Some Issues Re-visited

from Peter Radford

Hmmm.

It seems that some people misunderstood my comments regarding neoclassical economics.

Allow me to reiterate and, perhaps, clarify.

I want to say that I regard neoclassical economics as a triumph. A wonderful achievement. Brilliant.

Please read the fine print: that brilliance has nothing to do with relevance, reality, or any other such yardstick.

All I am saying is that within its own confines, with regard to its own rules, and with respect to the limits placed upon it by its multitude of excellent practitioners, neoclassical economics has been an extraordinary success.

Further, and more to the point, I am saying that the number of instances of economies we find within the space of all possible economies described by neoclassical economics is tiny. So tiny we are unlikely ever to experience one.

The message: from austerity to prosperity

from Asad Zaman

Modern history is largely driven by the battle of the rich (top 0.01%) against the masses (bottom 90%). Over the past few decades, the rich have been tremendously successful in having it all their way. A previous blog post on “Deception and Democracy” illustrates by examples their successful conversion of democracy into plutocracy in the USA. As pointed out by Polanyi, unregulated markets create disastrous outcomes for the majority. Therefore, in a democratic environment, theories which misrepresent facts and justify massive inequalities are essential pillars of support for the plutocrats. Spreading these theories via media and educational channels helps create an environment where people support policies which go against their common interests.

On the irrelevance of general equilibrium theory

from Lars Syll

The general equilibrium approach starts with individual decisions. It assumes that trades are voluntary and that there exist mutually advantageous opportunities of exchange. Up to here, everyone can agree. The problem lies in the next step. At this point, let us folllow David Kreps’s (1990) reasoning in his A Course in Microeconomic Theory. Kreps asks the reader to “imagine consumers wandering around a large market square” with different kinds of food in their bags. When two of them meet, “they examine what each has to offer, to see if they can arrange a mutually agreeable trade. To be precise, we might imagine that at every chance meeting of this sort, the two flip a coin and depending on the outcome, one is allowed to propose an exchange, which the other may either accept or reject. The rule is that you can’t eat until you leave the market square, so consumers wait until they are sat- isfied with what they possess” (196).  

Ideas that must be forgotten

from Peter Radford

Much of what we are told as being advances in economics are diversions or delusions that serve only to trap us in a cul-de-sac. Sometimes that becomes a very long road to nowhere. Sometimes, it seems, economics will never return to being about actual economies, but will always be doomed to stay the plaything of a select group of very clever savants separated from the world by their contempt for its complex messiness.

I am not one of those to indulge in endless territorial fights over purity of thought. What matters to me is practical application. I measure the usefulness of an economic idea by the illumination it throws on a real world problem and on its ability to assist us better our collective lots in life. I frankly don’t care if it is the precise meaning that some long ago dead theorist gave to an idea. Our current divination of that meaning may have strayed from purity, but it might also work. Battles over intellectual turf are meaningless except for a very few whose reputations are involved. Other than that, who cares?

Two roles for economic agents

from Issue no. 70 of the real-world economics review 

I have already explained the difference between complex and uncertain worlds, and highlighted the importance of agents’ beliefs about how the world is and of the knowledge they can possibly have about it have for decision making. Now it is time to consider in more detail two different roles agents play in the economic process: decision-makers and lobbyists. 

Individuals or firms may take economic decisions (behaving as decision-makers), or may influence economic performance in a broader sense with the purpose of enforcing the success of their decisions. In this second role they behave as lobbyists. The category of lobbyists includes the government, media of communication, corporations, unions, political parties and any individual or groups of individuals that are strong enough to influence the course of economic events. They may try to influence the expectations of other agents or the relevant economic context (promoting changes into the legislation, new regulations and institutions, etc).

The distinction between decision-makers and lobbyists refers exclusively to two different roles that the very same agents can play. One way to visualize this difference is to base it on two stages of economic processes: the time before and after decision-making.

Where’s the Structure?

from Peter Radford

In its long search for the illusion of equilibrium economics has had to barter away one aspect of reality after another. Driven by its desire to unearth laws that explain the presence of that illusion economists have long ago lost contact with the grittiness of actual economies. They prefer the pristine and simplified sanctuary of their models no matter how reduced the image of an economy those models portray.

Oddly I do not criticize them for this. No, I think I understand the logic of the process that produced the result. I applaud the effort. I salute the intellectual energy that has been absorbed into the project.

It’s the outcome I abhor. Economists are simply caught in a valley which, unfortunately for them, sits in the shadows of reality rather than sitting on a peak casting light on it.

I was thinking thus because I was trying to relate how economics, most of it anyway, ignores uncertainty. As you know this ignorance vexes me more than somewhat, because I see uncertainty as central to human existence. Without some element of uncertainty there would be no need to learn — we would know everything already. It is the absence of knowledge that incites us to search, to innovate, and to arm ourselves against the unknown. It is the very essence of life: problem solving is the distinguishing characteristic of life. It is how we tell that something is alive. The intentional imposition of order on disorder is the central property of all things we consider to be living.

Economic Ignorance?

from Peter Radford

Ha-Joon Chang nails it.

But I wish he hadn’t.

You see, I agree with his analysis of the inverse nature of status within the economics profession. As a useful general rule the more notable you are within the profession the less you know about the economy. This is a result of the perverse nature of what economists actually do: they are amongst the very few disciplines — perhaps they are unique — who invent the artifacts that they then seek to explain and study. This relieves them, as you can imagine, from having to engage with the mucky real world.

You might wonder how this came about. It is quite a puzzle isn’t it? All those extremely clever people resolutely avoiding contact with the very substance that their chosen topic of study presents them from outside; averting their eyes from the glare of reality; turning inward as they search for clarity and that song sought after simplicity that so beguiles them.

It’s actually quite dispiriting for anyone who dares imagine that economics has relevance to humanity and its ability to chart a course towards a generally more prosperous world.

So how did this disconnect happen? How is it that the very best are the most ignorant?

Questions – Add Your Voice

from Peter Radford

There’s been a lot of excitement about changing the substance of economics and the way it is taught. Rightly so. But that, it seems to me, just begs the question: “What is economics?” Or, rather, it begs a series of questions. None of us can pretend to have the answer since the answer is surely to be found in the collective voice of those who are interested enough to respond. Social intelligence is a more robust repository of ‘truth’ than any single intelligence can ever be.

So.

What are the questions? Tell me.

Once we have a good set of questions, let’s then survey our friends and colleagues to get answers. Oh. And let’s restrict ourselves to limited space. Those answers must be short. Let’s say a few paragraphs at the very most.

Once we have the questions and all the answers we can assemble them as a collective voice.

A hundred or so answers to, say, fifteen good questions would give us a very quick but deep insight into the state of economics.

Let’s not place any limits on ourselves just yet – other than the need for brevity.

So go ahead. Add your voice to the collective.

Now.

The human capital controversy

from David Ruccio

Like the capital controversy of the 1960s, the current controversy over human capital pits neoclassical economics against its critics.

The capital controversy (also known as the Cambridge controversy, because it was staged between neoclassical economists at MIT, and thus of Cambridge, Massachusetts, and non-neoclassical economists at Cambridge University, and thus of Cambridge, England), which actually took place between the mid-1950s and mid-1970s, was narrowly about the internal consistency of neoclassical economics and more generally about the role of capital in economic theory. The basic idea is that, in a world of heterogeneous capital goods (e.g., a shovel and an automobile assembly-line), you need to know the price of capital (the interest rate or rate of return on capital) in order to determine the quantity of capital (i.e., in order to add up all those different kinds of physical capital). But, in neoclassical economics, you need to use the quantity of capital in order to determine the price of capital (via supply and demand in the “capital market”), which creates a fundamental problem for the neoclassical theory of capital.

Rethinking economics pedagogy and textbooks: the new WEA online platform

from  Maria Alejandra Madi  and the WEA Pedagogy Blog  

In 2011, Edward Fullbrook, writing on Toxic Textbooks, pointed out that “No discipline has ever experienced systemic failure on the scale that economics has today”. And added that the global financial crisis revealed that  “..we, the textbooks we use, and the courses that we teach harbour fundamental misconceptions about the way economies, most especially their markets, function” (http://ineteconomics.org/blog/inet/edward-fullbrook-toxic-textbooks).

Economics pedagogy is a starting point for both an analysis of the roots of the global financial crisis and of the challenges to how it might be made a facilitator of social justice. After the global crisis, Fullbrook suggests to rethink economics pedagogy taking into account “eleven ways to think like a post-crash economist”
1. Don’t try to pass yourself off as a kissing cousin of natural scientists.
2. Don’t speak, except to very small children, of invisible hands and magic.
3. When possible avoid the use of emotive words.
4. Remind yourself every morning that your duty as a teacher is to educate your students, not indoctrinate them.
5. Try to look at economic phenomena from different points of view and teach your students to do the same.
6. Encourage diversity of conceptual frameworks in economic research.
7. Don’t . . .  read more

Rethinking Economics rejects INET’s “Core Curriculum”

Rethinking Economics Position on CORE Curriculum

London, UK- 16 October 2014 – The CORE Curriculum is not an answer to our demands for reform. CORE is more engaging in its teaching style, but falls short of creating broader content.

RE does not currently endorse any curriculum; instead, we have written our vision of a pluralistic curriculum (http://www.rethinkeconomics.org/#!our-vision/colf) and we support the ISIPE open letter, which we contributed to along with 65 student groups (www.isipe.net). We encourage educators and curriculum writers to sign up to publically support these visions.

What we are looking for is curricula that embody the three pluralisms: pluralism in methodology, pluralism in schools of thought, and pluralism in disciplines. This means at least a key role for the history of economic thought in a way that encourages debate over different schools of thought.