from Peter Radford
As I awake from my self-imposed slumber and re-survey the state of economics:
Nothing has changed.
This is predictable, and, I submit, is the most predictable phenomenon within the ambit of the discipline. Economics is in disrepute, and its current elite are determined to keep it there.
The latest ersatz Nobel prize went to a couple of guys who theorize a lot about contracts. This is the kind of work that now dominates much of economics. Tinkering with mathematics, incentives, and other aspects of minutiae whilst steadfastly turning away from the rapidly approaching storms that threaten the lives of real people outside the tenured redoubts professors hide within.
I have come to think that economics itself is one of the greatest impediments to returning us all to a prosperous and sustainable path. It is one of those moribund institutions that festers away living in a long-ago past, secure in what little it knows, and terrified of what it might not know.
I don’t think people realize just how historical contingent economic is. It was invented in the aftermath of the onset of industrialization, it was an afterthought as a growing chorus of politically motivated observers sought to identify a body of thought to be deployed to defend modernization and to attack the old order.
That old order was the entire system of life built around the stability of an agricultural economy in which land was paramount, aristocrats carved out precious freedoms from the older-still order of monarchs and autocrats, and, by and large, regular people lived as many generations of their ancestors had. The entire social and political structure can be encapsulated in the word: tradition. Read more…
from Lars Syll
Many economists have over time tried to diagnose what’s the problem behind the ‘intellectual poverty’ that characterizes modern mainstream economics. Rationality postulates, rational expectations, market fundamentalism, general equilibrium, atomism, over-mathematisation are some of the things one have been pointing at. But although these assumptions/axioms/practices are deeply problematic, they are mainly reflections of a deeper and more fundamental problem.
The main problem with mainstream economics is its methodology.
The fixation on constructing models showing the certainty of logical entailment has been detrimental to the development of a relevant and realist economics. Insisting on formalistic (mathematical) modeling forces the economist to give upon on realism and substitute axiomatics for real world relevance. The price for rigour and precision is far too high for anyone who is ultimately interested in using economics to pose and (hopefully) answer real world questions and problems.
This deductivist orientation is the main reason behind the difficulty that mainstream economics has in terms of understanding, explaining and predicting what takes place in our societies. But it has also given mainstream economics much of its discursive power – at least as long as no one starts asking tough questions on the veracity of – and justification for – the assumptions on which the deductivist foundation is erected. Asking these questions is an important ingredient in a sustained critical effort at showing how nonsensical is the embellishing of a smorgasbord of models founded on wanting (often hidden) methodological foundations. Read more…
from Asad Zaman
If any group of concerned citizens would gather to discuss economic problems, it would seem natural to begin with the problem of feeding the hungry. Strangely enough, one would not encounter this problem within a standard course of study of economic theory at any of the leading universities throughout the world. This is due to two major mistakes made in the formulation of conventional economic theories currently being taught and practised throughout the globe. The first mistake is the idea that the goal of an economic system is the production of wealth, broadly defined. For example, Adam Smith takes the fundamental economic problem to be the production of wealth. The maximisation of GNP per capita currently forms the core of economic growth theory. The value of human life can be evaluated in terms of how much wealth the human can produce. This also accounts for the use of the degrading term ‘human resource’, which basically puts humans on a par with other resources, like factories and machines, as inputs to the production process.
A revolution in economic theory would result if we replace this completely mistaken idea with its opposite: the goal of an economic system is to increase human welfare. Wealth is important only to the extent that it can bring about increases in human welfare. In conjunction with wealth, many other types of invisible inputs, such as social capital, cultural norms and institutional structures also play an important role in determining human welfare, broadly understood in terms of all dimensions of life which contribute to our collective well-being. Wealth, industry and production of goods and services are resources to be used to help improve human lives. A central goal of economics should be the relation between resources, and their relative efficiency at contributing to human welfare. In particular, providing food to the hungry is clearly the single most important and universal invariant in production of human welfare. The fundamental economic problem is to study how to use a given amount of wealth to produce the maximum amount of welfare. read more
From today’s Guardian
The Nobel prize in economics takes too little account of social democracy
The Nobel prize in economics will be announced today. For economists, it is the pinnacle of reputation. When the word Nobel becomes attached to a winner’s name, his word acquires newsworthy authority (only one woman, Elinor Ostrom, has won the prize so far). The prize matters to everyone else too, because of market liberalism, which advocates marketisation, deregulation, union-busting, financialisation, inequality, outsourcing of healthcare, pensions and education, low taxes for the rich, and globalisation. In the 1990s, this rightwing platform was endorsed by New Labour, Clinton Democrats, and their equivalents elsewhere.
The faith in markets comes from economics. Confidence in economics is underpinned by the Nobel prize, which gives it scientific authority. Nobel economist Paul Samuelson quoted the poet William Blake: “Truth can never be told so as to be understood, and not to be believed.” There is also a Nobel prize for literature. Is the truth of economics more like physics or literature? How good a warrant does economics provide for the primacy of markets?
Like market liberalism, economics regards buying and selling in markets as the template for human relations and claims that market choices scale up to the social good. But the doctrines of economics are not well founded: premises are unrealistic, models inconsistent, predictions often wrong. The halo of the prize has lent credibility to policies that harm society, to inequality and financial disorder. Read more…
from David Ruccio
In a recently leaked audio file (from a private fundraiser in February), Hillary Clinton referred to them as “children of the Great Recession. . .living in their parents’ basement,” who “feel they got their education and the jobs that are available to them are not at all what they envisioned for themselves. And they don’t see much of a future.”*
Well, as it turns out, the children of the Great Recession, especially those who completed college in recent years, were right: the jobs that have been available to them have not been at all what they envisioned for themselves.
New paperback from WEA Books
A Philosophical Framework for Rethinking Theoretical Economics
and Philosophy of Economics
by Gustavo Marques
is now available from the Amazon pages listed below
This book argues that mainstream theoretical economics has been a basically misdirected effort at creating and exploring imaginary worlds with little practical use, rather than focusing on developing instruments to understand and explain real-world economic phenomena, Gustavo Marques’ new book shows how economic theory could be redirected so as to help find solutions to real-world problems.
Exposing the ungrounded pretensions of the mainstream philosophy of economics, Marques’ carefully argued book is a major contribution to the ongoing debate on contemporary mainstream economics and its methodological and philosophical underpinnings. Even those who disagree with his conclusions will benefit from his thorough and deep critique of the modeling strategies used in modern economics.
Lars Pålsson Syll, Malmö University, Sweden
Is ‘mainstream philosophy of economics’ only about models and imaginary worlds created to represent economic theories? Marqués questions this epistemic focus and calls for the ontological examination of real world economic processes. This book is a serious challenge to standard thinking and an alternative program for a pluralist philosophy of economics.
John Davis, Marquette University, USA and University of Amsterdam
In recent decades economists have focused heavily on the development and use of models. In this scholarly but accessible book Marques clearly describes the limitations of this approach and suggests alternative directions. It is a valuable addition to the armoury of anyone concerned about the nature of mainstream economics.
Stuart Birks, Massey University, New Zealand
In this book Gustavo Marqués, one of our discipline’s most dexterous and acute minds, calmly investigates in depth economics’ most persistent methodological enigmas. Chapter Three alone is sufficient reason for owning this book.
Edward Fullbrook, University of the West of England
Other reasonably priced WEA Paperbacks
Finance as Warfare by Michael Hudson
Developing an economics for the post-crisis world by Steve Keen
On the use and misuse of theories and models in mainstream economics by Lars Palsson Syll
Green Capitalism. the God That Failed by Richard Smith
40 Critical Pointers for Students of Economics by Stuart Birks
The European Crisis editors: Victor Beker and Beniamino Moro
Piketty’s Capital in the Twenty-First Century editors: Edward Fullbrook and Jamie Morgan
The Economics Curriculum: Towards a Radical Reformulation, editors: M. Alejandra and J. Reardon
from Lars Syll
Balliol Croft, Cambridge
27. ii. 06
My dear Bowley …
I know I had a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics: and I went more and more on the rules — (1) Use mathematics as a short-hand language, rather than as an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can’t succeed in 4, burn 3. This last I did often …
There ought to be an enormous amount of burning going on at economics departments today. The market for smoke detectors must be peaking …
from David Ruccio
The case for changing the way we teach economics is—or should be—obvious.
It certainly is apparent to the students of Manchester University’s Post-Crash Economics Society and to the other 44 student groups, members of Rethinking Economics, pressing for pedagogical changes on campuses from Canada to Italy and from Brazil to Uganda.
But as anyone who teaches or studies economics these days knows full well, the mainstream that has long dominated economics (especially at research universities, in the United States and elsewhere) is not even beginning to let go of their almost-total control over the curriculum of undergraduate and graduate programs.
That’s clear from a recent article in the Financial Times, in which David Pilling asks the question, “should we change the way we teach economics?”
Me, I’ve heard the excuses not to change economics for decades now. But it still jars to see them in print, especially after the spectacular failure of mainstream economics before, during, and after the worst economic crisis since the first Great Depression.
Here’s one—the idea that heterodox economics is like creationism, in disputing the “immutable laws” captured by mainstream theory: Read more…
from Lars Syll
Lynn Parramore: It seems obvious that both fundamentals and psychology matter. Why haven’t economists developed an approach to modeling stock-price movements that incorporates both?
Roman Frydman: It took a while to realize that the reason is relatively straightforward. Economists have relied on models that assume away unforeseeable change. As different as they are, rational expectations and behavioral-finance models represent the market with what mathematicians call a probability distribution – a rule that specifies in advance the chances of absolutely everything that will ever happen.
In a world in which nothing unforeseen ever happened, rational individuals could compute precisely whatever they had to know about the future to make profit-maximizing decisions. Presuming that they do not fully rely on such computations and resort to psychology would mean that they forego profit opportunities.
LP: So this is why I often hear that supporters of the Rational Expectations Hypothesis imagine people as autonomous agents that mechanically make decisions in order to maximize profits?
Yes! What has been misunderstood is that this purely computational notion of economic rationality is an artifact of assuming away unforeseeable change.
Imagine that I have a probabilistic model for stock prices and dividends, and I hypothesize that my model shows how prices and dividends actually unfold. Now I have to suppose that rational people will have exactly the same interpretation as I do — after all, I’m right and I have accounted for all possibilities … This is essentially the idea underpinning the Rational Expectations Hypothesis …
LP: So the only truth is the non-existence of the one true model?
RF: It’s the genuine openness that makes our ideas – and education – more exciting. Students can think about things in an open, yet structured way. We don’t lose the structure; we just renounce the pretense of exact knowledge …
Economists may fear that acknowledging this limit would make economic analysis unscientific. But that fear is rooted in a misconception of what the social scientific enterprise should be. Scientific knowledge generates empirically relevant regularities that are likely to be durable. In economics, that knowledge can only be qualitative, and grasping this insight is essential to its scientific status. Until now, we have been wasting time looking for a model that would tell us exactly how the market works.
LP: Chasing the Holy Grail?
RF: Yes. It’s an illusion. We’ve trained generation after generation in this fruitless task, and it leads to extreme thinking.
from Mark Weisbrot
Republican nominee Donald Trump’s embarrassments and scandals keep piling up, from his Twitter meltdown last Friday night to The New York Times revelations that he could have gotten away without paying income taxes for the past 18 years.
These may have some impact on the race, although it’s tough to guess how much. But a recent piece in the Times about Trump’s potential influence on the stock market could really take some votes away from him, if it happens to go viral.
The article, by economist Justin Wolfers, estimates that a Trump victory on Nov. 8 will take 10 to 12 percent off of the value of the stock market. It’s a crude estimate, but the logic appears to be sound. He bases it on the performance of stock market index futures on the evening of the September 26 presidential debate. To summarize very briefly, when Trump was doing badly in the debate — e.g., when Democratic nominee Hillary Clinton was hammering him about his tax returns and prediction markets indicated that his chances of winning the election were falling — the stock market index futures went up. The correlation is strong enough to extrapolate an estimated impact of an actual Trump win.
There are many people currently planning to vote for Trump on Nov. 8 for mostly personal monetary reasons. Some of these people may share his opponents’ views that Trump is unqualified to be president, to put it politely, and neither like nor trust him personally. But they will vote for him, and often any Republican, because they figure their taxes will be lower than under a Democratic government. Call it “vote buying,” if you will; this is a core constituency of the Republican Party.
from Thomas Palley
I received an e-mail from an undergraduate economics student who was curious about economic policy in Washington, DC. His question says a lot about the current state of affairs. Here it is with my reply.
From: Xxxxxxx Xxxxxxx [mailto:firstname.lastname@example.org]
Sent: Saturday, October 1, 2016 10:56 AM
Subject: Question from an undergraduate
Dear Dr. Palley,
I am a first-year undergraduate in economics and political theory, and a longtime admirer of your work.
What are your thoughts on how Keynesian/Post-Keynesian ideas are treated in current political discourse?
I was in Washington D.C. recently and I had conversation with a Brookings fellow who told me that he thought Joseph Stiglitz was an “extremist who isn’t taken seriously by anyone who knows their way around the Beltway.”
Does it worry you that ideas which used to be considered “mainstream” (like social democracy) are now increasingly considered “extreme”?
Deeply grateful for your time and attention
From: Thomas Palley [mailto:email@example.com]
Sent: Saturday, October 1, 2016 3:59 PM
To: ‘Xxxxxxx Xxxxxxx’
Subject: RE: Question from an undergraduate
Dear Xxxxxxx, Read more…
The potential future costs of financial fragility and asset price bubbles raise the prospect of policy whiplash effects due to contradictions between current and future policy actions.
The economy currently suffers from shortage of AD owing to systemic failings related to income inequality and trade deficit leakages. That demand shortage was papered over by a thirty-year credit bubble plus successive asset price bubbles, which eventually burst with the financial crisis of 2008. Now, central banks are seeking to revive AD via negative interest rates that will reflate the credit and asset price bubbles.
This policy is based on a contradiction. If it is successful, it will necessitate raising interest rates in future. That risks triggering another financial crisis as the new bubbles burst and the effects of accumulated financial fragility magnify the ensuing fallout. When asset prices are inflated, subsequent very small upward moves in the interest rate can produce large capital losses. In effect, policy measures to revive the economy now via NIRP can generate even greater imbalances that produce whiplash effects later.
This whiplash dynamic has been building over the past thirty years. Disinflation allowed successive lowering of interest rates from their double digit levels of 1980, thereby producing successively larger boom – bust cycles. That process appeared to be ended by the financial crisis of 2008 which pushed the economy to the ZLB. However, central banks are now seeking to circumvent the ZLB circuit-breaker via NIRP. If NIRP is pursued for an extended period of time, without remedying the deep causes of AD shortage, the prospect is a future more intractable economic crisis.
Negative interest rates or 100% reserves:
alchemy vs chemistry
Herman Daly [University of Maryland, USA]
The close connection of fractional reserve banking with alchemy was recently emphasized by Mervyn King, former head of the Bank of England, in the very title of his recent book, The End of Alchemy: Money, Banking, and the Failure of the Global Economy. He refers to the more thorough development of this connection by Swiss ecological economist H. C. Binswanger in his brilliant study, Money and Magic. Given this connection to alchemy, it is more than a coincidence that the earliest and most thorough critique of fractional reserve banking came not from an alchemist but from a real chemist, Nobel Laureate Frederick Soddy (See H. Daly, “The Economic Thought of Frederick Soddy”, History of Political Economy, 1980, 12:4). Soddy’s advocacy of full reserve banking was later picked up by Irving Fisher, and by Frank Knight and others of the Chicago School. Mervyn King stops short of advocating full reserve banking, but clearly is unhappy with the fractional reserve system.
For a group that has helped change the way economics is taught at universities up and down Britain, the Post-Crash Economics Society had a less than momentous start. It was November 2012 when seven undergraduates met in a cramped room on the top floor of Manchester university’s student union. Chairs drawn into a semi-circle, they listened as the two founding members went through a brief PowerPoint presentation explaining what they thought was wrong with the economics curriculum. A polite discussion followed before everyone shuffled off for the Christmas holidays. It wasn’t exactly Paris 1968.
The students had gathered in response to an email with the subject line: “CALL OUT TO ALL THE ECONOSCEPTICS OUT THERE”. “In the middle of the biggest global recession for 80 years,” the email read, “students across the world are questioning the very foundations of our discipline.”
It asked whether the economics they were learning, dominated by mathematical formula and abstract models, was relevant to the real world. “How far can economics be called a real science?” it prodded, an allusion to academic economists’ tendency to present their equations and mathematical identities as iron laws rather than imperfect attempts to model unpredictable human interactions. Isn’t economics, they suggested, really more like politics than physics?
The Post-Crash Economics Society was not alone in feeling this way. Ha-Joon Chang, a developmental economist who teaches at Cambridge, remembers “students banging on my door, saying, ‘There’s the biggest financial crisis since 1929 going on around us and our professors teach as if nothing has happened.’ ”
In 2011, students at the university set up the Cambridge Society for Economic Pluralism, galvanised by attending a corporate-sponsored, casino-themed ball run by the Marshall Society, the official Cambridge economics society, at which attendees sipped champagne and talked about jobs in the City. It was, says PhD student and co-founder Rafe Martyn, aimed at those “who learn economics to make the world a better place rather than just improve their private-sector employability”. Similar societies began to take root on other campuses.
It is hardly surprising that after the sharpest economic crisis since the Wall Street crash and an even more prolonged sense of malaise, which has provoked political upheavals across Europe and the US, the economics profession is under profound pressure.
The economic “experts” who told us we had solved once and for all the problems of boom and bust and who ignored — even celebrated — widening inequality in most advanced countries have proved wantonly lacking in their powers of prediction and remedy. What is perhaps more striking is the determination of many in the economic establishment to defend their turf. Chang laments that economics, like other disciplines defended by tenured academics, progresses one funeral at a time.
from Lars Syll
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, usually — incorrectly — referred to as the Nobel Prize in Economics, is an award for outstanding contributions to the field of economics. The Prize in Economics was established and endowed by Sweden’s central bank Sveriges Riksbank in 1968 on the occasion of the bank’s 300th anniversary. The first award was given in 1969. The award this year is presented in Stockholm at a ceremony on Monday 10 October.
Avner Offer’s and Gabriel Söderberg’s new book — The Nobel factor: the prize in economics, social democracy, and the market turn (Princeton University Press 2016) — tells the story of how the prize emerged from a conflict between the Swedish central bank — Sveriges Riksbank — and social democracy. It is no pure coincidence that the ascendancy of market liberalism, Reagan and Thatcher, to a large part coincides with the creation and establishment of the prize. Especially during the despotic Assar Lindbeck’s long chairmanship — 1980-1994 — the prize was thought to take advantage of the connection with the true Nobel prizes and spearhead a market-oriented neoliberal reshaping of the world. Although not all economists who have got the prize have enlisted in the market-liberal crusade, it is still an undeniable fact that neoliberal and conservative leaning male economists are highly over-represented among the laureates. Their often ideologically biased doctrines have to a large extent motivated the neoliberal turn in economic policies for more than forty years. Read more…
Stamps are money. And as such often adorned with the heads of presidents. A sign of the times: nowadays also with the heads of super models (Anton Corbijn meets Doutzen Kroes edition, both live up to expectations).
The core neoliberal value: companies and markets first, families second. Which explains the absence of involuntary unemployment from neoclassical macro models. But this value is also bad for the health of young children
The core free choice value of western society (maybe with exception of the rich) is the free choice of your spouse. A good thing? Fali Huang, Ginger Zhe Jin and Lixin Colin Xu find the next results: Read more…
Negative interest rates or 100% reserves: alchemy vs chemistry 2
Herman Daly download pdf
Why negative interest rate policy is ineffective and dangerous 5
Thomas I. Palley download pdf
Japan’s liquidity trap 15
Tanweer Akram download pdf
Paul Romer’s assault on ‘post-real’ macroeconomics 43
Lars Pålsson Syll download pdf
Another reason why a steady-state economy will not be a capitalist economy 55
Ted Trainer download pdf
Using regression analysis to predict countries’ economic growth: 65
illusion and fact in education policy
Nelly P. Stromquist download pdf
Can a country really go broke? Deconstructing Saudi Arabia’s macroeconomic crisis 75
Sashi Sivramkrishna download pdf
Reconsideration of the Prebisch-Singer Hypothesis 95
Ewa Anna Witkowska download pdf
Industrial policy in the 21st century: merits, demerits and how can we make it work 109
Mohammad Muaz Jalil download pdf
Review of James Galbraith, Welcome to the Poisoned Chalice 124
Michael Hudson download pdf
A travesty of financial history – which bank lobbyists will applaud 129
Michael Hudson download pdf
Capitalism, corporations and ecological crisis: a dialogue concerning Green Capitalism 136
Richard Smith, William Neil and Ken Zimmerman download pdf
Board of Editors, past contributors, submissions and etc. 146
from Dean Baker
Most workers suffer serious consequences when they mess up on their jobs. Custodians get fired if the toilet is not clean. Dishwashers lose their job when they break too many dishes, but not all workers are held accountable for the quality of their work.
At the top of the list of people who need not be competent to keep their job are economists. Unlike workers in most occupations, when large groups of economists mess up they can count on the media covering up their mistakes and insisting it was just impossible to understand what was going on.
This is first and foremost the story of the housing bubble. While it was easy to recognize that theUnited States and many other countries were seeing massive bubbles that were driving their economies, which meant that their collapse would lead to major recessions, the vast majority of economists insisted there was nothing to worry about.
The bubbles did burst, leading to a financial crisis, double-digit unemployment in many countries, and costing the world tens of trillions of dollars of lost output. The media excused this extraordinary failure by insisting that no one saw the bubble and that it was impossible to prevent this sort of economic and human disaster. Almost no economists suffered any consequences to their career as a result of this failure. The “experts” who determined policy in the years after the crash were the same people who completely missed seeing the crash coming.
We are now seeing the same story with trade. The NYT has a major magazine article on the impact of trade on the living standards of workers in the United States and other wealthy countries. The subhead tells readers: Read more…
Harvard’s incorrectly political ignorant gay-bashing bloviating right-wing infotainment war-crimes-apologist historian finally gets one right
from David Ruccio
Niall Ferguson, Harvard’s incorrectly political ignorant gay-bashing bloviating right-wing infotainment war-crimes-apologist historian, finally gets something right.