to use randomised controlled trials (RCTs) to answer social-science questions … RCT evangelists sometimes argue that their technique is the “gold standard”, better able than other analytical approaches to establish what causes what. Not so, say some other economists … Results are contextually dependent in ways that are hard to discern; a finding from a study in Kenya might not reveal much about policy in Guatemala …

Advanced economies grew rich as a result of a broad transformation that affected everything from the aspirations of working people to the functioning of the state, not by making a series of small, technocratic changes, no matter how well-supported by evidence …

Indeed, some economists have a sneaking suspicion that the rise of RCTs represents a pivot not just to smaller questions but also to smaller ambitions … Researchers are still guided by theory, which shapes the empirical questions that get asked and whether results are interpreted as capturing some deeper aspect of an economy’s nature. But a world in which economists are mostly policy-tweakers—or “plumbers”, in Ms Duflo’s phrase—is very different from the one to which many economists once aspired.

The Economist

It is nowadays widely believed among mainstream economists that the scientific value of randomization — contrary to other methods — is totally uncontroversial and that randomized experiments are free from bias. Read more…

China has hugely outgrown the U.S. under Trump

November 29, 2019 8 comments

from Dean Baker

This is one in the “whose is bigger?” category; which country has added the most to their GDP over the last three years. There is not any particular reason anyone should care about this, except that Donald Trump has made a big point of touting something about how no one says China will soon be the world’s largest economy anymore.

In fact, China’s economy surpassed the U.S. economy in 2015, using the purchasing power parity measure of GDP. This measure, in principle, uses a common set of prices for all goods and services for all countries’ output. Most economists consider it the best measure of the size of a country’s economy for most purposes.

China has continued to grow much faster the United States, meaning the gap between the economies is growing. China’s economy is currently more than 25 percent larger than the U.S. economy.

The graph below shows the growth in the two countries’ economies since 2016. Read more…

A reading list for economic heretics

November 28, 2019 10 comments

from Blair Fix

Do you think that the discipline of economics is a sham — an ideology masquerading as science? If so, here is a reading list for you. These 10 books have influenced my thinking over the years. Read them and join me in the journey of the economic heretic.

1. Capital as Power. A Study of Order and Creorder
Jonathan Nitzan and Shimshon Bichler

capital_as_power

Few books offer both a compelling critique of mainstream economics and a bold alternative vision for political economy. But in Capital as Power, Jonathan Nitzan and Shimshon Bichler have the audacity to do just that.

Nitzan and Bichler point out that orthodox theories of capital are built on non-existent units. Neoclassical theory is built on the non-existent unit of ‘utility’. Marxism is build on the non-existent unit of ‘socially necessary abstract labor time’. Because they are based on non-existent quanta, Marxist and neoclassical theories of capital are incoherent.

Having boldly dismissed orthodoxies, Nitzan and Bichler build their own theory of capitalism. Their thesis, as the title Capital as Power suggests, is that capital is a commodification of power. The relative capitalization of a firm, Nitzan and Bichler argue, represents the differential power of the firm’s owners. With this bold vision in hand, Nitzan and Bichler chart a new approach for political economy, backed by ample empirical research.

Capital as Power represents everything that I look for in a paradigm-shifting work of science. It presents a compelling critique of existing orthodoxies, offers an alternative approach to political economy, and grounds this approach in innovative empirical research. Read Capital as Power and have your worldview forever changed. Read more…

1855 — the birth of causal inference

November 28, 2019 5 comments

from Lars Syll


If anything, Snow’s path-breaking research underlines how important it is not to equate science with statistical calculation. All science entail human judgement, and using statistical models doesn’t relieve us of that necessity. Working with misspecified models, the scientific value of statistics is actually zero — even though you’re making valid statistical inferences! Statistical models are no substitutes for doing real science. Or as a German philosopher once famously wrote: Read more…

Starting again, and relating the schools

November 27, 2019 55 comments

from Geoff Davies

The need for a new start in economics arises regularly on this blog site, for example: Economics — enslaved by the wrong theory  And here is an edited extract addressing this issue from my book Economy, Society, Nature..  The point is not that ‘complexity’ gives rise to another ‘school’ of economics, but that it provides a general framework that accords with observations and is capable of accommodating many existing schools, but not all.
 

Many of the ideas presented here have been around for some time but the subject has been in some confusion, with a tendency still, among dissenting economists, to think of ‘schools’ of thought and to promote a ‘pluralist’ approach. Whereas it is laudable to consider a wide range of ideas, rather than the sterile monoculture of mainstream neoclassical economics, the result has still lacked coherence. For example, the recently issued book Rethinking Economics has chapters on Post-Keynesian, Marxist, Austrian, Institutional, Feminist, Behavioural, Complexity, Co-operative and Ecological Economics2 but little about how the various conceptions might relate to each other.

Wages of debt

November 26, 2019 7 comments

from David Ruccio

Well that didn’t go so well. . .

Still, Elon Musk’s new Cybertruck would appear to be the perfect design for America’s contemporary dystopia. Its bullet-proof stainless steel alloy panels and transparent metal glass are tailor-made to keep its elite occupants safely guarded from attack. And even though the windows obviously need considerable improvement before production begins, and “despite ‘no advertising & no paid endorsement’,” Tesla has already received almost 150 thousand orders for the truck.

Clearly, there’s a lot of surplus available—in cash and loans—to the small group at the top of the U.S. wealth pyramid to purchase such vehicles. Read more…

WEA conference: Going Digital

November 25, 2019 Leave a comment
from Malgorzata Dereniowska
wea-logo-anniversary-7

 

Going Digital: What is the Future of Business and Labour?

 

Welcome to the second week of the Conference which discusses recent contributions to the understanding of the digital economy and its consequences for business trends and labour challenges.

Read the latest comments on the DISCUSSION FORUM which is open until December 9th.

All papers are available HERE. You can participate in the Discussion Forum by commenting on specific papers, or contributing to a general discussion on the Complexities in Economics. In the spirit of debate, authors are asked to respond to the comments on their papers as well as on related general remarks.
Comments are moderated prior to posting to ensure no libelous or hateful language.

CONFERENCE PROGRAM 

Read more…

Graphics from 4 empirical muckrakers – 3. Thomas Piketty — Modern Inequality

November 25, 2019 6 comments

from Blair Fix

I don’t think I need to say much about Thomas Piketty. He’s probably the most famous economist in the world. Since publishing Capital in the Twenty-First Century, he’s become an academic rock star.

Many heterodox economists think Piketty’s theories of inequality are naive. I would be one of those economists. But this does not detract from Piketty’s empirical work. He’s a prolific inequality muckraker.

Together with other researchers, Piketty has created the World Inequality Database. It’s an invaluable tool for understanding modern inequality. I’ll leave you with one of Piketty’s most famous charts. Here’s the history of inequality in the United States:

Graph-1
This may be the most famous chart in modern economics. It’s Piketty’s data for the income share of the top 10% in the United States. (Source)

Economics — enslaved by the wrong theory

November 24, 2019 31 comments

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 Read more…

The origins of MMT

November 23, 2019 4 comments

from Lars Syll

Many mainstream economists seem to think the idea behind Modern Monetary Theory is new and originates from economic cranks.

New? Cranks? How about reading one of the great founders of neoclassical economics – Knut Wicksell. This is what Wicksell wrote in 1898 on ‘pure credit systems’ in Interest and Prices (Geldzins und Güterpreise), 1936 (1898), p. 68f:

It is possible to go even further. There is no real need for any money at all if a payment between two customers can be accomplished by simply transferring the appropriate sum of money in the books of the bank  …

A pure credit system has not yet … been completely developed in this form. But here and there it is to be found in the somewhat different guise of the banknote system …

We intend therefor, as a basis for the following discussion, to imagine a state of affairs in which money does not actually circulate at all, neither in the form of coin … nor in the form of notes, but where all domestic payments are effected by means of the Giro system and bookkeeping transfers. A  thorough analysis of this purely imaginary case seems to me to be worth while, for it provides a precise antithesis to the equally imaginay case of a pure cash system, in which credit plays no part whatever [the exact equivalent of the often used neoclassical model assumption of “cash in advance” – LPS] …

For the sake of simplicity, let us then assume that the whole monetary system of a country is in the hands of a single credit institution, provided with an adequate number of branches, at which each independent economic individual keeps an account on which he can draw cheques.

What Modern Monetary Theory (MMT) basically does is exactly Read more…

7 Wall Street theories

November 22, 2019 3 comments

from Ken Zimmerman

Wall Street is about investing. To get a large return on money invested. There is no shortage of theories on what makes the markets tick or what a market movement means. Some of which influence investor decisions. The two largest factions on Wall Street are split between supporters of the efficient market theory and those who believe the market can be beaten. Although this is a fundamental split, many other theories attempt to explain and influence the market, as well as the actions of investors in the markets.

1. Efficient Market Hypothesis
Few people are neutral on the efficient market hypothesis (EMH). You either believe in it and adhere to passive, broad market investing strategies, or you detest it and focus on picking stocks based on growth potential, undervalued assets and so on. The EMH states that the market price for shares incorporates all the known information about that stock. This means that the stock is accurately valued until a future event changes that valuation. Because the future is uncertain, an adherent to EMH is far better off owning a wide swath of stocks and profiting from the general rise of the market. “Hedging one’s bets, so to speak.” Economists seem to like EMH. Mostly, it seems because it has little empirical support.

Opponents of EMH point to Warren Buffett and other investors who have consistently beaten the market by finding irrational prices within the overall market.

2. Fifty-Percent Principle 
Read more…

Graphics from 4 empirical muckrakers – 2. Vaclav Smil — The Energy Oracle

November 21, 2019 2 comments

from Blair Fix

Vaclav Smil is by far the most prolific energy muckraker out there. I’m not going to try to summarize his research. Just look at his list of publications here.

But I will leave you with a beautiful chart of Smil’s data. Gail Tverberg has used Smil’s data to make a fantastic series of charts on world energy consumption. She uses Angus Maddison’s population data too. See the whole series here. Below is Tverberg’s chart for energy use per capita. Credit to Tverberg for such a pretty chart, and credit to Smil for muckraking the energy data.

per-capita-world-energy-by-source
Gail Tverberg’s chart of world energy use per capita. She uses data from Vaclav Smil. (Source)