Memoirs from beyond the tomb

from Peter Radford

Right at the end of his book called “Memoirs from Beyond the Tomb” Chateaubriand gives us a remarkable insight into our current troubles. I wonder whether we will solve them or whether we will simply write an addendum to his book.

He asks, for instance:

“Is it possible for a political system to subsist, in which some individuals have so many millions a year while other individuals are dying of hunger, when religion is no longer there with its other-worldly hopes to explain the sacrifice?”

A little later, with respect to the spread of education downward in society, he goes on :

“The excessive disproportion of conditions and fortunes was endurable as long as it remained concealed; but as soon as this disproportion was generally perceived, the old order received its death-blow. Recompose the aristocratic fictions if you can; try to convince the poor man, once he has learnt to read and ceased to believe, once he has become as well informed as yourself, try to convince him that he must submit to every sort of privation, while his neighbor possesses a thousand times what he needs: as a last resource you will have to kill him.”

Chateaubriand, as we know, lived through a great transition in society. 

Devil’s dung

from David Ruccio

Pope Francis’s recent references to money as the “dung of the devil” (or, alternatively, the “devil’s dung“) brought to mind lots of different references (from the etymology of dung in terms of different classes of workers to Freud’s tale of the devil whose gifts of money turn to excrement upon his leaving).

Teaching inequality: Notes on Piketty, Stiglitz and Harvey

from Maria Alejandra Madi and the WEA Pedagogy Blog

The relevance of wealth and income inequality has been acknowledged by unorthodox writers for some time. The recent success of Piketty’s book (2014) shows that the wider public is also interested in this issue.  Piketty’s  15-year program of empirical research conducted in conjunction with other scholars analyzed  the evolution of income and wealth (which he calls capital) over the past three centuries in leading high-income countries. Among the lessons, he highlighted; 

Ben Bernanke: The revolving door between Wall Street and U.S. government agencies continues to revolve.

from David Ruccio

Apparently, the door between Wall Street and the U.S. government agencies in charge of regulating Wall Street continues to revolve. Former Federal Reserve chair Ben Bernanke is the latest to walk through the door. 

The Larry Summers’ Memo

from Lars Syll

The Memo

DATE: December 12, 1991
TO: Distribution
FR: Lawrence H. Summers
Subject: GEP

‘Dirty’ Industries: Just between you and me, shouldn’t the World Bank be encouraging MORE migration of the dirty industries to the LDCs [Less Developed Countries]? I can think of three reasons:

1) The measurements of the costs of health impairing pollution depends on the foregone earnings from increased morbidity and mortality. From this point of view a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that. 

A case study of Harvard Business School ethics

from David Ruccio

Or, in this case, only at Harvard. . . 

Ethics, goals, and well-being

from Neva Goodwin

Twentieth century economics supported, implicitly when not explicitly, the idea that neither ethics nor history nor the institutions of law or culture were of much economic importance – as long as these things did not get in the way of “free” market functioning. This case was pressed with special vigor from about 1970 to the end of the 20^th century by economists from what was known as the Chicago School.

Even early on in this period there began to be concern that individuals acting solely to achieve their personal goals could not be counted on to operate a business in ways that would be good for the business itself. This real-world concern, combined with the dogma that people only act on the basis of self-interest, resulted in various efforts to motivate business leaders by offering rewards for specific markers of success (such as the price of the company’s stock). These efforts had the unintended consequence of escalating compensation of top management in the United States to levels that were many times greater than anything that had previously been considered normal (or were normal in other countries). They also resulted in an increasingly short-term vision on the part of business leaders. Very large scale frauds, Ponzi schemes, tax evasions, and environmental and human costs that businesses externalized during this period have made it increasingly evident that society cannot afford to encourage a culture of economic activity that ignores all normal human motivations except the selfish pursuit of personal gain. 

Clockwork Justice?

from Peter Radford

One of the central beliefs held by people who advocate a market based worldview is that, somehow, markets are apolitical, they are antiseptic, they are objective. This is nonsense. It is dangerous nonsense.

That markets work according to rules does not make them objective or even impersonal. Rules are human constructs. Ergo markets are simple extensions of base human attitudes and are thus fraught with all the frailties that encumber all human activity.

The sanitization of markets, by which I mean the constant effort to make them appear “natural” or “neutral” and thus “fair”, is an ideological cover that market ideologues desperately, and successfully, propagate. It is a cover to mask the consequences of this supposed naturalness and to give it the imprint of ethical cleanliness. After all if the outcomes of a market are simply those of nature working her course, who are we too argue?

Economists, or at least orthodox economists, are the great cheerleaders of this ruse to get us all to accept our fate. Over the course of the development of economics much work has been put in to the elucidation of the mechanics of markets. There is an overpowering sense of determinism in the result. Start here, crank the machinery, and let the outcomes just flop out. The market is such that any outcome is “correct”, because left untouched market machinery always hones in on the superior outcome. Thus the current distribution of income “must” be the correct one: the market created it and the market is always, unerringly, right.

Equality

from Peter Radford

All the justified fuss over inequality in recent months begs a rather significant question doesn’t it? If we are all so vexed over inequality we must have some yardstick or some more ideal state we could call equality. What is it?

The problem I have is that equality almost immediately disappears into a fog.

There are very few of us who would argue for the blandness of total equality. That seems to be as inhuman as extreme inequality. After all we are all very different and thus there is an inherent tendency towards lumpiness in society. Some people will always outperform others whilst some will underperform. Some will be richer and others poorer. This much is so simple we can move on quickly. After all we don’t want to fall into the trap that has ensnared orthodox economists: they cannot do their work without expunging humanity from their equations. Else all that lumpiness gets in the way of the smooth operation of maximization, efficiency, and rationality. So they sweep it away peremptorily by making absurd assumptions and then pretend to have discovered something of extreme value about humanity. Ridiculous, I know, but they plod on stupidly despite it.

So what is equality in the context of our discussion of inequality? 

Is medicine a model for ethics in economics?

from Peter Radford

A recent correspondent asks whether medicine could act as a template for the importation of ethical standards into economics. On balance I don’t think it can. Here’s why:

Medicine consists of a practical part that faces outward towards its customers. We call those customers patients. From the earliest times medicine has adopted the credo ‘first do no harm’ which forms the ethical bedrock for all subsequent standards. This is relatively easy to do since ‘doing harm’ is quite quickly identified. Even then such an ethical background failed to stop the development and implementation of some outrageous and harmful medical techniques. In the modern era the ‘doing no harm’ ethic has allowed the creation of a number of rules that govern doctor activity and provide a measure of protection to patients. Those rules are enforced by various governing bodies that not only establish and monitor the rules, but also govern the very process that allows someone to call themselves a doctor in the first place. This governance structure gives practical medicine a coherence and shape that are identifiable by the public, and ensures that the profession recognizes it relationship with society at large.

Skill or dumb luck?

from Peter Radford

Both.

Be very wary of anyone who claims that their wealth is the result of great skill. Or even hard work. Luck had to play a part. Usually a very significant part. And dumb luck ought not be the basis upon which we build intelligent, caring, or stable societies.

Be wary, also, of arguments against popular policies that include references to envy or jealousy. Being opposed to plutocracy does not necessarily imply either. Those arguments are old and have been used to undermine the moral authority of populism since democracy first reared its ugly head and disrupted the ease with which our leaders could syphon off wealth for their own enjoyment.

The two go hand in hand.

Populists will be accused of devaluing hard work and skill, and of stirring up the evil sentiment of envy that is presumed to lie close to the surface in the squalid and uneducated minds of the masses. By being both an advocate of sloth and jealousy a populist is easily and summarily dismissed as being irrelevant to policy discussions and properly ignored by serious analysts everywhere,

Where being serious means combining allegiance to the economic status quo with a suitable level of puritanical moral self-abuse. 

“Such an economy kills”

from David Ruccio

The other day, I posted a few paragraphs from the new Roman Catholic Pope Francis’s apostolic exhortation Evangelii Gaudium (which translates as “The Joy of the Gospel”).

I’ve now had a chance to read the entire text (available here), which seems to have gotten some notice around the world (although, best I can tell, there’s still no comment from the likes of Paul Ryan, who would steal bread from the mouths of the poor in the name of saving them from anything but the market).

The document as a whole is a call to a new kind of evangelization on the part of Catholics, both clerical and lay. (On Michael Sean Winters’s interpretation, “The Pope is calling the Church to be a missionary Church, an evangelizing Church, and the privileged path of fidelity to the Gospel is service to the poor.”) The main sections on economics are located in chapter 2 (“Amid the Crisis of Communal Commitment”) and chapter 4 (“The Social Dimension of Evangelization”).

The paragraphs I posted before are from chapter 2, in which Francis identifies the nature of the world in which he is making his call for a new missionary church. Permit me to repeat them here:

Ethics and Economics

from Maria Alejandra Madi and the WEA Pedagogy Blog

After the Second World War,  the idea of  development was associated with the active role of the national state that would support the sustainability of economic growth with social inclusion. After the Bretton Woods crisis, in the seventies, and with the advance of financial globalization, the institutional arrangement of the Welfare State has been shaken. As a result, both the  instruments of economic policy and the attendance of social demands were put in question in a context of the redefinition of  the scope of public policies.

After some decades, it is a reality that global economic  integration, guided by market credibility and financial rules, has broadened social exclusion. As a matter of fact, the new interconnections between wealth, production, labor and consumption have strengthened inequalities. Indeed, the apprehension of the current global inequality issues involves the understanding  of the deep tensions between the hypertrophy of finance in economic dynamics and the expectations of society about citizenship, labor and income.   read more here

How free markets corrode your character

from Lars Syll

For centuries, economists have argued that nothing beats a free market for efficiency. Unfettered competition leads to lower prices and better products, more innovation and greater choice. But market forces may also make people less ethical and more selfish.

There is no shortage of speculation on the topic by philosophers and social scientists. But the supply of empirical evidence on the topic has not kept up with the demand. Armin Falk and Nora Szech, two behavioural economists from Germany, have made a contribution.

In a series of experiments, a group of German volunteers were offered a choice between

Creating an Economics for the 21st Century

guest post from Rob Johnson

In the wake of the 2008 financial crisis, many of our policy makers and top economists are still stumbling in the dark.

One needn’t look far for proof. The symptoms of their failure are everywhere. Financial markets remain too volatile and crises too common. Inequality is raging and increasing around the globe. And environmental damage continues unabated, with rising climate volatility belying claims that we can experience sustained and broad based prosperity without major changes in the global economy.

A key part of this problem – and one that hasn’t been adequately explored – is the economics profession. 

Destroying the lair of the budget-balancing cretins

from Dean Baker

By now almost everyone knows of the famous Excel spreadsheet error by Harvard professors Carmen Reinhart and Ken Rogoff. It turns out that the main conclusions from their paper warning of the risks of high public sector debt were driven by miscalculations.

When the data are entered correctly, this hugely influential paper can no longer be used to argue that the United States or other wealthy countries need fear a large growth penalty by running deficits now. There is no obvious reason that governments can’t increase spending on infrastructure, research, education and other services that will both directly improve people’s lives and foster future growth.

With the advocates of austerity on the run this is a great time to pursue the attack. The public should understand that the often expressed concerns about long-term growth, the future, and the well-being of our children are simple fig-leafs for inhumane policies that deny people (a.k.a. the parents of our children) work and redistribute income upward.

Economic Thought: Special Issue on Ethics and Economics

Economic Thought – History, Philosophy, and Methodology
An open access, open peer review journal from the World Economics Association
Vol 2, No.1, 2013 – Special Issue on Ethics and Economics

Download issue in full (PDF)

Ontological   Commitments of Ethics and Economics Karey Harrison	Abstract	Download   PDF
Codes of Ethics   for Economists: A Pluralist View Sheila C Dow	Abstract	Download   PDF
No Ethical Issues   in Economics? Stuart Birks	Abstract	Download   PDF
Professional   Economic Ethics: Why Heterodox Economists Should Care George   DeMartino	Abstract	Download   PDF
And the Real   Butchers, Brewers and Bakers? Towards the Integration of Ethics and Economics Riccardo   Baldissone	Abstract	Download   PDF

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Error Correction and Ethics

from Peter Radford

You probably have missed it, but there is a major furor within the economics profession concerning the findings of an academic paper written by Carmen Reinhart and Kenneth Rogoff in 2010. The profession issues a torrent of papers annually, most of which remain scarcely read and massively under-appreciated. Probably deservedly so since the sole objective of most is to meet the check-box requirement of publication that dominates academia. This desperation to publish to build reputation and to demonstrate mastery of the subject to a determinedly self-referential peer group is one of the causes of the rapid decline within economics: it encourages ever more fragmentation of the subject into ever less relevant sub-disciplines, and has resulted in a near total elimination of a common understanding – or common memory – of its development.

It has also produced sloppiness.

The R-R paper has now become a cause-celebre of such sloppiness.

This would not normally be worthy of passing along to a broader audience – who cares what academic economists write after all? – were it not for the particular topic that R-R covered. 

Standard & Poor’s

from Peter Radford

It is good news that Standard & Poor’s is being sued by the government. S&P was complicit in the market rigging that led us to the bubble and the destruction of a boatload of wealth. It has escaped, thus far, any serious damage from its involvement in the creation of crisis and deserves to be taken down a peg or two. The amount of damages being sought is roughly equivalent to one year’s income of S&P’s parent company McGraw-Hill. That’s not enough to put the company out of business, but it is noticeable.

Anyone who is committed to a free market system will applaud the suit. Market rigging is about as serious a problem as can be imagined in a free market.

Wall Street speculation tax: a way to address corruption

from Dean Baker

Over the past week, the business news has been filled with stories about major British banks manipulating the LIBOR rate. While these stories are undoubtedly confusing to most of the public, which is not generally familiar with the intricacies of different interest rate indexes, the basic story is fairly simple: Big banks were caught lying about interest rates in order to make big profits.

For the most part the victims were other high-rollers who were taking the other side of bets on complex financial derivatives. However there were also pension funds and even governmental units such as school districts and park services that were persuaded by their financial advisers to get into this high-stakes game. These folks were among those who lost because of the LIBOR liars.

A Fundamental Problem