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Occupy Economics Departments
Conventional economists have a lot to answer for but will they listen?
On November 2nd nearly 70 students walked out of an introductory economics class at Harvard in solidarity with the Occupy movement. The mainstream media largely ignored the protest. That’s regrettable since the economics profession has provided the intellectual framework and justification for the inequality and centralization of corporate power the Occupiers are challenging.
“You can’t get into so disastrous a situation as we are in now without extraordinarily bad thinking and the economics departments were the source of that bad thinking,” observes Steven Keen, Professor of Economics at the University of Western Sydney and author of Debunking Economics.
The Harvard students were protesting EC 10. The course is taught by Professor N. Gregory Mankiw, author of the world’s best selling economics textbook, Principles of Economics, former Chairman of the Council of Economic Advisers under George W. Bush and regular New York Times columnist. A prerequisite for social studies and economics majors, the class may be taken by nearly half of all Harvard students before they graduate.
“Today we are walking out of your class, Economics 10, in order to express our discontent with the bias inherent in this introductory economics class,” the protestors explained in a letter to Mankiw. The course “espouses a specific—and limited—view of economics that we believe perpetuates problematic and inefficient systems of economic inequality in our society today.”
On December 3rd Mankiw responded in the Times. He expressed “sadness at how poorly informed the Harvard protesters seemed to be”. “If my profession is slanted toward any particular world view, I am as guilty as anyone for perpetuating the problem. Yet, like most economists, I don’t view the study of economics as laden with ideology.”
Quoting Keynes, Mankiw maintained he teaches “a method rather than a doctrine, an apparatus of the mind, a technique for thinking, which helps the possessor to draw correct conclusions.”
Regarding Mankiw’s insistence that his textbook and course simply instruct students in “a method rather than a doctrine” Moshe Adler, Professor of Economics at Columbia University and author of Economics for the Rest of Us notes the singularly consistent conclusions that result from the application of that “technique of thinking”. “(W)henever it is necessary to choose sides between the rich and the poor, between the powerful and the powerless, or between workers and corporations, economists are all too often of one mind…”
The Consistent Conclusions of Conventional Economics
Consider the issue of inequality. “We economists can try to estimate the cost of redistribution—that is, the negative impact on efficiency that comes with attempts to achieve more equality,” writes Mankiw. “But in the end, picking the best point on the tradeoff between efficiency and equality comes from policy preferences about which we, as economist must be agnostic.”
Translation. The economist’s role is to help us understand that we will all be poorer if we reduce inequality but to abstain from advocating specific polices. Of course, no economist worth his or her salt, including Professor Mankiw would refrain from advocating specific policies.
“Reasonable people can disagree about whether and how much government should redistribute income,” Mankiw’s observes. “But don’t let anyone fool you into thinking that when the government taxes the rich, only the rich bear the burden.” We can tax the rich but the result will be a smaller overall economic pie.
In 2001 Mankiw wrote a blistering Op Ed in the Boston Globe decrying a student sit-in aimed at gaining a living wage for janitorial staff. “The living wage campaign wants to repeal the law of supply and demand”, Mankiw insisted, as if the “law” of supply and demand were actually a law and thus more incontrovertible than, say the theories of evolution or gravity. If Harvard were to pay its janitors more, Mankiw predicted, the result would be lost jobs, more teenagers dropping out of school and fewer adults making the transition from welfare to work.
In his Presidential Address to the American Economics Association (AEA) Mankiw used economics-speak to explain why janitors don’t deserve a living wage while Wall Street executives deserve billions. “Under a standard set of assumptions, a competitive economy leads to an efficient allocation of resources…it is also a standard result that in a competitive equilibrium, the factors of production are paid the value of their marginal product. That is, each person’s income reflects the value of what he contributed to society’s production of goods and services. One might easily conclude that, under these idealized conditions, each person receives his just deserts.” Oh.
Before Mankiw, EC 10 was taught by Martin Feldstein former Chairman of the Council of Economic Advisers under Ronald Reagan. Feldstein used Mankiw’s book as his text. In 2004 Feldstein’s Presidential Address to the AEA focused on health insurance. He informed his colleagues that the principal problem facing the health system isn’t its lack of universal coverage but low deductibles and copayments that encourage people to visit the doctor too often. In economics jargon, “They (low payments)…lead to an increased demand for care that is worth less than its cost of production.”
Professors Mankiw and Feldstein, of course, would not consider any of these conclusions biased or ideologically driven. That they always favor the rich and powerful and disfavor the poor and weak must be chalked up to simple coincidence.
The Conclusions From Unconventional Economics
Those who rely on a different “way of thinking” often arrive at diametrically opposite and far more equitable conclusions.
Consider Feldstein’s thesis. Americans actually visit doctors less often than their counterparts in countries with universal health coverage. Yet the level of medical spending in those countries is 30-50 percent less than ours and achieves better outcomes. Might one conclude that enabling Americans to visit their doctors more rather than less could improve the efficiency of the overall system? If people don’t see a doctor they can end up in vastly more expensive hospital beds. Sometimes common sense trumps complex models.
In his 2001 column, Mankiw dismissed the widely disseminated finding by economists David Card and Alan Krueger in Myth and Measurement that raising the minimum wage does not reduce employment. Mankiw considered them outliers and noted that many economists had “attacked their data, methods and results”. Indeed they did, often and aggressively. For as John Cassidy pointed out, “Card and Krueger didn’t just question the conventional wisdom; they attacked it in a novel and powerful way. Instead of concocting a mathematical model and `testing’ it with advanced statistical techniques, which is what most economists call research, they decided to test the theory in the real world.”
Recently Arindrajit Dube, Assistant Professor of Economics at the University of Massachusetts Amherst and an expert in studies of the effects of minimum wage policies reviewed the impact of Card and Krueger’s work. Their methodology as well as their empirical results have stood the test of time, he concludes. Indeed “today, writing a paper arguing that moderate increases in minimum wage do not have any appreciable effect on jobs because the labor market exhibits search friction is not a conversation stopper or a career ender.” Perhaps raising the minimum wage reduces turnover and hiring and training costs? Just a theory. Not a law.
Mankiw insists that workers are paid based on how productive they are. “Our real wages are ultimately determined by our productivity.” Yet the evidence argues that the proportion of the wealth generated by increased productivity that accrues to labor is highly dependent on the percentage of the work force that belong to unions. As union membership has dwindled and workers are forced to negotiate as individuals with ever-more-powerful and mobile corporations that proportion has plummeted while corporate profits are at an all time high.
Mankiw and other conventional economists argue that increasing taxes on the rich reduces economic growth and dismiss the idea that lowering taxes on the wealthy has played a significant role in increasing inequality. Recently two Professors of Economics, Thomas Piketty and Emmanuel Saez examined data from 18 OECD countries and came to the opposite conclusions. They found little evidence that low taxes on the rich raise productivity and economic growth. And they found “a strong correlation between the reductions in top tax rates and the increases in top 1% pre-tax income shares from 1975–79 to 2004–08”. For example, the U.S. slashed the top income tax rate by 35 percent and witnessed a large ten percent increase in its top 1% pre-tax income share. “By contrast, France or Germany saw very little change in their top tax rates and their top 1% income shares during the same period.”
And in what can only be considered a direct repudiation of virtually all conventional economic theory, the researchers’ rigorous analysis estimated the top tax rate could be as high as 83% without slowing economic growth.
The Economic Crisis And Conventional Economics
How has the economic crisis changed what Mankiw offers in his freshman course? “…not as much as you might think,” he answers. “Despite the enormity of recent events, the principles of economics are largely unchanged.”
Mankiw does admit that the precipitous collapse of most western economies has convinced him to entertain some “subtle” changes. For example, he might introduce a few overlooked factors into his course such as the role of FINANCE or the importance of LEVERAGE.
Many economists who are not slaves to conventional economic models with their “standard assumptions” and “idealized conditions” recognized the importance of these issues long before the crisis. In 1994, for example, Marxist economist Paul Sweezy told Harvard economic graduate students. “In the old days finance was treated as a modest helper of production. By the end of the decade (1980s) the old structure of the economy, consisting of a production system serving a modest financial adjunct, had given way to a new structure in which a greatly expanded financial sector had achieved a high degree of independence and sat on top of the underlying production system.”
In 2001, economist Steven Keen bluntly challenged conventional economics. “An economic theory that ignores the role of money and debt in a market economy cannot possibly make sense of the complex, monetary, credit based economy in which we live.”
What about the failure of the economics profession to forecast the economic collapse? Mankiw concedes, “It is fair to say that this crisis caught most economists flat-footed.” But he insists; “Yet this is no reason for embarrassment….Some things are just hard to predict.”
Mankiw is certainly correct that most conventional economists were caught flat-footed. Indeed, many boasted that their “method not a doctrine” had led to policies that had achieved enduring prosperity and stability. The “central problem of depression-prevention has been solved,” declared Nobel Prize winner Robert Lucas in his 2003 Presidential Address to the AEA.
Before 2008, conventional economic theory championed the deregulation and expansion of the financial sector as a strategy to enhance economic efficiency and lower risk. It taught us that speculation is not a problem because all of the actors have all the information necessary to make the right decision.
It ignored the tsunami of increasing private debt while concentrating its attention and disapproval on a much slower growing public debt.
“The problem is that economists (and those who listen to them) became over-confident in their preferred models of the moment: markets are efficient, financial innovation transfers risks to those best able to bear it, self-regulation works best and government intervention is ineffective and harmful,” Dani Rodrik, Professor of Economics at Harvard comments.
Again Keen is more blunt. “Neoclassical economists were effectively trained to not see this crisis coming, by theoretical fallacies that led them to ignore crucial real-world phenomena like the ballooning levels of private debt, and rampant speculation and fraud in the private sector.”
In 2003, when Feldstein taught EC 10, students first rose up against its perceived bias. Some 700 students and alumni signed a petition asking Harvard to offer an alternative economics course. After much deliberation, Harvard agreed, but refused to allow economics majors to receive credit for taking the alternative course.
Economics Professor Stephen Marglin teaches the alternative class. The author of The Dismal Science he believes the methods of economists do embody a doctrine. Their assumptions embody certain values and predetermine outcomes.
In an interview Marglin points out several potentially fatal flaws in conventional models.
It is highly misleading about how society actually works. Not only do you have to leave out all the fine print about monopoly and oligopoly, externalities, public goods, asymmetric information…you have to separate individuals, focus on the individual, and leave out of the analysis the connections between individuals. You have to leave aside the limits of rational calculation. You have to assume that it is human nature always to want more, never to be satisfied with ‘enough.’ … you have to assume these rational, isolated individuals are completely self-interested. Because as soon as they are not self-interested anymore-even if that non-self-interest takes the benign form of altruism-then the theorems about Pareto optimality, the efficiency of markets, break down.
Marglin addresses an issue ignored by most economists: the effect of their models and the policies derived from them on our sense of community. How Thinking Like An Economist Undermines Community is the subtitle of his book.
“Community is important to a meaningful life,” he maintains. “Community is about human connections; we need community to foster and maintain these connections. And we are diminished as our human connections are diminished.” “The economics we have constructed makes it virtually inevitable that we will leave community out of consideration when we ask questions about economic policy.”
He offers students advice that would be considered heretical in a conventional economics course. “Choose very carefully which markets you will allow and which you will not in terms of what they do to communities.”
Remember. It’s the Bank of Sweden Economics Prize not the Nobel Prize
A few weeks ago the Nobel Prize for Economics was announced. The press dutifully noted that it wasn’t one of the official Nobel Prizes inaugurated in 1901. Yet the media continue to call it the Nobel Prize rather than by its actual name: The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel.
Knowing that the prize is issued by a bank might help people understand why, since its inception in 1969, 70 percent of these economics prizes have been awarded to Americans compared to only 39 percent of the real Nobel Prizes in chemistry, physics, literature and medicine. And why ten have been won by University of Chicago faculty.
The study of economics may indeed help us understand the world and design appropriate policies. But we need to drop the pretense that economics is a science based on laws and objective models and accept that it is a normative discipline. We need to own up to the bias inherent in conventional economic models and the social damage policies based on those models has wrought.
71 Comments so far
Show All"The economist’s role is to help us understand that we will all be poorer if we reduce inequality but to abstain from advocating specific polices. Of course, no economist worth his or her salt, including Professor Mankiw would refrain from advocating specific policies."
Really? How odd. I would have thought that a doctor might be able to tell you a range of procedures that might save your life in order of risk to you or long term benefit. I would have thought that a lawyer might explain a range of actions to a client with the risk for each and the benefit for each. An economist showing that there is a trade off between to items, like "guns and butter" is showing a mechanism not advocating it.
Are we at the place in history (again) that we don't want people to learn how nature, in this case the nature of the market, works? We don't have to advocate for either end of the spectrum, but criticizing the professor and macro-economics in general is a lot like demanding that creationism be taught in schools. It defies reason.
Want an effect on students? Teach them social mores and show that while the rules of the market always apply, the effect of greed is tangible, widespread and long lasting. Help the students choose the right way, don't deny that all roads exist.
It's odd, John Shade, that you come away from this piece essentially inverting its lesson. You suggest that the material taught by someone with a rigid worldview like Mankiw, which essentially pushes a Libertarian agenda onto the investment world (and also functions as a class that is MANDATORY in the Economics Department at Harvard) somehow qualifies as offering a range of options? Or otherwise reflects how the "nature" of the market, like some organic beast, works?
You said:
"Are we at the place in history (again) that we don't want people to learn how nature, in this case the nature of the market, works?"
A comment like this makes it seems that the markets work by some LAW of nature, as opposed to being instruments set on course by those using standards that have been specifically designed to make money grow for a very few, while costing everyone else the very price of their lives (in terms of consuming too many waking hours in labor).
You've purposely made an argument for the most narrow of economic models by conflating its teaching with the ideal of exposing students to a myriad of options. Your fallback rationale leaves these ghastly economics "lessons" in place, to instead stress the need to teach morals as counterbalance to a virtual Economics of Despair.
Pretty slick use of obfuscation.
"criticizing the professor and macro-economics in general is a lot like demanding that creationism be taught in schools. It defies reason."
It does not defy reason. Conventional capitalsit economics explains haow capitalsim works, but it fails to address the many serious ways in which capitalism fails to work:
fr the article
"It [conventional economics] is highly misleading about how society actually works. Not only do you have to leave out all the fine print about monopoly and oligopoly, externalities, public goods, asymmetric information"
This critique of the gaps in conventional economic theory is highly reasonable, as are the author's critique of the capitalsit biases inherent in classical economic theory.
It is a central, and correct, doctrine of Marxism that capitalsim inevitably develops into monopoly capitalism combined with an oligarchic social and plitical order. Currently this is not a "hot topic" in university economics which taught and funded in the interests of the oligarchs,
Well noted. It might be added that the predicted consiquences of the general socio-economic theory of Marx, while not adhering to strict scientific methods, have at least been born out in this brutally twisted system that we in the US live with today. There are many cultural and sociological factors that are peripheral to economics which have contributed to the sorry state of the nation, but the voodoo economics espoused by Mankiw, Feldstein, and their ilk have contributed considerably to the despondent, capitalist, oligarch controlled economy and society created in the US within the last 30 years.
Agreed.
....
The word capitalism must be taboo.
Actually, Socialism refers to "social ownership" which could be implemented in several different ways.
Also, you assume a certain existence of "government elites" existing separate from, and having different interests than the rest of government and or the governed. Nobody will argue the fair characterization of that in today's fascist governments, but again, it could be implemented differently. In a government of, by and for the people, properly established and regulated accordingly, government elites would not exist.
Many people fail to realize how supportive the US Constitution actually could be of a "socialist" ideology. Most people focus on the aspects of its Federalist structure rather than its consideration for the social contract. Or should I say, most people fail to understand that socialism is actually more about the social contract than any particular constitutionally constructed form of governance.
Economists are stupid, narrow minded people who refuse to question their assumptions. There is no need for efficiency to be a goal as an economist implies it should be when he/she says, "but it wouldn't be efficient." There are billions of workers in the world. Economics is laden with ideology, value judgements, and assumptions.
I could write a nice story with ancient Greek gods as the characters that would fit right in with other stories, but you and I would realize that it was not true. Economists on the other hand . . . .
Economics is a social science, and rightly should be, and has been at times in various universities, considered a subset of sociology. And that makes me think how funny it is that so many business types scoff at sociology but believe that economics is a solid science. It is not.
Solid sciences, like physics and chemistry, develop through rigorous experimentation that enables the researchers to isolate and study a select number of fundamental independent variables and dependent variables and thereby to ascertain the precise effect of the independent variables on the dependent variables (by "fundamental" I mean those which are not amalgams but are simple, fully understood phenomena). Neuroscience can be seen to some degree as a subset of chemistry, and can be fairly rigorous, but psychology covers a far broader and less precise area than neuroscience so that the processes it analyzes and describes cannot be as rigorously studied, as there are far too many poorly understood independent and dependent variables. Sociology can be seen to be to some degree based on psychology, except that it covers even broader and less precise processes, with even more poorly understood variables. And, as argued above, economics is a subset of sociology.
So economics is not a rigorous science and most of it will consist of guesses. We know how far off the mainstream guesses about physics and chemistry generally were before the use of rigorous experimentation to test hypotheses. There is no reason to believe that the guesses of mainstream economists today are any better.
We also know that without rigorous experimentation to back up the theories of early scientists, to provide a solid foundation that could withstand social pressures (where the scientists could actually demonstrate for the public that their theories were superior), the predominant social forces of the era shaped the common understanding and teaching of the natural sciences. Today, we see a similar situation with economics.
As an aside, I really doubt the standard set of assumptions they operate on includes an assumption that every transaction in the marketplace involves redistribution from the less informed and less powerful to the more informed and the more powerful (through the leverage created by the unequal positions) and that this leads to feedback loops intensifying the inequality, or an assumption that the powerful can and almost inevitably will influence legislators to change laws to give them even more power in the market, creating even more feedback loops promoting increasing inequality. The self-serving, simplistic thinking that persists is nauseating.
Great post, kivals. Your absolutely right, economics is rightly considered a social "science," more rightly termed philosophy--but that would connote ideology. Word magic. And you’re right that business types have a quasi-religious faith in economics as a real science—having worked in the field, it always baffled me. Your last paragraph is well worth reading and remembering.
Thanks for the kind words. It seems that those who have faith in conservative economic philosophies assume that one who has success in capitalism and accumulates more does so because of better efficiency rather than because of bullying enabled by power and information imbalances (which naturally grow over time if undisturbed).
Eliz: What's up, no classes?
You said:
"Great post, kivals. Your absolutely right, "
Surely you recognize the difference between your, as in the possessive use of the term, and you're, in terms of its contraction of you are...
Yes, it was a typo. I noticed it when I came back to the site, but thanks for pointing it out. I'll return the favor of grammatical correction from time to time.
This is finals week, or more properly termed finals' week (week of finals, thus a possessive), although I never see that apostrophe on the records. I have only one more class. Thank you for asking.
The reason you don't see the apostrophe on the record is because it doesn't belong there. The week doesn't belong to the finals, so the possessive is not appropriate. The week in which finals occur is properly called finals week.
The problem of the car equals the car's problem.
Why doesn't the week of the finals equal finals' week?
Grammatically, I'm being consistent. Yes, the week does belong to the finals.
This is probably more than either one of us cares to get into, but since you asked.
The key question when deciding whether to use an apostrophe is to consider whether you want a possessive or simply an adjective. If you're talking about possession, use the apostrophe. The problems do indeed belong to the car: the car's problems.
But in the case of the finals, the week does not belong to the finals. It is simply the period of time in which the finals occur. You are using an adjective to describe the week: finals week.
I like your analysis, too, Kivals, but unless you were cloaking the idea that the one funding the study generally expects to see results compatible with its "expectations," it's vital that this variable be factored into the mix.
There were "experts" in their day who were utterly convinced that Black persons were 3/5th equivalents of human beings, and many who believed women suffered from great anxiety due to the missing penis.
What passes for "sound theory" in ANY era is deeply prejudiced by those who already have the power to designate what is appropriate curricula, or law, or what passes for the foundation of economic bases for sharing.
Everything must essentially pass through the filters of those who hold the power. And since power works diligently to preserve itself, it tends to be conservative. After all, the status quo is what supports its raison d'etre. Thus it views those minds that see outside its parameters (and paradigm) as vast threats, and goes to enormous lengths to punish "heretics." Every so-called "discipline" reveals this pattern if one digs deep enough under the surface to see what takes place under the acceptable facades.
In the hard sciences, through the use of rigorous experimentation, one may provide strong evidence of the superiority of one theory over competing theories and by doing so can often overcome significant resistance to new ideas by the PTB. So many great advances have come over the past few centuries because of this. Of course there can be corruption in the process of scientific experimentation in the hard sciences, as in anything, as studies on the effects of pharmaceuticals have provided numerous examples.
I will agree with you that In the soft sciences, where such hard evidence is unavailable, progress is difficult if not impossible, in large part because of the ability of the PTB to resist new theories.
There is no evidence whatever that market forces produce anything but the squandering of resources for the benefit of the financier class. Economies are based on production of goods by means of labor, which is governed by the laws of thermodynamics, the second law of which observes that all transactions take place at a loss. It is therefore impossible that transactions could provide profitable surpluses, unless these are drawn from victims. The protection of the financier class from the demands for remuneration by victims is then provided by law at the expense of the whole public at large. This result of enforcement by the state applies as much whether victims are human -- as workers, as competitors, as customers, as the public at large -- or not human -- as plants and animals. The "dismal science" of economics takes as its foundation the rationalization of this state of affairs as the social order.
Class Act: Right on The Money!
thank you for continuing to hammer on those thermodynamic laws...
lest we forget...or find ourselves otherwise occupied...
The range of potential economic systems is limited only the limits of creativity. Economics in the US is basically trying to figure out what "The Magic Hand" of the "Free Market" is going to do next.
From the standpoint of Nature, the Magic Hand has been like a battering fist.
Mankiu, like most economists, lives in a hypothetical world of models. Those models are ostensibly of a descriptive nature, but in actuality are treated as normative. In being so, they are supportive of the Existing Order (and therefore inherently biased). As an academic discipline, Economics claims the status of science, but is actually an ideology. The irony here is that even colleges/universities with religious ties have Economics departments, the administrators of those institutions being unaware that the ethical system associated that discipline is in direct conflict with the ethical system purportedly promulgated by their institution.
“Under a standard set of assumptions,,,,,it is also a standard result that in a competitive equilibrium,...... One might easily conclude that, under these idealized conditions,.......
Three "standard" phrases one finds in books and papers on mathematics and economics. Mathematicians do not believe that their work reflects the world in which we live, but Economists, who are basically applied mathematicians, must have missed that lecture in their math classes.
Isaiah Berlin once wrote that "laws" used in the social sciences are not credible (at least, not as credible as Newton's laws of motion) because human activities are much messier than the motions of the planets. And Daniel Kahneman (sp?), a Psychologist who got the Nobel Economics prize showed that the standard "models" in economics do not reflect reality.
I wonder why Economics is a required course for any field except Economics.
Economics,
like any other organized religion,
purposely,
reduces awareness of the diversity of life and the environment,
for some supposed profit
and some supposed security.
You reduce your awareness of life so that you can become a beast of burden in service to the religion because you want the security of the harness.
We are taught to be a self-imprisoning species.
To evolve beyond ourselves is our only hope.
Actually if you properly understand the role of doctrine in organized religion it doesn't necessarily limit world views at all. Properly understood - and Christian fundamentalism for example doesn't properly understand anything - it simply provides a welcome and wise bridge to walk across based on cautions learned from faulty or flawed thinking from the past and serves to guide discussion of multiple questions in a rational way towards a mystical end.
As Dan Berrigan and Thich Nhat Hanh wrote in the 1970's "The Raft is Not the Shore". Still you need a raft to get there.
Where contemporary economics fails in its scientific claims is to haughtily move away from the work done by moral philosophers like Adam Smith and Karl Marx and try to create something which is problematic at best and not rooted in moral norms at all..
What's true for history is twice as true for economics. Winners hire the historians. In return the historians write fawning nice things about a bunch of plunderers.
In the field of economics, the people who profit hire every last one of the economists. Economics being a dismal science, and usually a fraudulent science at that, the "science" is always slanted like crazy to please the people with the checkbooks. This was true hundreds of years ago when economics got its start, and it's still true today. And so we get Reaganomics which pretty much bankrupted America in favor of a few crooks kicking back campaign contributions, that plus the incessant wars for the last remaining drops of oil. Some economist will tell us why giving a trillion dollars to China to prop up a bunch of brutal oligarchs is good for America.
The exception that proves the rule, Marxist Economics, happens to flatter the tyrants that took over Marxism-Leninism.
Yes, it would be nice to occupy economics.
You understand how Howard Zinn started from scratch with the "People's History of the United States"? That's how deep we need to go with economics. We need a theory of microeconomics based on satisfying all of our community's needs, not on maximizing cash for one person. We need a theory of macroeconomics that is sustainable and that upholds justice.
Where is the efficiency and economy in our current economics?
Where is the actual science, that provides clear formulas, repeatable experiments, accurate models and projections with empirical scientific certainty and universal consistency.
Where is the delineation between the real economy of natural resources, human productivity and the material welfare of humankind versus the contrived economy of artificial money, debt manipulation, paper created wealth and economic influence (which does anything but economize) used to dominate politics and national interests.
Either economics is a science that must play along with all the actual laws of science, scientific observation and scientific impartiality, or it isn't.
The author is spot on to recognize the field of economics as not real science.
The "rule of the market" is as made up as any board game. And it means the "golden rule" has more to do with money and numbers than how we play (or should) with others.
It is about time to question the shills for the 1%!
Richard Wolff has a much more trenchant analysis of the economic crisis from
a Marxist perspective:
http://www.capitalismhitsthefan.com/
But most importantly most mainstream economists whether free-marketeers or
Keynesians ignore actual resource and ecological limits which is what has
brought on the financial crisis. Oil hitting $147 per barrel crashed the economy!
A breakthrough to this blindness to real world constraints may have recently occurred with James Galbraith's recent paper on the impact of Resource constraints:
http://my.firedoglake.com/selise/tag/energy/
If all this economic growth destroys the planet then what good is it really?
Do we really need this huge surfeit of individual consumption instead of publicly shared assets?
ORBIT: As per your mention of "real world constraints," try factoring in the escalating costs of earthquakes, tsunamis, tornadoes, droughts, floods, hurricanes, and volcanic action. Oh, then there's the eventual medical costs resulting from Fukushima, and the rising methane levels, ETC.
In other words, the premise of "Natural Capital" needs to be honestly considered. After all, the great many resources humanity has for so long gotten for free, have recently been recklessly abused in the manner of a maniacal fire sale. There is no way to factor the loss of forests, fisheries, clean air & water, rich soil onto the balance sheet once it's all gone. Calamitously short-sighted decision making, that which put paper profits before sustainability, has for too long written the rules of trade and other forms of fiscal engagement. The Great Mother is about to call in some long overdue debts. Economic theories will be cast to the dust heap of history where most belong.
PAUL K: Right on, post!
Yay! Thanks.
Hope there is plenty of blade left on the guillotine after the Banksters and corrupt politicians heads roll for all of the Ivy League economic professors.
From the alternative economics professor Stephen Marglin at Harvard, the one who teaches the course you can take but not get credit for, not if you want to be an econ major: “You have to assume that it is human nature always to want more, never to be satisfied with ‘enough.’ … you have to assume these rational, isolated individuals are completely self-interested. Because as soon as they are not self-interested anymore-even if that non-self-interest takes the benign form of altruism-then the theorems about Pareto optimality, the efficiency of markets, break down.”
A great explanation of John Nash’s contribution to economics can be in found in Adam Curtis's documentary “The Trap,” in which he explores Nash’s idea that we are all self-interested and isolated and that that’s a good thing because a world of such people achieve an “equilibrium” where everyone benefits. For this insight which he believed he could “prove” mathemetically, he won the Bank of Sweden Economics Prize. That Nash conceived this notion while in the grips of the delusions of paranoid schizophrenia, and that he came to realize, after curing himself of his mental delusions, that he was greatly in error, is apparently still factored out by Harvard economists.
Curtis’s work in examining the insanity of economics is always good black humor—have a look at his “League of Gentlemen” episode from “Pandora’s Box,” where he shows the machine that economists used to use in Britain to model the effects of money flow in the general economy. “The Mayfair Set” is another one of his series worth looking at—how a bunch of sociopathic gamblers smashed industry in Britain and the US.
Economics reminds me of Laputa, the land Gulliver visits wherein everything is conceived of mathematically. As Swift writes of the people of this mythical land,
“But what I chiefly admired, and thought altogether unaccountable, was the strong disposition I observed in them towards news and politics, perpetually inquiring into public affairs, giving their judgments in matters of state, and passionately disputing every inch of a party opinion. I have indeed observed the same disposition among most of the mathematicians I have known in Europe, although I could never discover the least analogy between the two sciences; unless those people suppose, that because the smallest circle has as many degrees as the largest, therefore the regulation and management of the world require no more abilities than the handling and turning of a globe; but I rather take this quality to spring from a very common infirmity of human nature, inclining us to be most curious and conceited in matters where we have least concern, and for which we are least adapted by study or nature.”
I used to work for an economic analysis firm named after the land of Freedonia from the Marx Brother’s Duck Soup. The owner, who had worked in Washington on economic policy in his youth, realized early what anyone prone to question government numbers on the economy soon realizes: the numbers are bogus. Not only are they categorized to confuse, conflate, and occlude, but even clearly categorized commodities show fluctuations that can only be explained my error or misreporting. Makes me think of Luputa once again.
Interesting comments. Did Nash cure himself, or learn to live with the infirmity? I like your reference to Swift.
Interesting question. (You’re off your game, by the way: there was a typo or two in there you missed.) But seriously, I don’t know how to parse the difference between learning to live with and curing oneself of a mental infirmity. As an old friend of mine, who happens to be a psychologist, says, everyone is crazy. The matter is whether you can pretend you’re normal.
I don’t even know what “mental infirmity” entails, exactly, but I’ve noticed that most people I know are indifferent to the severe suffering their actions inflict upon others, intentionally or unintentionally, even when the reality is laid out to them, and that indifference would be my provisional definition of mental infirmity. It would also be the definition of sanity for most of our mental health experts.
Elizabeth,
Interesting comment Elizabeth...
Thank you,
Thomas Gilbert-
The problem with Economics as "science" is that science has a basis in physical and natural facts. Economics has a basis in Fiction... the political fiction of money. What do their numbers MEAN anyway? So economics is totally a Subjective Values JUDGEMENT System; that is, it's Politics, or in other words, it's Religion, or in other words, it's Magical Thinking.
To put it in simple currency transactions: Today three seashells get you two coconut, tomorrow two seashells and a shiny gold colored rock get you one coconut and three bananas. The next day five coconut get you two gold colored rock. The next day after ten coconut get you not killed and eaten. The day after that...who knows?
Now what kind of "science" is that?
One other thing, the thing that makes economics powerful, even if it is, underneath, a kind of fraud. "Money" is violence, because it is power. Because power is force. And force can make people do things they do not want to do, or make them do things to get the power themselves. The value of money is supported by violence, even the physical violence of the state, if need be, or the threat of physical death, if one is denied its power in society. And devotion to this money/power is what economics is all about. So economics to validate itself as useful must give the ruling force its 'believability', its belief system, its inevitability. It is the priesthood of Mammon. So it is still very powerful. As politics. But not as science whatsoever.
Oh, and PS, speaking of Freedonia, look up Long Term Capital Management (Hail Freedonia) to see what 'geniuses' a couple of "Nobel Prize" economists were (totally moronic doofus-monkey ass-clowns, that is). Their "economic-science"-based "financial investment models" that actually won them their Nobel prize, that they claimed could not fail in millions of years... drum roll please... failed completely and catastrophically in just four - ta daa! Their company was left with less than $400 million in value and over $100 Billion in debt - in four years! But never fear, good old billionaire Fed Chair Super-Duper Economist Alan Greenspan bailed them out, or rather, bailed out their creditors - to "save the system'".. sound familiar? --- Oh, by the way, Alan used your dollars to do it, hope you don't mind I'm sure. SO THANKS, ECONOMISTS! Yes, truly, thanks a lot for all your handiwork in this, the good old USA, and among all the nations, and for helping to make this the wonderful world it is today! Couldn't have done it without you!
I think the problem is that economics is regarded as a "science", and is then transformed into a "religion". That's what happened to marxism in Russia, and what has been happening to capitalism for some time now.
duplicate post
economics is a science, if you understand keynes
however this guy and most of the for hire hacks dominating economics now
are as much true economists as a scientist teaching the world is flat is a true scientist
Questioning the economic status quo is a good start, but still no mention of the growth virus inherent in capitalism and the other isms.
Legal Tender is a legal contrivance, and when issued in the form of debt is nothing more than a pyramid/ponzi scheme. The quantification of debt wrongfully applies the algebraic concept of exponential growth - compounding interest - upon money. The distinction between usury and interest is an arbitrary legal determination with no basis in mathematics. Nothing can grow forever at an ever-increasing rate. As time moves on, the emphasis of ever-increasing growth becomes omnipresent, is quantified and institutionalized in the societal structure, encouraging over consumption, over development, and excessive expectations, pushing economic stress to its upper limit of expansion, eventually inciting conflict and spawning War to insure growth.
http://theformofmoney-mammon.blogspot.com/2011/10/form-of-money-treatise.html
"Nothing can grow forever at an ever-increasing rate."
You are right of course, and If we adhere to science then we should also accept that nothing is ever in fact created or destroyed, only arranged for a time according to the forces acting upon it.
Many believe there is a certain growth that is natural due to an increasing population, and perhaps also due to technologies producing (presumably) more from less. But is this really true?
What bothers me about modern economics is that it seems to preach a rigid adherence to 'efficiency', and obedience to the 'law of supply and demand', when it comes to setting labor rates, etc.
But, as Steve Keen has pointed out, the monetary system is at the same time horribly inefficient, with trillions in loans hatched in a keystroke that may or may not be real, trillions more in 'insurance' making personal risk go away (to become systemic risk owned by everyone), offshore accounts, backroom deals, insider trading, and ponzi schemes.
So, economists like Mankiw end up espousing the importance of an efficient labor market, while the market for capital is wallowing in a drunken casino, hatching bubbles willy-nilly. We are left to conclude that the law of supply and demand is too brutal a law for capitalists themselves to adhere to.
I like to put the hypocrisy this way: the finance sector is filled with people who hate labor unions as anti-capitalist and inefficient. They demand 'free market, unregulated' capitalism, and for the last 15 years have gotten it. So, what golden arches did the finance sector build with their unrestrained decisionmaking? Well, frankly, they built the worlds most powerful union. Joined by a massive web of debt, no bank can today fall without ALL banks at risk of falling, and if they all fall the global economy falls too. Basically, when these mothers go on strike, they are on STRIKE!! $700 trillion in derivatives has bought them the mother of all collective bargaining tools, and they are now able to walk into the offices of any central banker in the world and demand trillions of dollars in zero interest loans, which they may or may not loan out to the little people at 30%.
Sure, they hate unions, other peoples unions.
to them efficiency is squeezing the worker for everything they have
"We economists can try to estimate the cost of redistribution—that is, the negative impact on efficiency that comes with attempts to achieve more equality,"
“But don’t let anyone fool you into thinking that when the government taxes the rich, only the rich bear the burden.” We can tax the rich but the result will be a smaller overall economic pie."
the above two statements and many more show complete bias on his part
Principles of economics therefore must be a completely biased book
both those statements above were disproved by keynes 80 years ago
There's no room for politics in economics, which is a hard science like sorcery or climatology.
When I was a 20-yo junior at my first college, on a quick trajectory towards failing out of school and enveloped in depression and insomnia, I took an intro economics course. Even in my compromised mental state and having only the analytical faculties and experience of a 20 yo, I could discern what a bunch of soul-crushing bullshit it was. On the other hand, the biggest joys I had that year were reading Nabokov's Pale Fire for a post-war lit class, and discovering Led Zeppelin II.
Mankiw does not participate in economics from the perspective of intellectual inquiry. He knows the answers already. Instead of asking questions like "How can an economic system deliver the maximum good to the maximum number of people?", he refuses to ask anything at all, preferring to give HIS answer to a question many of us do not even care about, "How can an economic system reward enterprise and increase productivity?" Since he does not understand that scholarship is not about articulating essential truths but about asking important questions, his economics course is barren and useless as a starting point for intellectual engagement. How odd! I would have expected more from Harvard (of all places).
Excellent article, very informative. And bravo to the students who walked out.