Values and ideology in economics and other social sciences

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?

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.

Digitalization and the transnational corporations. Rethinking economics

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

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

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:

Ancient Inequality Data from Branko Milanović. (Source)

A reading list for economic heretics

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

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.

Starting again, and relating the schools

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.

WEA conference: Going Digital

from Malgorzata Dereniowska

 

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 

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

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:

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)

7 Wall Street theories

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 

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

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.

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

Graphics from 4 empirical muckrakers – 1. Nitzan and Bichler’s Buy-to-Build Indicator

from Blair Fix

During the 1990s, corporate mergers became part of the public zeitgeist. But what is the deep history of mergers and acquisitions?

Jonathan Nitzan and Shimshon Bichler piece together the puzzle with their ‘buy-to-build’ indicator. This indicator measures the dollar value of mergers and acquisitions expressed as a percentage of gross fixed investments. It tells us how much corporations are spending on buying other companies, relative to how much they are spending on actually building things. Nitzan and Bichler muckrake to put together a century of US data:

Nitzan and Bichler’s Buy-to-Build Indicator (Source)

More recently, Joe Francis compiled an open source update of the buy-to-build indicator. This is great empirical muckraking.

Bottom 50% income shares across the world, 1980–2016

Facts, fallacies and echo chambers

from Iconoclast

The above discussion “The new minds of young people will be open to the new empirical evidence.” illustrates the difficulties encountered by heterodox thinkers. Orthodox thinkers share a dogma, or at least a set of a priori assumptions, and usually a methodology. In essence, this makes orthodox thinking an echo chamber where basic ontology is never questioned. When the heterodox argue, as in the economically heterodox here, the argument eventually descends (or ascends?) into metaphysics; into ontology and epistemology. This is both the benefit and drawback of thinking and arguing from any kind of heterodox position.

While we are all drawn here by our rejection of orthodox economics, each of us has a particular perspective. That perspective is drawn from our enculteration and areas of study. That perspective is a kind of filter through which we see and interpret the world. Our only commonality appears to be a rejection of orthodox economics. Thus I suppose, in theory, if we pooled our arguments of disagreement with orthodox economics, searched for commonalities there and then backtracked or “reverse engineered” our way to the implied ontologies and epistemologies of such disagreements with orthodox economics, we might then begin to find common ground.

The tyranny of meritocracy

from Blair Fix

Like many Canadians, I grew up with a faith in meritocracy. Do your best, I believed, and the world would reward you.

In school, this idea seemed self-evidently true. I worked hard, and was rewarded with good grades and praise from teachers. And those students who didn’t get good grades? Well they had less skill — less merit — than me. Or so I thought.

In hindsight, I cringe at my naivety. Like many successful people, I was blind to something important. There is no objective standard by which we judge merit.

Instead, merit is judged in a social context. What counts as deserving merit is what other people think deserves merit. This social context is why meritocracy can be a tyranny. If you’re good at something that isn’t valued by other people, you won’t be rewarded.

Wait … jazz musicians aren’t well paid?

y first hint that some skills are less valued than others came in my early 20s. At the time, I was devoted to becoming a professional musician — a jazz drummer. My thinking was simple — if I practiced hard enough and become a good enough musician, the world would reward me.

Boy was I naive.

Income levels and emissions

Global income growth and inequality, 1980–2016

The US vs. Western Europe 1980 – 2016

In 1980 the bottom 50% of the population in the US received 20% of the national income and 23% in Western Europe. By 2016 the share of the bottom 50% of the US population received declined to 13% while in Western Europe the bottom 50% held on to 22% of the national income. The top 1% in Western Europe increased their share to 12% in 2016. Meanwhile in the US the top 1%increased their share of the national income from 10% in 1980 to 20% in 2016.

A key question is what policies and forces are at play in Western Europe that maintained the bottom 50%’s share?

Map of CO2 emissions per capita by country

https://en.wikipedia.org/wiki/File:CO2_emissions_per_capita,_2017_(Our_World_in_Data).svg

CO2 emissions per capita by country

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World – CO2 emissions per capita 1960 to 2014