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Science, PseudoScience and Society

Advance of Zombie ideas in XX and XXI centuries

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  Programmers have a very precise understanding of truth. You can’t lie to a compiler. Try it sometime. Garbage in, garbage out. Booleans, the ones and zeros, trues and falses, make up the world programmers live in. That’s all there is! I think programming is deep, it teaches us about the non-cyber universe we live in. There’s something spiritual about computers, and I want to understand it.

Nick Geoghegan

Science has been misused for political purposes many times in history. However, the most glaring examples of politically motivated pseudoscience happened just recently, in XX century. That means that it is useful to review historic examples of "Zombie ideas" used for political purposes and the pattern that defines that abuse.

The important lesson of XX century is that discredited economic and political ideas, no matter how absurd,  don't die as long as they serve well power that be.  In a way they are real living dead, sucking blood from humans.  Those ideas that should have died long ago, still shamble forward, like Zombies. Usage of such ideas is one of the most dangerous deception schemes practiced  by modern elites

It's not easy to write about pseudo science. The problem has to do with the fluid nature of the concept. It has no single, precise meaning and there is little agreement about its constituent elements. But first and foremost it involved subjugation of scientific aims to political goals and deliberate attempt in deception and subsequent cover up. But recently almost all social and economic science became political and all politics involved deception: to say that a politician is not lying is the same as to say that an alcoholic is not drinking. Still there are different degrees of lies and different level of density of the "cloud of deception".

Discredited ideas with political support or "Zombies" can be extremely dangerous for people who oppose them.  Lysenkoism probably represents classic early example when an set of obvious lies was supported by repressive apparatus of state and dissenters were prosecuted and sentenced to Gulag.  For nearly 45 years, the Soviet government used propaganda to foster unproven theories of agriculture promoted by Trofim Lysenko. Scientists seeking favor with the Soviet hierarchy produced fake experimental data in support of Lysenko’s false claims. Contradicting scientific evidence from the fields of biology and genetics was simply banned. University programs taught only Lysenkoism . This state supported attempt to suppress generics  continued for over forty years, until 1964, and even managed to spread to other communist countries, such as  China.

What we saw it as a tragedy in Stalin's Russia genetics, we now see it as a farce in USA economics with neo-classical economics flourishing with the supportive guidance of neoliberal state and financial oligarchy.

The whole neoclassical economics is essentially a set of zombie ideas which are kept in the forefront by financial oligarchy. The financial crisis of 2008 buried key ideas of  'free market liberalism' (aka neoliberalism), such as the 'Efficient Markets Hypothesis', yet these zombie ideas still were dug our, dressed and continue to be sold via major newspapers and journals. Much like Lysenkoism in the USSR by CPSU. See

This is  a real Faustian bargain for academic scholars. One can trade the independence for political influence, good salary and other perks. It is also helps in the power grab. And despite popular image of scientists, they proved to be as corruptible, if not more corruptible, as anybody else. Historically the scientific community is generally held together and all its affairs are peacefully managed through its joint acceptance of the same fundamental scientific beliefs. Science is best practiced in a voluntary, peaceful and free atmosphere.

But that idyllic arrangement firmly belongs to  the past. Now we can talk only about the level of political pressure on scientists via research grants, not so much about presence or absence of such a pressure.  What really matters as far as politics and science is concerned is what type of environment the individual scientists have to work in and what degree of freedom they can enjoy.

Historically the situation changed irrevocably since early XX contrary, which signified discovery of atomic particles.  It should be understood that the modern scientist, built in the modern "neoliberal" democracies, is at the same time - and it is possible that even in the first place - a political agent, a manipulator. For the unwashed masses a public scientist represent the ultimate carrier of truth for a given discipline, so his opinion have a distinct political weight. And the architects of these systems use this values of scientists to the fullest extent possible. Like we can see with neoclassical economics, scientists have turned into an instrument of cognitive manipulation, when  under the guise of science financial oligarchy promote beneficial to itself a false and simplistic picture of the world, which brainwash the masses into "correct" thinking.

In this sense one can say that Lysenkoism represented a natural side effect of  shrinking of freedom of the scientific community and growing influence of political power on science. As by Frederick Seitz noted in his The Present Danger To Science and Society

Everyone knows that the scientific community faces financial problems at the present time. If that were its only problem, some form of restructuring and allocation of funds, perhaps along lines well tested in Europe and modified in characteristic American ways, might provide solutions that would lead to stability and balance well into the next century. Unfortunately, the situation is more complex, made so by the fact that the scientific establishment has become the object of controversy from both outside and inside its special domain. The most important aspects of the controversy are of a new kind and direct attention away from matters that are sufficiently urgent to be the focus of a great deal of the community's attention.

The assaults on science from the outside arise from such movements as the ugly form of "political correctness" that has taken root in important portions of our academic community. There are to be found, in addition, certain tendencies toward a home-grown variant of the anti-intellectual Lysenkoism that afflicted science in the Stalinist Soviet Union. So-called fraud cases are being dealt with in new, bureaucratic ways that cut across the traditional methods of arriving at truth in science. From inside the scientific community, meanwhile, there are challenges that go far beyond those that arise from the intense competition for the limited funds that are available to nourish the country's scientific endeavor.

The critical issue of arriving at a balanced approach to funding for science is being subordinated to issues made to seem urgent by unhealthy alliances of scientists and bureaucrats. Science and the integrity of its practitioners are under attack and, increasingly, legislators and bureaucrats shape the decisions that determine which paths scientific research should take. There is, in addition, a sinister tendency, especially in environmental affairs, toward considering the undertaking of expensive projects that are proposed by some scientists to remedy worst-case formulations of problems before the radical and expensive remedies are proven to be needed. They are viewed seriously though they are based on the advice of opportunistic alarmists in science who leap ahead of what is learned from solid research to encourage support for the expensive remedies they perceive to be necessary. The potential for very great damage to science and society is real.

Of course, the rise of 'Lysenkoism' in the Soviet Union in the late 40th of the twentieth century is one of the most tragic pages of the history of science.  Trofim Lysenko, a Soviet agronomist, came to prominence as the proponent of a theory of heredity that stood in direct opposition to Mendelianism. The details of this theory need not concern us, except to note that it was 'Larmarckist' in its contention that it is possible for organisms to inherit acquired characteristics.  This was wrong and the principles of Mendelianism - the theory of heredity - were well understood by then. But Lysenko theory fitted nicely with the Soviet ideology. Particularly, the idea that acquired characteristics could be inherited held out the promise of the perfectibility of mankind which as strange as it may sound was the necessary precondition to irreversible victory of socialism/communism (later when nationalistic forces  tore apart the USSR  it became clear that such hopes are completely misplaced). 

So the Stalinist state intervened in the pre-exiting scientific struggle by declaring the victor and the consequences, certainly for many of the scientists involved and arguably also for the USSR agriculture, were disastrous.  The essence of Lysenkoism is that pseudo-scientific theory became a pseudo-religious cult and the power of state was used to suppress dissidents. Many scientists were exiled; some killed. Unfortunately we cannot dismiss the obviously pernicious use of ideology by Lysenko and his supporters simply as an aberration of the era that is often brushed aside as 'the cult of personality' (with or without naming the personality in question). This proved to be much more dangerous and at the same time remarkably resilient phenomenon that survived the dissolution of the USSR. Actually the situation repeated with the USA economics when anything that was not neo-classic was suppressed was by-and-large similar although this time this time it happened without any killings.

Do not fool yourself that Lysenkoism is irrevocably connected with communist ideology. The link was poorly accidental. In reality Lysenkoism emerged more like a cult which was extremely convenient for the control freaks in high position in government. It's not a secret that a lot of high-level administrators in academic institutions belong to the category of micromanagers and as such they are naturally predisposed to Lysenkoism.  

In general "Lysenkovisation of  science" occurs when the state tries to control both the methodologies and goals of scientific activity and that happens all over the world, although to different degree.

In the USSR huge bureaucratic institutions such as VASKhNIL and VIEM had been set up with the specific goal to control resources and, especially, scientific press.  Part of the reason that Lysenkoism gained official support in the Soviet Union was because the Mendelian approach to genetics contradicted official ideology, in particular, Engels's dialectical materialism. In early 50th, just before his death Stalin began to sense that Lysenkoism can hinder practical science by interfering with the academic atmosphere of toleration of dissent most conducive to scientific accomplishment. He even went as far as to declare that

“no science can develop and proper without the clash of opinions, without freedom of criticism.”

But it was too late...

Other governments are also far from being immune from this kind of tendency to select between scientific theories on the basis of ideology rather than the balance of evidence.

More benign variant of Lysenkoism that does not rely on the power of the state is usually called Cargo Cult ScienceAnother related term is "Mayberry Machiavellis". A long time ago -- well, actually it was just a year, but it seems like a lot longer than that -- a former Bush advisor John DiIulio got into quite a bit of trouble for revealing to Esquire that the White House did not possess, in any conventional definition of the term, a policy-making process:

...on social policy and related issues, the lack of even basic policy knowledge, and the only casual interest in knowing more, was somewhat breathtaking—discussions by fairly senior people who meant Medicaid but were talking Medicare; near-instant shifts from discussing any actual policy pros and cons to discussing political communications, media strategy, et cetera. Even quite junior staff would sometimes hear quite senior staff pooh-pooh any need to dig deeper for pertinent information on a given issue...

This gave rise to what you might call Mayberry Machiavellis—staff, senior and junior, who consistently talked and acted as if the height of political sophistication consisted in reducing every issue to its simplest, black-and-white terms for public consumption, then steering legislative initiatives or policy proposals as far right as possible.

Dan Gardner - Senior Writer for The Ottawa Citizen writes: "Cabinet meetings were scripted, Mr. O'Neill discovered, by White House staffers who sent advance notes to cabinet secretaries telling them when they were 'supposed to speak, about what, and for how long.'" Is this the shadow of Politburo or what?

There are also strong analogies between Reaganomics and Lysenkoism. Useful discussion is at  "The Financial Crisis and the Systemic Failure of Academic Economics"

The Financial Crisis and the Systemic Failure of Academic Economics, by David Colander, Hans Föllmer, Armin Haas, Michael Goldberg, Katarina Juselius, Alan Kirman, and Thomas Lux: [From the conclusion] ..."We believe that economics has been trapped in a sub-optimal equilibrium in which much of its research efforts are not directed towards the most prevalent needs of society. Paradoxically self-reinforcing feedback effects within the profession may have led to the dominance of a paradigm that has no solid methodological basis and whose empirical performance is, to say the least, modest. Defining away the most prevalent economic problems of modern economies and failing to communicate the limitations and assumptions of its popular models, the economics profession bears some responsibility for the current crisis. It has failed in its duty to society to provide as much insight as possible into the workings of the economy and in providing warnings about the tools it created. It has also been reluctant to emphasize the limitations of its analysis. We believe that the failure to even envisage the current problems of the worldwide financial system and the inability of standard macro and finance models to provide any insight into ongoing events make a strong case for a major reorientation in these areas and a reconsideration of their basic premises."

While at the surface it looks like rent-seeking behavior of dishonest economists the analogy is pretty strong. A broad critique of Neoclassical economics has been put forward in the book Debunking Economics by Steve Keen  See, for example:

Dr. Nikolai Bezroukov


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If history repeats itself...how incapable must Man be of learning from experience

George Bernard Shaw

"No science is immune to the infection of politics and the corruption of power."

Jacob Bronowski (1908-1974),
British scientist, author.
Encounter (London, July 1971).

[Jul 06, 2019] >Neoliberal economics and other fairytales about money by Peter McKenna

Notable quotes:
"... Aditya Chakrabortty ( It's reckless. But a Tory cash splurge could win an election , 3 July) is right to point out the hypocrisy of the political right about public expenditure. While progressive proposals for public spending are decried as burdening the hard-pressed taxpayer, the right is happy to use public money to rescue the banks or boost their electoral chances. ..."
"... As I explain in my book Money: Myths, Truths and Alternatives, neoliberal economics is built on a fairytale about money that distorts our view of how a contemporary public money system operates. It is assumed that public spending depends on extracting money from the market and that money (like gold) is always in short supply. Neither is true. Both the market and the state generate money – the market through bank lending and the state through public spending. Both increase the money supply, while bank loan repayments and taxation reduce it. There is no natural shortage of money – which today mainly exists only as data. ..."
Jul 04, 2019 | www.theguardian.com

Neoliberal economics and other fairytales about money Politics is not about a struggle over a fixed pot of money, says Mary Mellor, and the best way to end austerity is to reject it as an ideology, says Peter McKenna

Aditya Chakrabortty ( It's reckless. But a Tory cash splurge could win an election , 3 July) is right to point out the hypocrisy of the political right about public expenditure. While progressive proposals for public spending are decried as burdening the hard-pressed taxpayer, the right is happy to use public money to rescue the banks or boost their electoral chances.

As I explain in my book Money: Myths, Truths and Alternatives, neoliberal economics is built on a fairytale about money that distorts our view of how a contemporary public money system operates. It is assumed that public spending depends on extracting money from the market and that money (like gold) is always in short supply. Neither is true. Both the market and the state generate money – the market through bank lending and the state through public spending. Both increase the money supply, while bank loan repayments and taxation reduce it. There is no natural shortage of money – which today mainly exists only as data.

ss="rich-link tone-news--item rich-link--pillar-news"> Business Today: sign up for a morning shot of financial news Read more

The case for austerity missed the point. Politics is not about a struggle over a fixed pot of money. What is limited are resources (particularly the environment) and human capacity. How these are best used should be a matter of democratic debate. The allocation of money should depend on the priorities identified. In this the market has no more claim than the public economy to be the source of sustainable human welfare.
Professor Mary Mellor
Newcastle upon Tyne

• Over the years Aditya Chakrabortty has provided us with powerful critiques of austerity. His message now – that EU membership "is the best way to end austerity" – overlooks the fact that the UK was in the EU all that time.

Moreover, the EU's stability and growth pact requires that budget deficits and public debt be pegged below 3% and 60% of GDP respectively.

Such notions are the beating heart of austerity, and the European commission's excessive deficit procedure taken against errant states has almost universally resulted in swingeing austerity programmes. These were approved and monitored by the commission and council, with the UK only taken off the naughty step in 2017 after years of crippling austerity finally reduced the deficit to 2.3% of GDP.

The best way to end austerity – and to sway voters – is to reject austerity as an ideology regardless of remain or leave, and rehabilitate the concept of public investment in a people's economy.
Peter McKenna

[Jun 22, 2019] Use of science by the US politicians

Highly recommended!
Notable quotes:
"... "the administrator uses social science the way the drunk uses a lamppost, for support rather than illumination." Scholars' disinclination to be used in this way helps explain more of the distance. ..."
Jun 16, 2019 | www.theamericanconservative.com

The evidence suggests that foreign policymakers do not seek insight from scholars, but rather support for what they already want to do.

As Desch quotes a World War II U.S. Navy anthropologist, "the administrator uses social science the way the drunk uses a lamppost, for support rather than illumination." Scholars' disinclination to be used in this way helps explain more of the distance.

[Jun 19, 2019] Bias bias the inclination to accuse people of bias by James Thompson

Highly recommended!
Notable quotes:
"... Early in any psychology course, students are taught to be very cautious about accepting people's reports. A simple trick is to stage some sort of interruption to the lecture by confederates, and later ask the students to write down what they witnessed. Typically, they will misremember the events, sequences and even the number of people who staged the tableaux. Don't trust witnesses, is the message. ..."
"... The three assumptions -- lack of rationality, stubbornness, and costs -- imply that there is slim chance that people can ever learn or be educated out of their biases; ..."
"... So, are we as hopeless as some psychologists claim we are? In fact, probably not. Not all the initial claims have been substantiated. For example, it seems we are not as loss averse as previously claimed. Does our susceptibility to printed visual illusions show that we lack judgement in real life? ..."
"... Well the sad fact is that there's nobody in the position to protect "governments" from their own biases, and "scientists" from theirs ..."
"... Long ago a lawyer acquaintance, referring to a specific judge, told me that the judge seemed to "make shit up as he was going along". I have long held psychiatry fits that statement very well. ..."
"... Here we have a real scientist fighting the nonsense spreading from (neoclassical) economics into other realms of science/academia. ..."
"... Behavioral economics is a sideline by-product of neoclassical micro-economic theory. It tries to cope with experimental data that is inconsistent with that theory. ..."
"... Everything in neoclassical economics is a travesty. "Rational choice theory" and its application in "micro economics" is false from the ground up. It basically assumes that people are gobbling up resources without plan, meaning or relevant circumstances. Neoclassical micro economic theory is so false and illogical that I would not know where to start in a comment, so I should like to refer to a whole book about it: Keen, Steve: "Debunking economics". ..."
"... As the theory is totally wrong it is really not surprising that countless experiments show that people do not behave the way neoclassical theory predicts. How do economists react to this? Of course they assume that people are "irrational" because they do not behave according to their studied theory. (Why would you ever change your basic theory because of some tedious facts?) ..."
"... The title of the 1st ed. of Keen's book was "Debunking Economics: The Naked Emperor of the Social Sciences" which was simply a perfect title. ..."
Jun 19, 2019 | www.unz.com

Early in any psychology course, students are taught to be very cautious about accepting people's reports. A simple trick is to stage some sort of interruption to the lecture by confederates, and later ask the students to write down what they witnessed. Typically, they will misremember the events, sequences and even the number of people who staged the tableaux. Don't trust witnesses, is the message.

Another approach is to show visual illusions, such as getting estimates of line lengths in the Muller-Lyer illusion, or studying simple line lengths under social pressure, as in the Asch experiment, or trying to solve the Peter Wason logic problems, or the puzzles set by Kahneman and Tversky. All these appear to show severe limitations of human judgment. Psychology is full of cautionary tales about the foibles of common folk.

As a consequence of this softening up, psychology students come to regard themselves and most people as fallible, malleable, unreliable, biased and generally irrational. No wonder psychologists feel superior to the average citizen, since they understand human limitations and, with their superior training, hope to rise above such lowly superstitions.

However, society still functions, people overcome errors and many things work well most of the time. Have psychologists, for one reason or another, misunderstood people, and been too quick to assume that they are incapable of rational thought?

Gerd Gigerenzer thinks so.

https://www.nowpublishers.com/article/OpenAccessDownload/RBE-0092

He is particularly interested in the economic consequences of apparent irrationality, and whether our presumed biases really result in us making bad economic decisions. If so, some argue we need a benign force, say a government, to protect us from our lack of capacity. Perhaps we need a tattoo on our forehead: Diminished Responsibility.

The argument leading from cognitive biases to governmental paternalism -- in short, the irrationality argument -- consists of three assumptions and one conclusion:

1. Lack of rationality. Experiments have shown that people's intuitions are systematically biased.

2. Stubbornness. Like visual illusions, biases are persistent and hardly corrigible by education.

3. Substantial costs. Biases may incur substantial welfare-relevant costs such as lower wealth, health, or happiness.

4. Biases justify governmental paternalism. To protect people from theirbiases, governments should "nudge" the public toward better behavior.

The three assumptions -- lack of rationality, stubbornness, and costs -- imply that there is slim chance that people can ever learn or be educated out of their biases; instead governments need to step in with a policy called libertarian paternalism (Thaler and Sunstein, 2003).

So, are we as hopeless as some psychologists claim we are? In fact, probably not. Not all the initial claims have been substantiated. For example, it seems we are not as loss averse as previously claimed. Does our susceptibility to printed visual illusions show that we lack judgement in real life?

In Shepard's (1990) words, "to fool a visual system that has a full binocular and freely mobile view of a well-illuminated scene is next to impossible" (p. 122). Thus, in psychology, the visual system is seen more as a genius than a fool in making intelligent inferences, and inferences, after all, are necessary for making sense of the images on the retina.

Most crucially, can people make probability judgements? Let us see. Try solving this one:

A disease has a base rate of .1, and a test is performed that has a hit rate of .9 (the conditional probability of a positive test given disease) and a false positive rate of .1 (the conditional probability of a positive test given no disease). What is the probability that a random person with a positive test result actually has the disease?

Most people fail this test, including 79% of gynaecologists giving breast screening tests. Some researchers have drawn the conclusion that people are fundamentally unable to deal with conditional probabilities. On the contrary, there is a way of laying out the problem such that most people have no difficulty with it. Watch what it looks like when presented as natural frequencies:

Among every 100 people, 10 are expected to have a disease. Among those 10, nine are expected to correctly test positive. Among the 90 people without the disease, nine are expected to falsely test positive. What proportion of those who test positive actually have the disease?

In this format the positive test result gives us 9 people with the disease and 9 people without the disease, so the chance that a positive test result shows a real disease is 50/50. Only 13% of gynaecologists fail this presentation.

Summing up the virtues of natural frequencies, Gigerenzer says:

When college students were given a 2-hour course in natural frequencies, the number of correct Bayesian inferences increased from 10% to 90%; most important, this 90% rate was maintained 3 months after training (Sedlmeier and Gigerenzer, 2001). Meta-analyses have also documented the "de-biasing" effect, and natural frequencies are now a technical term in evidence-based medicine (Akiet al., 2011; McDowell and Jacobs, 2017). These results are consistent with a long literature on techniques for successfully teaching statistical reasoning (e.g., Fonget al., 1986). In sum, humans can learn Bayesian inference quickly if the information is presented in natural frequencies.

If the problem is set out in a simple format, almost all of us can all do conditional probabilities.

I taught my medical students about the base rate screening problem in the late 1970s, based on: Robyn Dawes (1962) "A note on base rates and psychometric efficiency". Decades later, alarmed by the positive scan detection of an unexplained mass, I confided my fears to a psychiatrist friend. He did a quick differential diagnosis on bowel cancer, showing I had no relevant symptoms, and reminded me I had lectured him as a student on base rates decades before, so I ought to relax. Indeed, it was false positive.

Here are the relevant figures, set out in terms of natural frequencies

Every test has a false positive rate (every step is being taken to reduce these), and when screening is used for entire populations many patients have to undergo further investigations, sometimes including surgery.

Setting out frequencies in a logical sequence can often prevent misunderstandings. Say a man on trial for having murdered his spouse has previously physically abused her. Should his previous history of abuse not be raised in Court because only 1 woman in 2500 cases of abuse is murdered by her abuser? Of course, whatever a defence lawyer may argue and a Court may accept, this is back to front. OJ Simpson was not on trial for spousal abuse, but for the murder of his former partner. The relevant question is: what is the probability that a man murdered his partner, given that she has been murdered and that he previously battered her.

Accepting the figures used by the defence lawyer, if 1 in 2500 women are murdered every year by their abusive male partners, how many women are murdered by men who did not previously abuse them? Using government figures that 5 women in 100,000 are murdered every year then putting everything onto the same 100,000 population, the frequencies look like this:

So, 40 to 5, it is 8 times more probable that abused women are murdered by their abuser. A relevant issue to raise in Court about the past history of an accused man.

Are people's presumed biases costly, in the sense of making them vulnerable to exploitation, such that they can be turned into a money pump, or is it a case of "once bitten, twice shy"? In fact, there is no evidence that these apparently persistent logical errors actually result in people continually making costly errors. That presumption turns out to be a bias bias.

Gigerenzer goes on to show that people are in fact correct in their understanding of the randomness of short sequences of coin tosses, and Kahneman and Tversky wrong. Elegantly, he also shows that the "hot hand" of successful players in basketball is a real phenomenon, and not a stubborn illusion as claimed.

With equal elegance he disposes of a result I had depended upon since Slovic (1982), which is that people over-estimate the frequency of rare risks and under-estimate the frequency of common risks. This finding has led to the belief that people are no good at estimating risk. Who could doubt that a TV series about Chernobyl will lead citizens to have an exaggerated fear of nuclear power stations?

The original Slovic study was based on 39 college students, not exactly a fair sample of humanity. The conceit of psychologists knows no bounds. Gigerenzer looks at the data and shows that it is yet another example of regression to the mean. This is an apparent effect which arises whenever the predictor is less than perfect (the most common case), an unsystematic error effect, which is already evident when you calculate the correlation coefficient. Parental height and their children's heights are positively but not perfectly correlated at about r = 0.5. Predictions made in either direction will under-predict in either direction, simply because they are not perfect, and do not capture all the variation. Try drawing out the correlation as an ellipse to see the effect of regression, compared to the perfect case of the straight line of r= 1.0

What diminishes in the presence of noise is the variability of the estimates, both the estimates of the height of the sons based on that of their fathers, and vice versa. Regression toward the mean is a result of unsystematic, not systematic error (Stigler,1999).

Gigerenzer also looks at the supposed finding that people are over-confidence in predictions, and finds that it is another regression to the mean problem.

Gigerenzer then goes on to consider that old favourite, that most people think they are better than average, which supposedly cannot be the case, because average people are average.

Consider the finding that most drivers think they drive better than average. If better driving is interpreted as meaning fewer accidents, then most drivers' beliefs are actually true. The number of accidents per person has a skewed distribution, and an analysis of U.S. accident statistics showed that some 80% of drivers have fewer accidents than the average number of accidents (Mousavi and Gigerenzer, 2011)

Then he looks at the classical demonstration of framing, that is to say, the way people appear to be easily swayed by how the same facts are "framed" or presented to the person who has to make a decision.

A patient suffering from a serious heart disease considers high-risk surgery and asks a doctor about its prospects.

The doctor can frame the answer in two ways:

Positive Frame: Five years after surgery, 90% of patients are alive.
Negative Frame: Five years after surgery, 10% of patients are dead.

Should the patient listen to how the doctor frames the answer? Behavioral economists say no because both frames are logically equivalent (Kahneman, 2011). Nevertheless, people do listen. More are willing to agree to a medical procedure if the doctor uses positive framing (90% alive) than if negative framing is used (10% dead) (Moxeyet al., 2003). Framing effects challenge the assumption of stable preferences, leading to preference reversals. Thaler and Sunstein (2008) who presented the above surgery problem, concluded that "framing works because people tend to be somewhat mindless, passive decisionmakers" (p. 40)

Gigerenzer points out that in this particular example, subjects are having to make their judgements without knowing a key fact: how many survive without surgery. If you know that you have a datum which is more influential. These are the sorts of questions patients will often ask about, and discuss with other patients, or with several doctors. Furthermore, you don't have to spin a statistic. You could simply say: "Five years after surgery, 90% of patients are alive and 10% are dead".

Gigerenzer gives an explanation which is very relevant to current discussions about the meaning of intelligence, and about the power of intelligence tests:

In sum, the principle of logical equivalence or "description invariance" is a poor guide to understanding how human intelligence deals with an uncertain world where not everything is stated explicitly. It misses the very nature of intelligence, the ability to go beyond the information given (Bruner, 1973)

The key is to take uncertainty seriously, take heuristics seriously, and beware of the bias bias.

One important conclusion I draw from this entire paper is that the logical puzzles enjoyed by Kahneman, Tversky, Stanovich and others are rightly rejected by psychometricians as usually being poor indicators of real ability. They fail because they are designed to lead people up the garden path, and depend on idiosyncratic interpretations.

For more detail: http://www.unz.com/jthompson/the-tricky-question-of-rationality/

Critics of examinations of either intellectual ability or scholastic attainment are fond of claiming that the items are "arbitrary". Not really. Scholastic tests have to be close to the curriculum in question, but still need to a have question forms which are simple to understand so that the stress lies in how students formulate the answer, not in how they decipher the structure of the question.

Intellectual tests have to avoid particular curricula and restrict themselves to the common ground of what most people in a community understand. Questions have to be super-simple, so that the correct answer follows easily from the question, with minimal ambiguity. Furthermore, in the case of national scholastic tests, and particularly in the case of intelligence tests, legal authorities will pore over the test, looking at each item for suspected biases of a sexual, racial or socio-economic nature. Designing an intelligence test is a difficult and expensive matter. Many putative new tests of intelligence never even get to the legal hurdle, because they flounder on matters of reliability and validity, and reveal themselves to be little better than the current range of assessments.

In conclusion, both in psychology and behavioural economics, some researchers have probably been too keen to allege bias in cases where there are unsystematic errors, or no errors at all. The corrective is to learn about base rates, and to use natural frequencies as a guide to good decision-making.

Don't bother boosting your IQ. Boost your understanding of natural frequencies.


res , says: June 17, 2019 at 3:29 pm GMT

Good concrete advice. Perhaps even more useful for those who need to explain things like this to others than for those seeking to understand for themselves.
ThreeCranes , says: June 17, 2019 at 3:34 pm GMT
"intelligence deals with an uncertain world where not everything is stated explicitly. It misses the very nature of intelligence, the ability to go beyond the information given (Bruner, 1973)"

"The key is to take uncertainty seriously, take heuristics seriously, and beware of the bias bias."

Why I come to Unz.

Tom Welsh , says: June 18, 2019 at 8:36 am GMT
@Cortes Sounds fishy to me.

Actually I think this is an example of an increasingly common genre of malapropism, where the writer gropes for the right word, finds one that is similar, and settles for that. The worst of it is that readers intuitively understand what was intended, and then adopt the marginally incorrect usage themselves. That's perhaps how the world and his dog came to say "literally" when they mean "figuratively". Maybe a topic for a future article?

Biff , says: June 18, 2019 at 10:16 am GMT
In 2009 Google finished engineering a reverse search engine to find out what kind of searches people did most often. Seth Davidowitz and Steven Pinker wrote a very fascinating/entertaining book using the tool called Everybody Lies

https://www.goodreads.com/book/show/28512671-everybody-lies

Everybody Lies offers fascinating, surprising, and sometimes laugh-out-loud insights into everything from economics to ethics to sports to race to sex, gender, and more, all drawn from the world of big data. What percentage of white voters didn't vote for Barack Obama because he's black? Does where you go to school effect how successful you are in life? Do parents secretly favor boy children over girls? Do violent films affect the crime rate? Can you beat the stock market? How regularly do we lie about our sex lives, and who's more self-conscious about sex, men or women?

Investigating these questions and a host of others, Seth Stephens-Davidowitz offers revelations that can help us understand ourselves and our lives better. Drawing on studies and experiments on how we really live and think, he demonstrates in fascinating and often funny ways the extent to which all the world is indeed a lab. With conclusions ranging from strange-but-true to thought-provoking to disturbing, he explores the power of this digital truth serum and its deeper potential – revealing biases deeply embedded within us, information we can use to change our culture, and the questions we're afraid to ask that might be essential to our health – both emotional and physical. All of us are touched by big data every day, and its influence is multiplying. Everybody Lies challenges us to think differently about how we see it and the world.

dearieme , says: June 18, 2019 at 11:25 am GMT
I shall treat this posting (for which many thanks, doc) as an invitation to sing a much-loved song: everybody should read Gigerenzer's Reckoning with Risk. With great clarity it teaches what everyone ought to know about probability.

(It could also serve as a model for writing in English about technical subjects. Americans and Britons should study the English of this German – he knows how, you know.)

Inspired by "The original Slovic study was based on 39 college students" I shall also sing another favorite song. Much of Psychology is based on what small numbers of American undergraduates report they think they think.

Anon [410] • Disclaimer , says: June 18, 2019 at 3:47 pm GMT
" Gigerenzer points out that in this particular example, subjects are having to make their judgements without knowing a key fact: how many survive without surgery. "

This one reminds of the false dichotomy. The patient has additional options! Like changing diet, and behaviours such as exercise, elimination of occupational stress , etc.

The statistical outcomes for a person change when the person changes their circumstances/conditions.

Cortes , says: June 18, 2019 at 4:14 pm GMT
@Tom Welsh A disposition (conveyance) of an awkwardly shaped chunk out of a vast estate contained reference to "the slither of ground bounded on or towards the north east and extending two hundred and twenty four meters or thereby along a chain link fence " Not poor clients (either side) nor cheap lawyers. And who never erred?

Better than deliberately inserting "errors" to guarantee a stream of tidy up work (not unknown in the "professional" world) in future.

Tom Fix , says: June 18, 2019 at 4:25 pm GMT
Good article. 79% of gynaecologists fail a simple conditional probability test?! Many if not most medical research papers use advanced statistics. Medical doctors must read these papers to fully understand their field. So, if medical doctors don't fully understand them, they are not properly doing their job. Those papers use mathematical expressions, not English. Converting them to another form of English, instead of using the mathematical expressions isn't a solution.
SafeNow , says: June 18, 2019 at 5:49 pm GMT
Regarding witnesses: When that jet crashed into Rockaway several years ago, a high percentage of witnesses said that they saw smoke before the crash. But there was actually no smoke. The witnesses were adjusting what they saw to conform to their past experience of seeing movie and newsreel footage of planes smoking in the air before a crash. Children actually make very good witnesses.

Regarding the chart. Missing, up there in the vicinity of cancer and heart disease. The third-leading cause of death. 250,000 per year, according to a 2016 Hopkins study. Medical negligence.

Anon [724] • Disclaimer , says: June 18, 2019 at 9:48 pm GMT

1. Lack of rationality. Experiments have shown that people's intuitions are systematically biased.

2. Stubbornness. Like visual illusions, biases are persistent and hardly corrigible by education.

3. Substantial costs. Biases may incur substantial welfare-relevant costs such as lower wealth, health, or happiness.

4. Biases justify governmental paternalism. To protect people from theirbiases, governments should "nudge" the public toward better behavior.

Well the sad fact is that there's nobody in the position to protect "governments" from their own biases, and "scientists" from theirs.

So, behind the smoke of all words and rationalisations, the law is unchanged: everyone strives to gain and exert as much power as possible over as many others as possible. Most do that without writing papers to say it is right, others write papers, others books. Anyway, the fundamental law would stay as it is even if all this writing labour was spared, wouldn't it? But then another fundamental law, the law of framing all one's drives as moral and beneffective comes into play the papers and the books are useful, after all.

Curmudgeon , says: June 19, 2019 at 1:42 am GMT
An interesting article. However, I think that the only thing we have to know about how illogical psychiatry is this:

In 1973, the American Psychiatric Association (APA) asked all members attending its convention to vote on whether they believed homosexuality to be a mental disorder. 5,854 psychiatrists voted to remove homosexuality from the DSM, and 3,810 to retain it.

The APA then compromised, removing homosexuality from the DSM but replacing it, in effect, with "sexual orientation disturbance" for people "in conflict with" their sexual orientation. Not until 1987 did homosexuality completely fall out of the DSM.

(source https://www.psychologytoday.com/ca/blog/hide-and-seek/201509/when-homosexuality-stopped-being-mental-disorder )

The article makes no mention of the fact that no "new science" was brought to support the resolution.

It appears that the psychiatrists were voting based on feelings rather than science. Since that time, the now 50+ genders have been accepted as "normal" by the APA. My family has had members in multiple generations suffering from mental illness. None were "cured". I know others with the same circumstances.

How does one conclude that being repulsed by the prime directive of every living organism – reproduce yourself – is "normal"? That is not to say these people are horrible or evil, just not normal. How can someone, who thinks (s)he is a cat be mentally ill, but a grown man thinking he is a female child is not?

Long ago a lawyer acquaintance, referring to a specific judge, told me that the judge seemed to "make shit up as he was going along". I have long held psychiatry fits that statement very well.

Paul2 , says: June 19, 2019 at 8:08 am GMT
Thank you for this article. I find the information about the interpretation of statistical data very interesting. My take on the background of the article is this:

Here we have a real scientist fighting the nonsense spreading from (neoclassical) economics into other realms of science/academia.

Behavioral economics is a sideline by-product of neoclassical micro-economic theory. It tries to cope with experimental data that is inconsistent with that theory.

Everything in neoclassical economics is a travesty. "Rational choice theory" and its application in "micro economics" is false from the ground up. It basically assumes that people are gobbling up resources without plan, meaning or relevant circumstances. Neoclassical micro economic theory is so false and illogical that I would not know where to start in a comment, so I should like to refer to a whole book about it:
Keen, Steve: "Debunking economics".

As the theory is totally wrong it is really not surprising that countless experiments show that people do not behave the way neoclassical theory predicts. How do economists react to this? Of course they assume that people are "irrational" because they do not behave according to their studied theory. (Why would you ever change your basic theory because of some tedious facts?)

We live in a strange world in which such people have control over university faculties, journals, famous prizes. But at least we have some scientists who defend their area of knowledge against the spreading nonsense produced by economists.

The title of the 1st ed. of Keen's book was "Debunking Economics: The Naked Emperor of the Social Sciences" which was simply a perfect title.

Dieter Kief , says: June 19, 2019 at 8:22 am GMT
@Curmudgeon Could it be that you expect psychiatrists in the past to be as rational as you are now?

Would the result have been any different, if members of a 1973 convention of physicists or surgeons would have been asked?

[May 28, 2019] he economy is a complex system, our data are imperfect and our models inevitably fail to account for all the interactions

May 28, 2019 | www.zerohedge.com

As economist Russ Roberts once wrote in the Wall Street Journal,

"The economy is a complex system, our data are imperfect and our models inevitably fail to account for all the interactions. The bottom line is that we should expect less of economists. Economics is a powerful tool, a lens for organizing one's thinking about the complexity of the world around us. That should be enough. We should be honest about what we know, what we don't know and what we may never know. Admitting that publicly is the first step toward respectability."

In the same vein, I would urge new graduates to be skeptical of those in power who flatter them with the lie that they can, if only they are sufficiently resolute, solve big social problems through government interventions. The truth is that even the best-intentioned government officials do not -- indeed, cannot possibly -- have the knowledge necessary to deliver on any grand promises.

Sadly, this lack of knowledge never stops politicians from spending all of their time pretending that they know it all and none of their time humbly reflecting on the arrogance of attempts to boss the rest of us around. Making matters worse is the fact that the decision-making process in government is not conducive to the best policies. Quite the opposite, in fact. See, politicians spend other people's money and are unduly influenced by special interests. As such, their interests are never served by their taking account of the true costs of their programs, or acknowledging the (too-often invisible) victims of their interventions.

[May 13, 2019] I studied this phenomenon experientially for over 8 years among conservative Republican followers, and believe it is totally Cult behavior.

May 13, 2019 | discussion.theguardian.com

MindandHeart , 13 Sep 2016 01:23

I studied this phenomenon experientially for over 8 years among conservative Republican followers, and believe it is totally Cult behavior. I've seen contrary evidence literally "switch off" the thinking brain, erasing it, then finding the appropriate Party Line to answer. There seems to be no way to "de-program," that I know of. It is impervious to reason, evidence, or facts. When they were left with no other choices, I saw how Donald Trump was transformed from an initially appalling character to them into an image of a "leader of the Free World," in their realities. They had already been conditioned by some 30 years of Hillary bashing, to unmercifully hate her. Their leaders used the same propaganda machine on Obama. "Liberals" were the ultimate "enemy" and to blame for all our ills.

Barring further evidence to the contrary, I concluded that those most vulnerable to this Cult phenomenon had a strong, authoritarian religious upbringing in childhood, and perhaps some significant life hurt or trauma.

Many of our religious "leaders" have jumped on the gravy train, to control and exploit them, using the same methods used by Donald Trump. Scapegoating is constant. Questioning and critical thinking are not allowed. These folks were "primed" to believe and follow the superb conservative Republican media propaganda machine that now boasts 24/7 coverage "coast to coast." I read that the average American watches television 5 hours a day. The average American over 65 watches it 7 hours a day. Adolf Hitler would have loved it. Such fertile ground for dictators and demagogues. Now we have some, what, 13 million? programmed American zombies on our hands. Not only that, but ALL of us have been "affected" by the Hillary/Obama/"liberal" bashing to some extent. I don't know a single individual personally who speaks out enthusiastically for Hillary, even those going to vote for her: they always use apologies, excuses, caveats. By odds, that's just not normal. As John Dean wrote, Republicans can no longer govern, but they are superb at the "politics of personal destruction." They successfully purged their own moderates and liberals, turned the Grand Old Party's principles upside down, and created a Trump Godzilla. They've become a gang of thugs and thieves, the Poison Party. Some are playing "coy" right now, for the limelight they love -- and trying to hedge their bets. But if Trump wins he'll be welcomed with open arms, and he will fit right in, with what's now left of the GOP.

[Apr 08, 2019] Economists are ideologically biased

Sometime neoliberal economics act as the Thought Police. Peddling neoclassic economy bullshit create a dreadful environments of a cult and there are enforces on each corner to ensure students indoctrination.
Apr 08, 2019 | www.moonofalabama.org
vk , Apr 7, 2019 5:50:27 PM | 55 ">link

From Michael Roberts' facebook:

Economists are ideologically biased - finds a survey of their views on modern economies conducted by Mark Horowitz, Associate Professor of Sociology at Seton Hall University, New Jersey, entitled Political Identity and Economists' Perceptions of Capitalist Crises.

Economists' Politics Loom Large in their Views of Capitalist Crises

"Surveying academic economists in the United States, we find the field quite skeptical of the prospects of capitalist crises. Despite considerable consensus, political orientation is a highly significant predictor of respondents' outlooks."

"economists are generally skeptical of the prospects of capitalist crises. Very few see mass structural unemployment on the horizon due to automation (Q2) or incompatibility between capitalism and secure or meaningful employment (Q4, Q5). Only a third or so anticipates global financial contagion (Q1), while even fewer affirm a systemic tendency toward monopoly (Q11). Finally, at least two-thirds believe the global economy will likely be capitalist in 200 years (Q8)".

Marx on 'vulgar political economy': "It was henceforth no longer a question, whether this theorem or that was true, but whether it was useful to capital or harmful, expedient or inexpedient, politically dangerous or not. In place of disinterested enquirers, there were hired prize-fighters; in place of genuine scientific research, the bad conscience and the evil intent of apologetic"

[Apr 05, 2019] I felt mathematicians were not examining the role of their discipline in the crisis; they were not behaving ethically.

Apr 05, 2019 | magic-maths-money.blogspot.com
I frequently refer to Gillian Tett's Fools' Gold as an account of ethical mathematical practice. Tett explains how J.P. Morgan came out of the 2008-2009 Financial Crisis because it used mathematics critically rather than blindly accepting the outputs of "black boxes". I felt the approach Tett described was oddly discordant with the attitude of mathematicians. During the crisis, I co-ordinated a response from UK mathematicians, through the Council of Mathematical Sciences, to criticism of the use of mathematics in finance, this information was also passed onto the UK Science Minister of the time.

The standard response from (senior) UK mathematicians was along the lines that finance hadn't used mathematics but abused it.

The solution was to have "more" and "better" mathematicians. This was underpinned by some adopting a logical positivist line, attributed to Hume, that the role of mathematicians is to describe the world as it is, not as it ought to be.

At the time I felt mathematicians were not examining the role of their discipline in the crisis; they were not behaving ethically. This was the start of my journey that transformed me from an "uncritical" (unethical?) mathematician to someone who feels mathematics is vital, so long as it is critical.

[Apr 03, 2019] The political genius of supply-side economics by Martin Wolf&

Jul 25, 2010 | blogs.ft.com

The future of fiscal policy was intensely debated in the FT last week. In this Exchange, I want to examine what is going on in the US and, in particular, what is going on inside the Republican party. This matters for the US and, because the US remains the world's most important economy, it also matters greatly for the world.

My reading of contemporary Republican thinking is that there is no chance of any attempt to arrest adverse long-term fiscal trends should they return to power. Moreover, since the Republicans have no interest in doing anything sensible, the Democrats will gain nothing from trying to do much either. That is the lesson Democrats have to draw from the Clinton era's successful frugality, which merely gave George W. Bush the opportunity to make massive (irresponsible and unsustainable) tax cuts. In practice, then, nothing will be done.

Indeed, nothing may be done even if a genuine fiscal crisis were to emerge. According to my friend, Bruce Bartlett , a highly informed, if jaundiced, observer, some "conservatives" (in truth, extreme radicals) think a federal default would be an effective way to bring public spending they detest under control. It should be noted, in passing, that a federal default would surely create the biggest financial crisis in world economic history.

To understand modern Republican thinking on fiscal policy, we need to go back to perhaps the most politically brilliant (albeit economically unconvincing) idea in the history of fiscal policy: "supply-side economics". Supply-side economics liberated conservatives from any need to insist on fiscal rectitude and balanced budgets. Supply-side economics said that one could cut taxes and balance budgets, because incentive effects would generate new activity and so higher revenue.

The political genius of this idea is evident. Supply-side economics transformed Republicans from a minority party into a majority party. It allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?

How did supply-side economics bring these benefits? First, it allowed conservatives to ignore deficits. They could argue that, whatever the impact of the tax cuts in the short run, they would bring the budget back into balance, in the longer run. Second, the theory gave an economic justification – the argument from incentives - for lowering taxes on politically important supporters. Finally, if deficits did not, in fact, disappear, conservatives could fall back on the "starve the beast" theory: deficits would create a fiscal crisis that would force the government to cut spending and even destroy the hated welfare state.

In this way, the Republicans were transformed from a balanced-budget party to a tax-cutting party. This innovative stance proved highly politically effective, consistently putting the Democrats at a political disadvantage. It also made the Republicans de facto Keynesians in a de facto Keynesian nation. Whatever the rhetoric, I have long considered the US the advanced world's most Keynesian nation – the one in which government (including the Federal Reserve) is most expected to generate healthy demand at all times, largely because jobs are, in the US, the only safety net for those of working age.

True, the theory that cuts would pay for themselves has proved altogether wrong. That this might well be the case was evident: cutting tax rates from, say, 30 per cent to zero would unambiguously reduce revenue to zero. This is not to argue there were no incentive effects. But they were not large enough to offset the fiscal impact of the cuts (see, on this, Wikipedia and a nice chart from Paul Krugman).

Indeed, Greg Mankiw, no less, chairman of the Council of Economic Advisers under George W. Bush, has responded to the view that broad-based tax cuts would pay for themselves, as follows: "I did not find such a claim credible, based on the available evidence. I never have, and I still don't." Indeed, he has referred to those who believe this as " charlatans and cranks ". Those are his words, not mine, though I agree. They apply, in force, to contemporary Republicans, alas,

Since the fiscal theory of supply-side economics did not work, the tax-cutting eras of Ronald Reagan and George H. Bush and again of George W. Bush saw very substantial rises in ratios of federal debt to gross domestic product. Under Reagan and the first Bush, the ratio of public debt to GDP went from 33 per cent to 64 per cent. It fell to 57 per cent under Bill Clinton. It then rose to 69 per cent under the second George Bush . Equally, tax cuts in the era of George W. Bush, wars and the economic crisis account for almost all the dire fiscal outlook for the next ten years ( see the Center on Budget and Policy Priorities ).

Today's extremely high deficits are also an inheritance from Bush-era tax-and-spending policies and the financial crisis, also, of course, inherited by the present administration. Thus, according to the International Monetary Fund, the impact of discretionary stimulus on the US fiscal deficit amounts to a cumulative total of 4.7 per cent of GDP in 2009 and 2010, while the cumulative deficit over these years is forecast at 23.5 per cent of GDP . In any case, the stimulus was certainly too small, not too large.

The evidence shows, then, that contemporary conservatives (unlike those of old) simply do not think deficits matter, as former vice-president Richard Cheney is reported to have told former treasury secretary Paul O'Neill . But this is not because the supply-side theory of self-financing tax cuts, on which Reagan era tax cuts were justified, has worked, but despite the fact it has not. The faith has outlived its economic (though not its political) rationale.

So, when Republicans assail the deficits under President Obama , are they to be taken seriously? Yes and no. Yes, they are politically interested in blaming Mr Obama for deficits, since all is viewed fair in love and partisan politics. And yes, they are, indeed, rhetorically opposed to deficits created by extra spending (although that did not prevent them from enacting the unfunded prescription drug benefit, under President Bush). But no, it is not deficits themselves that worry Republicans, but rather how they are caused: deficits caused by tax cuts are fine; but spending increases brought in by Democrats are diabolical, unless on the military.

Indeed, this is precisely what John Kyl (Arizona), a senior Republican senator, has just said:

"[Y]ou should never raise taxes in order to cut taxes. Surely Congress has the authority, and it would be right to -- if we decide we want to cut taxes to spur the economy, not to have to raise taxes in order to offset those costs. You do need to offset the cost of increased spending, and that's what Republicans object to. But you should never have to offset the cost of a deliberate decision to reduce tax rates on Americans"

What conclusions should outsiders draw about the likely future of US fiscal policy?

First, if Republicans win the mid-terms in November, as seems likely, they are surely going to come up with huge tax cut proposals (probably well beyond extending the already unaffordable Bush-era tax cuts).

Second, the White House will probably veto these cuts, making itself even more politically unpopular.

Third, some additional fiscal stimulus is, in fact, what the US needs, in the short term, even though across-the-board tax cuts are an extremely inefficient way of providing it.

Fourth, the Republican proposals would not, alas, be short term, but dangerously long term, in their impact.

Finally, with one party indifferent to deficits, provided they are brought about by tax cuts, and the other party relatively fiscally responsible (well, everything is relative, after all), but opposed to spending cuts on core programmes, US fiscal policy is paralysed. I may think the policies of the UK government dangerously austere, but at least it can act.

This is extraordinarily dangerous. The danger does not arise from the fiscal deficits of today, but the attitudes to fiscal policy, over the long run, of one of the two main parties. Those radical conservatives (a small minority, I hope) who want to destroy the credit of the US federal government may succeed. If so, that would be the end of the US era of global dominance. The destruction of fiscal credibility could be the outcome of the policies of the party that considers itself the most patriotic.

In sum, a great deal of trouble lies ahead, for the US and the world.

Where am I wrong, if at all?

July 25, 2010 4:18pm in Financial crisis , Supply-side economics | 10 comments

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  1. Report Martin Wolf | July 25 5:04pm | Permalink

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    Bruce Bartlett writes "I think my friend Martin is a bit too hard on Reagan, who did try to cut spending and signed 11 major tax increases into law to bring down the deficit. And Bush 41 initiated a budget deal in 1990 that eventually led to budget surpluses. It was Bush 43 and his willing accomplices among the Republicans who controlled Congress that deserve the vast bulk of the blame."

    This is my response: "Fair comment. But, as you have often noted, his followers have repudiated president Reagan's willingness to raise taxes. Nor are they making any credible commitments to large-scale cuts in public spending. It is also the case that, despite a boom in the 1980s, the end of the Reagan and George H. Bush era saw much higher public debt ratios than the beginning. I think you have to recognise that today's Republicans are Reagan's children and, as is often the case, are more uncompromising than their parents."

  2. Report ralbin | July 25 6:59pm | Permalink

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    Mr. Wolf - Your comment is entirely correct though perhaps incomplete. Implicit, and sometimes explicit, in the supply-side argument was that low taxes wouldn't involve any public sacrifices. The Republicans promised the benefits of the liberal state while arguing that the needed tax revenues wouldn't be needed. This is what made it and continues to make it a successful political strategy. This is an actual Big Lie.

    Its worth delineating the other Big Lie of Republican political strategy, the the USA is so powerful that it can do anything it wants on the international stage. Add in consistent appeals to racial and religious bigotry (from which the personally decent Mr. Reagan was not immune) and you have almost the whole Republican political strategy of the last 30 years. Very successful and almost all of it based on deception and appeals to the electorate's worst tendencies.

  3. Report Kent Willard | July 25 7:06pm | Permalink

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    Running up the debt in order to default and cut spending is like having a heart attack in order to get serious about diet and exercise. It is crazy, but they will do it, and then blame it on someone else.

    Any bets on a gov't shutdown attempt next year?

  4. Report Dana Houle | July 25 7:09pm | Permalink

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    I think you're assuming a lot about the results of the November elections that are far from certain. In fact, it's highly, highly unlikely that the Republicans will win the Senate, and not particularly likely they'll win the House. They will certainly pick up seats in the House, maybe a lot, but there are only a handful of Dem-held Senate seats that I would say today are pretty much lost for the Democrats (North Dakota, Arkansas), while there are also up to 8 Republican-held seats that could be in play. Democrats would have to lose 10 seats that they currently hold and not win any seats currently held by Republicans (even though 5 of those are open and Vitter in Louisiana is so scandal-plagued he may not survive). It's just about implausible the Democrats will lose a net of 10 or more seats.

    Even in the House, Democrats will have to lose almost all the contested seats, at a time when the most recent generic ballot from Gallup shows Democrats nationally with an 8 point advantage and most of the vulnerable Democratic incumbents have huge cash advantages over their Republican challengers.

    I agree with your interpretation of the political appeal of supply side economics, but I think you're greatly overestimating the ability of the Republicans to win enough seats in November to fully enact their fiscal will on the White House.

  5. Report toweypat | July 25 7:42pm | Permalink

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    "Second, the White House will probably veto these cuts"

    I wish I could agree. Given what we have seem from President Obama this past year and a half, I think he is just as likely to go along with them as part of some nebulous plan to angle for concessions from the other side, or simply to burnish his bipartisan credentials.

  6. Report JoelS | July 25 8:24pm | Permalink

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    Thanks for saying out loud what has been apparent: that Republicanism has become fundamentally destructive. I don't think there's any doubt that the empire is coming to an end, as all empires do, with the unwillingness of the populace to bear the costs and burdens. The tax revolt is, at its heart, a cancer destroying American power and prosperity.

    This is doubly unhealthy because the United States needs a healthy opposition. In its absence, the Democrats are also becoming corrupt. Their electoral appeal has increasingly become: "Vote for us. We're not insane." That's necessary, of course, but hardly sufficient. So we end up with a health care bill with no cost containment, a financial regulatory bill that does not address the speculation and institutional giantism that was at the heart of the collapse, and a stimulus bill half the size that it should have been and heavily tilted against hiring the unemployed in favor of tax cuts. The Republicans would have done worse, but that is small comfort.

    Where are you wrong? If anywhere, in having any doubts that we are on the path to destruction, will no reason to think that we will turn back.

  7. Report Till Schreiber | July 25 9:02pm | Permalink

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    A wild card in the events you outline could be the report of the bipartisan commission on reducing the long-term budget deficit. Larry Summers mentioned it in his contribution to the austerity debate. If, and it's a big if, this report is substantive enough, it might provide cover for Republicans, Democrats, and the White House to tackle long-term deficits.

    In addition, I also feel you are a bit generous in labeling the Democrats relatively fiscally responsible. Certainly, the president's budget had rather high projected deficits over the next decade (and beyond).

    Ultimately, according to the CBO a lot comes down to health care costs, particularly Medicare. Reforming Medicare and controlling the explosion of costs currently projected for it is the key. Everything else is secondary.

  8. Report Edward Hatfield | July 25 9:22pm | Permalink

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    At last you have it spot on. There will have to be a crisis because Weston democracies will not vote for wage cuts. May be it could be done if the elite took a big cut first but that will not happen as most of the elite do not see the problem as their fault.

    You recently replied to one of my emails about thestateBritainis in with the words

    "I also don't understand this masochism" Well you surely must now

  9. Report Barry Thompson | July 25 9:24pm | Permalink

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    James Galbraith says you are wrong:

    "So long as U.S. banks are required to accept U.S. government checks -- which is to say so long as the Republic exists -- then the government can and does spend without borrowing, if it chooses to do so Insolvency, bankruptcy, or even higher real interest rates are not among the actual risks to this system."

    The only real risk to the system is inflation. The need for any sovereign government that can issue its own currency to balance its budget is merely a useful fiction, of political importance but not a real economic constraint.

    Otherwise, keep up the great work!

  10. Report Richard W | July 25 9:25pm | Permalink

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    ' Those radical conservatives (a small minority, I hope) who want to destroy the credit of the US federal government may succeed. If so, that would be the end of the US era of global dominance. The destruction of fiscal credibility could be the outcome of the policies of the party that considers itself the most patriotic. '

    That prospect holds no fear for the majority of contemporary Republican thinking in the party and throughout the conservative base. Withdrawal from NATO, UN and the global stage is precisely the plan. The contemporary Republican party is now more than ever aligned with the populist, reactionary and isolationist sentiments of conservative small town America. It will take many years, but I suspect America is on a long slide to an ungovernable failed state and eventual break-up of the union.

[Apr 03, 2019] Krugman is irrelevant and his promotion of Hillary is disingenuous

This is from 2015 and it certainly characterize Krugman as a despicable political hack...
Notable quotes:
"... The big story he won't write about is that the Republicans wouldn't be such a threat if Team D was worth a damn. ..."
"... The spectacle of 2009-2010 cured me of any lingering desire to vote Democrat ever again – or to waste my time reading Krugman. ..."
"... Krugman is a collaborator. His wealth and prestige is built on his capacity for perpetuating falsehoods that have had vast and deadly consequences (Obama care, for instance). ..."
"... Not to mention he was a huge advocate of NAFTA. Something he never mentions. ..."
"... Krugman's defense of Obama care either indicates a lack of intellect, or in my view the more probable possibility, the inability to accept that the system is thoroughly corrupt, including most dems and economists ..."
"... It's no excuse for someone who actually thinks and writes about public policy, but could it be that Krugman is like my fellow guests and just never had to think about the cost of his health insurance simply because he could always afford it. So, I mean, he's never done the math. He's just done the "responsible thing" and carried insurance his whole life. ..."
www.nakedcapitalism.com

Steven D.

Used to be an avid Krugman reader. But I get bored reading about how bad the Republicans are. Tell me something I don't know. The big story he won't write about is that the Republicans wouldn't be such a threat if Team D was worth a damn.

It's like they got the ball in 2009 with the field wide open for a touchdown. But since the game was fixed Team D just danced around their own 20-yard line looking for the feeble Republican defense to block them. Every time they have an opening for a good play they panic over the prospect of scoring big and contrive to fumble the ball. The most they ever want is field goals and to prevent the Republicans from running away with the game too much.

That's why Krugman can write about how scary the Republicans are. But so what? Everyone knows that. Why are they in such a position? That's the interesting story.

Barmitt O'Bamney

Indeed, and seconded: Kruggers is irrelevant. However correct his critique may be, as far as it goes, it never goes far enough since he has chosen to mutilate himself into playing the role of partisan hack. There is a beam in the Republicans' eye? Well, there is a beam in his eye, too.

The spectacle of 2009-2010 cured me of any lingering desire to vote Democrat ever again – or to waste my time reading Krugman. If my choice is between voting against my own interests on the one hand, and voting against my interests on the other, I'll just stay home or else make my vote a protest against the party that assumes it has an unconditional right to my vote. Reading about how the Republicans are always wrong, with nary a mention of how Democrats are right there with them in the latrine of wrongness isn't worth a minute more of my time – and my time isn't even very valuable.

Benedict@Large

The problem (that leads to the boredom) with reading Krugman is not that he's always talking about how bad the Republicans are. That after all is true. The problem with reading Krugman is that he's always picking on the lowest hanging fruit; the easy cases that require no special nuance or understanding. Krugman is a smart man, and he is better than this. We have all too many of us capable of picking apart the 4th grade thinking and analysis that is so common in the GOP. To add Krugman to that list is a waste of (his and our) time.

tongorad

Krugman is a smart man, and he is better than this.

Evidence, please.

Krugman is a collaborator. His wealth and prestige is built on his capacity for perpetuating falsehoods that have had vast and deadly consequences (Obama care, for instance).

hidflect

Not to mention he was a huge advocate of NAFTA. Something he never mentions.

fresno dan

Krugman's defense of Obama care either indicates a lack of intellect, or in my view the more probable possibility, the inability to accept that the system is thoroughly corrupt, including most dems and economists

Ulysses

I think the most serious problem that Paul Krugman has, in accepting that the system is thoroughly corrupt, is his internalization of the meritocratic myth. The syllogism runs as follows:

1) I have "merit"

2)The system has lavished wealth and renown on me

3)Therefore, those who claim that our system "isn't really meritocratic" must themselves lack "merit," or be deluded from too much sentimentality, or too much attention to "exceptions that prove the rule."

Tom Allen

He's also prone to defending politicians and economists with whom he's personal friends - and there are a lot of them. That's human nature, but it tends to make one skeptical of his objectivity when, for example, Larry Summers or Ben Bernanke is involved.

NotTimothyGeithner

He's also preaching to the choir. Who is Krugthullu's audience? Outside of New Yorkers, it's largely people who fantasize about finishing the Sunday crossword despite not actually trying and love to have a simplified "liberal" world view reinforced. Given how Obots use to swarm, would he have survived not towing the company line? Without his column, Krugthullu is just another economics professor without the backing of a billionaire who keeps him around as a pet. Maybe Warren Buffet would put up a nice fence to keep Krugthullu in his yard, but he would likely have to spend time in Omaha.

The flip side is Krugthullu has likely burned too many bridges to regain his 2009 status. The Obots can't handle criticism, and it's rather late to join the Obama anonymous support group.

jrs

I mostly think they keep Krug around to justify "trade" agreements. That the little battles don't matter so much compared to "trade" agreements (and in fact they don't, on the issue of healthcare, "trade" agreements are a serious threat to even those countries with better medical systems. "Trade" agreements can override other political battles, even those where Krugs position might be decent).

jo6pac

Thanks for LOL, so true.

GlobalMisanthrope

Yeah, I am completely mystified by his defense of the ACA. My employers think of themselves as good liberals (although they do not provide health insurance but rather a health stipend to a handful of top managers that we can apply toward our purchase of insurance on the exchange) and have trotted out Krugman on occasion when I have argued against the Act.

I was at a dinner party before Christmas with a diverse group of professionals hosted by a friend who is a wine maker. There were several people from the food and beverage industry, a university professor and her law school administrator spouse, an obstetrical surgeon, a rancher and three others I never got a chance to learn anything about. The subject of "Obamacare" came up. I was truly astonished by the completely fact-free conversation that ensued. So much so that I stayed silent for a long time, really not knowing what to say.

My friend, the host, noticed my expression and asked me what I thought about Obamacare. So I described it as the boondoggle that it is and went into some detail debunking many of the claims made by the other guests. Honestly, I mean they were more or less polite, but they didn't think I knew what I was talking about. What can account for this?

Well, one of the things that came out was that I was, by some distance, the lowest paid person at the table.

It's no excuse for someone who actually thinks and writes about public policy, but could it be that Krugman is like my fellow guests and just never had to think about the cost of his health insurance simply because he could always afford it. So, I mean, he's never done the math. He's just done the "responsible thing" and carried insurance his whole life.

Anyway, it was a cold shower to realize how intractable their belief in the system is. As I find myself saying a lot lately, I was not heartened.

flora

The whole ACA thing reminds me of the urban renewal projects of the 50s and 60s. Those were supposedly progressive projects to replace blighted areas with modern housing. In fact it was political snake oil that didn't help the poor so much as help large cities fill their coffers. It replaced poor dwellings with middle class dwellings that increased the cities' tax revenues. The poor were left to fend for themselves as their poor but stable neighborhoods were destroyed. The designers of the projects thought they were doing good.

I wonder how many people sitting around the table with you tried to buy their mandated insurance on the ACA web portal or on the open market? ACA sounds good in theory.

Lexington

It's no excuse for someone who actually thinks and writes about public policy, but could it be that Krugman is like my fellow guests and just never had to think about the cost of his health insurance simply because he could always afford it. So, I mean, he's never done the math. He's just done the "responsible thing" and carried insurance his whole life.

Yup.

I have my frustrations with Krugman too, but I think progressives need to cut the guy some slack: he's a professor at Princeton, a Nobel laureate, and has a trophy case full of professional honours and twenty books plus a couple of hundred articles under his belt. He's in the sanctum sanctorum of the elite.

If he never penned another op ed or blog post or participated in another public debate it wouldn't make the slightest difference to his legacy. Yet there he is, the very model of a public intellectual, actually inviting non specialists to engage in a discussion about economics and public policy, and fighting the good fight for liberalism. You can be sure he isn't doing it to win plaudits from his peers. ...

[Mar 22, 2019] Responding to some of the critiques of our paper on secular stagnation and fiscal policy

Mar 22, 2019 | larrysummers.com

My paper with Lukasz Rachel on secular stagnation and fiscal policy summarized here has attracted a number of interesting responses including from Martin Wolf , David Leonhardt , Martin Sandbu and Brad DeLong and also many participants at the Brookings conference.

I'm gratified that there seems to be general acceptance of the core secular stagnation argument. "Normal" policy settings of real interest rates in the 2 percent range, balanced primary budgets and stable financial markets are a prescription for stagnation and underemployment. Such economic success as the industrial world has enjoyed in recent decades has reflected a combination of very low real rates, big budget deficits, private leveraging up and asset bubbles.

No one from whom I have heard doubts the key conclusion that a combination of meaningfully positive real interest rates and balanced budgets would likely be a prescription for sustained recession if not depression in the industrial world.

Notice that this is a much more fundamental argument than the suggestion that the some effective lower bound on interest rates may impede stabilizing the economy. The argument is that because of chronic private sector tendency towards oversaving, economies may be prone to underemployment and financial stability absent policy responses which are themselves problematic.

This is an argument much more in the spirit of Keynes, the early Keynesians, and today's Post-Keynesians than the New Keynesians who have set the terms for much of contemporary macroeconomic discourse both in academia and in the world's central banks.

The central feature of New Keynesian models is an idea that economies have an equilibrium to which they naturally revert independent of policies pursued. Good central bank policy achieves a desired inflation target (assumed to be feasible) while minimizing the amplitude of fluctuations around that equilibrium.

In contrast contemporary experience, where inflation has been below target almost throughout the industrial world for a decade and is expected by markets to remain below target for decades, and where output is sustained only by large budget deficits or extraordinary monetary policies, suggest that central banks acting alone cannot necessarily attain inflation targets and that misguided policy could easily not just raise the volatility of output but also reduce its average level.

While there seems to be little doubt that real interest rates–short and long, ex ante and ex post -- have declined very substantially even as (other things equal) budget deficits and expanded social security programs should have increased them, there remains debate about how to analyze these trends. Lukasz and I argue that adjustment to balance saving and investment is the best way understand declining real rates. DeLong wonders about changing risk premiums and Wolf cites BIS work arguing that low rates reflect the monetary policy regime. There is no reason why there needs to be only one cause of low real rates so these factors may enter. But as I expect we will illustrate in the revised version of the paper, the largest part of the low frequency variation in ex ante real returns is accounted for by a downward trending factor common to all asset prices. This is illustrated for the US in the figure below. So risk premiums or factors specific to Treasuries are likely not high order.

Figure: Decline in US real asset returns

Granting that secular stagnation is a problem, there is the question of policy response. The right policy response will be the one that assures that full employment is maintained with a minimum of collateral problems. Sandbu argues against the notion of secular stagnation in part because he thinks it may lead in unconstructive directions like protectionism and because he believes that stagnation issues can be feasibly and relatively easily addressed by lowering rates. Wolf, relying on the BIS, is alarmed by the toxic effects of very low rates on financial stability in the short run and economic performance in the long run, and prefers fiscal stimulus. Leonhardt prefers a broad menu of measures to absorb saving and promote investment.

I am not certain of the right approach and I wish there was more evidence to bring to bear on the question. I can certain see the logic of the "zero is just another number" view, that holds that the current environment poses no new fundamental issues but just may require technical changes to make more negative interest rates possible. I am skeptical because (i) I am not sure how large the stimulus effect of rates going more negative is because of damage to banks, reduced interest income for consumers, and because capital cost is already not the barrier to investment; (ii) I wonder about the quality of any investment that was not made at a zero rate but was made at a negative rate; and (iii) I suspect that a world of significantly negative nominal rates if sustained will be a world of leveraging, risk seeking and bubbles. I have trouble thinking about behavior in situations where people and firms are paid to borrow!

I am inclined to prefer more reliance on reasonably managed fiscal policies as a response to secular stagnation: government borrowing at negative real rates and investing seems very attractive in a world where there are many projects with high social returns. Moreover, we are accustomed to thinking in terms of debt levels but it may be more appropriate to think in terms of sustained debt service levels. With near zero rates these are below average in most industrial countries. The content of fiscal policies is crucial. Measures which run up government debt without stimulating demand like large parts of the Trump tax cut are ill advised. In contrast measures which promote investment and raise the tax base down the road are much more attractive.

There are of course other measures beyond stabilization policies like fighting monopolies, promoting a more equal income distribution, and strengthening retirement security for which the desire to maintain macroeconomic stability provides an additional rationale.

[Mar 16, 2019] Martin Wolf Why Economists Failed as "Experts" -- and How to Make Them Matter Again

That's what neoliberal bottomfeeders like Summers, Krugman and Dejong should read and memorize
Notable quotes:
"... Neoclassical economics became important in large measure to show that markets delivered efficient outcomes, and efficiency was seen as tantamount to socially desirable. That's before considering that highly efficiency almost always comes at the expense of safety and robustness, and that efficient solutions may not be equitable. ..."
"... So, maybe the proper distinction to be made is between "trustworthy" experts and "untrustworthy" ones. The question then become what makes experts trustworthy -- not, I should stress, intrinsically trustworthy, but rather perceived by the public to be so. ..."
"... The third point is that trust in expertise seems to be quite generally declining. This is partly perhaps because education is more widespread, which makes possession of an education appear in itself less authoritative. It is also partly because of the rapid dissemination of information. It is partly because of the easy formation of groups of the disaffected and dissemination of conspiracy theories. The internet and the new social media it has spawned have turned out to be powerful engines for the spreading of disinformation aimed at manipulation of the unwary. ..."
Mar 14, 2019 | www.nakedcapitalism.com
Yves here. Even though Martin Wolf's post makes many important observations, I feel the need to take issue with his conclusion. Economists have been and continue to be enormously successful as experts. PhDs in economics make roughly twice as much as those in other social sciences. Economists are the only social scientists to have a seat at the policy table. And they continue to do so, despite their colossal failure in the global financial crisis, with no serious change in the discipline and no loss of reputation of any prominent economists.

Neoclassical economics became important in large measure to show that markets delivered efficient outcomes, and efficiency was seen as tantamount to socially desirable. That's before considering that highly efficiency almost always comes at the expense of safety and robustness, and that efficient solutions may not be equitable.

The importance of economists as policy advisers grew in the post World War II era, after the USSR managed the impressive feat of industrializing in the 20th century. US officials were concerned that a command and control economy could beat a messy, consumer oriented capitalist one, and turned to economists to give guidance on how to achieve high growth rates so as to produce enough guns and butter.

As for the specific impetus for Wolf's article, it appears to be due to voters ignoring the dire warnings made by the Remain campaign during the Brexit referendum campaign that Brexit would have large economic costs. But based on reports after the vote came in, that repudiation came not just because the public might well have good reason not to believe economists as a result of the crisis, but how the Remain campaign carried itself in the debates. That side apparently made arrogant-seeming, data heavy arguments, while the Leavers made stirring appeals about sovereignty .a UK version of MAGA.

By Martin Wolf, Associate Editor and Chief Economics Commentator, Financial Times. Originally published at the Institute for New Economic Thinking website

"I think people in this country have had enough of experts."
-Michael Gove

Michael Gove, winner of the Brexit referendum (though loser in the game of politics, having failed to become leader of his party, and so, maybe, no true expert either) hit the nail on the head. The people of this country have, it seems, had enough of those who consider themselves experts, in some domains. The implications of this rejection of experts seem enormous. That should be of particular significance for economists, because economists were, after all, the "experts" against whom Mr. Gove was inveighing.

Yet it is not really true that the people of this country have had enough of experts. When they fall ill, they still go to licensed doctors. When they fly, they trust qualified pilots. When they want a bridge, they call upon qualified engineers. Even today, in the supposed "post-fact" world, such people are almost universally recognized as experts.

So, maybe the proper distinction to be made is between "trustworthy" experts and "untrustworthy" ones. The question then become what makes experts trustworthy -- not, I should stress, intrinsically trustworthy, but rather perceived by the public to be so.

One might make three, admittedly speculative, points about this distinction between experts deemed by the public to be deserving of trust and those who are not.

The first is that some forms of expertise appear simply to be more solidly based than others in a body of theory and/or evidence, with recognizable successes to their credit. By and large, doctors are associated with cures, pilots with keeping airplanes in the sky and engineers with bridges that stay up. Such successes -- and there are many other comparable fields of expertise -- self-evidently make people with the relevant expertise appear trustworthy.

The second is that some forms of expertise are more politically contentious than others. Nearly everybody, for example, agrees that curing people, flying airplanes and building bridges are good things. Social and political arrangements -- and economics is inescapably about social and political arrangements -- are always and everywhere contentious. They affect not only how people think the human world works, but also how it ought to work. These forms of expertise are about values.

The third point is that trust in expertise seems to be quite generally declining. This is partly perhaps because education is more widespread, which makes possession of an education appear in itself less authoritative. It is also partly because of the rapid dissemination of information. It is partly because of the easy formation of groups of the disaffected and dissemination of conspiracy theories. The internet and the new social media it has spawned have turned out to be powerful engines for the spreading of disinformation aimed at manipulation of the unwary.

It might be encouraging for economists that they are not the only experts who are mistrusted. Consider the anti-vaccination movement, hostility to evolutionary theory, or rejection of climate science. All these are the products of doubts fueled by a combination of core beliefs and suspicion of particular forms of expertise. The anti-vaccination movement is driven by parents' concerns about their children. The hostility to evolution is driven by religion. The rejection of climate science is clearly driven by ideology. Every climate denier I know is a free marketeer. Is this an accident? No. The desire to believe in the free market creates an emotional justification for denying climate science. In principle, after all, belief in free markets and in the physics of the climate system have absolutely nothing to do with each other.

So economists are in good company with other forms of politically or socially contentious expertise. But they have a special difficulty. Not only are they engaged in an essentially controversial, because political, arena, and so also an inherently ideological one, but they suffer to a high degree from the first point I made above: their "science", if science it is, just does not look to the public to be solidly based. It does not work as well as the public wants and economists have claimed. Economists claim a certain scientific status. But much of it looks to the outsider more like "scientism" -- the use of an incomprehensible intellectual apparatus to obscure ignorance rather than reveal truth.

This does not mean that economists don't know useful things. It is quite clear that they do. Markets are extraordinary institutions, for example. Economists' elucidation of markets or of the principle of comparative advantage is a great intellectual achievement. Yet suspicion of economics and economists is both long-standing and understandable.

The problem became far more serious after the financial crisis. The popular perception is that the experts -- macroeconomists and financial economists -- did not appreciate the dangers before the event and did not understand the longer-run consequences after it. Moreover, the popular perception seems to be in large part correct. This has damaged the acceptance of the expertise of economists to a huge extent.

So how, in this suspicious contemporary environment, might economists persuade the public they are experts who deserve to be listened to?

I decided to ask my colleagues this question. One answered that:

1. Good economists have a clear (if incomplete) understanding of how the world works. This is a pre-requisite to making it a better place.

2. Economists have a sense of scale. They understand the difference between big and small and how to make that distinction. This is vital for policy.

3. Economics is all about counterfactuals. It understands the relevant comparators even if they are difficult to work out.

4. Economists are experts on incentives and motivations and empirically try to measure them rather than relying on wishful thinking.

5. Generally, good economists are expert in understanding the limits of their knowledge and forecasting abilities.

Another colleague added:

The general public usually associate economists with:
-A small set of macroeconomic forecasts (growth, inflation mainly), and
-A belief that markets always produce perfect outcomes

And they attribute failure to them if either:
-point forecasts (inevitably) prove wrong, or
-markets produce some bad outcomes

Whereas the expertise of economists is really in the building blocks that enable you to construct sensible forecasts and to understand how people are likely to behave and respond to a given set of circumstances/policies. This structure for understanding the world allows economists to take on board new developments, understand whether they reflect a rejection of their existing theories or merely a (possibly tail) outcome that was consistent with their "model," and push forward their understanding of the world from there. Rather than throwing away all existing wisdom when circumstances change somewhat.

I agree with these propositions. Properly understood, economics remains very useful. One realizes this as soon as one is engaged with someone who knows nothing at all about the subject. But I still have four qualifications to make.

First, a large part of what economists actually do, namely forecasting, is not very soundly based. It would be a good idea if economists stated that loudly, strongly, and repeatedly. Indeed, there should be ceaseless public campaigning by the professional bodies, emphasizing what economists don't know. Of course, that would not -- as economists might predict -- be in their interests.

Second, in important areas of supposed economic expertise, the analytical basis is really weak. This is true of the operation of the monetary and financial systems. It is also true of the determinants of economic growth.

Third, economists are not disinterested outsiders. They are part of the political process. It is crucial to remember that certain propositions favor the interests of powerful people and groups. Economists can find themselves easily captured by such groups. "Invisible hand" theorems are particularly open to such abuse.

Finally, the division between economic aspects of society and the rest is, in my view, analytically unsound. The relationship between, say, economics and sociology or anthropology is not like that between physics and chemistry. The latter rests upon the former. But economics and anthropology lie side by side. I increasingly feel that the educated economist, certainly those engaged in policy, must also understand political science, sociology, anthropology, and sociology. Otherwise, they will fail to understand what is actually happening.

If I am right, the challenge is not just to purify economics of exaggerated claims, though that is indeed needed. It is rather to recognize the limited scope of economic knowledge. This does not mean there is no such thing as economic expertise: there is. But its scope and generality are more limited than many suppose.

Michael Gove was wrong, in my view, about expertise applied in the Brexit debate. But he was not altogether wrong about the expertise of economists. If we were more humble and more honest, we might be better recognized as experts able to contribute to public debate.

With this in mind, what should be the goal of an education in economics at the university level? A part of the answer will come from developments within the field. In time, the incorporation of new ideas and techniques may make the academic discipline better at addressing the intellectual and policy challenges the world now confronts.

Another part of the answer, however, must come from asking what an undergraduate education ought to achieve. The answer should not be to produce apprentices in a highly technical and narrow discipline taught as a branch of applied mathematics. For the great majority of those who learn economics, what matters is appreciation of both a few core ideas and of the complexity of the economic reality.

At bottom, economics is a field of inquiry and a way of thinking. Among its valuable core concepts are: opportunity cost, marginal cost, rent, sunk costs, externalities, and effective demand. Economics also allows people to make at least some sense of debates on growth, taxation, monetary policy, economic development, inequality, and so forth.

It is unnecessary to possess a vast technical apparatus to understand these ideas. Indeed the technical apparatus can get in the way of such an understanding. Much of the understanding can also be acquired in a decent, but not inordinately technical, undergraduate education. That is what I was fortunate enough to acquire in my own years studying philosophy, politics and economics at Oxford in the late 1960s. Today, I believe, someone with my background in the humanities would never become an economist. I am absolutely sure I would not have done so. It might be arrogant to make this claim. But I think that would have been a pity -- and not just for me.

In addition, it would be helpful to expose students to some of the heterodox alternatives to orthodox economics. This can only be selective. But exposure to the ideas of Hyman Minsky, for example, would be very helpful to anybody seeking to understand the macroeconomic implications of liberalized finance.

The teaching of economics to undergraduates must focus on core ideas, essential questions, and actual realities. Such a curriculum might not be the best way to produce candidates for PhD programs. So be it. The study of economics at university must not be seen through so narrow a lens. Its purpose is to produce people with a broad economic enlightenment. That is what the public debate needs. It is what education has to provide.


greg , March 14, 2019 at 1:14 am

I am afraid a worse problem with economists is that they don't seem interested in anyone's opinions except their own.

They even hold ecology in disdain, not having any interest in learning what is, in fact, the foundational system of their own 'science.' The booms and busts of capitalism show familiar patterns to ecologists. Why, ecologists even have equations for them!

But I guess ecology is just too simple for the attentions of economists : Stupid animals. They don't even use money! What kind of economy can that be?

So economists look for models everywhere except where to find them. The hubris of humanity, not needing to give due attention to the economies of 'animal' societies.

Sanxi , March 14, 2019 at 7:04 am

To Yves. Well, I nearly lack the heart to respond, but I feel I must. Taking yesterday's NC's lessons of looking at a human facing and having eye contact to remain human online, I now do both – a human sits next to me. I read aloud to her.

Ok, you are a strong advocate of becoming a certified economist. Because 1.they make a lot of money and 2. only they sit at the policy table.

Further claims made in your preamble: in no particular order of importance: something about efficient outcomes that may not be equitable; command & control and guns and butter; and sadly an analysis of Brexit voters in either camp.

(One exception to all that I say is those using MMT, certified, with a degree or not. Again something I first learned about on NC.)

Yesterday, somewhere in the NC collective was the notion that the above mentioned economists tell tho' we may be so out of balance with the world that our extinction as a species is a legitimate issue to discuss, that in the end there ain't any money to not only not fix the problem but not even deal with it. And these guys/gals you laud? I and others have argued this gang provided the intellectual nonsense that put us where we are now.

What is your point that Econ grads make the most amount of money compared to what? Philosophy majors? True or not I still say it's a waste of a life. Not the knowing, but the being of one. I don't see what value there is for civilization in general but specifically that just because they make a lot of money, it's good?

All social science grads you say v Econ grads make more money. I doubt that. Seems every school district requires a PhD in Education, and a PhD in Business is very lucrative (not saying useful, just pays well).

The policy table. I'm truly baffled as to what you refer. If they are the only ones at said table then it follows they are the only ones at it. In my long life I'm trying to think were we ever let an economist have the final say, or even a moderate say in any political, governmental, or military policy. Some input yes, but deterministic, no. If they were sitting at their own table, when asked they came to table with those that had the votes, give their opinion and then left. Sociological impact statements had far bigger influence on policy. And policy is no more then the data we can agree on to make decisions.

Sure, many governments, NGOs, multinationals all have jobs for economists but in someway this is self serving, not a necessity. Kuhn's book on "The Structure of Scientific Revolutions", does a good job of explain how authority gets established, vested, and in the end becomes useless. That it exists is not an argument that it is necessary or good. That there needs to be some way to define and explain things economic I no have issue with, that outside of MMT that is has been, using system theory I don't see it.

As to efficient outcomes that may not be equitable that speaks for itself. It doesn't. No 'may not' about it, said with respect.

As to command & control and guns and butter, seems like a long time ago. A long time ago, using science to help in making decisions was new and it took awhile to get it right, or at least to get it working.

(Small note, I have dual US & UK citizenships)

An analysis of Brexit voters in either camp. I can tell you why I voted the way I did but I need to make an appeal to Stephen Pinker's, "The Blank Slate". Either I have the free will to make a decision and accept responsibility for it or I don't. I believe I do and did. I voted to leave and yes their are economic impacts, as well as social, political, historical, psychological, and philosophical. As did in electing Trump. As did the 1776 revolution, as in the US Civil War, almost anything. Money is not everything nor the only thing. And the future isn't what it used to be. The Long Emergency is here.

skippy , March 14, 2019 at 7:15 am

Hayek liked banding around watery terms like freedom and liberty its when he stopped being an economist [political theory in times past] and jointed the ranks of ideologues .

Pay check included oops and health care .

Yves Smith Post author , March 14, 2019 at 1:17 pm

Boy are you shooting the messenger. I'm not saying the way the economics discipline has become influential is a good thing, but that is the way it is. How economics operates as a discipline is great for economists, so why should they change? So what if their prescription fail way too often? For instance, there haven't been any bad consequences to anyone who didn't see the crisis coming and (even worse) advocated bank deregulation, starting with Larry Summers (but he had plenty of company).

And you are simply wrong about the influence economists have. In the US, CBO budget scoring is fundamental to how Congress views various proposed programs, even though we have described how the CBOs methods are crap and the CBO operates as an a big enforcer of deficit hysteria (as in they play a politicized role). The Fed and other central banks, the most powerful single government economic actors, are all run by monetary economists. The IMF, another very powerful institution, has deeply embraced and implements neoliberal policies, namely, balanced budgets and squeezing labor (labor "reforms"). In the US, economists in op eds and even in Congressional testimony (see Bernanke for instance) argue for balanced budgets and argue the supposed necessity of cutting Social Security and Medicare and NEVER mention cutting military spending. They are acting not just as enforcers of overall spending, but by advocating what to cut, are influencing priorities.

Avery T , March 14, 2019 at 9:53 am

Back in my former life as an economist-in-training, I ran into ecological economics as a branch of natural resource economics. It was completely backwards – the extent ecological theory was brought in didn't extend beyond simple predator-prey-plant models, and the goal was to find the macroeconomic general equilibrium of biomass in the ecosystem.

That was probably just the most striking example of the institutional close-mindedness I saw back among the economists.

deplorado , March 14, 2019 at 3:08 am

Mr Wolf says, among the important concepts are "externalities" Like everything that supports economic activity. Economics reduces the real world to "externalities" and simple equations about things measured in crude tokens – money. How good can it be then.

Also, "Such a curriculum might not be the best way to produce candidates for PhD programs" – is that a goal in itself? Like, the world needs a certain amount of economics PhDs produced? What for?

Prof. Michael Hudson, Prof. Richard Wolff and others have long ago explained what's wrong with mainstream economics, but that can't be said in FT.

This reminds me of the party press during the Perestroika in the 80ies talking about reform in a similar soft and obfuscatory of the truth way, full of wishful recommendations, striking a demurely optimistic tone supposed to convey integrity. It was bullshit and when the real things started happening, everybody forgot about it, because it had no depth and no bearing on real life.

diptherio , March 14, 2019 at 10:40 am

It seems obvious to most people that not all values are commensurable with each other. For instance, things like literary and artistic quality, friendships, and human lives cannot defensibly be measured in dollar terms. However, this is just what economics attempts to do. Hence, environmental economics simply aims to put a dollar value on environmental quality (or degredation). Hence, the entirety of my Labor Economics course was focused on how you place a monetary value on a human life, when the human happens to die because of their job.

So, I tend to agree with you. The whole discipline is of questionable value, so long as economists refuse to accept some very basic truths and incorporate much more than money into their analyses.

JEHR , March 14, 2019 at 12:31 pm

That comment strikes me as strange because one of the weaknesses of classical economic models was the fact that how money works was not part of their inquiry.

The Rev Kev , March 14, 2019 at 4:00 am

In trying to judge the abilities of an expert, the best that most people can do is to see the results on what they practice. If a doctor has a reputation of getting his patients drug-addicted, then you would not go to them. If an engineer built a building but the roof constantly leaked, you would think twice about giving them another contract. But let us think about how well economists are judged. You might say that a lot of people in the UK discounted their advice during Brexit but it has been noted that a lot of the Leave campaign was based in depressed areas. Why were so many areas depressed? Because the people knew that the government was using the advice of economists as to which areas to prioritize for resources. And usually that meant London and its outer areas – which voted Remain.
People are fully aware of what happens too when WTO economists go into a country – social services are cut, public transport is cut way back, the cost of living for the poor skyrocket while the rich seem to be protected. And take a look at the economic state of the United States. Wages have flatlined since the 70s, infrastructure is falling into disrepair, whole swathes of the country are abandoned to their own devices, de-industrialisation is a fact, etc, etc etc but the point is that the people that were giving all the advice to have this done were economists like Ken Rogoff and his wonky austerity study. It may have been the politicians that pulled the trigger but it was economists that were loading the gun.
if you want a breed of economists more grounded in reality, then I would suggest having them work in a fulfillment center for a week to show the the consequences of what happens when you get priorities wrong. Certainly they need to study the work of economists like Hyman Minsky and Susan Strange who had gone out of fashion before the crash but the long and short of it is to see what works and what does not work. I do not mean to be insulting here but as far as I can see, modern economic theory has really been a theory for the top 20% and not for the rest of the population. And now we are seeing the result up close and personal and until this changes, people will not feel the need to take the advice of economist, even when they should. Martin Wolf is fortunate in having also a humanities background but how true is that nowadays?

Jos Oskam , March 14, 2019 at 4:04 am

The sentence " So, maybe the proper distinction to be made is between "trustworthy" experts and "untrustworthy" ones " is important. Unfortunately, in the article I miss a key aspect in making that distinction.

I seem to notice that the "trustworthy" areas of expertise in general tend to be removed from political ideas or preferences. Left or right, liberal or conservative, democrat or republican, it does not affect the way in which trustworthy experts go about their business. It does not influence the way in which a doctor cures patients, a pilot flies a plane or an engineer constructs a bridge. However, as soon as we start discussing things like the economy, talk is full of "liberal" or "left" economists as opposed to "conservative" or "right" economics. I have never heard of one bridge being more at risk of collapse because it was designed by a liberal engineer versus a conservative one, or the other way round. When discussing the strength of a bridge political leanings simply do not come into play, it is not a factor like the strength of the steel used. But for all economic debate, these leanings often seem to be the essence of the discussion.

Given the general public's intensifying distrust of politicians and all things political, it does not surprise me that disciplines tainted by political colouring (like economics) are considered "untrustworthy" compared to disciplines where political colouring is not a factor (like the aforementioned doctors, pilots and engineers).

Since economics *is* in fact very interwoven with politics, I think the general public will always treat economists the same way they treat politicians, that is with a healthy dose of distrust. And who can blame them?

Ptb , March 14, 2019 at 9:07 am

Yes, ability vs integrity.
And you can take 10 of the most honest and well meaning people, dedicated to the public good and advancement of learning, employ them in a structure set up to profit first and ask questions second, and the whole is going to be not the same as the sum of the parts.

bruce wilder , March 14, 2019 at 10:45 am

I'd say an unhealthy dose of distrust is more likely and more common.

People tend to treat conventional econospeak as so much blah, blah, blah and then turn around and credit or discredit what has been said on the basis of the tone with which it was said.

Economists working for the kleptocracy get a lot of mileage out of sounding serious, while talking complete rubbish. And, sadly, many economists working the left, get away with lame one-liners and a rudderless iconoclasm.

SJ , March 14, 2019 at 4:32 am

I had an e-mail exchange with Mr. Wolf many years ago – before the 2008 crash – where he basically told me that we live in the best of all possible worlds and that nothing needs to change – he has changed his tune since then, I suppose to try to avoid looking like a complete idiot and also to try to deflect criticism on to others. Maybe he has öearned something in the meantime, but maybe he is just faking for the sake of appearences.

deplorado , March 14, 2019 at 11:02 am

I think he is faking it. It's the party line. It is the beginning of the neoliberal Perestroika (see also Brad DeLong).

I quite like to look at it this way – it is very clarifying (as I lived in the Perestroika) and I recommend it. Don't for a moment trust the Perestroika – it is half-measures at best and purposeful deception at worst.

johnf , March 14, 2019 at 5:24 am

" The answer should not be to produce apprentices in a highly technical and narrow discipline taught as a branch of applied mathematics ." With apologies to Mr. Richter, economics is taught more like a branch of mathematical sophistry, and that is slighting the original sophists.

I was an undergraduate studying applied mathematics at the time and place, present day neoclassical economics was being developed, published and starting to be taught. I can think of just one economics-and-finance classmate who continued to study mathematics beyond first year calculus – which everyone had to take.

Our introductory numerical analysis professor was scathing about his colleagues at the other side of the Quads. He made it quite plain that we could not skip the rigor and "try to prove something like an economist". Pretty much all the econ students dropped his course when they discovered that. The specific problem they could not address, can be simply stated. If you know a number but don't know its error, you don't know the number. The difficulty the great mass of economists have with just that, excludes economics as a branch of applied mathematics.

bruce wilder , March 14, 2019 at 10:50 am

interesting insight

pretty much the sum total of neoclassical economics is trying to work out the counterfactual of how the economy would work if everyone had more-or-less complete information to work with.

introduce genuine uncertainty, and pretty much the whole apparatus turns topsy-turvy and all the "laws" of economics disappear or become highly contingent on circumstances unlikely to obtain.

Thuto , March 14, 2019 at 5:40 am

"Fixing" economics must start with a wholesale divestment from the idea of this profession being a "science", said divestment openly promoted by economists themselves. All manner of hardwired, warped thinking, to say nothing of obstinacy in changing one's views when confronted with contradictory evidence, results from people believing that they're scientists practising a real science. When such thinking seeps into the subconscious, the obstinacy is locked into place and even events of the scale of the GFC aren't enough to shake loose the erroneous biases held by the mainstream profession.

How else would an entire profession place so much faith in the predictive powers of its models if not having such faith resting on a (supposed) firm foundation of science? An engineer designing a beam for a bridge has justifiable faith in continuum mechanics (a real science) as a sound foundation for their work, economics is devoid of such sound foundations and its time the profession loudly and publicly declared this in an unprecedented act of intellectual honesty.

Additionally, we see weak to non-existent culpability enforcement when policy recommendations put on the table by economists wreck lives (as they have over decades), this in stark contrast with e.g. an engineer designing a bridge that collapses and kills hundreds. In other words, economists have outsized influence in matters of policy out of proportion with the amount of actual skin they have in the game. On the other side, this "economics is a science" narrative disarms a public already deficient in the marginal capacity for independent, critical thinking to question anything economists say, said public including politicians who, as aptly put by the Rev Kev, pull the trigger of a policy gun loaded by economists.

cnchal , March 14, 2019 at 8:50 am

>. . . economics is devoid of such sound foundations and its time the profession loudly and publicly declared this in an unprecedented act of intellectual honesty.

Not one economist, with their ass planted firmly on their throne at the policy table, will admit to that. The operating principle is venality.

Now that they have lost the respect of the peasants, I don't want them to matter again. What I would like to see is mass firings of eclownomists, so they can experience life as lived by the peasants, just once. It may even free up resources to pay people to actually do good things instead of perpetuating one failure after another, and being grossly rewarded for those failures.

dearieme , March 14, 2019 at 6:35 am

I think he gets the wrong end of the stick here: "Consider the anti-vaccination movement, hostility to evolutionary theory, or rejection of climate science."

No doubt there are occasions when vaccinations can do serious harm: a niece of mine was excused a standard vaccination because of a contra-indication in her family medical history.The anti-vaxers, though, seem to have elevated some small kernel of truth into a stupid all-encompassing doctrine without giving the matter enough critical thought.

The anti-evolutionists seem to have failed to devote any critical thought to the matter at all.

But the sceptics about "climate science" have deployed critical thinking to identify this new religion as being composed largely of incompetence, dishonesty, and hysteria. It's the likes of old Wolfie who are lacking in critical thought on this issue. Maybe he's one of those people who is uneducated in science, and so too easily swayed by chaps shouting excitedly about models, measurements, and so forth.

It's very odd. Goebbels Warming is now old enough that you can check the historical record of its predictions of dreadful tipping points, of the disappearance of snow from Britain, of the flooding of this and that Pacific island group, and so on. All false. So why should anyone rational believe a word of it? After all, almost from the beginning its proponents believed that the science was settled – it was inarguable. In which case why have their predictions proved so lousy?

Consult a poet: humankind cannot bear very much reality.
Consult an economist: incentives matter.

mle detroit , March 14, 2019 at 8:01 am

Dearie me, Dearieme, your comment appears to lack sources, citations, examples. Please provide.

Steve Ruis , March 14, 2019 at 8:38 am

So, Yves, you are saying ("Economists are the only social scientists to have a seat at the policy table," etc.) that economists are like weathermen. They still have a time slot on the evening news and are respected, even though their accuracy is abysmal. They make a lot of money doing this.

Basically, this is because we expect very little of economists and because they have stopped using ordinary language professionally, they have the status equivalent to someone actually helpful.

I think economics has become an asocial science with too many economists willing to provide some sort of academic cover for whatever the plutocrats want to do.

Arthur Dent , March 14, 2019 at 11:24 am

I think the analogy to meteorologists is interesting. As an engineer, I have some perspective on this.

In engineering design, frequent failure of what we design is generally undesirable. So we have our analytical tools based on both scientific theory and empirical data, and then apply a factor of safety (sometimes called factor of ignorance, but more accurately is a recognition that there is a probabilistic distribution of outcomes and the factors of safety shift the design towards success instead of high probability of failure).

Airline pilots operate similar to engineers in that they aren't flying close to the edge of the airplane's flight characteristics. Instead they stay in a zone quite a ways away from what the airplane could potentially do. This is one of the reasons that airplane travel is very safe, especially compared to car travel.

Meteorologists are trying to make predictions of the most likely scenario which means they are trying to hit the center of the distribution of the potential outcomes. As a results, they frequently are shown to have "missed" in that some other lower probability event occurred instead. Over the past couple of decades, we have gotten used to seeing weather forecasts with probabilities or ranges of outcomes.

I think the public presentation of economics has two separate problems, but both undermine economics credibility.

First, economics is a field that is trying to predict the most likely event and the range of potential outcomes, similar to the weather forecasts, but does not present the predictions this way. So people don't cut economists slack because their public presentations don't recognize the range of potential outcomes and the frank recognition of the inaccuracy of their predictions that we are used to with the weather people, especially once they get past 24 hrs of predictions.

Second, many of the economists that make public predictions are funded by interest groups. When we see a lawyer on TV, we know that he is being paid by a client to be an advocate and that is his job as a lawyer. So we may disregard what he has to say but we understand the context he is speaking in. However, the economists don't say who they are being paid by and so they are presumed to be independent experts when they are sometimes not. I believe this is a fundamental ethical issue within the economics profession.

So when the economics predictions (e.g. effects of tax cuts) fail to be accurate, it needs to be parsed out if it was simply a lower probability event or if the predictions were intentionally biased to begin with. None of this is well-addressed by the economics profession, which greatly undermines credibility.

JEHR , March 14, 2019 at 12:40 pm

+1

jfleni , March 14, 2019 at 8:55 am

I was just getting used to the idea that economists are like clocks: right twice a
day -- at Noon and sundown!

Ptb , March 14, 2019 at 9:14 am

Economists also use the term 'efficiency' to denote pareto optimality, which causes much confusion.

Especially when communicating with both analytical people of a hard-sciencey or engineering background (efficiency = a context specific figure, some-measure-of-output/some-measure-of-input, strict limits in how far you can generalize), and business people (efficient = low cost)

bruce wilder , March 14, 2019 at 11:00 am

economists also routinely distinguish the allocative efficiency they focus upon almost exclusively from the kinds of technical or managerial efficiency that most of the rest of the world focuses upon, but they rarely admit that their focus is so narrow and does not generalize to encompass common sense notions of cost and efficiency -- it is almost as if they want to avoid the critical examination engineering enables while providing double-talk as cover for business people trying to privatize the profits while socializing the costs.

Matthew G. Saroff , March 14, 2019 at 9:50 am

Let me start by saying that I object to the term "Dismal Science" for economics.

This is not because of the "dismal" part, it's because of the "science" part.

That being said, the devaluing of expertise is due in large part to something not mentioned by Mr. Wolf: corruption, particularly for the field of macroeconomics.

We have seen this repeatedly in the past few decades, where nominally independent researchers have been found to slant their research to accommodate the results desired by their patrons. (The sad state of pharma and medical research come to mind as well)

In fact, ACCORDING TO THEIR OWN "RATIONAL ACTOR" THEORIES , academics in general, and economists in particular,will behave in ways that will most strongly benefit themselves, and not in ways that serve the truth or reality. (Studies have shown that economists are the most selfish academics )

I believe that if you discuss the devaluation of knowledge and expertise without discussing the pervasive corruption in western society, you are ignoring the proverbial elephant in the room.

john Wright , March 14, 2019 at 3:04 pm

I object to the "Dismal" part.

Economic Science is very optimistic that what they characterize as "economic growth" in using up the world's resources in its pursuit, is a "good thing".

Economists are selling a limitless planet on which humans will always "pull the rabbit out of the hat", to solve any resource issue, including climate change and overpopulation.

That being said, I view the economic profession, as largely practiced by its well-paid members, as a mechanism to justify what the political and business elite want to do.

The elite are simply getting what they pay to hear.

Steven Greenberg , March 14, 2019 at 10:02 am

I worked on simulation software for integrated circuits. My friend studied economics with all the famous people. When I described to him what I did if there seemed to be a discrepancy between what my simulator said and how the integrated circuit behaved in real life or the intuition that an electrical engineer had about how it would behave in real life he was amazed. I was amazed that he was amazed. How could you possibly believe a simulator that necessarily has bugs in it, if you don't track down discrepancies to understand which is right, your intuition or the simulator?

Sometimes, I had to be very inventive to find another way to make a complex calculation in a way that would test out if the simulator was right. If economics students are taught the math, but not how to check their work, and the necessity of checking their work, then they shouldn't be in positions to make policy recommendations.

bruce wilder , March 14, 2019 at 11:09 am

Yes!

Many economists avoid operational modeling of the processes of the actual, institutional economy. And, that which does take place in narrowly conceived research by specialists is never allowed to feed back on the methods or theories embodied in the core doctrines.

WobblyTelomeres , March 14, 2019 at 3:32 pm

Other than setting Friedman's Chicago Boys upon Chile, isn't it very difficult to model/test anything macro in the real world?

bruce wilder , March 14, 2019 at 5:35 pm

One way mainstream macroeconomics defeats its own feeble efforts at empiricism is to set the problems in a frame of time-series regression analysis of highly aggregated data: national GDP and its high-level components year-by-year or quarter-by-quarter.

The behavior of tens or hundreds of millions of people reduced to statistics for largely formless accounting conventions relating to a single somewhat amorphous entity (a country) over time. History, however it happens, only ever happens one way, so there's always zero degrees of freedom in the aggregate time-series.

There is so little information left in the data, even the most clever econometricians would need a thousand years of data to "test" the most basic hypotheses. It is absurd to approach the task in the way they do.

Is it necessarily as difficult a task as they make it, to learn something useful about the way the economy works?

The problems of statistical aggregation and time-series are not rooted in the object of study -- the actual political economy -- so much as they are created by the conceptual apparatus.

In short form, economists have an analytic theory -- in form and epistemic status, something akin to Euclid's geometry. A geometry is not itself a map of the world and no one doing geometry confuses geometry with cartography or land surveying, but most economists do not understand that their theory is not itself a model of the actual political economy. Someone like Paul Krugman actually thinks he has "a map" of the political economy in, say, IS/LM . No student of geometry expects to find a dimensionless point in the bathroom or an isoceles triangle growing in the garden. Yet, economists regularly purport to casually observe perfectly competitive markets in equilibrium or the natural interest rate.

I think economists could do as well as, say, meteorologists or geologists in developing an empirically grounded understanding of the observable political economy, if they focused their attention on concrete and measurable mechanisms of the institutional economy and stopped talking meaninglessly about formless "markets" that have no existence.

Reality Bites , March 14, 2019 at 10:12 am

This article reminds me of why I stopped reading The Economist after the GFC. The Economist was quite explicit in advocating for a weak regulatory environment. I remember articles talking about how great it was for the Office of Thrift Supervision to regulate banks alongside others like the Fed because regulatory competition was good. After the GFC they were writing articles about how they opposed this all along.
It's not just that so many economists are wrong. It's that many times their models and predictions are wrong and they claim that it is either not what they argued for or 'externalities' intervened. Of course they never mentioned such externalities before. Many just outright conjure up unicorns. There were no shortage of economists claiming that the housing bubble was not a problem and the economy will grow to the point where things just naturally level off. Of course there was no accountability for those peddling these falsehoods.

Candy , March 14, 2019 at 11:01 am

I love the way people shrink down what Michael Gove said.

Here is his full exchange with his interviewer:

Gove: I think the people in this country have had enough of experts, with organizations from acronyms, saying --

Interviewer: They've had enough of experts? The people have had enough of experts? What do you mean by that?

Gove: People from organizations with acronyms saying that they know what is best and getting it consistently wrong.

Inteviewer: The people of this country have had enough of experts?

Gove: Because these people are the same ones who got consistently wrong what was happening.

shinola , March 14, 2019 at 12:04 pm

Perhaps it's changed since I started out as an econ. major in the mid '70's, but what disillusioned me was the total disregard for actual human behavior. Real people do NOT always behave rationally or honestly. Emotions/psychology do figure greatly in real people making "economic" decisions – just ask anyone who makes their living based on selling something.

Every economic model should be prefaced with "In an ideal world " (or perhaps more honestly "In an economist's construct of an ideal world )

Arizona Slim , March 14, 2019 at 12:18 pm

I share your disillusionment, shinola. I was a late 1970s econ major. By the time I graduated, I was done with economics.

hunkerdown , March 14, 2019 at 4:42 pm

Real people don't, but they should, say those who hire economists. If the algorithm doesn't work, change the inputs.

Wukchumni , March 14, 2019 at 12:09 pm

How many brand name economists up and quit in disgust 11 years ago when the powers that be decided to go against everything they stood for, and bailed out those that deserved to go down in financial flames?

not a one

bruce wilder , March 14, 2019 at 12:47 pm

A parenthetical lifted from Randy Wray's post responding to DeLong on MMT:

an exasperated Wynne Godley came into my office a couple of decades ago and announced that every [mainstream model] he had looked at was incoherent

That's the base problem, imho: economists are very successful as "experts" in a sociological sense, slotting into the role with firm claims on salary, status and ritual respect, as Yves Smith observed, but economics as a civic doctrine and a common frame of reference for political discourse is incoherent and economics as a scholarly discipline or "social science" fails methodological or epistemic standards.

There is a history of imperviousness to absolutely devastating critiques that isn't explained. Is that persistent "wrongness" related to professional success or only a by-product of an unfortunate pedagogy? Who puts the dogmatism into a dogma . . . and keeps it there?

(disclosure: i was a professional economist myself many years ago -- neither ambitious nor particularly successful, but I did attend ruling class schools for what that was worth)

deplorado , March 14, 2019 at 2:51 pm

Prof. Richard Werner has a fantastic talk (at the Russian Academy of Sciences) about, among other things, "the unresolved puzzles of modern economics" – to me the most striking there was how he dispenses with concept of "equilibrium".
He talks about the "puzzles" ~30 min in.

It is enough to see that and know that mainstream economists are little more than the high priests of the peculiar modern religion guiding our society.

https://www.youtube.com/watch?v=9Um9wR46Ir4

Adam1 , March 14, 2019 at 3:21 pm

"The teaching of economics to undergraduates must focus on core ideas, essential questions, and actual realities."

Sadly Mr. Wolf suffers from the same delusions that so many mainstream economist suffer. They think they have actually considered "actual realities".

Yet the foundations of mainstream economics ignores these ACTUAL REALITIES
– Assumes Loanable Funds yet the Bank of England & the Bundesbank both publicly published research say endogenous money is correct. Loans create Deposits. They are clueless as to how finance works. I recall the infamous intro to econ question "If I double you income and double prices for beer, how much beer can you now purchase?" The standard econ answer is the same amount of beer. But in the real world the correct answer is you don't know. The professor never told you how large the fixed debt payments of the person were which most definitely impacts the amount of disposable income you have to buy beer. But then again most economists would likely fail any advanced accounting class. Long gone are the days when undergraduate economics students in economics had to take 2 or 3 semesters of accounting. Even my alma mater which is definitely heterodox in faculty and has MMT / UMKC taught faculty only require 1 these days. You need a strong foundation in accounting to be stock flow consistent in your modeling of a highly monetary modern economy.
– Assumes upward sloping supply curve is the market norm. At least 3 economic studies have attempted to measure this on large cross industry scales and every time concludes that over 1/2 of all businesses face downward sloping cost curves (natural monopoly stuff, and we wonder why industry concentration is the norm) and another 1/3 face flat cost curves. An upward sloping supply curve, for those not taking advanced or graduate level economics IS the assumed upward sloping marginal cost curve of the industry or nation if you're crazy enough to apply it at the macro level.

There are dozens more piss pore assumptions that underpin mainstream economics. In this day and age far more EMPIRICAL, real word data can be used to confirm what really makes an economy work, but sadly what we teach in college is garbage where the ACTUAL REALITIES are ignored.

Steven , March 14, 2019 at 5:07 pm

Soddy (paraphrasing John Ruskin) yet again:

a logical definition of wealth is absolutely needed for the basis of economics if it is to be a science."

Frederick Soddy, WEALTH, VIRTUAL WEALTH AND DEBT,
2nd edition, p. 102
Economists and financiers seem to be incapable of understanding we live on a finite planet. Nor do they seem to be able to get beyond equating money with wealth. It is much easier to just put a price on something like a Beethoven symphony (or call it 'priceless') than to attempt a definition of wealth. But for most of us the ingredients of a definition are much simpler. Topping the list has to be energy. You can't create it but you can dissipate it, i.e. render it useless, by for example manufacturing useless junk that falls apart quickly enough for people who run or own the business to make a lot of money.

Or if your customers can no longer afford the junk because you have automated or off-shored their jobs, you can sell guns and bombs to your wholly owned government – to use in blowing up people who stand in the way of your accumulating more of the money created by your bankers, financiers and politicians. Then there is the basic intelligence required to run the machinery and discern better – i.e. more energy and resource efficient – ways of doing things. With real wealth creation comes power. The Chinese may have figured this out. The West's 1%, its economists, bankers and politicians don't appear to have a clue.

RBHoughton , March 14, 2019 at 11:19 pm

Did Kenneth Rogoff apologise for his hit on Iceland and his subsequent dismay defense in Ferguson's "Inside Job"? At least one of the Chicago boys (Jonathan Sachs) has resiled from the opinions of Friedman and rejoined the human race but only after a raft of countries were ground down by the mill of the moneymen. Chile and Poland seem to have survived at horrible social cost but what of the others?

The plaint is partly true. When governments were advised by economists, they replaced the wishes of the electorate. The economist brought along their army of lawyers who instantly appeared as mercenary terrorists to browbeat and coerce officials with various threats to do as the moneymen asked and cease attending to the people. This is still the state of play in UK and USA and those core paper-issuers drag the 'also rans' along with carrots and sticks.

I believe the fault lies in lazy officials who seldom run trials on new ideas in limited areas but drop the entire country into one speculative foray after another. Its a shame that its not mentioned. There is no good reason why the whole country has to be volunteered for these new scheme. Why has the UK Treasury shut down every competing form of banking to the high street banks – the trust banks, coop bank, post office bank, municipal banks, mutuals – all thrown away as infringers of the BoE's monopoly. The country needs an Oliver Cromwell or Napoleon to lead it not the present bunch of ragamuffins and hooligans.

That brings me to the second problem the disastrous state of the representation. It is mainly due to the control factions have brought to bear on the selection of candidates for office. That has to stop and the way to do it to have primary assemblies of every 200-300 people who select one of their number to represent them. He's a school friend or neighbor and a known quantity. Several primary assemblies select a chap to represent them and so on up this new structure of democracy to the top.

The business community have sought to keep everyone's nose to the grindstone with statistics justifying under payment by understating inflation. That has to stop. The economics trade belongs with astrology and weather forecasting until it acknowledges the fundamentals that drive prices.

Yves Smith Post author , March 14, 2019 at 11:30 pm

It wasn't Ken Rogoff but Frederic Mishkin. He was on the Fed Board of Governors and had been vice chairman.

RBHoughton , March 15, 2019 at 4:00 am

Apologies to Mr Rogoff and grateful thanks to Yves for the correction. I'll take a pill now

Cal2 , March 15, 2019 at 12:29 am

It seems to me from my citizen's non-professional perspective that the only real economists are experts in resource extraction, manufacturing and end use of same.

IOW, a forester, mining, petroleum, construction engineer and even a naval admiral, sitting around a table, all beholden to and obeying the supreme chairmanship of an ecologist, would be a better and less destructive thing for the world than a bunch of money only maximum value extraction Wall Streeters controlling the engineers mentioned above.

Can there even be an economy without resource extraction? It seems like most new economic schemes are attempting this with humans bodies, credit ratings and bank accounts being the last available commodity.

Sound of the Suburbs , March 15, 2019 at 7:07 am

The economists got Ricardo's theory of comparative advantage, but they missed this:

"The interest of the landlords is always opposed to the interest of every other class in the community" Ricardo 1815 / Classical Economist

What does our man on free trade mean?
He was an expert on the small state, unregulated capitalism he observed in the world around him. He was part of the new capitalist class and the old landowning class were a huge problem with their rents that had to be paid both directly and through wages.

Disposable income = wages – (taxes + the cost of living)

Employees get less disposable income after the landlords rent has gone.
Employers have to cover the landlord's rents in wages reducing profit.

Ricardo is just talking about housing costs, employees all rented in those days.

Employees get their money from wages and so the employer pays through wages.

Look at the US cost of living:
The cost of living = housing costs + healthcare costs + student loan costs + food + other costs of living

Employees get their money from wages, so it is the employer that pays through wages, reducing profit and driving off shoring from the US.

Maximising profit requires minimising labour costs; i.e. wages.

China, Asia and Mexico look good, the US is awful.

(This is Michael Hudson's argument in a slightly different from)

There are some fundamental problems with today's economics, like this and the fact it doesn't look at money, debt or banks.

Also, it hasn't worked out financial markets are not like other markets.

The supply of stocks stays fairly fixed and central banks can create a "wealth effect" by just adding liquidity. More money is now chasing a fairly fixed number of financial assets and the price (e.g. stock market) goes up.

[Mar 11, 2019] The university professors, who teach but do not learn: neoliberal shill DeJong tries to prolong the life of neoliberalism in the USA

Highly recommended!
DeJong is more dangerous them Malkin... It poisons students with neoliberalism more effectively.
Mar 11, 2019 | www.nakedcapitalism.com

Kurtismayfield , , March 10, 2019 at 10:52 am

Re:Wall Street Democrats

They know, however, that they've been conned, played, and they're absolute fools in the game.

Thank you Mr. Black for the laugh this morning. They know exactly what they have been doing. Whether it was deregulating so that Hedge funds and vulture capitalism can thrive, or making sure us peons cannot discharge debts, or making everything about financalization. This was all done on purpose, without care for "winning the political game". Politics is economics, and the Wall Street Democrats have been winning.

notabanker , , March 10, 2019 at 12:26 pm

For sure. I'm quite concerned at the behavior of the DNC leadership and pundits. They are doubling down on blatant corporatist agendas. They are acting like they have this in the bag when objective evidence says they do not and are in trouble. Assuming they are out of touch is naive to me. I would assume the opposite, they know a whole lot more than what they are letting on.

urblintz , , March 10, 2019 at 12:49 pm

I think the notion that the DNC and the Democrat's ruling class would rather lose to a like-minded Republican corporatist than win with someone who stands for genuine progressive values offering "concrete material benefits." I held my nose and read comments at the kos straw polls (where Sanders consistently wins by a large margin) and it's clear to me that the Clintonista's will do everything in their power to derail Bernie.

polecat , , March 10, 2019 at 1:00 pm

"It's the Externalities, stupid economists !" *should be the new rallying cry ..

rd , , March 10, 2019 at 3:26 pm

Keynes' "animal spirits" and the "tragedy of the commons" (Lloyd, 1833 and Hardin, 1968) both implied that economics was messier than Samuelson and Friedman would have us believe because there are actual people with different short- and long-term interests.

The behavioral folks (Kahnemann, Tversky, Thaler etc.) have all shown that people are even messier than we would have thought. So most macro-economic stuff over the past half-century has been largely BS in justifying trickle-down economics, deregulation etc.

There needs to be some inequality as that provides incentives via capitalism but unfettered it turns into France 1989 or the Great Depression. It is not coincidence that the major experiment in this in the late 90s and early 2000s required massive government intervention to keep the ship from sinking less than a decade after the great unregulated creative forces were unleashed.

MMT is likely to be similar where productive uses of deficits can be beneficial, but if the money is wasted on stupid stuff like unnecessary wars, then the loss of credibility means that the fiat currency won't be quite as fiat anymore. Britain was unbelievably economically powerfully in the late 1800s but in half a century went to being an economic afterthought hamstrung by deficits after two major wars and a depression.

So it is good that people like Brad DeLong are coming to understand that the pretty economic theories have some truths but are utter BS (and dangerous) when extrapolated without accounting for how people and societies actually behave.

Chris Cosmos , , March 10, 2019 at 6:43 pm

I never understood the incentive to make more money -- that only works if money = true value and that is the implication of living in a capitalist society (not economy)–everything then becomes a commodity and alienation results and all the depression, fear, anxiety that I see around me. Whereas human happiness actually comes from helping others and finding meaning in life not money or dominating others. That's what social science seems to be telling us.

Oregoncharles , , March 10, 2019 at 2:46 pm

Quoting DeLong:

" He says we are discredited. Our policies have failed. And they've failed because we've been conned by the Republicans."

That's welcome, but it's still making excuses. Neoliberal policies have failed because the economics were wrong, not because "we've been conned by the Republicans." Furthermore, this may be important – if it isn't acknowledged, those policies are quite likely to come sneaking back, especially if Democrats are more in the ascendant., as they will be, given the seesaw built into the 2-Party.

The Rev Kev , , March 10, 2019 at 7:33 pm

Might be right there. Groups like the neocons were originally attached the the left side of politics but when the winds changed, detached themselves and went over to the Republican right. The winds are changing again so those who want power may be going over to what is called the left now to keep their grip on power. But what you say is quite true. It is not really the policies that failed but the economics themselves that were wrong and which, in an honest debate, does not make sense either.

marku52 , , March 10, 2019 at 3:39 pm

"And they've failed because we've been conned by the Republicans.""

Not at all. What about the "free trade" hokum that DeJong and his pal Krugman have been peddling since forever? History and every empirical test in the modern era shows that it fails in developing countries and only exacerbates inequality in richer ones.

That's just a failed policy.

I'm still waiting for an apology for all those years that those two insulted anyone who questioned their dogma as just "too ignorant to understand."

Glen , , March 10, 2019 at 4:47 pm

Thank you!

He created FAILED policies. He pushed policies which have harmed America, harmed Americans, and destroyed the American dream.

Kevin Carhart , , March 10, 2019 at 4:29 pm

It's intriguing, but two other voices come to mind. One is Never Let a Serious Crisis Go To Waste by Mirowski and the other is Generation Like by Doug Rushkoff.

Neoliberalism is partially entrepreneurial self-conceptions which took a long time to promote. Rushkoff's Frontline shows the Youtube culture. There is a girl with a "leaderboard" on the wall of her suburban room, keeping track of her metrics.

There's a devastating VPRO Backlight film on the same topic. Internet-platform neoliberalism does not have much to do with the GOP.

It's going to be an odd hybrid at best – you could have deep-red communism but enacted for and by people whose self-conception is influenced by decades of Becker and Hayek? One place this question leads is to ask what's the relationship between the set of ideas and material conditions-centric philosophies? If new policies pass that create a different possibility materially, will the vise grip of the entrepreneurial self loosen?

Partially yeah, maybe, a Job Guarantee if it passes and actually works, would be an anti-neoliberal approach to jobs, which might partially loosen the regime of neoliberal advice for job candidates delivered with a smug attitude that There Is No Alternative. (Described by Gershon). We take it seriously because of a sense of dread that it might actually be powerful enough to lock us out if we don't, and an uncertainty of whether it is or not.

There has been deep damage which is now a very broad and resilient base. It is one of the prongs of why 2008 did not have the kind of discrediting effect that 1929 did. At least that's what I took away from _Never Let_.

Brad DeLong handing the baton might mean something but it is not going to ameliorate the sense-of-life that young people get from managing their channels and metrics.

Take the new 1099 platforms as another focal point. Suppose there were political measures that splice in on the platforms and take the edge off materially, such as underwritten healthcare not tied to your job. The platforms still use star ratings, make star ratings seem normal, and continually push a self-conception as a small business. If you have overt DSA plus covert Becker it is, again, a strange hybrid,

Jeremy Grimm , , March 10, 2019 at 5:13 pm

Your comment is very insightful. Neoliberalism embeds its mindset into the very fabric of our culture and self-concepts. It strangely twists many of our core myths and beliefs.

Raulb , , March 10, 2019 at 6:36 pm

This is nothing but a Trojan horse to 'co-opt' and 'subvert'. Neoliberals sense a risk to their neo feudal project and are simply attempting to infiltrate and hollow out any threats from within.

There are the same folks who have let entire economics departments becomes mouthpieces for corporate propaganda and worked with thousands of think tanks and international organizations to mislead, misinform and cause pain to millions of people.

They have seeded decontextualized words like 'wealth creators' and 'job creators' to create a halo narrative for corporate interests and undermine society, citizenship, the social good, the environment that make 'wealth creation' even possible. So all those take a backseat to 'wealth creator' interests. Since you can't create wealth without society this is some achievement.

Its because of them that we live in a world where the most important economic idea is protecting people like Kochs business and personal interests and making sure government is not 'impinging on their freedom'. And the corollary a fundamental anti-human narrative where ordinary people and workers are held in contempt for even expecting living wages and conditions and their access to basics like education, health care and living conditions is hollowed out out to promote privatization and become 'entitlements'.

Neoliberalism has left us with a decontextualized highly unstable world that exists in a collective but is forcefully detached into a context less individual existence. These are not mistakes of otherwise 'well meaning' individuals, there are the results of hard core ideologues and high priests of power.

Dan , , March 10, 2019 at 7:31 pm

Two thumbs up. This has been an ongoing agenda for decades and it has succeeded in permeating every aspect of society, which is why the United States is such a vacuous, superficial place. And it's exporting that superficiality to the rest of the world.

VietnamVet , , March 10, 2019 at 7:17 pm

I read Brad DeLong's and Paul Krugman's blogs until their contradictions became too great. If anything, we need more people seeing the truth. The Global War on Terror is into its 18th year. In October the USA will spend approximately $6 trillion and will have accomplish nothing except to create blow back. The Middle Class is disappearing. Those who remain in their homes are head over heels in debt.

The average American household carries $137,063 in debt. The wealthy are getting richer.

The Jeff Bezos, Warren Buffett and Bill Gates families together have as much wealth as the lowest half of Americans. Donald Trump's Presidency and Brexit document that neoliberal politicians have lost contact with reality. They are nightmares that there is no escaping. At best, perhaps, Roosevelt Progressives will be reborn to resurrect regulated capitalism and debt forgiveness.

But more likely is a middle-class revolt when Americans no longer can pay for water, electricity, food, medicine and are jailed for not paying a $1,500 fine for littering the Beltway.

A civil war inside a nuclear armed nation state is dangerous beyond belief. France is approaching this.

[Mar 09, 2019] The Incoherence of Larry Summers, a Serious Economist by J. D. Alt

Notable quotes:
"... To borrow Henry Ford's quote: "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." ..."
"... Note to Larry, please follow this logic: Money is Fiat; Fiat is cooperation; Cooperation is fiscal control; and fiscal control is civilization. Nowhere in this chain of thought does debt; interest; austerity; or any of your other little techniques even exist. Those bizarre ideas exist in more primitive thinking about power and slavery and savage exploitation. You know the routine. ..."
Mar 07, 2019 | www.nakedcapitalism.com
Yves here. Larry Summers, like Hillary Clinton, does not seem willing to get the message that it would behoove him to retreat from public life.

By J. D. Alt, author of The Architect Who Couldn't Sing , available at Amazon.com or iBooks. Originally published at www.realprogressivesusa.com

Lawrence Summers, according to Lawrence Summers, is a "serious economist." He has just written an op-ed in the Washington Post in which he seriously explains why Modern Money Theory -- as proposed by "fringe economists," as he calls them -- is a recipe for disaster. I am going to leave it to the "fringe economists" to rebut Mr. Summers; (I'm confident that professors Wray, Kelton, Tcherneva, Tymoigne, and Fullwiler can take care of that job quite easily). What I want to consider is something even more fundamental: How is it that someone who presents himself as a "serious economist" can get away with speaking incoherently while expecting us -- the everyday citizens of America -- to take what he is saying as true?

Here is Summers' first point about why MMT is a recipe for disaster: "Modern monetary theory holds out the prospect that somehow by printing money, the government can finance its deficits at zero cost. In fact, in today's economy, the government pays interest on any new money it creates, which takes the form of its reserves held by banks at the Federal Reserve. Yes, there is outstanding currency in circulation, but because that can always be deposited in a bank, its quantity is not controlled by the government. Even money-financed deficits cause the government to incur debt."

Yes, that's very clear and logical, isn't it? The government "prints" money and then pays interest on it? The interest it pays become the "reserves" in the Federal Reserve system? And what exactly does that have to do with "outstanding currency in circulation"? And what is it exactly that happens when that "outstanding currency" gets deposited in a bank? And if "money-financed" deficits cause the government to incur debt, maybe we should think about financing our deficits with something other than money? These are all serious economic questions.

Summers' incoherent rambling reminds me of another case of incoherent ramblings reported, coincidentally, in the same edition of the Washington Post: Donald Trump's CPAC speech as evaluated by columnist Eugene Robinson . Here are a few instances of Trump apparently giving his best impersonation of Lawrence Summers:

"When the wind stops blowing, that's the end of your electric. Let's hurry up. 'Darling -- Darling, is the wind blowing today? I'd like to watch television, Darling.' No, but it's true . Now Robert Mueller never received a vote, and neither did the person that appointed him. And as you know, the attorney general says, 'I'm going to recuse myself. I'm going to recuse.' And I said, why the hell didn't he tell me that before I put him in? How do you recuse yourself?"

Lawrence Summers' second point about the fallacy of MMT goes like this: "Contrary to the claims of modern monetary theorists, it is not true that governments can simply create new money to pay all liabilities coming due and avoid default. As the experience of any number of emerging markets demonstrates, past a certain point, this approach leads to hyperinflation. Indeed, in emerging markets that have practiced modern monetary theory, situations could arise where people could buy two drinks at bars at once to avoid the hourly price increases. As with any tax, there is a limit to the amount of revenue that can be raised via such an inflation tax. If this limit is exceeded, hyperinflation will result."

Really, that all must be true, because Summers is a serious economist. Didn't really know there were third world countries that have been practicing Modern Money Theory for a long time -- but obviously it didn't work out well for them. And, clearly, you can't tax people more than they possess, so that proves it: hyperinflation!

Donald Trump had more to ramble about as well: "And they showed -- they showed from the White House all the way down There were people. Nobody has ever seen it. The Capitol down to the Washington Monument -- people. But I saw pictures that there were no people. Those pictures were taken hours before . They had to walk with high-heels, in many cases. They had to walk all the way down to the Washington Monument and then back. And I looked, and I made a speech, and I said, before I got on -- I said to the people who were sitting next to me, 'I've never seen anything like this.'"

Lawrence Summers' third denunciation of MMT is as follows: "Modern monetary theorists typically reason in terms of a closed economy. But a policy of relying on central bank finance of government deficits, as suggested by modern monetary theorists, would likely result in a collapsing exchange rate. This would in turn lead to increased inflation, increased long-term interest rates (because of inflation), risk premiums, capital fleeing the country, and lower real wages as the exchange rate collapsed and the price of imports soared."

But of course! That's all obvious, isn't it? Mr. Summers is just pointing it out. Exchange rates would collapse. It's the most obvious thing any reader of his argument can easily grasp and understand -- and that means "risk premiums" too (which clearly nobody wants).

At one point in his CPAC speech Donald Trump says this: "You know I'm totally off-script right now. And this is how I got elected, by being off-script. True. And if we don't go off-script, our country is in big trouble, folks. Because we have to get it back."

What strikes me is that our country is, indeed, in big trouble -- but it's because the "script" that's being read to us by our political leaders, commentators, and "serious economists" is nothing more than an incoherent babbling.


bruce wilder , March 7, 2019 at 10:15 am

"somehow by printing money" is a significant tell -- the stupider the clichéd metaphor, the more incoherent the economics. Summers in using that cliche is confusing currency with money, which error really ought to embarrass him, but obviously does not.

paulmeli , March 7, 2019 at 12:06 pm

Summers' Op-Ed is bafflegab of the highest order. It's sad that that's what passes for informed commentary these days, but I think for monetary issues that's always been the case. Any school that dares to teach monetary economics is defunded, exiled to 2nd or 3rd tier status.

There has been a lot of pushback on this Op-Ed and Krugman's from unexpected sources (Forbes, Bloomberg). This response is especially good:

https://www.forbes.com/sites/johntharvey/2019/03/05/mmt-sense-or-nonsense/#489e306c5852

Also, demonstrating what a careerist Krugman is: Paul Krugman to Bernard Lietaer: "Never touch the money system" https://www.youtube.com/watch?v=Q6nL9elK0EY . (short – 44 sec.)

Carey , March 7, 2019 at 12:33 pm

Good stuff! Thanks for those links.

Susan the Other , March 7, 2019 at 2:05 pm

Well of course Krug, "never look at money" because if you do you'll be blinded by reality.

sgt_doom , March 7, 2019 at 2:10 pm

Krugman has been a member of the lobbyist group for the central bankers, the Group of Thirty (www.group30.org) ever since it was founded by the Rockefeller Foundation back in 1978.

Carla , March 7, 2019 at 3:27 pm

I read the John T Harvey piece this a.m. because Yves had it in Links. It was so good I sent him a fan letter.

Tomonthebeach , March 7, 2019 at 4:27 pm

I read it 2 days ago and felt no compulsion to praise. Harvey includes some Summersian bullshit of his own. For example: "Just as the President's daughter said days ago, people like to work. Quite right."

Harvey clearly does not live on the beach where the slacker-surfer lifestyle dominates. Likewise, it seems likely that he has never had to manage human resources in a large organization where more than just a few workers are obviously not liking what they are doing.

The biggest barrier to full-employment is that not everybody wants to work or at least work very hard. That causes co-worker resentment, an unproductive workplace climate, and if ignored long enough, it can impair productivity to the extent that everybody becomes out of work.

Grebo , March 7, 2019 at 5:56 pm

So, you don't consider surfing work? Perhaps you're right, but I don't consider lack of enthusiasm for bullshit jobs evidence that people don't want to work.

paulmeli , March 7, 2019 at 6:02 pm

The biggest barrier to full-employment is that not everybody wants to work or at least work very hard.

Thank God for those people, it makes my life so much easier. You wouldn't like working in a world where everyone and anyone could replace you.

I've never worked in an environment where everyone pulled their own weight, but it's also true that we tend to hold others to a higher standard than we hold ourselves.

At any rate, I still don't want them to starve.

tegnost , March 7, 2019 at 6:35 pm

I'm not sure where you're surfing but in my experience it's doctors, lawyers, mba, engineers, and their kids. This link tells the story of the modern day surfer vs the stereotypical slacker surfer
http://www.surfparkcentral.com/surfer-statistics-infographic-the-common-us-surfer/

wetsuits cost hundreds of dollars, my cheapest new board was an ellington for $400 like 15 years ago (no, it can't really be that long ago?) My brothers quiver is easily worth $10,000, which is lucky for me because he can't ride them all at once. Not to say there isn't a large transient population, beaches have bathrooms and showers, but the surfer/slacker may not be a real thing?

tegnost , March 7, 2019 at 6:46 pm

also
https://brandongaille.com/22-surfing-industry-statistics-trends/
FTL
#12. In a survey about surfing in the United Kingdom, surfers were disproportionally represented in managerial, professional, or business-owning employment classes. Nearly 80% of surfers fit into these employment categories, compared to just 54% of the general population. (Surfers Against Sewage)

#13. Surfers also have a higher level of education attainment compared to the general population. In the UK, 64% of surfers reported having a higher education, compared to just 27% of the general population. (Surfers Against Sewage)

Carey , March 7, 2019 at 5:14 pm

I thought it was notably good too, and clearly written. Agree or not, what he was saying was not in question, unlike Summers's/ Krugman's slippery stuff.

WheresOurTeddy , March 7, 2019 at 2:00 pm

Larry Summers is on a list of people I've created where if I read or hear something they write or say and agree with it, I go back and check my premise on said topic.

Have never had to do so with Summers. This entire editorial reeks of Upton Sinclair's famous quote "it's impossible to get someone to understand something when his paycheck depends on him not understanding it."

John Harvey in Forbes takes Summers, Rogoff, and clown prince Krugman down point by point as well.

Phil in KC , March 7, 2019 at 10:18 am

Because I have only a single college course in Macro (taken 40 years ago), I am hardly any kind of economist, certainly not a serious one. But I do have some ability to parse a sentence and figure out the meaning–usually. Thanks for pointing out that the garble I can make no sense of is just garble. I thought I was just one of the uninitiated and ignorant masses.

I am curious about the audience Summers had in mind when he wrote or uttered this. Who are they?

voteforno6 , March 7, 2019 at 11:58 am

I think the important information is conveyed to his intended audience via the title – the rest of it is filler, to justify printing it.

You're not alone in your interpretation of his column. I have enough confidence in my reading comprehension abilities to state affirmatively that his column is full of Thomas Friedman-like gibberish.

polecat , March 7, 2019 at 12:51 pm

Tatooine IS a hard language to parse, afterall ..

WheresOurTeddy , March 7, 2019 at 2:01 pm

this effort by Summers is the editorial equivalent of spinning wheels furiously in a pit of mud

Carey , March 7, 2019 at 2:37 pm

I see it more as a holding action by the usual cast of characters.
For how long will it work?

Colonel Smithers , March 7, 2019 at 10:19 am

Thank you, Yves.

In the UK, we have a what you may call reverse Churchill problem, i.e. Churchill provokes mixed emotions in the UK, but is revered in the US. In the US, Summers provokes mixed emotions, but is revered in the UK, at least by the usual neo-liberal suspects. God Forbid. The family blogger has even been floated as a potential successor to Carney, probably a ploy by his vermin acolytes at the FT.

You will be delighted to hear that Summers' vicar on earth, or at least in the UK, New Labour family blogger Ed Balls was ousted from the Commons and some of public life by Andrea Jenkins. Jenkins is an Ultra Brexiteer, but History will be kind to her for sparing the long-suffering UK public from more of Balls. Oh, yes, she will be elevated to the Pantheon for that ouster alone.

diptherio , March 7, 2019 at 10:53 am

Larry Summers, famous for stating that there is a "good economic case" to be made for exporting all our toxic waste to Africa. Larry Summers, famous for claiming that there aren't more women in STEM fields because "girls are bad at math." Larry Summers, beloved of neo-liberals everywhere.

allan , March 7, 2019 at 10:57 am

How Larry Summers' memo hobbled Obama's stimulus plan [Dean Baker in The Guardian, 2012]

How Larry begat Donald. Austerity has consequences – who knew?

susan the Other , March 7, 2019 at 2:11 pm

indeed.

allan , March 8, 2019 at 10:41 am

Fiscal space and the aftermath of financial crises: How it matters and why [Christina Romer
and David Romer]

Abstract: In OECD countries over the period 1980–2017, countries with lower debt-to-GDP ratios responded to financial distress with much more expansionary fiscal policy and suffered much less severe aftermaths. Two lines of evidence together suggest that the relationship between the debt ratio and the policy response is driven partly by problems with sovereign market access, but even more so by the choices of domestic and international policymakers. First, although there is some relationship between more direct measures of market access and the fiscal response to distress, incorporating the direct measures attenuates the link between the debt ratio and the policy response only slightly. Second, contemporaneous accounts of the policymaking process in episodes of major financial distress show a number of cases where shifts to austerity were driven by problems with market access, but at least as many where the shifts resulted from policymakers' choices despite an absence of difficulties with market access. These results point to a twofold message: conducting policy in normal times to maintain fiscal space provides valuable insurance in the event of financial crises, and domestic and international policymakers should not let debt ratios determine the response to crises unnecessarily. [emphasis added]

If only one of the authors had been in a position to shape the administration's response in early 2009

La vendetta è un piatto che va servito freddo.

JCC , March 7, 2019 at 4:29 pm

Not to mention the article published here on NC back in 2013:

The very thing that the former endowment chiefs had worried about and warned of for so long then came to pass. Amid plunging global markets, Harvard would lose not only 27 percent of its $37 billion endowment in 2008, but $1.8 billion of the general operating cash – or 27 percent of some $6 billion invested. Harvard also would pay $500 million to get out of the interest-rate swaps Summers had entered into, which imploded when rates fell instead of rising. The university would have to issue $1.5 billion in bonds to shore up its cash position, on top of another $1 billion debt sale. And there were layoffs, pay freezes, and deep, university-wide budget cuts.

https://www.nakedcapitalism.com/2013/07/why-larry-summers-should-not-be-permitted-to-run-anything-more-important-than-a-dog-pound.html

shinola , March 7, 2019 at 4:40 pm

From that article:

"Summers is your man if you are a banker, looter, or plutocrat."

'nuff said.

WheresOurTeddy , March 7, 2019 at 2:04 pm

Churchill is revered in America by people whose memory only goes back to 1941 and even then, only plays the highlights.

This American thinks he was a war criminal many times over and in a just world would have died in a prison cell, but I recognize I'm the minority in my country

RBHoughton , March 7, 2019 at 8:39 pm

I don't believe anyone is completely useless. Al Gore made a follow-up film "An Inconvenient Sequel" which mentioned, inter alia, the likely failure of COP21 because India needed hundreds of gigawatts of new energy and the banks would dun them 13% on loans plus 2% for the exchange if they opted for green energy. Gore got onto Summers and a deal was thrashed out that was satisfactory to India. The country then signed the agreement along with the rest of the world. A man with that kind of clout with the hooligans in banking as valuable.

pretzelattack , March 7, 2019 at 8:47 pm

does he still have that kind of clout?

Redlife2017 , March 8, 2019 at 3:21 am

+1000 for some beautiful snark

Nina , March 7, 2019 at 10:21 am

I have considered Larry's presence in any political campaign the kiss of death, since Obama first ran for president. Fair warning, contenders for 2020! You do not want to be seen so much as shaking Larry's hand in public!

Matt Young , March 7, 2019 at 10:48 am

MMT is what we do. We cycle like MMT says we should, we tax and sequester like MMT says we should, we devalue once a generation as MMT says we should. We are MMT, Larry SUmmers is simply faking it to protect the Keynesian form of MMT. The difference between Keynes and MMT? MMTers have no assumption about smooth trajectories.

This is all the most useless debate among economists I have seen, and I have watched a ton of useless debates in the ten years of the last 'MMT' cycle. So, let us get on with the next MMT cycle, starting with a period of extraordinary means, followed by Tax and sequester, then if we are lucky, we get a devaluation, in proper MMT order.

bushtheidiot , March 7, 2019 at 12:19 pm

Bingo this guy gets it, we already print off a bunch of money to finance spending, lower interest rates to prop up spending and decrease debt costs, etc. Except the way we do it now benefits the rich by forcing the rest of us to spend spend spend because our money does nothing in the savings account. Meantime, the money gets pushed into stocks and bonds which benefits only a certain class.

This essentially paves the way for MMT, which is just to reallocate who gets the benefit of this money printing from the rich to the rest of us.

The current system clearly doesn't work, however, and the idea that we can just spend money we make up out of thin air as a stable plan is nonsense. Just like it was in 2008, and just like it is now with a 23 trilliion national debt.

We want medicare for all, increase the payroll tax and a small income tax, and that will do it. Charge everyone a "premium" for health coverage in their pay check that is far cheaper than what it is now, or let employers pay for it and get a tax deduction.

No need to print monopoly money for anyone–rich or poor. We are wealthy enough to afford this stuff.

WheresOurTeddy , March 7, 2019 at 2:08 pm

the rich have had socialism for decades. it has worked so well for them, now the rest of us want a bite.

Oh , March 7, 2019 at 3:28 pm

I agree regarding Medicare for all but it should be free. If money's needed, let's tax the banksters to pay for it. After all the owe us $23 trillion.

jsn , March 7, 2019 at 1:59 pm

This is really no different from the dust big tobacco kicked up for 30 years to deny cancer, or big oil and climate denialism: there are a bunch of greedy b******s out there who have been making a killing off of looting, asset stripping and environmental and social market externalities doing all they can to milk the last dollar from a completely rotten system.

Summers is pitching in to obscure perceptions of the rot that serves him so well.

WheresOurTeddy , March 7, 2019 at 2:07 pm

Stop any significant % of the war machine spending $1T+ per year and spend it at home in the US on crushing the price of housing and providing a jobs guarantee; you wouldn't be able to run from the economic boom anywhere

shinola , March 7, 2019 at 11:03 am

How dare anyone question Mr. Summers proclamations!

He has the credentials, the experience, the insights of a world class economist!

Just look at what Mr. Summers & his crew did for the Russian economy after the collapse of the USSR.
[sarc off]

Summers is the pet economist of the ultra neoliberal crowd.

WheresOurTeddy , March 7, 2019 at 2:10 pm

the word for people like Summers is "gatekeeper". He's doing his best to keep things within "the acceptable parameters of debate."

His is failing, will ultimately fail completely, and be discredited. I just hope he lives long enough to see it all happen.

Yves Smith Post author , March 7, 2019 at 4:12 pm

Look at what he did to Harvard! Wrecked its endowment by a stupid interest rate swaps bet. Harvard had to get rid of hot breakfasts and an expansion in Alford as a result.

https://www.nakedcapitalism.com/2013/07/why-larry-summers-should-not-be-permitted-to-run-anything-more-important-than-a-dog-pound.html

John Wright , March 7, 2019 at 11:20 am

Disclaimer: I'm no economist as my degree is in electrical engineering.

I prefer to look at MMT as somewhat similar to a company issuing additional common and preferred stock.

The company, in this case is a government.

In this view, common stock issuance (that pays no dividend) is new currency issued and preferred stock issuance = US treasury certificates that pay interest ( similar to a preferred stock dividend ).

One can argue that "the market" will not penalize a company (or government) when it raises funds via new stock issuance, IF the proceeds are perceived will be invested wisely.

But if the new stock issuance proceeds are perceived to be used foolishly than one would expect the issuing "company" will see the value of their preferred and common stock drop (as inflation decreases the value of its currency).

For example, if MMT minded US government issues new monetary "common/preferred stock" (creates new currency and issues treasury securities) and uses this purchasing power to improve US infrastructure, improve the bloated USA healthcare/financial industries or educates its people more cost effectively, then the global market could be completely happy with this use of the world's resources.

And the relative value of the US currency might be stable or even increase.

On the other hand, if the MMT minded US government issues more currency/securities and funds a destructive war, one might expect the existing global holders of the USA's currency and securities to be disappointed and push the relative value down.

Just as a corporation has to have some sort of resources (IP, customer list, inventories, market dominance, new products in development) that are valued for it to issue stock, a MMT minded government must be viewed as having resources and power.

For example, Haiti is a sovereign nation with its own currency, the Haitian gourde.

But I suspect Haiti will have a very difficult time using MMT (issuing gourde denominated securities) to improve its economy as it is perceived has having few resources and a prior history of resource squandering corruption (Papa/Baby Doc Duvalier) .

deplorado , March 7, 2019 at 2:55 pm

This is an excellent and very useful analogy, thank you!

Tomonthebeach , March 7, 2019 at 4:37 pm

I betcha that Haiti's debts are not in Gourdes but in Euros, Pounds, and Dollars. Most US debit to itself and foreign countries in our own currency. As Mosler points out, inflation often hurts our trading partners worse than it does us.

jsn , March 7, 2019 at 7:37 pm

A great analogy! And the value of a nations currency is a statement of market perception of the quality and effectiveness of its institutions.

charles 2 , March 8, 2019 at 12:37 am

I share your analogy 100% and I think this is the right way to present monetary theory (I don't want to say "modern" because it is more than a century that it works like this already). Although, I would add a twist : the government also distributes dividends in non monetary terms, by providing, say, free roads, free education or free healthcare ( In the preceding century, there were actually railroads issuing bonds that paid interest with free tickets !)
Of course, the amount of "paid in kind" dividend is similar whether one holds one dollar in the pocket or a million, so it is not popular with the wealthy class.
I think it is an important component to point out because one frequently encounters people who frequently complain that a dollar today is worth less than a dollar yesterday, but forget that between yesterday and today, the government provided services to the dollar holder regardless of him/her earning an income and paying taxes.

PlutoniumKun , March 7, 2019 at 11:22 am

I was going to ask the serious question 'how did Larry Summers get to his esteemed position in the first place ?' Nothing I've ever read by or about him over the years has indicated that he is anything but a second rate bluffer with a talent for impressing other bluffers, and yet in many quarters he seems to be held in significant awe.

But mindful of the rules here about 'setting homework' I looked up his career in Wikipedia. It seems he was quite influential in developmental economics, which no doubt led to his gig in the World Bank. So someone who is considered a Harvard expert in development economics writes:

Lawrence Summers' second point about the fallacy of MMT goes like this: "Contrary to the claims of modern monetary theorists, it is not true that governments can simply create new money to pay all liabilities coming due and avoid default. As the experience of any number of emerging markets demonstrates, past a certain point, this approach leads to hyperinflation. Indeed, in emerging markets that have practiced modern monetary theory, situations could arise where people could buy two drinks at bars at once to avoid the hourly price increases. As with any tax, there is a limit to the amount of revenue that can be raised via such an inflation tax. If this limit is exceeded, hyperinflation will result."

If someone talking in a bar said that, you'd consider him an idiot, or at best, someone who just hasn't read very much. And yet a Harvard professor can, without embarrassment, write such nonsense. And still be taken seriously. It really is unbelievable.

Mel , March 7, 2019 at 12:08 pm

The argument, shorn of the beebling and handwaving, does make some sense. A Haitian government, say, that tries to issue more gourdes (HTG) to pay off a US$ (or ECU, or anything foreign) debt is going to find out that no number of gourdes will be enough. It will have to be US$, and they will only be acquired on the terms the US$ creditor specifies. This has been true ever since independence, when the whole world insisted that the Haitians buy themselves back from France.
They can used gourdes to mobilize their own efforts and their own resources, and hope to achieve something with those.

Grant , March 7, 2019 at 12:30 pm

"A Haitian government, say, that tries to issue more gourdes (HTG) to pay off a US$"

That is a government creating its own currency, which it then has to exchange for another currency. That is roughly what Germany was forced to do with after the massive WWI debts were forced on it and it went through hyperinflation. The issue is owing money in another currency. MMT economists have said again and again that countries should try to avoid, if they can, owing money in a foreign currency. Obviously, many poor countries have no option. Different than a government issuing bonds in its own currency. If the Haitian government injected its own currency into the economy, then issued bonds in its own currency as a means of reaching its central bank's targeted interest rate, and Haiti owed money in its own currency, that would be a good comparison to our situation. Summers doesn't understand (or pretends not to) the problem of bringing up hyperinflation in places like Peru and Venezuela, or the problems poor countries face in regards to external debt, versus what the situation is in the US. We are in no way comparable to those countries or situations. It's absurd, and he knows better, or he should.

In regards to the debt of developing and underdeveloped countries; the big issue is the need for a massive debt write down (among a host of other things). On that, Éric Toussaint's work is hugely important.

a different chris , March 7, 2019 at 12:58 pm

>The issue is owing money in another currency.

Even in this case -- the point is how much of your own currency can you create? The runaway debt inflation is just getting the information the hard way. And it is irreversible, unless you can send out assassins to kill your off-shore debt holders.

If you can come up with a good idea of how much you can safely print, why borrow it? If there was just some academic profession that could come up with useful answers to that question

Grant , March 7, 2019 at 2:12 pm

"Even in this case -- the point is how much of your own currency can you create? "

This has been discussed many times. The broad limit is the productive capacity of the economy. Are we at full employment, are we at full productive capacity? If the change in the money stock is proportionally larger than the value of the goods and services created with that money, then you could have inflation. Could, because inflation is more complex than that. If the government were to create a bunch of money (forget private credit creation for a second since we can't control that much right now), but that money went to rich people that hoarded it, if it was used by companies to buy up their own shares, if it was used to buy goods from other countries, if it was put in a tax shelter, among countless other things, that money wouldn't circulate around the economy and wouldn't cause much inflation. It is possible for the government to create lots of money and for deflation to set it. Happened after the crash in 1929, that was Friedman's argument as to why the Great Depression happened. He said that even though the Fed was creating lots of money, the economy was contracting at a greater rate and so in real terms the money supply was shrinking. Steve Keen responded to that and showed the problems with that argument, but this dynamic is well known. Private banks creating credit money are a part of this and the crash in 1929 too. After the crash in 2007/2008, it is pretty well established that while the government did create a lot of money, it didn't create enough and it didn't channel to the parts of the economy that could have led to a recovery for working people. So, not only how much money is created, but where that money goes in the economy, whether or not more stuff can be produced, expectations of the future, among other things, will determine inflation.

"If you can come up with a good idea of how much you can safely print, why borrow it? If there was just some academic profession that could come up with useful answers to that question "

Not trying to be rude, but have you actually read MMT literature? Cause all this stuff is addressed. We don't borrow money in the way you think. The government, the US government, doesn't need to borrow or tax in order to spend. The particular way we have chosen to create money was developed decades ago, when we were on the gold standard and had either the value of dollars fixed to an ounce of gold, or later all currencies fixed to the dollar which could be exchanged in a given amount for gold. We aren't on gold anymore. We could just have the government spend the money into the economy and use taxes to manage inflation. We don't have to issue bonds, and Wray I believe has said that states that have control over their own currencies shouldn't issue bonds in this way anymore. But those bonds come with no risk at all (the government will not default on the bonds unless forced to by politicians) and they accrue interest, so investors like them, especially when there is uncertainty. But we don't have to issue bonds AFTER the government spends to manage inflation. My understanding is that the Fed is the buyer of last resort on the secondary market for bonds, and those that take part in bond auctions are required to actually bid. I don't see why investors would all of a sudden not like US bonds (it would have to be something with geopolitical implications) but even if they did, the situations could be dealt with, and again, we don't need to even issue bonds in order to spend anyway. That is a radically different situation than Haiti owing money in another currency and being massively in debt to other countries in other currencies, with little ability to export value added goods that have strong terms of trade. Read up on the amount of debt owed by Haiti to France since the Haitian revolution, and the amount of debt paid but still owed by developing and underdeveloped countries in the post-WWII era. You think Summers cares? How in the world is that comparable to the US in 2019? It is ridiculous, and Summers knows it.

Oh , March 7, 2019 at 3:38 pm

Great response!

ChrisPacific , March 7, 2019 at 3:24 pm

That is true and it's one of the key factors that can lead to hyperinflation. However, Summers isn't talking about that scenario. Nothing in his argument mentions foreign currency denominated debt. He's simply claiming that there is some upper limit on deficit spending beyond which the economy will automatically tip over into hyperinflation. I'd love to see him point out one instance in history where that's happened without external factors like foreign currency debt playing a role. The closest thing I can think of is credit bubbles, but those are self-correcting in the long run and can't spiral out of control like hyperinflation.

urblintz , March 7, 2019 at 2:07 pm

He was brought into politics by wait for it. Ronald Reagan.

"Summers was on the staff of the Council of Economic Advisers under President Reagan in 1982–1983." https://en.wikipedia.org/wiki/Lawrence_Summers#Public_official

And most people still don't know how he helped plunder post-Soviet Russia and the real scandal he survived at Harvard.

https://directeconomicdemocracy.wordpress.com/2013/09/03/larry-summers-the-shleifer-russia-fiasco-and-kleptocracy-as-a-guiding-ethos/

WheresOurTeddy , March 7, 2019 at 2:12 pm

he came in with the armada of economic pirates that was 1981 and has been looting ever since

Yves Smith Post author , March 7, 2019 at 4:14 pm

He has two uncles each of whom was a Nobel Prize winners: Paul Samuelson and Ken Arrow. Summers was to the economic manor born.

PlutoniumKun , March 7, 2019 at 6:01 pm

Wow, I'd no idea of that. Whatever about Samuelson (yes, I suffered through his textbook), Arrow did some very interesting and incisive work. I guess Summers was, as the Vietnamese would say 'second rice crop'.

charles 2 , March 8, 2019 at 12:50 am

'how did Larry Summers get to his esteemed position in the first place?'

Larry Summers became a famous economist like Donald Trump became a famous property developer : through family

From his own website :

"I remember the fall night in 1972, after Kenneth was awarded the Nobel Prize. The other American Nobel Prize winner at that moment, Paul Samuelson, also my uncle, hosted a party for Kenneth and the Cambridge economics community. I was a sophomore economics major at MIT, so I was hardly appropriate company for such an august gathering, but I was a little unique in being related to both the host and the honoree, so I was invited and I participated as best I could in the conversation."

timbers , March 7, 2019 at 11:39 am

Reminds me a scene in John Carpenter's Christine: "There's no smoking in this garage!" the owner says having gotten up from a card game where all his buddies are sitting around a table waiting for him to rejoin them, as they all smoke." "Sir, those men over there are smoking. You better them them to stop."

Jerry B , March 7, 2019 at 12:02 pm

Here is an article discussing the recent dust up on MMT:

https://www.forbes.com/sites/johntharvey/2019/03/05/mmt-sense-or-nonsense/

From the article a quote from Keynes:

"The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds."

And this from the author of the article:

"Those prominent economists aren't even so much rejecting MMT as holding tight to their own orthodox views. This is not necessarily on purpose, but it's extremely difficult for anyone to make a paradigm shift. MMT, aka macroeconomics done properly, is, as Keynes says, "extremely simple and should be obvious." The problem we have here is the difficulty in escaping from antiquated notions of macro modeling (Krugman), inflation (Summers), and debt financing (Rogoff)."

I think one of the problems we have in this country and the world is that what we think of as the mainstream educational model is actually socialization, indoctrination, brainwashing, and or ideological training. And then "jobs" are based on how well you bought in to that brainwashing.

Various education reformers over the past decades such as Ivan Illich and John Taylor Gatto have mentioned similar critiques of education in the US and the world in that our educational system does not foster problem solving and critical thinking.

It is my belief that our educational system creates a type of false self in people. In order to get the "right" answers and do well on tests, etc, you have to compromise your truth, your experience, and your true self and allow yourself to be programmed in the particular models of your profession.

Maybe in Summers, Hillary, and Trump's case, as they have gotten older that "programming memory/false self" is starting to become fractured due to cognitive decline, physical issues, stress, fatigue, etc. and as they desperately try to regurgitate their brainwashing it is coming out in an incoherent mess.

As Summers is only 64, before Yves jumps on me for equating cognitive decline with being older or in one's 60's I think it is specific to each individual. I just turned 60 and my brain is as sharp as ever, it is my body that is slowing the train down!!

To illustrate my point, a while back I read Anthony Atkinson's book, Inequality: What Can Be Done? He mentions in the book that Greg Mankiw's Principle of Micro/Macro economics textbooks have very little on the subject of inequality. How could a mainstream textbook on economics not have a significant portion on inequality?? IMO because in Mankiw's case inequality does not fit his ideology.

NC has a way of posting articles the same day that can be connected. I think this post can be related to the " Is a Harvard MBA Bad for You?" post. The MBA becomes brainwashing. Instead of trying to solve a problem MBA'ers and other professions try to fit the ideology of what they were taught in school to the problem.

To use an analogy: there are usually multiple routes to get from one town to the other. It does not always have to be the "main road". Sometimes the main road is not always the fastest, shortest, etc. And sometimes by taking the same road all the time, one's perspective becomes narrow and hinders thinking outside of the box.

To borrow Henry Ford's quote: "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

After decades of allowing ourselves to be brainwashed, I think we are starting to, as J.D. Alt mentions above, "question the scripts" and are finding them to be a house of cards.

Susan the Other , March 7, 2019 at 2:32 pm

Well you are just a kid. I'm 72 and I think I'm a family blogging genius but it could be just the first symptom. Whatever I'm going to tell you guys what I think about this stuff until I get politely censored. I never studied economics – but I studied languages until words were falling out of my ears. And in my lexicon Larry doesn't even have the integrity of an idiot. Sometimes an idiot is spot on. Larry is a deceptive, self-serving power tripper dedicated to a time gone by and never to return. Too bad.

Jerry B , March 7, 2019 at 3:27 pm

Thanks Susan! Recently I went to my doctor and he asked me how I was feeling. I said physiological (my term for non-skeletal) I am 40. Structurally (arthritis, herniated discs, etc. etc.) I feel like I am 70!

===but I studied languages until words were falling out of my ears===

I have always had an intuitive sense for language. Verbal and non verbal language. The words used, tone, inflections, etc. Andrew Carnegie once said that the older he became the less he paid attention to what people said and the more he paid attention to their behavior. And I think that is partly true but language is important.

And as you mention language can be used to convey power. Pierre Bourdieu wrote Language and Symbolic Power which I have been wanting to read. I have also skimmed through some of Michel Foucault's work on discourse analysis.

Also I have read some of Kenneth Burke's work such as A Grammar of Motive's and A Rhetoric of Motives. After reading Burke's books I became more curious about people's motives behind their language and behavior, and also the idea of rhetoric. IMO Obama is a master at rhetoric and hence could fool a lot of people, while Trump sucks at it.

If you have not done so already I suggest looking up the Logical Fallacies links on NC's policies page. I believe a lot of language uses for power are in snowing the public in using arguments or propaganda that contain logical fallacies and heuristics. I have learned a lot in examining what people say and their arguments from NC.

Grant , March 7, 2019 at 12:18 pm

Yeah, I found what he said to be absolutely absurd. He seems to believe that MMT describes something we might do, as opposed to explaining how things are, at least in countries like the US. If he can't understand, or pretends to not understand, the difference between a country owing money in a foreign currency versus issuing bonds in a country's own currency, and the actual role of bonds in the US system or how money is actually created, then he isn't trying. Cause, whatever we want to say about Summers and all he represents, he isn't a stupid man. I haven't seen a single critique of MMT from the likes of Krugman or Summers that demonstrates that they understand the thing they think they are critiquing, or that they understand how things actually work. In response to MMT, they either respond with some models that they were taught that aren't based in reality, or they just lie about MMT. It is the economic version of people like Pelosi lying about single payer in the political sphere using ridiculous logic.

That, to me, is frightening, given how much power he has and who he has been hired to give advice to. People like Summers seem to freak out, really when you look at it, by the fact that we are questioning a fantasy account of how things are. They want to continue to make policies on the assumption that things are in reality what they say they are in their models, and there is a huge gap between the assumptions in their models and reality. If he were to acknowledge the insights from MMT about how things work, many of the excuses those in power have for doing nothing as the country falls apart would crumble, and those doing nothing are then more directly responsible for the impact of their policies. Once you realize that they are not investing in communities being neglected by private interests, they aren't investing in things needed to deal with the environmental crisis, they aren't helping to fund programs to get people healthcare or things like clean water (communities like Flint say hello) because they are paid by interests to do those things, and for ideological and class reasons, they can no longer pretend that the government "can't afford" those things. The debate switches to a place they don't want to be in, and they are then more responsible for the decisions they make. It is no longer about circumstances forcing themselves on these worthless politicians.

skippy , March 7, 2019 at 1:26 pm

Larry Summer: We Print Our Own Money

Published on Apr 3, 2014

https://www.youtube.com/watch?v=vuqQ3FZuSUs

I also think some need to observe that Keynes was not a Keynesian in the manner that mainstream use the IS-LM. One is the use of econometrics and the other is the IS-LM was a – starting point – of observation that needed more fleshing out and not some "economic law [tm] carried down the mount.

Would additionally point out good old Ralph Musgrave over at TJN proclaiming his long support for MMT with caveats, sadly anyone with with a functional memory would know key MMT'ers stance with Musgrave does not support those claims.

PS. great start to the day 50kg black German Sheppard just bound up on the bed – all wet – and wanted to share his eagerness for the day .

Gary Gray , March 7, 2019 at 3:36 pm

Keynes believed in governments planning more investment, especially during down times. This is the blunder modern day "sheep" don't understand. It isn't deficits that matter, but pushing the investment into usage/production. Deficits like we have now are nothing more than public debt underwriting private debt expansion via financial engineering. Of course market statists would hate the government with a bigger % of total investment, as they would lose control of the economic system and bow to the will of another.

Its amazing how dopamine release and other "feel good" consumption based games and circuses so rules the people. All they live for is the fix. The bourgeois sells it them as "their fix", "their ownership" of said fix while they rake in profits and destroy the environment. Truly like the Roman end times. No wonder the Christians are so worried. They see themselves replaced like the old rituals and traditions that proceeded it.

WestcoastDeplorable , March 7, 2019 at 1:45 pm

Yves, I'm not a MMT fan, but you're spot-on about Summers. Didn't he lose the Harvard Endowment over $1 Billion with his "sage management"? He's an idiot.

skippy , March 7, 2019 at 2:28 pm

One would think after the Chicago boys foray with Born and its after math people would question the use of such people as PR tools – well must be running dry.

Suggest you look into the groundings of MMT and not emotive processes – see link above. Keynes started a process to refute orthodox thinking, seems some post morte folded parts [tm] into orthodox thinking so they could own – manage that perspective. Hence when needed mainstream will utilize Keynes to say money is not a problem and then completely reverse azimuth and say Keynes said money is a problem ..

Can't wait till they take Marx out of context to support some elitist social views ..

Grant , March 7, 2019 at 3:03 pm

I am curious, just want to know. When you say you aren't a fan of MMT, what is the reason? I am interested in good critiques of its insights, just hard to come by, since it does seem to describe present really pretty well.

Adam1 , March 7, 2019 at 2:25 pm

As with most "serious economists" he's really an overpaid fraud. The man professes to understand government deficits, yet he has no idea how the accounting works.

From Warren Mosler
"Several years ago I had a meeting with Senator Tom Daschle and then Asst. Treasury Secretary Lawrence Summers. I had been discussing these innocent frauds with the Senator, and explaining how they were working against the well being of those who voted for him. So he set up this meeting with the Asst. Treasury Secretary who was also a former Harvard economics professor and had two uncles who had won Nobel prizes in economics, to get his response and hopefully confirm what I was saying.

I opened with a question: "Larry, what's wrong with the budget deficit?"

To which he replied: "It takes away savings that could be used for investment".

To which I replied: "No it doesn't, all Treasury securities do is offset operating factors at the Fed. It has nothing to do with savings and investment".

To which he replied: "Well, I really don't understand reserve accounting so I can't discuss it at that level".

Senator Daschle was looking at all this in disbelief. The Harvard professor of economics Asst. Treasury Secretary Lawrence Summers didn't understand reserve accounting? Sad but true."

Susan the Other , March 7, 2019 at 3:06 pm

Note to Larry, please follow this logic: Money is Fiat; Fiat is cooperation; Cooperation is fiscal control; and fiscal control is civilization. Nowhere in this chain of thought does debt; interest; austerity; or any of your other little techniques even exist. Those bizarre ideas exist in more primitive thinking about power and slavery and savage exploitation. You know the routine.

Gary Gray , March 7, 2019 at 3:19 pm

Maybe, but debt expansion is debt expansion. Globally debt exhaustion looks to have been reached and we are at the top of the mountain. We are at the first stage, the next stage is what triggers the recession. The last stage, the Minsky moment.

Summers is a cluck, but a useful one in this case. The move from a mixed economy to financial engineering is very addictive to the "people". Moving back to a mixed economy won't be all giggles for everybody as consumption is naturally cut.

Like all junkies, the detox won't be easy and in some cases, fatal.

Susan the Other , March 8, 2019 at 10:09 am

Yes, it is what is so frightening about our current breakdown. Debt is the whole system. It was necessary to maintain that system. But there's no reason why debt can't be put in what banksters call a "bad bank" and just let it run off the books. It can all be done in some resolution that forgives some and allows some to linger without interfering in the economy anymore. There will always be private debt, so caveat friends and neighbors. But there's no reason to suffer an impossible debt burden as a sovereign nation. And from here on in we should not buy anything unless it can be purchased in US dollars/treasuries. The debt to ourselves doesn't matter. The thing that matters is how we spend our money, do we waste time on bad projects or do we create a more valuable civilization with good ones? Debt is just a monkeywrench, useful to gamblers and middlemen. We could configure a completely different economics with very little pain if we put our minds to it.

Samuel Conner , March 7, 2019 at 4:45 pm

I find it profoundly encouraging that it seems that the best that the best credentialed opponents of MMT can do is what is described here.

They aren't ridiculing MMT; they are embarrassing themselves.

KLG , March 7, 2019 at 5:16 pm

Another good link to Larry Summers, Serious Economist. I remembered this passage from Herman Daly's book, and the magic of DuckDuckGo found this. Long but worth the few minutes. NB, I don't know anything about this blogger:
https://sallywengrover.wordpress.com/tag/herman-daly/

Carey , March 7, 2019 at 7:16 pm

Yes, that was a good link. Bookmarked that site.

The Rev Kev , March 7, 2019 at 7:32 pm

Not much love for Larry Summers here – and rightly so. I remember reading a conversation that he was in where he explained how things worked. I'll see if I can summarize it-

Larry Summers is a serious person.
Important people listen to serious people.
This is how serious people express power – by having important people listen to them.
Golden rule is that serious people never criticize each other in public – ever.

I'm sure that people here can pick out the flaw in this arrangement – as in Garbage In, Garbage Out as far as important people are concerned and the information & opinions that they receive.

KLG , March 7, 2019 at 9:57 pm

I saw what you did there.

charles 2 , March 8, 2019 at 1:07 am

Seriously, what would you expect from a person who writes this at the first paragraph for his biography (emphasis mine) :
"Dr. Summers' tenure at the U.S. Treasury coincided with the longest period of sustained economic growth in U.S. history. He is the only Treasury Secretary in the last half century to have left office with the national budget in surplus . Dr. Summers has played a key role in addressing every major financial crisis for the last two decades."

Change "addressing" by "participating in the genesis of", and you are quite close to the truth

Susan the Other , March 8, 2019 at 10:19 am

Mmmm, and all that treasury surplus was accrued by Larry's Austerity which exponentiated the private debt and turned into the 2008 tsunami. Heck of a job, Larry.

Mike Barry , March 8, 2019 at 7:14 am

Larry Summers, a Serious Economist

"You cannot be serious." -- John Mcenroe

Stillfeelinthebern , March 8, 2019 at 9:30 pm

"Larry Summers, like Hillary Clinton, does not seem willing to get the message that it would behoove him to retreat from public life."

Love this sentence!

Fazal Majid , March 9, 2019 at 12:11 am

Larry Summers is useful as a canary. The day Obama appointed him as an adviser (before his inauguration) was the day I understood Obama would do diddly squat about fixing the root causes of the Great Recession.

The part I don't understand is how he gained his prominence, other than literal nepotism. You'd think the fact he lost Harvard's endowment a cool billion would have killed his career given how prominent Harvard grads are in the US' power structure.

Sound of the Suburbs , March 9, 2019 at 3:50 am

2008 was the wakeup call global policymakers slept through.

"We cannot solve our problems with the same thinking we used when we created them." Albert Einstein

This is exactly what we've been trying to do since 2008.

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png

Our policymakers thought this was a "black swan", and if your economics doesn't consider debt it is.

One question led me to the answer. "How does money get destroyed in the system?"

This is what happened, how did it happen?

It can't happen if banks are financial intermediaries as our policymaker's believe.

Other people have been looking into this and so there is a lot of work that has already been done to help you get to the answer.

The central bankers later confirmed how money gets destroyed in the system.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

We were flying blind during globalisation and policymakers didn't understand the monetary system.

The FT revealed the Chinese were undertaking a major study of the West.

I think they must have worked out things are fundamentally wrong as they have made all the classic mistakes everyone else has made since 2008.

They have already worked out inflated asset prices and the private debt-to-GDP ratio are indicators of coming financial crises and these were the indicators that showed 1929 and 2008 were coming.

By the time they understood what was going on the Minsky Moment was dead ahead, and they could no longer use the debt fuelled growth model they had used before.

When US policymakers understand the monetary system they may be able to make some valid comments.

[Mar 05, 2019] On origin of the phase There ain't no such thing as a free lunch

Mar 20, 2017 | economistsview.typepad.com

RC AKA Darryl, Ron -> mulp ... "...TANSTAAFL" March 20, 2017 at 04:59 AM

https://en.wikipedia.org/wiki/There_ain%27t_no_such_thing_as_a_free_lunch

"There ain't no such thing as a free lunch" (alternatively, "There is no such thing as a free lunch" or other variants) is a popular adage communicating the idea that it is impossible to get something for nothing.

The acronyms TANSTAAFL, TINSTAAFL, and TNSTAAFL, are also used. Uses of the phrase dating back to the 1930s and 1940s have been found, but the phrase's first appearance is unknown.[1]

The "free lunch" in the saying refers to the nineteenth-century practice in American bars of offering a "free lunch" in order to entice drinking customers.

The phrase and the acronym are central to Robert Heinlein's 1966 science-fiction novel The Moon Is a Harsh Mistress, which helped popularize it.[2][3]

The free-market economist Milton Friedman also popularized the phrase[1] by using it as the title of a 1975 book,[4] and it is used in economics literature to describe opportunity cost.[5]

Campbell McConnell writes that the idea is "at the core of economics".

[I was a bigger fan of Robert Heinlein's than I was of Milton Friedman and even then it was "Stranger in a Strange Land" and "The Unpleasant Profession of Jonathan Hoag" rather than later works that appealed to me.]

[Mar 05, 2019] Milton Friedman now firmly belongs to the dustbin of history

Mar 05, 2019 | crookedtimber.org

reason 02.15.19 at 8:12 am 21 (no link)

Just as an aside. It is worth remembering where the current globalization came from historically.

It started with the 1970s inflation, (caused partly by the oil crisis) and the coincident abuse of monopoly power by a number of unions (please those on the outer left don't try to pretend it didn't happen, it did).

Uncle Milton came along with plausible sounding solutions (monetarism and increasing foreign competition). Increasing foreign competition worked for a while – until the mergers starting being international and industry concentration increased on an international scale (and so was harder to combat).

Uncle Milton has since been proved wrong about almost everything. His one big idea that never got tried (negative income tax – which could implemented more simply and effectively as a universal basic income) ironically is the only one I think was good.

[Mar 05, 2019] Hurrah ! Mankiw to Leave Flagship Harvard Ec 10 Course News by Molly C. McCafferty

One neoliberal jerk less...
The Harvard Crimson

After more than a decade at the helm of one of Harvard's largest courses, Economics Professor N. Gregory Mankiw announced in an email to graduate students Monday that he will step down from teaching Economics 10: "Principles of Economics" at the end of this semester.

[Feb 13, 2019] Mathiness and game thoery

Any good mathematical theory can be misapplied and perverted if there is social pressure and money to do so..
Feb 13, 2019 | www.alternet.org

Game Theory:

A glossary of exploitive economics 'Lean in' and 8 other bad business buzzwords that should be phased out – Alternet.org

The use of mathematics to model human reality; one of the more bizarre offshoots that followed the mathematization of economic thought in the 20th century.

Game theory focuses on strategies used by competing actors to make rational decisions. What should I do given my opponent may subsequently decide A, B, C, or D? It was pioneered by John von Neumann, John Nash, and Oskar Morgenstern. The assumption that social life is a game of logic between conniving actors is foundational to this view of economics. But do we really behave in such a "me versus you" manner?

Game Theory's rational individualism closely resonates with neoliberal capitalism because it reconceptualizes everyone as mini corporations who are totally selfish.

Individuals compete rather than share; seek to outsmart the next person rather than empathize. Proponents of the approach often use the "as if" defense. The model might not perfectly match reality, but we can approximate how someone behaves in the real world by assuming they act "as if" they're Nashian plotters.

It's the normative assumptions underlying this "as if" that are problematic that at bottom we're all greedy and impatient bankers. One could just as well argue that people act "as if" they're trusting and altruistic socialists, but Game Theory won't have any of that.

[Feb 02, 2019] As goes January, so goes the year Old Wall Street indicator puts odds of 2019 gain at more than 80% by Patti Domm

This is a classic, textbook example of financial astrology... You probably should read it in full to appreciate the depth of junk science here. But this is financial casino my friends, and they try to entice you with naked girls and drinks...
Feb 01, 2019 | finance.yahoo.com

Stocks had their best January gains in more than 30 years, and that should mean 2019 will be a pretty good year for the market.

That's what the widely watched January barometer tells you - as goes January, so goes the year. According to Stock Trader's Almanac, going back to 1950, that metric of January's performance predicting the year has worked 87 percent of the time with only nine major errors, through 2017. In the years January was positive, going back to 1945, the market ended higher 83 percent of the time, according to CFRA.

But the indicator also signaled a positive year last year, and the market suffered an unusual late-year sell-off, wiping out all of the gains. The S&P 500 ended 2018 down 6.6 percent, despite rising 5.6 percent in January. But the S&P also defied history with a terrible December decline of 9.6 percent , the biggest loss for the final month of the year since 1931.

This January, the S&P 500 was up 7.9 percent. The best January performance since 1987, when it rose 13.2 percent. It was its best overall month since October 2015.

Some market pros worry the sharp snapback in stocks since the late December low means January could be stealing the gains from the rest of the year. Some also believe there could be another test at lower levels in the not too distant future. Yet, Wall Street forecasters have a median target of 2,950 for the S&P 500 at year end, a big leap from the current 2,704.

"I'm still struck between the contrast of a year ago and now," said James Paulsen, chief investment strategist at Leuthhold Group. "We came in last year with nothing but optimism. At this point last year, we had synchronized global growth, confidence had spiked to record post-war highs, and everyone knew we had this steroid-induced earnings boost coming. The thought was how could stocks lose, and of course they did."

The market has sprung back from December's low, with the S&P gaining 15 percent since Dec. 26.

"This year, we came in with nothing but bad news - the economy was slowing down. ... The rest of the world is slowing. We have trade wars. We have the shutdown, and analysts are revising earnings lower," Paulsen added. "We're worried about a recession and a bear market. It's strikingly different, and yet it's kind of like how can stocks win, but they are and I think they will."

Strategists also point to the differences in the way the market traded in each January. This January has been full of volatile swings, with ultimately larger gains than losses. Last year, the market was at the end of a long smooth glide path higher.

Last year didn't work

Stocks did well through most of January 2018, but by the end of the month, a correction started. "On January 30, in 2018, it was the first 1 percent decline in 112 days. That was basically the start of the fall off the cliff. In terms of percent gains, this January is similar to last, but in terms of where we've come from, it's very different. That was one of the calmest advances in history," said Frank Cappelleri, executive director at Instinet.

Cappelleri said it's important to put this year's market move in context, when considering the January barometer. "You have one of the biggest snapbacks after a very bad December, so the odds were in the market's favor to do better than that. I think maybe you have to look where we are now. You're up 15, 20 percent from the low depending on where you look. Are we going to go up that much more for the rest of the year?" he said.

Paulsen sees the gains continuing, after a possible pause. "I think it's going to continue to be a fairly good year, and I think we probably go up and get close to the highs or 3,000 on the S&P, and I'm not expecting hardly anything on the economy, and earnings are going to be weak, if not flat or maybe down," Paulsen said.

He said the slowing economy and a potential U.S.-China trade deal could push the dollar down and that would be a positive for stocks. At the same time, the Fed has paused in interest rate hikes and may even stop its balance sheet unwind.

Jeff Hirsch, editor-in-chief of the Stock Trader's Almanac, said there's another set of statistics that are in the market's favor for a positive 2019, though they also failed last year. He said for the years when the S&P 500 was positive in the first five days of the year, plus gained during the Santa rally period, and was up for the month of January, the S&P 500 had a positive year 27 out of 30 times. It also had an average gain of 17.1 percent in those years, since 1950.

Nick 29 minutes ago

Job growth is solid. Unemployment remains near all time lows even while labor force participation increases. Wage growth outpaced inflation last year. The economy is humming right along...its just the liberal media wants to bombard us with articles claiming the Trump recession is imminent.

I'm surprised they actually published an article sayings its going to be a good year.

[Jan 30, 2019] The Natural Rate of Interest Is Anything But

Notable quotes:
"... By Enrico Sergio Levrero, Associate Professor of Economics, Roma Tre University. Originally published at the Institute for New Economic Thinking website ..."
Jan 30, 2019 | www.nakedcapitalism.com

By Enrico Sergio Levrero, Associate Professor of Economics, Roma Tre University. Originally published at the Institute for New Economic Thinking website

In contrast to Keynes's emphasis on the monetary nature of interest rates, the modern theory of central banking focuses on a benchmark rate for monetary policy that reflect "fundamental forces" supposedly unaffected by monetary factors. Its theoretical underpinning stems from Wicksell's analysis of the relationship between market and natural interest rates as restated in the so-called New Keynesian theory which combines real-business-cycle general equilibrium models with imperfect competition and nominal rigidities.

Here, at least in the short run, discrepancies between the actual and natural interest rate are deemed to lead to a rate of price inflation different from the desired and expected one. If some kind of price rigidity is present, the interest rate difference will also lead to a discrepancy between actual and potential output. The resulting rule for monetary policy is that authorities should credibly commit themselves to following the natural rate of interest (NRI). They must therefore forecast this "neutral" rate, namely, the real rate that, if maintained, would keep the economy at its production potential over time.

Despite the mainstream consensus on this approach, determining the "equilibrium interest rate" is a murky business . A first problem is that, while the "benchmark rate" ought to be based on sound theoretical foundations that allow a meaningful interpretation of its behaviour, all sorts of definitions of it appear in the literature when assuming real shocks away from balanced growth. They reflect the theory's reliance on notions of perfect or imperfect competition in commodities and factor markets as well as the possible influence of transitory or only permanent components of the natural rate.

The result is usually a view in which we have a "short-run" natural rate of interest that varies (usually pro-cyclically) during the cycle, resembling Dennis Robertson's old prescription that monetary policies should follow temporary shifts of the demand for and supply of loanable funds, along with a long run natural rate that corresponds to potential output for a given degree of market imperfections when both causal shocks and lags of adjustment are averaged out.

The two approaches lead to divergent monetary policies. If you try to conduct policy by reference to the long run notion of the natural rate determined by the steady state IS curve when all the lags and random shocks disappear, you will not favour sharp changes in the short-term interest rate during the cycle. By contrast, if you rely on a "short run" natural rate that could fall during a crisis, you would see a slow decrease in the policy rates as too little to stimulate economic activity.

Compounding these difficulties is the variability induced by the estimation methods of the natural rate of interest. The benchmark rate of the monetary policy should in fact be readily computable from observable economic data, but its counterfactual nature inevitably leads to a variety of estimation methods with results that recall the early criticism by Myrdal and Lindahl that Wicksell's natural rate is not an operational notion in the sense that it was incapable of practical application. With each the econometric method raising special problems of its own, the resulting variety and uncertainty of the value of the natural rate cannot but pose significant challenges for practical monetary policy.

The divergent estimates of the NRI advanced during the recent 2008 crisis are a case in point. The estimates vary hugely, with model-based and filtering methods producing higher volatility than semi-structural approaches or peak-to-peak averages. Some estimates of the NRI provided negative values on average and not only as a possible (short-lived) effect of temporary shocks, whereas others suggested that the NRI remained close to but higher than zero. These differences imply drastically different evaluations of the stance of monetary policy as policymakers weighed whether it made sense to drive the nominal policy rates towards their zero lower bound.

But the limits of the NRI as a benchmark for monetary policy are not only statistical or related to the difficulty of distinguishing among the kind and persistency of economic shocks. They pertain to the theory itself, specifically to model specification and the alleged independence of the average or normal interest rate from monetary policy.

Firstly, New-Classical and New-Keynesian models focus on the volatility of output, that is, its variance, on the assumption that the output gap will be closed by market forces. This hides the fact that potential output may fall during the crisis due to the destruction of productive capacity stemming from a fall in effective demand. This would break down the distinction between short-lived demand shocks on the one hand and supply shocks on the other, thus complicating any estimate of the NRI and raising questions about its theoretical relevance.

Secondly, in both the theoretical models and estimate procedures, an inverse relation between the interest rates and components of aggregate demand is postulated as well as between the former and the price level, although such relations are acknowledged as being weak and doubtful. In practice, output elasticity with respect to interest rates appears low and asymmetric, and investments in fixed capital are determined mainly by expected changes in aggregate demand. Moreover, the Gibson paradox and its modern restatement in the price puzzle suggest that a direct relation between prices and the interest rate may exist due to prices adjusting to the monetary costs of production which include the pure remuneration of capital, that is interest costs. All this implies that, if, after a fall in the interest rate, we observe a fall in prices (or una tantum a lower rate of inflation), this would not signal that the NRI should be lower. Nor should a low elasticity of output to the interest rate be interpreted as a reliable sign that the natural rate of interest has fallen.

But a more fundamental criticism can be advanced concerning the sheer existence of a natural rate of interest determined by "productivity and thrift" independent of the monetary policy. New-Keynesian models restate the loanable funds theory, viewing the market rate of interest as determined by the supply of and demand for credit, with the natural rate of interest set by the supply of and demand for savings when output is at its potential level. This theory was already criticised by Keynes, who questioned whether investments adjust to savings through changes in interest rates. On the grounds of the principle of effective demand, Keynes argued that savings equalise investments by means of income changes and considered the notion of the NRI as not useful. He instead viewed the rate of interest as a monetary phenomenon to which capital profitability would adjust. He also argued that credit is not an alternative to savings but the necessary preparation for them and that until potential output is achieved, investments are financed by the finance process and income changes rather than by any previous saving supply.

This criticism of Keynes and his idea that there is no mechanical tendency to full employment was strengthened later by the Cambridge capital controversy which showed that it was impossible to derive a decreasing demand curve for investments with regard to the interest rate -- a decreasing curve which is at the root of the neoclassical mechanism guaranteeing the tendency of actual output toward potential output. Unless a single commodity economy is assumed, a surrogate production function cannot in fact be derived due to the phenomena of re-switching and reverse capital deepening. Moreover, in the market for savings and investment, there may be multiple equilibria, the capital-labour ratio is not necessarily higher for a lower interest rate, and changes in the rate of interest out of equilibrium may be so strong that they question the validity of the theory.

If we put aside the loanable funds theory, due prominence can be given to Keynes's idea that the rate of interest is a highly conventional phenomenon. It opens the way for levels of rates of interest that are shaped by monetary authorities that affect income distribution, and this possibility casts a different light on the purposes and channels of transmission of the monetary policies. Of course, monetary policy is not advanced in a vacuum but takes into account the course of money wages and, more generally, the economic and financial conditions of the country involved. Yet, the benchmark rate to which monetary authorities anchor their decisions does not appear to reflect "fundamental forces" acting independently of monetary factors, and therefore those decisions cannot be conceived simply as a technical device used to find out the "true" natural interest rate.

Summing up, estimates of the NRI are misleading both on empirical and theoretical grounds and monetary policy is not neutral, primarily because it may influence the division of the surplus product among different classes and social groups. Quite paradoxically, however, the tricky nature of those estimates, with their consequent downward revision during the crisis due to their sensitivity to current economic conditions, has been used by Central Banks to pursue a regime of low interest rates that was required by the macroeconomic situation of industrialized countries after the 2008 crisis. The cost of doing this has been to hide the asymmetric effects and delay in the transmission of monetary policy, since the scant reactivity of output to the fall in interest rates has been explained precisely by appeals to an alleged fall in the natural rate of interest even to negative values due to reaching the zero-lower bound for policy nominal interest rates. This makes a murky business even more opaque.


Synoia , January 29, 2019 at 12:03 pm

I can provide an interest rate dartboard.

Bring you own darts.

Is the natural rate of interest that of Home loans, Student loans, or Credit Cards?

That's my world.

Susan the Other , January 29, 2019 at 12:04 pm

"production potential" = return on investment potential and/or debt service potential?

Ignacio , January 29, 2019 at 12:34 pm

All this econospeak naturally wakes up assasin instincts. Anyway, any recommendation?

ape , January 29, 2019 at 12:42 pm

"A first problem is that, while the "benchmark rate" ought to be based on sound theoretical foundations that allow a meaningful interpretation of its behaviour, all sorts of definitions of it appear in the literature when assuming real shocks away from balanced growth."

Has anyone ever shown that in fact the diff eqs being used actually are insensitive to small perturbations? That the solutions are actually numerically stable? If they're not -- and in general, this is something that has to be shown for the constrained parameters -- the rest is a waste.

If it's not a concave system, but the solutions are saddle points, for example given the number of parameters and the equations steady state solutions don't require "shocks" at all to be unstable but are inherently unstable. And most systems are unstable

Synoia , January 29, 2019 at 1:43 pm

And most systems are unstable

All systems with non-linear feedback (eg: Fear and Greed), are Chaotic, not Unstable. A system with Unstable but not Chaotic behavior falls to a predictable state.

It is arguable that Greed is feed-forward, possibly in all cases. Fear is both, feed forward and feedback. For example fear of the unknown is feed forward, fear of loss generally feedback.

A classic fear which is both, feed forward and feedback, is fear of unwanted pregnancy. It is well know that fears of unwanted pregnancy are always handled rationally. /s.

JEHR , January 29, 2019 at 2:51 pm

Exactly how I felt after reading a paragraph.

d , January 29, 2019 at 5:47 pm

dont really see the difference in chaotic and unstable. different words that describe the same thing

anon y'mouse , January 29, 2019 at 8:09 pm

Chaotic would mean no discernible pattern. Unstable would mean it has patterns that lurch from some state to some other state, but which are discernible.

Gavin , January 29, 2019 at 1:47 pm

I'm very rusty, but I do believe that money, or capital, is itself a good, so it follows that an interest rate is little more than the price of money. And which rate is the natural rate, the inter bank rate, mortgage rates, brokers call, maybe the whatever a payday lender charges? All those rates just reflect different markets, or am I really wrong?

Grebo , January 29, 2019 at 3:09 pm

This article is implying that there is no natural rate of interest.
That would imply that money is not subject to the laws of supply and demand so is not a good.

Accepting that would kick away one of the pillars of Liberalism and neoclassical economics. It would also reveal that money and capital are not equivalent, except to a banker.

hemeantwell , January 29, 2019 at 3:27 pm

He gets close to saying that the idea is sheer ideology, serving a normalizing function kind of like the "state of nature" in classical political theory, e.g. Rousseau or Locke, that would be used to justify a set of political institutions. But he won't allow himself a paragraph to step away from econospeak long enough for the point to become fully salient.

Grebo , January 29, 2019 at 3:53 pm

He's only an associate professor. Maybe when he gets tenure

Massinissa , January 29, 2019 at 2:01 pm

Guys, I think there might actually be a natural rate of interest.

I think its 0%.

coboarts , January 29, 2019 at 2:20 pm

I think it was something about money left alone fornicating in dark vaults to produce interest that was considered unnatural.

JEHR , January 29, 2019 at 2:52 pm

"Fornicating Money"–a nice picture I must say.

paulmeli , January 29, 2019 at 2:54 pm

I think its 0%

so does Warren Mosler among others:

http://www.cfeps.org/pubs/wp-pdf/WP37-MoslerForstater.pdf

Joey , January 29, 2019 at 10:41 pm

Amen. The fundamental flaw is the concept of perpetual growth. Lots of fancy words for a pseudo science. At least meteorological predictions get judged, not fudged.

d , January 29, 2019 at 5:48 pm

how can there be a natural state for some thing that is man made?

anon y'mouse , January 29, 2019 at 8:07 pm

You could write that question as the epitaph to the entire field of what we know as Standard Economics. Real question:does anyone care?

[Jan 12, 2019] Arthur Laffer is the idiotic tax-cut patron saint economist of the Grand Old Phonies who helped Ronnie Reagan raid the US Treasury for the uber-wealthy.

Jan 12, 2019 | www.nytimes.com

Socrates Downtown Verona. NJ Jan. 5

To anyone who thinks that the Republican Party knows a thing about economics or business: you're delusional. Republicans know a tremendous amount about greed, theft and selfishness. Arthur Laffer is the idiotic tax-cut patron saint economist of the Grand Old Phonies who helped Ronnie Reagan raid the US Treasury for the uber-wealthy.

George W Bush re-implemented Laffer-economics and drove the nation into a Depression.

Trump and the GOP are in the process of driving America over another bankrupting 0.1% welfare tax-cut cliff -- remember it took Bush-Cheney a good seven years to do it.

And guess who recently helped drive Kansas bankrupt with tax cuts for the rich ?

GOP tax-cut saint Arthur Laffer. He helped former Kansas Gov. Sam Brownback (R) pass tax cuts through the Kansas legislature. In August 2012, Laffer promised a crowd at a small business forum in Kansas that the cuts would produce "enormous prosperity," adding that they'll "make a big difference in a decade." They did make a big difference.

Kansas employment and the Kansas state economy both grew slower than the national rates, and the drastic decline in tax revenue coming into the state's treasury blew a gigantic hole in its budget.

Kansas reversed the destructive tax cuts in order save Kansas. The lesson is plain and simple and happens over and over again. Republicans are economic wrecking balls hellbent on destroying society for corrupt billionaires. D to go forward. R for nationally-assisted suicide.

[Jan 07, 2019] Joining a Group Makes Us Nastier to Outsiders

Notable quotes:
"... By Michal Bauer, Associate Professor of Economics, CERGE-EI and Charles University; Jana Cahlíková, Senior Research Fellow, Max Planck Institute for Tax Law and Public Finance; Dagmara Celik Katreniak, Assistant Professor, National Research University Higher School of Economics, Moscow; Julie Chytilová, Associate Professor of Economics, Charles University; Researcher, CERGE-EI; Lubomír Cingl, Assistant Professor, University of Economics, Prague; and Tomáš Želinský, Associate Professor, Technical University of Košice. Originally published at VoxEU ..."
"... The economic consensus is that groups behave in a more self-regarding way than individuals, which affects their members' decision-making. This column describes new evidence from experiments in Slovakia and Uganda that supports an alternative hypothesis from social psychology that simply being a member of a group makes us more anti-social to outsiders. Within-group cohesion in organisations may also have a dark side, fostering hostility to outsiders. ..."
"... See original post for references ..."
"... anti social ..."
Jan 07, 2019 | www.nakedcapitalism.com

Joining a Group Makes Us Nastier to Outsiders Posted on January 5, 2019 by Yves Smith By Michal Bauer, Associate Professor of Economics, CERGE-EI and Charles University; Jana Cahlíková, Senior Research Fellow, Max Planck Institute for Tax Law and Public Finance; Dagmara Celik Katreniak, Assistant Professor, National Research University Higher School of Economics, Moscow; Julie Chytilová, Associate Professor of Economics, Charles University; Researcher, CERGE-EI; Lubomír Cingl, Assistant Professor, University of Economics, Prague; and Tomáš Želinský, Associate Professor, Technical University of Košice. Originally published at VoxEU

The economic consensus is that groups behave in a more self-regarding way than individuals, which affects their members' decision-making. This column describes new evidence from experiments in Slovakia and Uganda that supports an alternative hypothesis from social psychology that simply being a member of a group makes us more anti-social to outsiders. Within-group cohesion in organisations may also have a dark side, fostering hostility to outsiders.

Plato wrote about the limits of democracy, as did the founding fathers of the American constitution. More recently, social scientists have also worried about the dynamics of group decision-making, speculating that being part of a group may increase the motivation to harm outsiders and destroy social welfare. The causal effect of group membership on decision-making has been prominent on the research agenda in behavioural economics in the past 20 years, partly because so many political, military, and business decisions are made by groups rather than individuals.

Across many laboratory experiments, a pattern has emerged. Group decisions are less pro-social and cooperative than individual decisions. Groups are less willing to sacrifice their resources to increase social welfare, or to achieve a fair allocation. The consensus interpretation is that groups behave in a more self-regarding way. They are more likely to maximise a group payoff, and disregard the welfare of others (Charness and Sutter 2012, Kugler et al. 2012).

It is usually assumed that group members communicate among themselves, helping them to recognise a profit-maximising strategy. This interpretation suggests that group decisions can be modelled as more rational and less 'behavioural' than individual decisions, an important implication for economic theory.

Why Are Groups Less Cooperative Than Individuals?

Our recent paper (Bauer et al. 2018) uses an alternative explanation for the difference in cooperative behaviour of groups, compared to individuals. Social psychologists have a long-standing hypothesis that simply being a member of a group may inspire aggressively competitive anti-social behaviour (Durlauf 1999, Hewstone et al. 2002, Sambanis et al. 2012).

This hypothesis implies that groups do not cooperate less because they are self-regarding, but because they are more inclined to cause harm to outsiders – even at a cost to themselves. We define anti-social behaviour as non-strategic destructive behaviour that is costly for the decision maker, reduces welfare of others, and is not a response to inequality or a hostile behaviour of a counterpart. Experiments in previous research, including the Prisoners' Dilemma game, Trust game, and Dictator game, were designed to measure the positive side of human social behaviour. They do not, however, distinguish whether a lack of willingness to cooperate or share has been caused by greater selfishness, or by this anti-social behaviour.

These distinctions matter if one wants to predict willingness to engage in self-destructive conflict:

Being anti-social is very different from being self-regarding. Economic agents motivated purely by self-interest will destroy the resources of others only when they stand to gain. But there is much more scope for harming others if they also derive utility from relative status or feel pleasure from beating an opponent. It is also important to understand whether simply being placed into a group creates an 'us versus them' psychology that influences behaviour of group members, or whether the behavioural difference is an outcome of deliberation. If the mere fact of deciding in a group makes an individual more willing to cause harm, a broad range of situations may create an increased tendency to behave anti-socially.

Measuring Anti-Social Behaviour

Our experiments were conducted among large and diverse samples of adolescents in two very different settings – Uganda (N=1,679) and Slovakia (N=630) – using a comparable design. We compare the (anti-)social behaviour of individuals, and the team decision of groups made up of three randomly selected individuals.

The experiment is designed to distinguish self-regarding from anti-social motivations, and also to decompose the overall group effect into the effect of group decision-making, and the effect of the group context on individual behaviour.

To do so, we complement the prisoners' dilemma game, a standard experiment to measure willingness to cooperate, with the joy of destruction game, an experiment that uncovers anti-social behaviour.

Also, to separate the effects of group context on individual behaviour and the effect of group deliberation and decision-making, we elicit individual choices made in isolation, preferences of individual group members for group decisions before a group deliberation, and the ultimate group decisions.

Groups Behave More Anti-Socially Than Individual Decision-Makers

Groups are less likely than individuals to cooperate in the prisoners' dilemma game, in line with findings in previous experiments. Importantly, however, they are also more likely to harm opponents in the joy of destruction game, in which the dominant strategy for self-regarding agents is not to engage in destructive behaviour. This is primarily due to a greater prevalence of anti-social behaviour among groups.

The stronger anti-social behaviour of groups as compared to individuals cannot be explained by differences in beliefs, reciprocal motives, inequality aversion or diffusion of individual responsibility. Groups are more willing than individuals to pay to cause harm even when they respond to a kind act from an experimental counterpart, and when destroying resources increases inequality.

Furthermore, anti-social behaviour in a group setting is elevated simultaneously with willingness to enter competition with outsiders, as measured in the competitiveness game in Uganda (Niederle and Vesterlund 2007). Together, these findings indicate that individuals in groups are more aggressively competitive.

Decomposing the overall group effects shows that both the group context as well as deliberation among group members matter. Group context makes individuals more willing to engage in anti-social behaviour and to compete, whereas the group decision-making slightly increases the prevalence of self-regarding choices.

All these effects are strikingly similar across the Slovak (Figure 1) and Ugandan (Figure 2) samples, suggesting that the preference for competing aggressively when deciding in a group is a deeply rooted response.

Figure 1 Slovakia: The effect of group decision-making on choices in the joy of destruction game and the prisoners' dilemma game

Source : Bauer et al. (2018).

Figure 2 Uganda: The effect of group decision-making on choices in the joy of destruction game and the prisoners' dilemma game

Source : Bauer et al. (2018).

Concluding Remarks

Earlier research on identity has shown that creating coherent teams fosters efficiency in military and business-oriented organisations (Akerlof and Kranton 2005, Goette et al. 2006, Costa and Kahn 2001), by making in-group cooperation easier. Our results suggest that this may come at the expense of aggressive competitiveness against members of other groups.

This may help to explain the ubiquity of inter-group violence (Blattman and Miguel 2014) or mutually destructive competition within and across firms. It also strengthens the case for policies to counteract narrow group identities.

Competitiveness also has an import role when determining individual career choices. Economists are attempting to identify factors which may foster competitiveness in individuals (Gneezy et al. 2009, Andersen et al. 2013, Almås et al. 2015) and design institutions that help to close gender gaps in willingness to compete (Sutter et al. 2016, Niederle et al. 2013, Balafoutas and Sutter 2012). Our findings show that the factor that increases willingness to enter competitive environment also raises anti-social behaviour, and thus suggests there is a potential trade-off. Competitive environments may lead to efficiency gains in some settings, but also to more socially harmful behaviour.

See original post for references

witters , January 5, 2019 at 4:12 am

So individuals without group loyalty are intrinsically better people?

Sound of the Suburbs , January 5, 2019 at 4:58 am

Labour unions were never very co-operative and kept looking after the interests of their members.

Big business realised they needed to smash the unions.

The Rev Kev , January 5, 2019 at 5:05 am

When I want good advice on brickwork, I would ask for advice from a bricklayer. I would certainly not go looking for advice on bricks from an upholsterer. In the same vein, if I was looking for solid information on a sociological issue, I would not necessarily go believing people with a background in economics or tax law & finance as is the case here. The general point of this article seems to be either the justification of the atomization of individuals or an anti-democratic diatribe showing how certain individuals are better qualified than others.
They may try to use the prisoners' dilemma game or the the joy of destruction game as proof of their thoughts but sociologists have shown the falsehood of applying western standard games to other countries when these standards were found to be entirely based in ( http://hci.ucsd.edu/102b/readings/WeirdestPeople.pdf ) Western, Educated, Industrialized, Rich, and Democratic (WEIRD) people.
Humans are social animals which is why they do not generally cope well when put alone. That is why solitary confinement is regarded as a punishment. Groups may be more likely to maximize a group payoff and disregard the welfare of others but that is a flexible concept and not set in cement. In fact, it is scalable. As an example, take a look at Afghanistan which is normally full of infighting. There, they say me against my brother, my brother and I against our cousin, my brother and I and our cousin against the outsider. See? These groups are scalable.
They do mention cohesive groups with the military but miss the significance. Military organization is based on the squad which is the basic building block and as akin to a hunting band. Back in Roman times it was called a Contubernium which shows how long this basic organizational principle has been working. Next up is the company which is an analogue to an extended family. Above that is the battalion which is an analogue to the maximum number of people that you can know i.e. a tribe. The Romans had the Cohort here and the British had the Regiment. All these organizations are built on the foundations of basic human psychology and cannot be ignored or refuted as the authors do here.

Norb , January 5, 2019 at 8:29 am

Trouble is introduced when sociopathic individuals gain control of the organizational structures that you describe. My experience is that most people are reasonable, but can be easily manipulated to perform questionable tasks. It is a question of leadership and social goals.

During a crisis, there are individuals dedicated to turning towards the direction of crisis, while the majority can be seen running in the opposite direction due to raw self-preservation. Fire, police, medical, and military services are just some examples.

Economists in a neoliberal era are the last people to turn to for answers to social ills. Their worldview and sentiment created the problems in the first place and perpetuate the continuance of suffering on many levels.

Gambling and speculating must be relegated to a much lower level of social acceptance then what is tolerated today. It truly is madness.

Brooklin Bridge , January 5, 2019 at 11:43 am

:-) If it was news you wanted, would you go to a reporter or anchor (Rachel Maddow comes to mind) first or would you go instead to a financial analyst and economist that has started her own blog with a name that might even be considered racy by some? (thinking NC here). :-)

Couldn't resist, though I agree with your conclusions. Whether it's the substance of an argument first and source credibility second or visa-versa would seem to depend on context at the very least.

knowbuddhau , January 5, 2019 at 3:15 pm

Amen, Rev! On the provenance of horsessh!t, tho, as in that post about NYC sidewalks, who better than an economist to ask? This economist's assumptions about human nature just reek.

In social psychology, Baiting Crowd and Bystander Apathy research looked into this, too. Leon Festinger et al described Deindividuaion beginning in the mid 50s. Robert Wicklund delved into Objective vs Subjective Self-Awareness.

Kitty Genovese was murdered in her NYC apartment, while many witnesses heard her screams. The Group failed her. Crowds often egg on people signifying suicide. We do things, when masked, we don't dare do when known.

It was thought that, the more one felt as a singular, individuated, objectively defineable, person-in-society, the more pro-social would be ones behavior. When we're knowing ourselves subjectively, especially if we "lose ourself" in a crowd, we're more selfish and willing to "go off the reservation."

I went down the Empathic Altruism Hypothesis rabbit hole. Turns out, it meets up with sociobiology's Reciprocal Altruism.

Back to basics: how do groups work? First, you can't draw a one-sided distinction; for every inside, there's an outside. Ingroup/outgroup arise mutually. As soon as you think, "I am!", in that same moment, there They are.

Us "versus" them is fundamentally flawed: it's Us&Them. The proper basis for being human, in ones self and in society, is compassion. Naturally, amirite?

Tommy S. , January 6, 2019 at 9:15 am

just one note .the kitty story was mostly false since the beginning .much new info on web now..

Barry , January 6, 2019 at 12:06 pm

Humans are social animals which is why they do not generally cope well when put alone.

On top of meaning humans don't cope well alone, being social animals means we are evolved to be parts of groups. A corollary to that is that we know how to be part of the group; how to process group interests as well as personal interests. This includes not only an adjustment of the prioritization of options but an awareness of who is in-group and who is out-group.

Any model of political economy that denies this or posits that it is a problem to be overcome is starting from false premises that will lead to false conclusions.

But pushing individualism on the world makes perfect sense to me as a ploy by a very powerful in-group (e.g. the Kochtopus) to dissipate the power and threat of other groups (governments, communities, unions ).

Steve H. , January 5, 2019 at 6:23 am

The Naked Capitalism commentariat is the best commentariat.

Louos Fyne , January 5, 2019 at 7:09 am

You beat me to post the exact same thing.

Unfortunately people here lean/skew/are open-minded to be iconoclasts. need a spine and smarts to be one.

Unfortunate cuz (arguably) humans are default programmed to herd behavior.

Donald , January 5, 2019 at 10:47 am

Yeah, me too. Though I really do think this group is less bad than others. The commentariat at The American Conservative is the best commentariat anywhere, because the ideological range is very wide and the best commenters there have some respect for each other despite their differences. They become smarter, able to see common ground where it exists.

But most blog comment sections are extremely tribal. Step even slightly outside the local consensus and you will be mobbed.

Simeon Hope , January 6, 2019 at 2:17 am

I've found that, too. I'm atheist and over several years I've tried commenting in various atheist blogs and forums. They seem to be highly sensitive to even small criticisms, such as my suggesting that not all believers are evil. Usually, they instantly block me.

Arizona Slim , January 5, 2019 at 7:52 am

Does this mean that we are a group?

diptherio , January 5, 2019 at 9:15 am

Yeah! Now who wants to go beat the tar out of some those Marginal Revolution commenters? Some may say that it will make us look bad, but I say they've got it coming!

Craig H. , January 5, 2019 at 11:32 am

Isn't Zero Hedge the preferred hangout of people we throw bricks at?

Also Groucho Marxists.

Dave , January 5, 2019 at 7:38 am

Funny, I have always said to my spouse and kids I am skeptical and not fond of our species on a global scale. On an individual basis I am quite good at being accepting and open to dialogue and interaction.

This article helps me understand my predicament.

Samuel , January 6, 2019 at 11:39 pm

Theoretical background:
https://en.wikipedia.org/wiki/Realistic_conflict_theory

Potential solution:
https://en.wikipedia.org/wiki/Superordinate_goals

David , January 5, 2019 at 8:03 am

I'm not impressed, because this provides us with absolutely no insights into how groups behave in real life. And Plato thought that democracy led to tyranny, not to bad behaviour to outsiders.
There's a huge anthropological and historical literature to do with how groups actually function, and their functioning depends on the surrounding circumstances, the nature of the group and the way in which it came together. The authors could have started by reading some of it.
The fundamental distinction is between groups which arise naturally (usually based on territory, ethnicity, family relations), groups which arise by affiliation (religious, political, trades unions etc) and groups which are thrown together in response to some threat or difficult circumstances. There's obviously some overlap. In general, groups set up in opposition to others, or to protect against others will be, by their very nature, hostile. So various sorts of Marxist groups, feminists, religious factions etc. who take as a point of departure that they are right and others are wrong, and that they are threatened and must stick together, will almost by definition be hostile to outsiders. A reading circle, a charitable association, or even just a traditional community will be much less so.
In addition, groups cooperate with each other according to rules. The Arabic proverb cited by the Rev is a case in point, and the organisation of tribal life in the Middle East and South Asia (including Afghanistan) is highly complex and goes well beyond the simple dichotomies proposed here. In fact, it's hardly worth continuing to pick holes on this study – go and research something where you are qualified, guys.

pjay , January 5, 2019 at 8:51 am

"There's a huge anthropological and historical literature to do with how groups actually function "

That's one of the key problems. Experimental research like this, even with a cross-cultural sample of subjects, is supposedly designed to filter out such messy anthropological, historical, or sociological (Rev Kev) factors. Such social psychological research can be informative if the limits are recognized. But when artificial lab games are projected as objective reality without social context, you have problems similar to those in the economics Yves and NC so effectively criticize.

hemeantwell , January 5, 2019 at 8:28 am

Whew, this is sure a horse that's been around the track a few times.

Back in the Studies in Prejudice days in the mid-20th c, the idea was that tendencies of this sort can be weakened if individuals, or the group itself, is aware of the tendency. Social science isn't about describing our fate, it's about helping us to liberate ourselves from it.

Off The Street , January 5, 2019 at 9:28 am

Leaders play a role and influence their groups. If notions of good faith and fair play are deemed important, for example, then they stand a better chance of being communicated and enforced through a type of group ethic. History has shown that people individually and in groups are quite capable of rising above their worst tendencies. That takes work. It may be instructive to identify the malign influences and influencers that undermine human dignity.

pjay , January 5, 2019 at 10:42 am

"Social science isn't about describing our fate, it's about helping us to liberate ourselves from it."

"History has shown that people individually and in groups are quite capable of rising above their worst tendencies. That takes work. It may be instructive to identify the malign influences and influencers that undermine human dignity."

Thanks for these statements. In my opinion, the best social scientists always recognize this. The worst ones claim to have discovered the "fundamental" causes of human behavior, social organization, history, etc. and derive their theories accordingly.

Brooklin Bridge , January 5, 2019 at 12:33 pm

Some of this is just common sense and depends on such things as whether or not the group in question perceives the interaction with outsiders to be beneficial or harmful. When tourists first started going to Spain after it's civil war, they were largely accepted quite well since they were bringing desperately needed money with them and since they were not all that obtrusive. As the numbers swelled by the 70's, and particularly as the tourists themselves became more obnoxious; USA, USA, nasty-fat-and-drunk-all-day, the sentiment of the general population changed quite a bit and might even have been considered, anti social .

JW , January 5, 2019 at 3:33 pm

What a bit of America-bashing.

American tourists to Spain are vastly outnumbered by European tourists. 2.7 million US while 18.8 million UK, 11.9 million German, 11.3 million France, and millions more from other countries.

https://en.wikipedia.org/wiki/Tourism_in_Spain

The objections to tourism everywhere are locals being priced out of housing and other markets, and the dubious economic value of all these low-wage and highly seasonal jobs.

Not to mention, between the Spanish Civil war and the 1970s, the country was ruled by a fascist dictatorship, which might have had something to do with blunting criticism of tourism or anything else, if what you said were true.

Brooklin Bridge , January 5, 2019 at 5:55 pm

Oh please. While not all Americans were obnoxious, those who were had such a knack for it that they tended to color people's perception of them in general. The obnoxious ones were truly odious; they certainly didn't need me to bash them. They did a magnificent job of that all by themselves. In close to a decade of living abroad, I never once saw any other nationality pull off what an obnoxious American could do in 5 minutes flat (and back then I could have produced at least two – and probably more – European tour guides that would have corroborated that point without a heart beat of hesitation – but with endless stories).

As to numbers, I didn't in any way limit them to national origin in my comment; my reference to Americans was hardly exclusive except for the obnoxious ones (and I stick by that). That said, 1) at a certain point, sheer numbers of ALL tourists did indeed have a highly negative effect and were often perceived as the cause of the points you made as well as a host of others – such as making the Spanish feel inferior, like servants 2) the obnoxious foreigners always stood out even when they were not the majority and yes they were more often than not of North American origin. My point was that groups react to externals depending on what benefit or harm they perceive the outsiders bring, and my experience in Spain tended to support the claim that sufficiently large numbers was a significant marker and either caused or exacerbated negative issues (such as resource inflation). Such inflation won't occur without the numbers.

I lived in Spain in 1969 and spoke fluently enough, back then alas, to have all night discussions with friends who pulled no punches in describing a general attitude towards Americans that went well beyond the general discomfort they felt with the general hordes of tourists (of all nationalities).

These people were terrified of Franco – they literally wouldn't talk about him, often even among themselves. But about tourists, and Americans in particular? They loved to talk about them – and they had an almost affectionate, if frustrated, way of characterizing Americans with a broad brush – because of the few – even while they understood perfectly – and usually with a healthy sense of humor – that such stereotypes were just that. But again, more generally, it was simply a numbers game.

polecat , January 5, 2019 at 1:57 pm

You wanna example of an extremely nasty group found nakedly exposed .. groping for credibility ??

I give you exhibit H ( for the Hate factor !! ) : the Integrity Initiative

If there ever was a more vile hive of scum and villainy

Samuel Conner , January 5, 2019 at 2:28 pm

I wonder whether it might be that groups are more likely to have antisocial decision-makers. Roughly 4% of the population is reckoned to have sociopathic traits. I read somewhere (maybe in Martha Stout's "The Sociopath Next Door") that the upper reaches of hierarchies tend to have more sociopaths than the population at large. Cooperators in a group led by antisocial leaders might tend to cooperate with antisocial group behavior when they would behave more pro-socially on their own.

shinola , January 5, 2019 at 2:44 pm

Not quite sure why, but this article made me think back to the recent articles about Libertarians and CalPERS.

Curious George , January 5, 2019 at 3:57 pm

Um from a purely instinctive level having been part of groups throughout my life (armed forces, faculty, political party, youth groups (formal and informal)) in different countries (continental Europe and NA) my first thought on reading the study was – of course. As is my second, third and fourth thought.

After all why do groups always form internal cultures, be that a uniform, ranks, language, behavioural patterns, or simple things such as greetings.

And if one really would like to see the ugliness of a group – be part of one and raise questions about the behaviour of the group while part of it. Fun times.

Human nature may impact our desire to form a group or be part of one but we should never loose sight of the individual. The study reinforces that notion.

Grebo , January 5, 2019 at 6:10 pm

Behavioural economics, baby steps.

I don't get the impression from this that the authors are advocating atomization. They are merely saying that previous economic assumptions are incorrect, and it's worse than they thought.

No-one else is surprised though.

dk , January 5, 2019 at 6:32 pm

Joining a group puts one in a better position to decline to interact with unreliable people.

The cohesion of a group demonstrates and consolidates trust within the group. If the group cannot collectively establish and maintain trust, it will collapse.

Outsiders have not participated in the group's trust-building, and are granted less initial trust. This is simple precaution.

So the article is pretty much an argument against verification of trust. It is not, as the authors assert, anti-social to evaluate trustworthiness, it normal and appropriate social behavior. Violation of trust, and bad faith activity generally, are anti-social behaviors, and groups form in part to recognize and discourage such activity.

Social behaviors take time, they are not instantaneous transactions and their resolutions generally remain dynamic (despite complaint of formalists). Thus, examinations of narrowly limited sets of events are without context, insufficient for the development of reliable conclusion about human behavior.

Steve K , January 6, 2019 at 8:44 am

The Rev Kev is correct about the insights from anthropology and some interpretive research, which throw into sharp relief the biases inherent in mainstream group and organizational studies, their bedrock theory of social identity theory (SIT), and SIT's primary investigative tool of the zero-history group.

At the center of SIT is the not necessarily true assumption that participants in experimental groups identify with a group, and that the "group" need be little more than a symbol (i.e., group A, team Red) the experimenter places upon test subjects ("participants" in today's language). Furthermore, in SIT experiments researchers "know" participants identify with a group by their decisions for or against an out-group, not as a result of any tangible observed relations and/or identification to the in-group. Those choices, meanwhile, occur in an artificial context where the status of "we" is under threat from a "them" in a zero-sum struggle for the group's perceived social value compared to others.

SIT is a powerful theory, in that it captures/creates simple situations, defined by intra-group conflict requiring either-or choices among individuals which collectively stand in place of actual collective decisions. It is a narrowly defined perspective, useful in limited cases. Despite those readily available facts, SIT has somehow grown to define how academic group/org research (and virtually all group/org research that get's funding) understand ALL groups.

SIT cannot measure the "group-ness" of the individuals it tests, much less any feature of the complex socio-cultural-political conditions that shape group membership, history, and relations. Studies such as the one reported here have little value outside of the laboratory, and zero relevance in the infinitely complex world of actually existing intra- and inter-group relations. Throw in a few economists from "The Church of Rational-Choice" and you've got a brew that fills the room with a fog of toxic speculation about how groups act in the world; a mist that, over the years, has escaped the learned journals and left a dirty film upon the minds of other specializations and general populations.

georgieboy , January 6, 2019 at 12:14 pm

Try Kevin MacDonald's works for intense scrutiny of in-group vs out-group conduct. Evolution and intentional direction of evolution (culture).

Temporarily Sane , January 6, 2019 at 2:17 pm

Kevin McDonald the far-rights's favorite intellectual. He thinks Jews as a group are undermining and destroying western civilization from within by disempowering the European Christian majority while empowering ethnic and social minorities. This is an evolutionary survival strategy, he says, designed to protect Jews from the deadly waves of antisemitism that culminated with the Nazi Holocaust.

When neo Nazis/the alt-right blame "the Jew" for gay marriage, non-white immigration and everything else they despise, McDonald's writing is what they reach for when they need intellectual cover.

McDonald, for his part, is an enthusiastic supporter of the antisemites and far righters who revere his work.

(I've been noticing an increase in posters popping up in various forums and casually dropping couched hard-right talking points into the conversation or "helpfully" recommending facsistic/antisemitic ideologues for further reading.)

cat sick , January 7, 2019 at 3:38 am

Interestingly I had never heard of this Kevin McDonald, googling him seems to get zero hits of anyone that would seem to be the character who you allude to, however he is the first hit on Bing , whatever his message is it would seem google want to uninvent him .

eg , January 6, 2019 at 2:24 pm

As Peter Gabriel's "Not One of Us" puts it,

How can we be in
If there is no outside?

[Jan 06, 2019] If people don't/won't believe the truth they're being told -- particularly truth that undermines long-held expectations/narratives -- than telling the truth is essentially worthless as those people are unwilling/incapable of changing their minds

Notable quotes:
"... Then there's the zombified/ catatonic segment of society that won't change its mind no matter how much truth it's drowned in. ..."
"... It is as if they have (willingly or unwillingly perhaps) joined a religious cult that has promised them false riches if they cut themselves off from reality and believe and do as they are tol ..."
"... This is the creepy part: our propagandists actually do believe in what they create and disseminate ..."
Jan 06, 2019 | www.moonofalabama.org

karlof1 , Dec 17, 2018 7:41:13 PM | link

78, 79 & 80--

As Caitlin notes in her essay I linked to, if people don't/won't believe the truth they're being told -- particularly truth that undermines long-held expectations/narratives -- than telling the truth is essentially worthless as those people are unwilling/incapable of changing their minds so they then do the right thing in promoting their interests instead of the 1%'s.

Then there's the zombified/ catatonic segment of society that won't change its mind no matter how much truth it's drowned in. I'm not suggesting we cease truth telling; rather, I'm just saying that truth telling isn't as all powerful as it ought to be thanks to centuries of indoctrination and self-censorship.

Jen , Dec 17, 2018 7:37:08 PM | link
Karlof1 @ 77:

Yes I have, thanks.

I don't think it is the general public so much who needs to hear our ridicule - it seems to me that the less university or college education people have had, or the less exposure to so-called "quality news media" they have had, the more skeptical and cynical they are of what they are told to believe - as it is those whose business and livelihoods revolve around creating and delivering the propaganda and the false narratives that are part and parcel of it.

It is as if they have (willingly or unwillingly perhaps) joined a religious cult that has promised them false riches if they cut themselves off from reality and believe and do as they are tol d.

This is the creepy part: our propagandists actually do believe in what they create and disseminate .

[Jan 04, 2019] Michael Hudson describes the Orwellian approach of today's mainstream economics: "Viewing the economic vocabulary as propaganda, I saw that we can understand how the words you hear as largely propaganda words..."

Jan 04, 2019 | economistsview.typepad.com

JohnH -> anne... , December 31, 2018 at 02:45 PM

Top 5 professional journals (T5) serve as gatekeepers for professional advancement of academic economists: "strong evidence for the influence of the T5. Without doubt, publication in the T5 is a powerful determinant of tenure and promotion in academic economics."
https://www.ineteconomics.org/perspectives/blog/the-tyranny-of-the-top-five-journals

When this happens, acceptable research and discourse tend to get established and limited … Chinese economists probably need not apply...as well as unorthodox views in the US.

Michael Hudson describes the Orwellian approach of today's mainstream economics: "Viewing the economic vocabulary as propaganda, I saw that we can understand how the words you hear as largely propaganda words. They’ve changed the meaning to the opposite of what the classical economists meant. But if you untangle the reversal of meaning and juxtapose a more functional vocabulary you can better understand what ís actually happening."
https://michael-hudson.com/2018/12/guns-butter-the-vocabulary-of-economic-deception/

[Jan 04, 2019] Krugman as a neoliberal stooge

Notable quotes:
"... Hard core neoliberals say Social Security is a ponzi scheme because too few workers can't pay too many retirees, it should have bought stocks and bonds. Ok, if all the boomers had bought stocks and bonds instead of paying FICA, would too many boomers selling stocks relative to the younger workers saving for retirement buying stocks magically keep share prices rising? Was the crash the day before Chriistmas caused by too many buyers of stocks and bonds, or too many sellers? ..."
"... Hard core neoliberals have been pushing free lunch economics for several decades by erasing the connection between labor and money and real value. ..."
Jan 04, 2019 | economistsview.typepad.com

mulp -> anne... , December 31, 2018 at 06:51 PM

Why oh why can't Krugman explain economics, and especially how "voodoo" conservative free lunch economics is.

First, why has Krugman self lobotomized and remove the economic basic axiom that everything is about labor, especially money.

Money is labor, labor in the past or labor in the future. Eliminate work, ie, robots completely replace all workers, then someone will tell their robot to build more robots and tell those robots to do the same until everyone can be given as many robots as they want for free to produce as much as the new own want, whether to consume or not, so no one will be willing to pay anything for any thing.

So, until someone can explain how money has value without human labor, and "property" is not the reason because I will order my robots to build an army to kill you if you refuse to vacate the land I want as my own. And I'll build the biggest robot army to fight off any "government" that tries to take the liberty I have gained with my robots eliminating any requirement for me to work for what I consume or desire.

So, again, money is past or future labor, just as goods and capital are past labor, the Fed merely ensures liquidity of labor IOUs, but if no one will pay workers to work with these IOUs, no one will get a job no matter how many labor IOUs the Fed prints.

And it i give you labor IOUs, but no one will produce anything by work in exchange for those labor IOUs, they are worthless. Like in Venezuela where you buy stuff paying in eggs or fuel or other things produced by workers with capital, ie, labor.

And Trump never sees any value in money because he never works. He'll promise you money, but if you believe he'll do any work to make his promise honest, you are a fool. And thats true for pretty muchh all Hard core neoliberals these days.

Hard core neoliberals tell you to work more than the money paid in exchange for other working to produce stuff for you in the future. First it was by pensions. But now they refuse. Then is was by government IOUs, but now they are saying "nope" to redeeming the bonds.

Anyone think the businesses with skyhigh share prices are going to pay dividends, or buy back shares at sky high prices when sellers exceed buyers?

Hard core neoliberals say Social Security is a ponzi scheme because too few workers can't pay too many retirees, it should have bought stocks and bonds. Ok, if all the boomers had bought stocks and bonds instead of paying FICA, would too many boomers selling stocks relative to the younger workers saving for retirement buying stocks magically keep share prices rising? Was the crash the day before Chriistmas caused by too many buyers of stocks and bonds, or too many sellers?

Hard core neoliberals have been pushing free lunch economics for several decades by erasing the connection between labor and money and real value.

Hard core neoliberals see work as too costly, and paying workers to crushingly costly, but they want others to give them both stuff and money. A free lunch.

And they cleverly created clever lines like, "cutting taxes puts money in yoour pockets" and "costly givernment regulations kills jobs" and "we must cut costs to create jobs".

So, voters who just got told GM is cutting costs by eliminating 10,000 jobs and closing 5 factories listen to Trump promise to cut costs to bring back factories and jobs end up voting for Trump???

So genious Krugman can't point out the lie Trump and the GOP are telling by simply pointing outt to those workers they lost their job because of cost cutting.

Why can't workers understand that anytime a politician says "cut" he means "fire" or "impoverish"???

[Jan 04, 2019] Bad Faith, Pathos and G.O.P. Economics: On professionals who sold their integrity, and got nothing in return.

Jan 04, 2019 | economistsview.typepad.com

anne , December 31, 2018 at 06:07 PM

https://www.nytimes.com/2018/12/27/opinion/republican-economists-bad-faith.html

December 27, 2018

Bad Faith, Pathos and G.O.P. Economics: On professionals who sold their integrity, and got nothing in return.
By Paul Krugman

As 2018 draws to an end, we're seeing many articles about the state of the economy. What I'd like to do, however, is talk about something different -- the state of economics, at least as it relates to the political situation. And that state is not good: The bad faith that dominates conservative politics at every level is infecting right-leaning economists, too.

This is sad, but it's also pathetic. For even as once-respected economists abase themselves in the face of Trumpism, the G.O.P. is making it ever clearer that their services aren't wanted, that only hacks need apply.

What you need to know when talking about economics and politics is that there are three kinds of economist in modern America: liberal professional economists, conservative professional economists and professional conservative economists.

By "liberal professional economists" I mean researchers who try to understand the economy as best they can, but who, being human, also have political preferences, which in their case puts them on the left side of the U.S. political spectrum, although usually only modestly left of center. Conservative professional economists are their counterparts on the center right.

Professional conservative economists are something quite different. They're people who even center-right professionals consider charlatans and cranks; they make a living by pretending to do actual economics -- often incompetently -- but are actually just propagandists. And no, there isn't really a corresponding category on the other side, in part because the billionaires who finance such propaganda are much more likely to be on the right than on the left.

But let me leave the pure hacks on one side for a moment, and talk about the people who at least used to seem to be trying to do real economics.

Do economists' political preferences shape their research? They surely affect the choice of subject: Liberals are more likely to be interested in rising inequality or the economics of climate change than conservatives. And human nature being what it is, some of them -- O.K., of us -- occasionally engage in motivated reasoning, reaching conclusions that cater to their politics.

I used to believe, however, that such lapses were the exception, not the rule, and the liberal economists I know try hard to avoid falling into that trap, and apologize when they do.

But do conservative economists do the same? Increasingly, the answer seems to be no, at least for those who play a prominent role in public discourse.

Even during the Obama years, it was striking how many well-known Republican-leaning economists followed the party line on economic policy, even when that party line was in conflict with the nonpolitical professional consensus.

Thus, when a Democrat was in the White House, G.O.P. politicians opposed anything that might mitigate the costs of the 2008 financial crisis and its aftermath; so did many economists. Most famously, in 2010 a who's who of Republican economists denounced the efforts of the Federal Reserve to fight unemployment, warning that they risked "currency debasement and inflation."

Were these economists arguing in good faith? Even at the time, there were good reasons to suspect otherwise. For one thing, those terrible, irresponsible Fed actions were pretty much exactly what Milton Friedman prescribed for depressed economies. For another, some of those Fed critics engaged in Donald Trump-like conspiracy theorizing, accusing the Fed of printing money, not to help the economy, but to "bail out fiscal policy," i.e., to help Barack Obama.

It was also telling that none of the economists who warned, wrongly, about looming inflation were willing to admit their error after the fact.

But the real test came after 2016. A complete cynic might have expected economists who denounced budget deficits and easy money under a Democrat to suddenly reverse position under a Republican president.

And that total cynic would have been exactly right. After years of hysteria about the evils of debt, establishment Republican economists enthusiastically endorsed a budget-busting tax cut. After denouncing easy-money policies when unemployment was sky-high, some echoed Trump's demands for low interest rates with unemployment under 4 percent -- and the rest remained conspicuously silent.

What explains this epidemic of bad faith? Some of it is clearly ambition on the part of conservative economists still hoping for high-profile appointments. Some of it, I suspect, may be just the desire to stay on the inside with powerful people.

But there's something pathetic about this professional self-abasement, because the rewards center-right economists long for haven't come, and never will.

It's not just that Trump has assembled an administration of the worst and the dimmest. The truth is that the modern G.O.P. doesn't want to hear from serious economists, whatever their politics. It prefers charlatans and cranks, who are its kind of people.

So what we've learned about economics these past two years is that many conservative economists were, in fact, willing to compromise their professional ethics for political ends -- and that they sold their integrity for nothing.

[Jan 02, 2019] That madness of the US neocons comes from having no behavioural limits, no references outside of groupthink, and manipulating the language. Simply put, you don't know anymore what's what outside of the narrative your group pushes. The manipulators ends up caught in their lies.

Highly recommended!
Notable quotes:
"... Some years ago, I noticed the American media and politicians were sort of going soft (actually mushy) in the brain department, but I was told not to be so judgemental. As the months went by, I saw more and more people saying "they have gone nuts". So, it turns out I am not alone after all. ..."
"... That madness comes from having no behavioural limits, no references outside of your own opinion but groupthink, and manipulating the language to suit your ambitions (the Orwellism of the US media has been repeatedly pointed at). Simply put, you don't know anymore what's what outside of the narrative your group pushes, you go nuts. The manipulators ends up caught in their lies. All the more when they makes money out of it, which would be the case of all those think tanks and media. ..."
"... War or the threat of war is needed to distract attention from rapidly devolving societal bonds and immense economic inequality. ..."
Jan 02, 2019 | www.moonofalabama.org

Lea , Feb 21, 2018 6:16:53 AM | link

Some years ago, I noticed the American media and politicians were sort of going soft (actually mushy) in the brain department, but I was told not to be so judgemental. As the months went by, I saw more and more people saying "they have gone nuts". So, it turns out I am not alone after all.

That madness comes from having no behavioural limits, no references outside of your own opinion but groupthink, and manipulating the language to suit your ambitions (the Orwellism of the US media has been repeatedly pointed at). Simply put, you don't know anymore what's what outside of the narrative your group pushes, you go nuts. The manipulators ends up caught in their lies. All the more when they makes money out of it, which would be the case of all those think tanks and media.

One could argue that they are not going mad, that they know full well they are lying, but I beg to differ: they don't see anymore how ridiculous or how dumb or smart their arguments are. That would be congruent with a real loss of touch with reality.

One wonders what they see when they look at themselves in a mirror, a garden variety propagandist or a fearless anti-Putin crusader?

Another example of the narrative gone mad: they are sending CNN journos to meet pro-Trump folks who "have been influenced by Russian trolls on social media". https://twitter.com/yashalevine/status/966177091875168256

WJ , Feb 21, 2018 6:38:11 AM | link
War or the threat of war is needed to distract attention from rapidly devolving societal bonds and immense economic inequality.
Ger , Feb 21, 2018 7:52:44 AM | link
Dan @ 4

It is partially tied direct to the economy of the warmongers as trillions of dollars of new cold war slop is laying on the ground awaiting the MICC hogs. American hegemony is primarily about stealing the natural resources of helpless countries. Now in control of all the weak ones, it is time to move to the really big prize: The massive resources of Russia. They (US and their European Lackeys) thought this was a slam dunk when Yeltsin, in his drunken stupors, was literally giving Russia to invading capitalist. Enter Putin, stopped the looting .........connect the dots.

Guy Thornton , Feb 21, 2018 9:10:47 AM | link
Watching the USA these days is like watching a loved one with progressive dementia. I've reached the stage where I think the sooner it's over the better for everyone.

[Dec 31, 2018] Academic bottomfeeders at service of financial oligarchy by George Monbiot

Notable quotes:
"... By abetting the ad industry, universities are leading us into temptation, when they should be enlightening us ..."
Dec 31, 2018 | www.theguardian.com

Originally from: Advertising and academia are controlling our thoughts. Didn't you know- - George Monbiot - Opinion - The Guardian

By abetting the ad industry, universities are leading us into temptation, when they should be enlightening us

... ... ...

I ask because, while considering the frenzy of consumerism that rises beyond its usual planet-trashing levels at this time of year, I recently stumbled across a paper that astonished me . It was written by academics at public universities in the Netherlands and the US. Their purpose seemed to me starkly at odds with the public interest. They sought to identify "the different ways in which consumers resist advertising, and the tactics that can be used to counter or avoid such resistance".

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Among the "neutralising" techniques it highlighted were "disguising the persuasive intent of the message"; distracting our attention by using confusing phrases that make it harder to focus on the advertiser's intentions; and "using cognitive depletion as a tactic for reducing consumers' ability to contest messages". This means hitting us with enough advertisements to exhaust our mental resources, breaking down our capacity to think.

Intrigued, I started looking for other academic papers on the same theme, and found an entire literature. There were articles on every imaginable aspect of resistance, and helpful tips on overcoming it. For example, I came across a paper that counsels advertisers on how to rebuild public trust when the celebrity they work with gets into trouble. Rather than dumping this lucrative asset, the researchers advised that the best means to enhance "the authentic persuasive appeal of a celebrity endorser" whose standing has slipped is to get them to display "a Duchenne smile", otherwise known as "a genuine smile". It precisely anatomised such smiles, showed how to spot them, and discussed the "construction" of sincerity and "genuineness": a magnificent exercise in inauthentic authenticity.

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Another paper considered how to persuade sceptical people to accept a company's corporate social responsibility claims, especially when these claims conflict with the company's overall objectives. (An obvious example is ExxonMobil's attempts to convince people that it is environmentally responsible, because it is researching algal fuels that could one day reduce CO2 – even as it continues to pump millions of barrels of fossil oil a day ). I hoped the paper would recommend that the best means of persuading people is for a company to change its practices. Instead, the authors' research showed how images and statements could be cleverly combined to "minimise stakeholder scepticism".

A further paper discussed advertisements that work by stimulating Fomo – fear of missing out . It noted that such ads work through "controlled motivation", which is "anathema to wellbeing". Fomo ads, the paper explained, tend to cause significant discomfort to those who notice them. It then went on to show how an improved understanding of people's responses "provides the opportunity to enhance the effectiveness of Fomo as a purchase trigger". One tactic it proposed is to keep stimulating the fear of missing out, during and after the decision to buy. This, it suggested, will make people more susceptible to further ads on the same lines.

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Yes, I know: I work in an industry that receives most of its income from advertising, so I am complicit in this too. But so are we all. Advertising – with its destructive impacts on the living planet, our peace of mind and our free will – sits at the heart of our growth-based economy. This gives us all the more reason to challenge it. Among the places in which the challenge should begin are universities, and the academic societies that are supposed to set and uphold ethical standards. If they cannot swim against the currents of constructed desire and constructed thought, who can?

• George Monbiot is a Guardian columnist

[Dec 14, 2018] Hidden neoliberal inner party : US chamber of commerce, the National Association of Manufacturers and The Business Roundtable

Notable quotes:
"... The American Chamber of Commerce subsequently expanded its base from around 60,000 firms in 1972 to over a quarter of a million ten years later. Jointly with the National Association of Manufacturers (which moved to Washington in 1972) it amassed an immense campaign chest to lobby Congress and engage in research. The Business Roundtable, an organization of CEOs 'committed to the aggressive pursuit of political power for the corporation', was founded in 1972 and thereafter became the centrepiece of collective pro-business action. ..."
"... Nearly half the financing for the highly respected NBER came from the leading companies in the Fortune 500 list. Closely integrated with the academic community, the NBER was to have a very significant impact on thinking in the economics departments and business schools of the major research universities. ..."
"... In order to realize this goal, businesses needed a political class instrument and a popular base. They therefore actively sought to capture the Republican Party as their own instrument. The formation of powerful political action committees to procure, as the old adage had it, 'the best government that money could buy' was an important step. ..."
"... The Republican Party needed, however, a solid electoral base if it was to colonize power effectively. It was around this time that Republicans sought an alliance with the Christian right. The latter had not been politically active in the past, but the foundation of Jerry Falwell's 'moral majority' as a political movement in 1978 changed all of that. The Republican Party now had its Christian base. ..."
"... It also appealed to the cultural nationalism of the white working classes and their besieged sense of moral righteousness. This political base could be mobilized through the positives of religion and cultural nationalism and negatively through coded, if not blatant, racism, homophobia, and anti feminism. ..."
"... The alliance between big business and conservative Christians backed by the neoconservatives consolidated, not for the first time has a social group been persuaded to vote against its material, economic, and class interests ..."
"... Any political movement that holds individual freedoms to be sacrosanct is vulnerable to incorporation into the neoliberal fold. ..."
"... Neoliberal rhetoric, with its foundational emphasis upon individual freedoms, has the power to split off libertarianism, identity politics, multiculturalism, and eventually narcissistic consumerism from the social forces ranged in pursuit of social justice through the conquest of state power. ..."
"... By capturing ideals of individual freedom and turning them against the interventionist and regulatory practices of the state, capitalist class interests could hope to protect and even restore their position. Neoliberalism was well suited to this ideological task. ..."
"... Neoliberalization required both politically and economically the construction of a neoliberal market-based populist culture of differentiated consumerism and individual libertarianism. As such it proved more than a little compatible with that cultural impulse called 'postmodernism' which had long been lurking in the wings but could now emerge full-blown as both a cultural and an intellectual dominant. This was the challenge that corporations and class elites set out to finesse in the 1980s. ..."
"... Powell argued that individual action was insufficient. 'Strength', he wrote, 'lies in organization, in careful long-range planning and implementation, in consistency of action over an indefinite period of years, in the scale of financing available only through joint effort, and in the political power available only through united action and national organizations'. The National Chamber of Commerce, he argued, should lead an assault upon the major institutions––universities, schools, the media, publishing, the courts––in order to change how individuals think 'about the corporation, the law, culture, and the individual'. US businesses did not lack resources for such an effort, particularly when they pooled their resources together. ..."
Nov 27, 2018 | discussion.theguardian.com

Themiddlegound -> Themiddlegound , 11 Jun 2013 05:42

The American Chamber of Commerce subsequently expanded its base from around 60,000 firms in 1972 to over a quarter of a million ten years later. Jointly with the National Association of Manufacturers (which moved to Washington in 1972) it amassed an immense campaign chest to lobby Congress and engage in research. The Business Roundtable, an organization of CEOs 'committed to the aggressive pursuit of political power for the corporation', was founded in 1972 and thereafter became the centrepiece of collective pro-business action.

The corporations involved accounted for 'about one half of the GNP of the United States' during the 1970s, and they spent close to $900 million annually (a huge amount at that time) on political matters. Think-tanks, such as the Heritage Foundation, the Hoover Institute, the Center for the Study of American Business, and the American Enterprise Institute, were formed with corporate backing both to polemicize and, when necessary, as in the case of the National Bureau of Economic Research, to construct serious technical and empirical studies and political-philosophical arguments broadly in support of neoliberal policies.

Nearly half the financing for the highly respected NBER came from the leading companies in the Fortune 500 list. Closely integrated with the academic community, the NBER was to have a very significant impact on thinking in the economics departments and business schools of the major research universities. With abundant finance furnished by wealthy individuals (such as the brewer Joseph Coors, who later became a member of Reagan's 'kitchen cabinet') and their foundations (for example Olin, Scaife, Smith Richardson, Pew Charitable Trust), a flood of tracts and books, with Nozick's Anarchy State and Utopia perhaps the most widely read and appreciated, emerged espousing neoliberal values. A TV version of Milton Friedman's Free to Choose was funded with a grant from Scaife in 1977. 'Business was', Blyth concludes, 'learning to spend as a class.

In singling out the universities for particular attention, Powell pointed up an opportunity as well as an issue, for these were indeed centers of anti-corporate and anti-state sentiment (the students at Santa Barbara had burned down the Bank of America building there and ceremonially buried a car in the sands). But many students were (and still are) affluent and privileged, or at least middle class, and in the US the values of individual freedom have long been celebrated (in music and popular culture) as primary. Neoliberal themes could here find fertile ground for propagation. Powell did not argue for extending state power. But business should 'assiduously cultivate' the state and when necessary use it 'aggressively and with determination'

In order to realize this goal, businesses needed a political class instrument and a popular base. They therefore actively sought to capture the Republican Party as their own instrument. The formation of powerful political action committees to procure, as the old adage had it, 'the best government that money could buy' was an important step. The supposedly 'progressive' campaign finance laws of 1971 in effect legalized the financial corruption of politics.

A crucial set of Supreme Court decisions began in 1976 when it was first established that the right of a corporation to make unlimited money contributions to political parties and political action committees was protected under the First Amendment guaranteeing the rights of individuals (in this instance corporations) to freedom of speech.15 Political action committees could thereafter ensure the financial domination of both political parties by corporate, moneyed, and professional association interests. Corporate PACs, which numbered eighty-nine in 1974, had burgeoned to 1,467 by 1982.

The Republican Party needed, however, a solid electoral base if it was to colonize power effectively. It was around this time that Republicans sought an alliance with the Christian right. The latter had not been politically active in the past, but the foundation of Jerry Falwell's 'moral majority' as a political movement in 1978 changed all of that. The Republican Party now had its Christian base.

It also appealed to the cultural nationalism of the white working classes and their besieged sense of moral righteousness. This political base could be mobilized through the positives of religion and cultural nationalism and negatively through coded, if not blatant, racism, homophobia, and anti feminism.

The alliance between big business and conservative Christians backed by the neoconservatives consolidated, not for the first time has a social group been persuaded to vote against its material, economic, and class interests the evangelical Christians eagerly embraced the alliance with big business and the Republican Party as a means to further promote their evangelical and moral agenda.

Themiddlegound -> Themiddlegound , 11 Jun 2013 05:23

Any political movement that holds individual freedoms to be sacrosanct is vulnerable to incorporation into the neoliberal fold.

The worldwide political upheavals of 1968, for example, were strongly inflected with the desire for greater personal freedoms. This was certainly true for students, such as those animated by the Berkeley 'free speech' movement of the 1960s or who took to the streets in Paris, Berlin, and Bangkok and were so mercilessly shot down in Mexico City shortly before the 1968 Olympic Games. They demanded freedom from parental, educational, corporate, bureaucratic, and state constraints. But the '68 movement also had social justice as a primary political objective.

Neoliberal rhetoric, with its foundational emphasis upon individual freedoms, has the power to split off libertarianism, identity politics, multiculturalism, and eventually narcissistic consumerism from the social forces ranged in pursuit of social justice through the conquest of state power. It has long proved extremely difficult within the US left, for example, to forge the collective discipline required for political action to achieve social justice without offending the the Construction of Consent desire of political actors for individual freedom and for full recognition and expression of particular identities. Neoliberalism did not create these distinctions, but it could easily exploit, if not foment, them.

In the early 1970s those seeking individual freedoms and social justice could make common cause in the face of what many saw as a common enemy. Powerful corporations in alliance with an interventionist state were seen to be running the world in individually oppressive and socially unjust ways. The Vietnam War was the most obvious catalyst for discontent, but the destructive activities of corporations and the state in relation to the environment, the push towards mindless consumerism, the failure to address social issues and respond adequately to diversity, as well as intense restrictions on individual possibilities and personal behaviors by state-mandated and 'traditional' controls were also widely resented. Civil rights were an issue, and questions of sexuality and of reproductive rights were very much in play.

For almost everyone involved in the movement of '68, the intrusive state was the enemy and it had to be reformed. And on that, the neoliberals could easily agree. But capitalist corporations, business, and the market system were also seen as primary enemies requiring redress if not revolutionary transformation: hence the threat to capitalist class power.

By capturing ideals of individual freedom and turning them against the interventionist and regulatory practices of the state, capitalist class interests could hope to protect and even restore their position. Neoliberalism was well suited to this ideological task. But it had to be backed up by a practical strategy that emphasized the liberty of consumer choice, not only with respect to particular products but also with respect to lifestyles, modes of expression, and a wide range of cultural practices. Neoliberalization required both politically and economically the construction of a neoliberal market-based populist culture of differentiated consumerism and individual libertarianism. As such it proved more than a little compatible with that cultural impulse called 'postmodernism' which had long been lurking in the wings but could now emerge full-blown as both a cultural and an intellectual dominant. This was the challenge that corporations and class elites set out to finesse in the 1980s.

In the US case a confidential memo sent by Lewis Powell to the US Chamber of Commerce in August 1971. Powell, about to be elevated to the Supreme Court by Richard Nixon, argued that criticism of and opposition to the US free enterprise system had gone too far and that 'the time had come––indeed it is long overdue––for the wisdom, ingenuity and resources of American business to be marshaled against those who would destroy it'.

Powell argued that individual action was insufficient. 'Strength', he wrote, 'lies in organization, in careful long-range planning and implementation, in consistency of action over an indefinite period of years, in the scale of financing available only through joint effort, and in the political power available only through united action and national organizations'. The National Chamber of Commerce, he argued, should lead an assault upon the major institutions––universities, schools, the media, publishing, the courts––in order to change how individuals think 'about the corporation, the law, culture, and the individual'. US businesses did not lack resources for such an effort, particularly when they pooled their resources together.

[Dec 09, 2018] The fatal flaw of neoliberalism: it s bad economics: Neoliberalism and its usual prescriptions – always more markets, always less government – are in fact a perversion of mainstream economics by Dani Rodrik

Notable quotes:
"... The term is used as a catchall for anything that smacks of deregulation, liberalisation, privatisation or fiscal austerity. Today it is routinely reviled as a shorthand for the ideas and practices that have produced growing economic insecurity and inequality, led to the loss of our political values and ideals, and even precipitated our current populist backlash ..."
"... The use of the term "neoliberal" exploded in the 1990s, when it became closely associated with two developments, neither of which Peters's article had mentioned. One of these was financial deregulation, which would culminate in the 2008 financial crash and in the still-lingering euro debacle . The second was economic globalisation, which accelerated thanks to free flows of finance and to a new, more ambitious type of trade agreement. Financialisation and globalisation have become the most overt manifestations of neoliberalism in today's world. ..."
"... That neoliberalism is a slippery, shifting concept, with no explicit lobby of defenders, does not mean that it is irrelevant or unreal. ..."
"... homo economicus ..."
"... A version of this article first appeared in Boston Review ..."
"... Main illustration by Eleanor Shakespeare ..."
Nov 14, 2017 | www.theguardian.com
As even its harshest critics concede, neoliberalism is hard to pin down. In broad terms, it denotes a preference for markets over government, economic incentives over cultural norms, and private entrepreneurship over collective action. It has been used to describe a wide range of phenomena – from Augusto Pinochet to Margaret Thatcher and Ronald Reagan, from the Clinton Democrats and the UK's New Labour to the economic opening in China and the reform of the welfare state in Sweden.

The term is used as a catchall for anything that smacks of deregulation, liberalisation, privatisation or fiscal austerity. Today it is routinely reviled as a shorthand for the ideas and practices that have produced growing economic insecurity and inequality, led to the loss of our political values and ideals, and even precipitated our current populist backlash .

We live in the age of neoliberalism, apparently. But who are neoliberalism's adherents and disseminators – the neoliberals themselves? Oddly, you have to go back a long time to find anyone explicitly embracing neoliberalism. In 1982, Charles Peters, the longtime editor of the political magazine Washington Monthly, published an essay titled A Neo-Liberal's Manifesto . It makes for interesting reading 35 years later, since the neoliberalism it describes bears little resemblance to today's target of derision. The politicians Peters names as exemplifying the movement are not the likes of Thatcher and Reagan, but rather liberals – in the US sense of the word – who have become disillusioned with unions and big government and dropped their prejudices against markets and the military.

The use of the term "neoliberal" exploded in the 1990s, when it became closely associated with two developments, neither of which Peters's article had mentioned. One of these was financial deregulation, which would culminate in the 2008 financial crash and in the still-lingering euro debacle . The second was economic globalisation, which accelerated thanks to free flows of finance and to a new, more ambitious type of trade agreement. Financialisation and globalisation have become the most overt manifestations of neoliberalism in today's world.

That neoliberalism is a slippery, shifting concept, with no explicit lobby of defenders, does not mean that it is irrelevant or unreal. Who can deny that the world has experienced a decisive shift toward markets from the 1980s on? Or that centre-left politicians – Democrats in the US, socialists and social democrats in Europe – enthusiastically adopted some of the central creeds of Thatcherism and Reaganism, such as deregulation, privatisation, financial liberalisation and individual enterprise? Much of our contemporary policy discussion remains infused with principles supposedly grounded in the concept of homo economicus , the perfectly rational human being, found in many economic theories, who always pursues his own self-interest.

But the looseness of the term neoliberalism also means that criticism of it often misses the mark. There is nothing wrong with markets, private entrepreneurship or incentives – when deployed appropriately. Their creative use lies behind the most significant economic achievements of our time. As we heap scorn on neoliberalism, we risk throwing out some of neoliberalism's useful ideas.

The real trouble is that mainstream economics shades too easily into ideology, constraining the choices that we appear to have and providing cookie-cutter solutions. A proper understanding of the economics that lie behind neoliberalism would allow us to identify – and to reject – ideology when it masquerades as economic science. Most importantly, it would help us to develop the institutional imagination we badly need to redesign capitalism for the 21st century.


N eoliberalism is typically understood as being based on key tenets of mainstream economic science. To see those tenets without the ideology, consider this thought experiment. A well-known and highly regarded economist lands in a country he has never visited and knows nothing about. He is brought to a meeting with the country's leading policymakers. "Our country is in trouble," they tell him. "The economy is stagnant, investment is low, and there is no growth in sight." They turn to him expectantly: "Please tell us what we should do to make our economy grow."

The economist pleads ignorance and explains that he knows too little about the country to make any recommendations. He would need to study the history of the economy, to analyse the statistics, and to travel around the country before he could say anything.

Facebook Twitter Pinterest Tony Blair and Bill Clinton: centre-left politicians who enthusiastically adopted some of the central creeds of Thatcherism and Reaganism. Photograph: Reuters

But his hosts are insistent. "We understand your reticence, and we wish you had the time for all that," they tell him. "But isn't economics a science, and aren't you one of its most distinguished practitioners? Even though you do not know much about our economy, surely there are some general theories and prescriptions you can share with us to guide our economic policies and reforms."

The economist is now in a bind. He does not want to emulate those economic gurus he has long criticised for peddling their favourite policy advice. But he feels challenged by the question. Are there universal truths in economics? Can he say anything valid or useful?

So he begins. The efficiency with which an economy's resources are allocated is a critical determinant of the economy's performance, he says. Efficiency, in turn, requires aligning the incentives of households and businesses with social costs and benefits. The incentives faced by entrepreneurs, investors and producers are particularly important when it comes to economic growth. Growth needs a system of property rights and contract enforcement that will ensure those who invest can retain the returns on their investments. And the economy must be open to ideas and innovations from the rest of the world.

But economies can be derailed by macroeconomic instability, he goes on. Governments must therefore pursue a sound monetary policy , which means restricting the growth of liquidity to the increase in nominal money demand at reasonable inflation. They must ensure fiscal sustainability, so that the increase in public debt does not outpace national income. And they must carry out prudential regulation of banks and other financial institutions to prevent the financial system from taking excessive risk.

Now he is warming to his task. Economics is not just about efficiency and growth, he adds. Economic principles also carry over to equity and social policy. Economics has little to say about how much redistribution a society should seek. But it does tell us that the tax base should be as broad as possible, and that social programmes should be designed in a way that does not encourage workers to drop out of the labour market.

By the time the economist stops, it appears as if he has laid out a fully fledged neoliberal agenda. A critic in the audience will have heard all the code words: efficiency, incentives, property rights, sound money, fiscal prudence. And yet the universal principles that the economist describes are in fact quite open-ended. They presume a capitalist economy – one in which investment decisions are made by private individuals and firms – but not much beyond that. They allow for – indeed, they require – a surprising variety of institutional arrangements.

So has the economist just delivered a neoliberal screed? We would be mistaken to think so, and our mistake would consist of associating each abstract term – incentives, property rights, sound money – with a particular institutional counterpart. And therein lies the central conceit, and the fatal flaw, of neoliberalism: the belief that first-order economic principles map on to a unique set of policies, approximated by a Thatcher/Reagan-style agenda.

Consider property rights. They matter insofar as they allocate returns on investments. An optimal system would distribute property rights to those who would make the best use of an asset, and afford protection against those most likely to expropriate the returns. Property rights are good when they protect innovators from free riders, but they are bad when they protect them from competition. Depending on the context, a legal regime that provides the appropriate incentives can look quite different from the standard US-style regime of private property rights.

This may seem like a semantic point with little practical import; but China's phenomenal economic success is largely due to its orthodoxy-defying institutional tinkering. China turned to markets, but did not copy western practices in property rights. Its reforms produced market-based incentives through a series of unusual institutional arrangements that were better adapted to the local context. Rather than move directly from state to private ownership, for example, which would have been stymied by the weakness of the prevailing legal structures, the country relied on mixed forms of ownership that provided more effective property rights for entrepreneurs in practice. Township and Village Enterprises (TVEs), which spearheaded Chinese economic growth during the 1980s, were collectives owned and controlled by local governments. Even though TVEs were publicly owned, entrepreneurs received the protection they needed against expropriation. Local governments had a direct stake in the profits of the firms, and hence did not want to kill the goose that lays the golden eggs.

China relied on a range of such innovations, each delivering the economist's higher-order economic principles in unfamiliar institutional arrangements. For instance, it shielded its large state sector from global competition, establishing special economic zones where foreign firms could operate with different rules than in the rest of the economy. In view of such departures from orthodox blueprints, describing China's economic reforms as neoliberal – as critics are inclined to do – distorts more than it reveals. If we are to call this neoliberalism, we must surely look more kindly on the ideas behind the most dramatic poverty reduction in history.

One might protest that China's institutional innovations were purely transitional. Perhaps it will have to converge on western-style institutions to sustain its economic progress. But this common line of thinking overlooks the diversity of capitalist arrangements that still prevails among advanced economies, despite the considerable homogenisation of our policy discourse.

What, after all, are western institutions? The size of the public sector in OECD countries varies, from a third of the economy in Korea to nearly 60% in Finland. In Iceland, 86% of workers are members of a trade union; the comparable number in Switzerland is just 16%. In the US, firms can fire workers almost at will; French labour laws have historically required employers to jump through many hoops first. Stock markets have grown to a total value of nearly one-and-a-half times GDP in the US; in Germany, they are only a third as large, equivalent to just 50% of GDP.

Facebook Twitter Pinterest 'China turned to markets, but did not copy western practices ... ' Photograph: AFP/Getty

The idea that any one of these models of taxation, labour relations or financial organisation is inherently superior to the others is belied by the varying economic fortunes that each of these economies have experienced over recent decades. The US has gone through successive periods of angst in which its economic institutions were judged inferior to those in Germany, Japan, China, and now possibly Germany again. Certainly, comparable levels of wealth and productivity can be produced under very different models of capitalism. We might even go a step further: today's prevailing models probably come nowhere near exhausting the range of what might be possible, and desirable, in the future.

The visiting economist in our thought experiment knows all this, and recognises that the principles he has enunciated need to be filled in with institutional detail before they become operational. Property rights? Yes, but how? Sound money? Of course, but how? It would perhaps be easier to criticise his list of principles for being vacuous than to denounce it as a neoliberal screed.

Still, these principles are not entirely content-free. China, and indeed all countries that managed to develop rapidly, demonstrate the utility of those principles once they are properly adapted to local context. Conversely, too many economies have been driven to ruin courtesy of political leaders who chose to violate them. We need look no further than Latin American populists or eastern European communist regimes to appreciate the practical significance of sound money, fiscal sustainability and private incentives.


O f course, economics goes beyond a list of abstract, largely common-sense principles. Much of the work of economists consists of developing stylised models of how economies work and then confronting those models with evidence. Economists tend to think of what they do as progressively refining their understanding of the world: their models are supposed to get better and better as they are tested and revised over time. But progress in economics happens differently.

Economists study a social reality that is unlike the physical universe. It is completely manmade, highly malleable and operates according to different rules across time and space. Economics advances not by settling on the right model or theory to answer such questions, but by improving our understanding of the diversity of causal relationships. Neoliberalism and its customary remedies – always more markets, always less government – are in fact a perversion of mainstream economics. Good economists know that the correct answer to any question in economics is: it depends.

Does an increase in the minimum wage depress employment? Yes, if the labour market is really competitive and employers have no control over the wage they must pay to attract workers; but not necessarily otherwise. Does trade liberalisation increase economic growth? Yes, if it increases the profitability of industries where the bulk of investment and innovation takes place; but not otherwise. Does more government spending increase employment? Yes, if there is slack in the economy and wages do not rise; but not otherwise. Does monopoly harm innovation? Yes and no, depending on a whole host of market circumstances.

Facebook Twitter Pinterest 'Today [neoliberalism] is routinely reviled as a shorthand for the ideas that have produced growing economic inequality and precipitated our current populist backlash' Trump signing an order to take the US out of the TPP trade pact. Photograph: AFP/Getty

In economics, new models rarely supplant older models. The basic competitive-markets model dating back to Adam Smith has been modified over time by the inclusion, in rough historical order, of monopoly, externalities, scale economies, incomplete and asymmetric information, irrational behaviour and many other real-world features. But the older models remain as useful as ever. Understanding how real markets operate necessitates using different lenses at different times.

Perhaps maps offer the best analogy. Just like economic models, maps are highly stylised representations of reality . They are useful precisely because they abstract from many real-world details that would get in the way. But abstraction also implies that we need a different map depending on the nature of our journey. If we are travelling by bike, we need a map of bike trails. If we are to go on foot, we need a map of footpaths. If a new subway is constructed, we will need a subway map – but we wouldn't throw out the older maps.

Economists tend to be very good at making maps, but not good enough at choosing the one most suited to the task at hand. When confronted with policy questions of the type our visiting economist faces, too many of them resort to "benchmark" models that favour the laissez-faire approach. Kneejerk solutions and hubris replace the richness and humility of the discussion in the seminar room. John Maynard Keynes once defined economics as the "science of thinking in terms of models, joined to the art of choosing models which are relevant". Economists typically have trouble with the "art" part.

This, too, can be illustrated with a parable. A journalist calls an economics professor for his view on whether free trade is a good idea. The professor responds enthusiastically in the affirmative. The journalist then goes undercover as a student in the professor's advanced graduate seminar on international trade. He poses the same question: is free trade good? This time the professor is stymied. "What do you mean by 'good'?" he responds. "And good for whom?" The professor then launches into an extensive exegesis that will ultimately culminate in a heavily hedged statement: "So if the long list of conditions I have just described are satisfied, and assuming we can tax the beneficiaries to compensate the losers, freer trade has the potential to increase everyone's wellbeing." If he is in an expansive mood, the professor might add that the effect of free trade on an economy's longterm growth rate is not clear either, and would depend on an altogether different set of requirements.

This professor is rather different from the one the journalist encountered previously. On the record, he exudes self-confidence, not reticence, about the appropriate policy. There is one and only one model, at least as far as the public conversation is concerned, and there is a single correct answer, regardless of context. Strangely, the professor deems the knowledge that he imparts to his advanced students to be inappropriate (or dangerous) for the general public. Why?

The roots of such behaviour lie deep in the culture of the economics profession. But one important motive is the zeal to display the profession's crown jewels – market efficiency, the invisible hand, comparative advantage – in untarnished form, and to shield them from attack by self-interested barbarians, namely the protectionists . Unfortunately, these economists typically ignore the barbarians on the other side of the issue – financiers and multinational corporations whose motives are no purer and who are all too ready to hijack these ideas for their own benefit.

As a result, economists' contributions to public debate are often biased in one direction, in favour of more trade, more finance and less government. That is why economists have developed a reputation as cheerleaders for neoliberalism, even if mainstream economics is very far from a paean to laissez-faire. The economists who let their enthusiasm for free markets run wild are in fact not being true to their own discipline.


H ow then should we think about globalisation in order to liberate it from the grip of neoliberal practices? We must begin by understanding the positive potential of global markets. Access to world markets in goods, technologies and capital has played an important role in virtually all of the economic miracles of our time. China is the most recent and powerful reminder of this historical truth, but it is not the only case. Before China, similar miracles were performed by South Korea, Taiwan, Japan and a few non-Asian countries such as Mauritius . All of these countries embraced globalisation rather than turn their backs on it, and they benefited handsomely.

Defenders of the existing economic order will quickly point to these examples when globalisation comes into question. What they will fail to say is that almost all of these countries joined the world economy by violating neoliberal strictures. South Korea and Taiwan, for instance, heavily subsidised their exporters, the former through the financial system and the latter through tax incentives. All of them eventually removed most of their import restrictions, long after economic growth had taken off.

But none, with the sole exception of Chile in the 1980s under Pinochet, followed the neoliberal recommendation of a rapid opening-up to imports. Chile's neoliberal experiment eventually produced the worst economic crisis in all of Latin America. While the details differ across countries, in all cases governments played an active role in restructuring the economy and buffering it against a volatile external environment. Industrial policies, restrictions on capital flows and currency controls – all prohibited in the neoliberal playbook – were rampant.

Facebook Twitter Pinterest Protest against Nafta in Mexico City in 2008: since the reforms of the mid-90s, the country's economy has underperformed. Photograph: EPA

By contrast, countries that stuck closest to the neoliberal model of globalisation were sorely disappointed. Mexico provides a particularly sad example. Following a series of macroeconomic crises in the mid-1990s, Mexico embraced macroeconomic orthodoxy, extensively liberalised its economy, freed up the financial system, sharply reduced import restrictions and signed the North American Free Trade Agreement (Nafta). These policies did produce macroeconomic stability and a significant rise in foreign trade and internal investment. But where it counts – in overall productivity and economic growth – the experiment failed . Since undertaking the reforms, overall productivity in Mexico has stagnated, and the economy has underperformed even by the undemanding standards of Latin America.

These outcomes are not a surprise from the perspective of sound economics. They are yet another manifestation of the need for economic policies to be attuned to the failures to which markets are prone, and to be tailored to the specific circumstances of each country. No single blueprint fits all.


A s Peters's 1982 manifesto attests, the meaning of neoliberalism has changed considerably over time as the label has acquired harder-line connotations with respect to deregulation, financialisation and globalisation. But there is one thread that connects all versions of neoliberalism, and that is the emphasis on economic growth . Peters wrote in 1982 that the emphasis was warranted because growth is essential to all our social and political ends – community, democracy, prosperity. Entrepreneurship, private investment and removing obstacles that stand in the way (such as excessive regulation) were all instruments for achieving economic growth. If a similar neoliberal manifesto were penned today, it would no doubt make the same point.

ss="rich-link"> Globalisation: the rise and fall of an idea that swept the world Read more

Critics often point out that this emphasis on economics debases and sacrifices other important values such as equality, social inclusion, democratic deliberation and justice. Those political and social objectives obviously matter enormously, and in some contexts they matter the most. They cannot always, or even often, be achieved by means of technocratic economic policies; politics must play a central role.

Still, neoliberals are not wrong when they argue that our most cherished ideals are more likely to be attained when our economy is vibrant, strong and growing. Where they are wrong is in believing that there is a unique and universal recipe for improving economic performance, to which they have access. The fatal flaw of neoliberalism is that it does not even get the economics right. It must be rejected on its own terms for the simple reason that it is bad economics.

A version of this article first appeared in Boston Review

Main illustration by Eleanor Shakespeare

[Dec 03, 2018] Neoliberalism is a secular religion because it relies of beliefs (which in this case are presented using the mathematical notation of neoclassic economics)

Like bolshevism this secular regions is to a large extent is a denial of Christianity. While Bolshevism is closer to the Islam, Neoliberalism is closer to Judaism.
The idea of " Homo economicus " -- a person who in all his decisions is governed by self-interest and greed is bunk.
Notable quotes:
"... There is not a shred of logical sense in neoliberalism. You're doing what the fundamentalists do... they talk about what neoliberalism is in theory whilst completely ignoring what it is in practice. ..."
"... In theory the banks should have been allowed to go bust, but the consequences where deemed too high (as they inevitable are). The result is socialism for the rich using the poor as the excuse, which is the reality of neoliberalism. ..."
"... Neoliberalism is based on the thought that you get as much freedom as you can pay for, otherwise you can just pay... like everyone else. In Asia and South America it has been the economic preference of dictators that pushes profit upwards and responsibility down, just like it does here. ..."
"... We all probably know the answer to this. In order to maintain the consent necessary to create inequality in their own interests the neoliberals have to tell big lies, and keep repeating them until they appear to be the truth. They've gotten so damn good at it. ..."
"... Neoliberalism is a modern curse. Everything about it is bad and until we're free of it, it will only ever keep trying to turn us into indentured labourers. ..."
"... It's acolytes are required to blind themselves to logic and reason to such a degree they resemble Scientologists or Jehovah's Witnesses more than people with any sort of coherent political ideology, because that's what neoliberalism actually is... a cult of the rich, for the rich, by the rich... and it's followers in the general population are nothing but moron familiars hoping one day to be made a fully fledged bastard ..."
"... Who could look at the way markets function and conclude there's any freedom? Only a neoliberal cult member. They cannot be reasoned with. They cannot be dissuaded. They cannot be persuaded. Only the market knows best, and the fact that the market is a corrupt, self serving whore is completely ignored by the ideology of their Church. ..."
Dec 03, 2018 | discussion.theguardian.com
TedSmithAndSon -> theguardianisrubbish , 8 Jun 2013 12:24
@theguardianisrubbish -

Unless you are completely confused by what neoliberalism is there is not a shred of logical sense in this.

There is not a shred of logical sense in neoliberalism. You're doing what the fundamentalists do... they talk about what neoliberalism is in theory whilst completely ignoring what it is in practice.

In theory the banks should have been allowed to go bust, but the consequences where deemed too high (as they inevitable are). The result is socialism for the rich using the poor as the excuse, which is the reality of neoliberalism.

Savers in a neoliberal society are lambs to the slaughter. Thatcher "revitalised" banking, while everything else withered and died.

Neoliberalism is based on the thought of personal freedom, communism is definitely not. Neoliberalist policies have lifted millions of people out of poverty in Asia and South America.

Neoliberalism is based on the thought that you get as much freedom as you can pay for, otherwise you can just pay... like everyone else. In Asia and South America it has been the economic preference of dictators that pushes profit upwards and responsibility down, just like it does here.

I find it ironic that it now has 5 year plans that absolutely must not be deviated from, massive state intervention in markets (QE, housing policy, tax credits... insert where applicable), and advocates large scale central planning even as it denies reality, and makes the announcement from a tractor factory.

Neoliberalism is a blight... a cancer on humanity... a massive lie told by rich people and believed only by peasants happy to be thrown a turnip. In theory it's one thing, the reality is entirely different. Until we're rid of it, we're all it's slaves. It's an abhorrent cult that comes up with purest bilge like expansionary fiscal contraction to keep all the money in the hands of the rich.

Jacobsadder , 8 Jun 2013 11:35
Bloody well said Deborah!

Why, you have to ask yourself, is this vast implausibility, this sheer unsustainability, not blindingly obvious to all?

We all probably know the answer to this. In order to maintain the consent necessary to create inequality in their own interests the neoliberals have to tell big lies, and keep repeating them until they appear to be the truth. They've gotten so damn good at it.

iluvanimals54 , 8 Jun 2013 07:58
Today all politicians knee before the Altar that is Big Business and the Profit God, with his minions of multinational Angels.
TedSmithAndSon , 8 Jun 2013 06:01
Neoliberalism is a modern curse. Everything about it is bad and until we're free of it, it will only ever keep trying to turn us into indentured labourers.

It's acolytes are required to blind themselves to logic and reason to such a degree they resemble Scientologists or Jehovah's Witnesses more than people with any sort of coherent political ideology, because that's what neoliberalism actually is... a cult of the rich, for the rich, by the rich... and it's followers in the general population are nothing but moron familiars hoping one day to be made a fully fledged bastard.

Who could look at the way markets function and conclude there's any freedom? Only a neoliberal cult member. They cannot be reasoned with. They cannot be dissuaded. They cannot be persuaded. Only the market knows best, and the fact that the market is a corrupt, self serving whore is completely ignored by the ideology of their Church.

It's subsumed the entire planet, and waiting for them to see sense is a hopeless cause. In the end it'll probably take violence to rid us of the Neoliberal parasite... the turn of the century plague.

[Nov 05, 2018] How neoliberals destroyed University education and then a large part of the US middle class and the US postwar social order by Edward Qualtrough

Notable quotes:
"... Every academic critique of neoliberalism is an unacknowledged memoir. We academics occupy a crucial node in the neoliberal system. Our institutions are foundational to neoliberalism's claim to be a meritocracy, insofar as we are tasked with discerning and certifying the merit that leads to the most powerful and desirable jobs. Yet at the same time, colleges and universities have suffered the fate of all public goods under the neoliberal order. We must therefore "do more with less," cutting costs while meeting ever-greater demands. The academic workforce faces increasing precarity and shrinking wages even as it is called on to teach and assess more students than ever before in human history -- and to demonstrate that we are doing so better than ever, via newly devised regimes of outcome-based assessment. In short, we academics live out the contradictions of neoliberalism every day. ..."
"... Whereas classical liberalism insisted that capitalism had to be allowed free rein within its sphere, under neoliberalism capitalism no longer has a set sphere. We are always "on the clock," always accruing (or squandering) various forms of financial and social capital. ..."
Aug 24, 2016 | www.amazon.com

From: Amazon.com Neoliberalism's Demons On the Political Theology of Late Capital (9781503607125) Adam Kotsko Books

Every academic critique of neoliberalism is an unacknowledged memoir. We academics occupy a crucial node in the neoliberal system. Our institutions are foundational to neoliberalism's claim to be a meritocracy, insofar as we are tasked with discerning and certifying the merit that leads to the most powerful and desirable jobs. Yet at the same time, colleges and universities have suffered the fate of all public goods under the neoliberal order. We must therefore "do more with less," cutting costs while meeting ever-greater demands. The academic workforce faces increasing precarity and shrinking wages even as it is called on to teach and assess more students than ever before in human history -- and to demonstrate that we are doing so better than ever, via newly devised regimes of outcome-based assessment. In short, we academics live out the contradictions of neoliberalism every day.

... ... ...

On a more personal level it reflects my upbringing in the suburbs of Flint, Michigan, a city that has been utterly devastated by the transition to neoliberalism. As I lived through the slow-motion disaster of the gradual withdrawal of the auto industry, I often heard Henry Ford s dictum that a company could make more money if the workers were paid enough to be customers as well, a principle that the major US automakers were inexplicably abandoning. Hence I find it [Fordism -- NNB] to be an elegant way of capturing the postwar model's promise of creating broadly shared prosperity by retooling capitalism to produce a consumer society characterized by a growing middle class -- and of emphasizing the fact that that promise was ultimately broken.

By the mid-1970s, the postwar Fordist order had begun to breakdown to varying degrees in the major Western countries. While many powerful groups advocated a response to the crisis that would strengthen the welfare state, the agenda that wound up carrying the day was neoliberalism, which was most forcefully implemented in the United Kingdom by Margaret Thatcher and in the United States by Ronald Reagan. And although this transformation was begun by the conservative part)', in both countries the left-of-centcr or (in American usage) "liberal"party wound up embracing neoliberal tenets under Tony Blair and Bill Clinton, ostensibly for the purpose of directing them toward progressive ends.

With the context of current debates within the US Democratic Party, this means that Clinton acolytes are correct to claim that "neoliberalism" just is liberalism but only to the extent that, in the contemporary United States, the term liberalism is little more than a word for whatever the policy agenda of the Democratic Party happens to be at any given time. Though politicians of all stripes at times used libertarian rhetoric to sell their policies, the most clear-eyed advocates of neoliberalism realized that there could be no simple question of a "return" to the laissez-faire model.

Rather than simply getting the state "out of the way," they both deployed and transformed state power, including the institutions of the welfare state, to reshape society in accordance with market models. In some cases creating markets where none had previously existed, as in the privatization of education and other public services. In others it took the form of a more general spread of a competitive market ethos into ever more areas of life -- so that we are encouraged to think of our reputation as a "brand," for instance, or our social contacts as fodder for "networking." Whereas classical liberalism insisted that capitalism had to be allowed free rein within its sphere, under neoliberalism capitalism no longer has a set sphere. We are always "on the clock," always accruing (or squandering) various forms of financial and social capital.

[Nov 05, 2018] Publishing and Promotion in Economics The Tyranny of the Top Five by James Heckman

Notable quotes:
"... By James Heckman, Henry Schultz Distinguished Service Professor of Economics, University of Chicago; Founding Director, Center for the Economics of Human Development and Sidharth Moktan, Predoctoral Fellow, Center for the Economics of Human Development, University of Chicago. Originally published at VoxEU ..."
"... Anecdotal evidence suggests that the 'Top Five' economics journals have a strong influence on tenure and promotion decisions, but actual evidence on their influence is sparse. This column uses data on employment and publication histories for tenure-track faculty hired by the top US economics departments between 1996 and 2010 to show that the impact of the Top Five on tenure decisions dwarfs that of non-Top Five journals. A survey of US economics department faculties confirms the Top Five's outsized influence. ..."
"... American Economic Review ..."
"... Journal of Political Economy ..."
"... Quarterly Journal of Economics ..."
"... Review of Economic Studies ..."
"... We find that the Top Five has a large impact on tenure decisions within the top 35 US departments of economics, dwarfing the impact of publications in non-Top Five journals. A survey of current tenure-track faculty hired by the top 50 US economics departments confirms the Top Five's outsize influence. ..."
"... Review of Economics and Statistics ..."
"... Journal of Political Economy ..."
"... Review of Economic Studies ..."
"... Definition of journal abbreviations ..."
"... See original post for references ..."
Nov 02, 2018 | www.nakedcapitalism.com
Yves here. In case you hadn't noticed it, the economics discipline has doctrinal norms. Academics who stray too far from it find themselves welcome only at the small number of colleges and universities, such as the University of Missouri – Kansas City and the University of Massachusetts – Amherst, that embrace heterodox views.

The top five economics journals play a large role in enforcing the orthodoxy. Jamie Galbraith has described how he'd submit suitably mathed-up papers to one of the heavyweights, get an initial positive response, but when they understood where he was going, they'd alway reject the paper. The reviewers would claim that the mathematics were flawed, when that was not the case. But being published by the top five is essential to advancing in prestigious economics faculties, such as Harvard, Chicago, Princeton, and MIT.

It should be noted that no real science has a rigid hierarchy of journals like this. The article documents disfunction among the editors at these journals, such as incest and clientelism.

By James Heckman, Henry Schultz Distinguished Service Professor of Economics, University of Chicago; Founding Director, Center for the Economics of Human Development and Sidharth Moktan, Predoctoral Fellow, Center for the Economics of Human Development, University of Chicago. Originally published at VoxEU

Anecdotal evidence suggests that the 'Top Five' economics journals have a strong influence on tenure and promotion decisions, but actual evidence on their influence is sparse. This column uses data on employment and publication histories for tenure-track faculty hired by the top US economics departments between 1996 and 2010 to show that the impact of the Top Five on tenure decisions dwarfs that of non-Top Five journals. A survey of US economics department faculties confirms the Top Five's outsized influence.

Anyone who talks with young economists entering academia about their career prospects and those of their peers cannot fail to note the importance they place on publication in the so-called Top Five journals in economics: the American Economic Review , Econometrica ,the Journal of Political Economy ,the Quarterly Journal of Economics , and the Review of Economic Studies .The discipline's preoccupation with the Top Five is reflected in the large number of scholarly papers that study aspects of the these journals, many of which acknowledge the Top Five's de facto role as arbiter in tenure and promotion decisions (e.g. Ellison 2002, Frey 2009, Card and DellaVigna 2013, Anauti et al. 2015, Hamermesh 2013, 2018, Colussi 2018).

While anecdotal evidence suggests that the Top Five has a strong influence on tenure and promotion decisions, actual evidence on such influence is sparse. Our paper (Heckman and Moktan 2018) fills this gap in the literature. We find that the Top Five has a large impact on tenure decisions within the top 35 US departments of economics, dwarfing the impact of publications in non-Top Five journals. A survey of current tenure-track faculty hired by the top 50 US economics departments confirms the Top Five's outsize influence.

Our empirical and survey-based findings of the Top Five's influence beg the question: is the Top Five an adequate filter of quality? Extending the analysis of Hamermesh (2018), we show that appearance of an article in the Top Five is a poor predictor of quality as measured by citations. Substantial variation in the citations accrued by papers published in the Top Five and overlap in article quality across journals outside the Top Five make aggregate measures of journal quality such as the Top Five label and Impact Factors poor measures of individual article quality. This is a view expressed by many economists and non-economists alike. 1

There are many consequences of the discipline's reliance on the Top Five. It subverts the essential process of assessing and rewarding original research. Using the Top Five to screen the next generation of economists incentivises professional incest and creates clientele effects whereby career-oriented authors appeal to the tastes of editors and biases of journals. It diverts their attention away from basic research toward strategising about formats, lines of research, and favoured topics of journal editors, many with long tenures. It raises the entry costs for new ideas and persons outside the orbits of the journals and their editors. An over-emphasis on Top Five publications perversely incentivises scholars to pursue follow-up and replication work at the expense of creative pioneering research, since follow-up work is easier to judge, is more likely to result in clean publishable results, and is hence more likely to be published. 2 This behaviour is consistent with basic common sense: you get what you incentivise.

In light of the many adverse and potentially severe consequences associated with current practices, we believe that it is unwise for the discipline to continue using publication in the Top Five as a measure of research achievement and as a predictor of future scholarly potential. The call to abandon the use of measures of journal influence in career advancement decisions has already gained momentum in the sciences. As of the time of the writing of this column, 667 organisations and 13,019 individuals have signed the San Francisco Declaration of Research Assessment, a declaration denouncing the use of journal metrics in hiring, career advancement, and funding decisions within the sciences. 3 Economists should take heed of these actions. We provide suggestions for change in the concluding portion of this column.

Documenting the Power of the Top Five

We find strong evidence of the influence of the Top Five. Without doubt, publication in the Top Five is a powerful determinant of tenure and promotion in academic economics. We analyse longitudinal data on employment and publication histories for tenure-track faculty hired by the top 35 US economics department between 1996 and 2010. We find that Top Five publications greatly increase the probability of receiving tenure during the first spell of tenure-track employment (see Figure 1). This is true if we limit samples to the first seven years of employment. Estimates from duration analyses of time to tenure show that publishingthree Top Five articles is associated with a 370% increase in the rate of receiving tenure, compared to candidates with similar levels of publication in non-Top Five journals. The estimated effects of publication in non-Top Five journals pale in comparison.

Figure 1 Predicted probabilities for receipt of tenure in the first spell of tenure-track employment

Notes : The figures plot the predicted probabilities associated with different levels of publications by authors in different journal categories, where the predictions are obtained from a logit model. White diamonds on the bars indicate that the prediction is significantly different than zero at the 5% level.

A survey of current assistant and associate professors hired by the top 50 US economics departments corroborates these findings. On average, junior faculty rank Top Five publications as being the single most influential determinant of tenure and promotion outcomes (see Figure 2). 4

Figure 2 Ranking of performance areas based on their perceived influence on tenure and promotion decisions

Notes : The figure summarises respondents' rankings of either performance areas. Responses are summarised by type of career advancement: tenure receipt, promotion to assistant professor, and promotion to associate professor. The bars present mean responses for each performance area. Respondents were given the option to not rank any or all of the eight performance areas. As a result, the number of respondents varies across the performance areas.

Responses to our survey reveal a widespread belief among junior faculty that the effect of the Top Five on career advancement operates independently of differences in article quality. To separate quality effects from a Top Five placement effect, we ask respondents to report the probability that their department awards tenure or promotion to an individual with Top Five publications compared to an individual identical to the first individual in every way except that he/she has published the same number and quality of articles in non-Top Five journals. If the Top Five influence operates solely through differences in article impact and quality, the expected reported probability would be 0.5. The results in Figure 3 show large and statistically significant deviations from 0.5 in favour of Top Five publication. On average, respondents from top 10 departments believe that the Top Five candidate would receive tenure with a probability of 0.89. The mean probability increases slightly for lower-ranked departments.

Figure 3 Probability that a candidate with Top Five publications receives tenure or promotion instead of an identical candidate with non-Top Five publications, ceteris paribus

Notes : The figure summarises respondents' perceptions about the probability that a candidate with Top Five publications is granted tenure or promotion by the respondent's department instead of a candidate with non-Top Five publications, ceteris paribus. Responses are summarised by type of career advancement: tenure receipt, promotion to assistant professor, and promotion to associate professor. The bars present mean responses for each performance area. White diamonds indicate that the mean response is significantly different than 50% at the 10% level.

The Top Five as a Filter of Quality

The current practice of relying on the Top Five has weak empirical support if judged by its ability to produce impactful papers as measured by citation counts. Extending the citation analysis of Hamermesh (2018), we find considerable heterogeneity in citations within journals and overlap in citations across Top Five and non-Top Five journals (see Figure 4). Moreover, the overlap increases considerably when one compares non-Top Five journals to the less-cited Top Five journals. For instance, while the median Review of Economics and Statistics article ranks in the 38thpercentile of the overall Top Five citation distribution, the same article outranks the median-cited article in the combined Journal of Political Economy and Review of Economic Studies distributions.

Figure 4 Distribution of residualalog citations for articles published between 2000 and 2010 (as at July 2018)

Source : Scopus.com (accessed July 2018)
Note : a The table plots distributions of residual log citations obtained from a model that estimates log(citations+1) as a function of third-degree polynomial for years elapsed between the date of publication and 2018, the year citations were measured. This residualisation adjusts log citations for exposure effects, thereby allowing for comparison of citations received by papers from different publication cohorts.

Definition of journal abbreviations : QJE–Quarterly Journal Of Economics, JPE–Journal Of Political Economy, ECMA–Econometrica, AER–American Economic Review, ReStud–Review Of Economic Studies, JEL–Journal Of Economic Literature, JEP–Journal Of Economic Perspectives, ReStat–Review Of Economics And Statistics, JEG–Journal Of Economic Growth, JOLE–Journal Of Labor Economics, JHR–Journal Of Human Resources, EJ–Economic Journal, JHE–Journal Of Health Economics, ICC–Industrial And Corporate Change, WBER–World Bank Economic Review, RAND–Rand Journal Of Economics, JDE–Journal Of Development Economics, JPub–Journal Of Public Economics, JOE–Journal Of Econometrics, HE–Health Economics, ILR–Industrial And Labor Relations Review, JEEA–Journal Of The European Economic Association, JME–Journal Of Monetary Economics, JRU–Journal Of Risk And Uncertainty, JInE–Journal Of Industrial Economics, JOF–Journal Of Finance, JFE–Journal Of Financial Economics, ReFin–Review Of Financial Studies, JFQA–Journal Of Financial And Quantitative Analysis, and MathFin–Mathematical Finance.

Restricting the citation analysis to the top of the citation distribution produces the same conclusion. Among the top 1% most-cited articles in our citations database, 5 13.6% were published by three non-Top Five journals. 6

Low Editorial Turnover and Incest

Figure 5 Density plot of the number of years served by editors between 1996 and 2016

Source : Brogaard et al. (2014) for data up to 2011. Data for subsequent years collected from journal front pages.

Compounding the privately rational incentive to curry favour with editors is the phenomenon of longevity of editorial terms, especially at house journals (see Figure 5). Low turnover in editorial boards creates the possibility of clientele effects surrounding both journals and their editors. We corroborate the literature that documents the inbred nature of economics publishing (Laband and Piette 1994, Brogaard et al. 2014, Colussi 2018) by estimating incest coefficients that quantify the degree of inbreeding in Top Five publications. We show that network effects are empirically important – editors are likely to select the papers of those they know. 7

Table 1 Incest coefficients: Publications in Top Five between 2000 and 2016, by author affiliation listed during publication

Source : Elsevier, Scopus.com.

Notes : The table reports three columns for each Top Five journal. The left most columns report the number of articles that were affiliated to each university. The middle columns present the percentage of articles published in the journal that were affiliated to the university out of all articles affiliated to the list top universities. The right most columns present the percentage of articles published in the journal that were affiliated to the university out of all articles published in the journal. An author is defined as being affiliated with a university during a given year if he/she listed the university as an affiliation in any publication that was made during that specific year. An article is defined as being affiliated with a university during a specific year if at least one author was affiliated to the university during the year.

Discussion

Reliance on the Top Five as a screening device raises serious concerns. Our findings should spark a serious conversation in the economics profession about developing implementable alternatives for judging the quality of research. Such solutions necessarily de-emphasise the role of the Top Five in tenure and promotion decisions, and redistribute the signalling function more broadly across a range of high-quality journals.

However, a proper solution to the tyranny will likely involve more than a simple redefinition of the Top Five to include a handful of additional influential journals. A better solution will need to address the flaw that is inherent in the practice of judging a scholar's potential for innovative work based on a track record of publications in a handful of select journals. The appropriate solution requires a significant shift from the current publications-based system of deciding tenure to a system that emphasises departmental peer review of a candidate's work. Such a system would give serious consideration to unpublished working papers and to the quality and integrity of a scholar's work. By closely reading published and unpublished papers rather than counting placements of publications, departments would signal that they both acknowledge and adequately account for the greater risk associated with scholars working at the frontiers of the discipline.

A more radical proposal would be to shift publication away from the current journal system with its long delays in refereeing and publication and possibility for incest and favoritism, towards an open source arXiv or PLOS ONE format. 8 Such formats facilitate the dissemination rate of new ideas and provide online real-time peer review for them. Discussion sessions would vet criticisms and provide both authors and their readers with different perspectives within much faster time frames. Shorter, more focused papers would stimulate dialogue and break editorial and journal monopolies. Ellison (2011 )notes that online publication is already being practiced by prominent scholars. Why not broaden the practice across the profession and encourage spirited dialogue and rapid dissemination of new ideas? This evolution has begun with a recently launched economics version of arXiv .

Under any event, the profession should reduce incentives for crass careerism and promote creative activity. Short tenure clocks and reliance on the Top Five to certify quality do just the opposite. In the long run, the profession will benefit from application of more creativity-sensitive screening of its next generation.

See original post for references

[Oct 31, 2018] Over 50% Of College Students Afraid To Disagree With Peers, Professors

Social pressure to conform is natural in any organization. And universities are not exception. Various people positioned differently on confiormism-independent_thinking spectrum, so we should not generalize that social pressure makes any students a conformist, who is afraid to voice his/her opinion. Some small percentage of student can withstand significant social pressure. But the fact that around 50% can't withstand significant social pressure sounds right.
Oct 31, 2018 | www.zerohedge.com
As more and more college professors express their social and political views in classrooms, students across the country are feeling increasingly afraid to disagree according to a survey of 800 full-time undergraduate college students, reported by the Wall Street Journal ' s James Freeman.

When students were asked if they've had "any professors or course instructors that have used class time to express their own social or political beliefs that are completely unrelated to the subject of the course," 52% of respondents said that this occurs "often," while 47% responded, "not often."

A majority -- 53% -- also reported that they often "felt intimidated" in sharing their ideas, opinions or beliefs in class because they were different from those of the professors. - WSJ

What's more, 54% of students say they are intimidated expressing themselves when their views conflict with those of their classmates.

The survey, conducted by McLaughlin & Associates on behalf of Yale's William F. Buckley, Jr. Program (which counts Freeman among its directors), was undertaken between October 8th and 18th, and included students at both public and private four-year universities across the country.

This is a problem, suggests Freeman - as unbiased teachers who formerly filled universities have been replaced by activists who "unfortunately appear to be just as political and overbearing as one would expect," and that " perhaps the actual parents who write checks can someday find some way to encourage more responsible behavior. "

Read the rest below via the Wall Street Journal :

***

As for the students, there's at least a mixed message in the latest survey results. On the downside, the fact that so many students are afraid of disagreeing with their peers does not suggest a healthy intellectual atmosphere even outside the classroom. There's more disappointing news in the answers to other survey questions. For example, 59% of respondents agreed with this statement:

My college or university should forbid people from speaking on campus who have a history of engaging in hate speech.

This column does not favor hatred, nor the subjective definition of "hate speech" by college administrators seeking to regulate it. In perhaps the most disturbing finding in the poll results, 33% of U.S. college students participating in the survey agreed with this statement:

If someone is using hate speech or making racially charged comments, physical violence can be justified to prevent this person from espousing their hateful views.

An optimist desperately searching for a silver lining would perhaps note that 60% of respondents did not agree that physical violence is justified to silence people speaking what someone has defined as "hate speech" or "racially charged" comments. But the fact that a third of college students at least theoretically endorse violence as a response to offensive speech underlines the threat to free expression on American campuses.

Perhaps more encouraging are the responses to this question:

Generally speaking, do you think the First Amendment, which deals with freedom of speech, is an outdated amendment that can no longer be applied in today's society and should be changed or an important amendment that still needs to be followed and respected in today's society?

A full 79% of respondents opted for respecting the First Amendment, while 17% backed a rewrite.

On a more specific question, free speech isn't winning by the same landslide. When asked if they would favor or oppose their schools having speech codes to regulate speech for students and faculty, 54% of U.S. college kids opposed such codes while 38% were in favor.

The free exchange of ideas is in danger on American campuses. And given the unprofessional behavior of American faculty suggested by this survey, education reformers should perhaps focus on encouraging free-speech advocates within the student body while adopting a campus slogan from an earlier era: Don't trust anyone over 30.


keep the bastards honest , 26 minutes ago link

this tyranny applies not only to politics and weirdo social world view, it runs thru everything. Group think is powerful and those not following get excluded, defunded of resources and ridicule and other punishment.

... ... ...

PGR88 , 39 minutes ago link

The education-industrial complex is a massive spending and debt-fed bubble, that has created a massive political organizing force and teflon monoculture. They are parasites feeding off government and the debt of students

... ... ...

keep the bastards honest , 55 minutes ago link

It's always been like this, at school as a 5 year old ....my little kid was sent to the headmaster for objecting to making a key ring thing in craft as not one kid had a key. He spoke a well reasoned argument and of course is at the Supreme Court now. But gained no respect or nurturing from that school. I also copped it, made career decision to be a scientist because of the stupidity of an english teacher not knowing same issues prevailed there. Was thrown out of english honours course so did the exam on my own knowledge and got first class honours in the state.

At University we all know you feed back what they want if you want to pass. Some want intelligence and best true understanding others want their crippled stuff. This also applies if you are a science, physiology researcher. Cutting edge work if not mainstream does not get published, you have to be part of a recognised institution to be published so no independent researcher,

There are set ideas and marketing there of eg antioxidants fallacies, need for estrogen, and until recently How stupid was Lamarck because he espoused the passing down of response to environment to subsequent generations...Darwin thought this too but idea was suppressed. Then epigenetics got the new hot thing for grants. Fck them all.

My child and I discussed a version with the principal when he was doing the bacceaulureate, as from 5 onwards teachers rejected correct answers and wanted their answers. The excellent advice was to view it all like a driving exam, learn the road rules and give them back.

students always know the tyranny of the teacher and evaluator. At 6 my kid was sat with the slow learners and forced to give 30answers a day ' correct' . Ie lies and untruths.

Infinity as answer to how many corners has a cylinder was not only mad bad but ridiculed.

Charlie_Martel , 2 hours ago link

Because its an indoctrination not an education.

Duc888 , 2 hours ago link

It's impossible to actually debate someone who has NO FACTS on either side of the argument....

it winds up like this....

"not even WRONG"

The phrase " not even wrong " describes an argument or explanation that purports to be scientific but is based on invalid reasoning or speculative premises that can neither be proven correct nor falsified .

Hence, it refers to statements that cannot be discussed in a rigorous, scientific sense . [1] For a meaningful discussion on whether a certain statement is true or false, the statement must satisfy the criterion called "falsifiability" -- the inherent possibility for the statement to be tested and found false. In this sense, the phrase "not even wrong" is synonymous to "nonfalsifiable". [1]

The phrase is generally attributed to theoretical physicist Wolfgang Pauli , who was known for his colorful objections to incorrect or careless thinking. [2] [3] Rudolf Peierls documents an instance in which "a friend showed Pauli the paper of a young physicist which he suspected was not of great value but on which he wanted Pauli's views. Pauli remarked sadly, 'It is not even wrong' ." [4] This is also often quoted as "That is not only not right; it is not even wrong", or in Pauli's native German , " Das ist nicht nur nicht richtig; es ist nicht einmal falsch!". Peierls remarks that quite a few apocryphal stories of this kind have been circulated and mentions that he listed only the ones personally vouched for by him. He also quotes another example when Pauli replied to Lev Landau , "What you said was so confused that one could not tell whether it was nonsense or not. " [4]

https://en.wikipedia.org/wiki/Not_even_wrong

JimmyJones , 2 hours ago link

Chemical engineering, engineering structural (optional), basic electrical engineering and C++ programing and he can make any machine to automatically preform any chemical process out of his garage. You could probably watch a butt ton of YouTube and a library card and also learn those skills.

LetThemEatRand , 2 hours ago link

The homogenized culture of colleges today is very similar to what I imagine it was like in the 1950's, but with a different set of "values" obviously. The 1950's led to the 1960's, and a complete rejection by many young people of establishment mono-culture. Maybe the young people eventually will figure out that what they see as SJW counter-culture is actually new establishment culture, and they will rebel against it in a few years. Probably not, though.

TeethVillage88s , 2 hours ago link

Thanks. I'm older than others probably think. But I generalizae or estimate more than others my age due to the life I chose or led.

culture of colleges today is very similar to what I imagine it was like in the 1950's,

TeethVillage88s , 2 hours ago link

Thanks. I'm older than others probably think. But I generalizae or estimate more than others my age due to the life I chose or led.

culture of colleges today is very similar to what I imagine it was like in the 1950's,

dcmbuffy , 2 hours ago link

and going into debt for their prison term. bunch of punk bullies!!!

DuckDog , 2 hours ago link

When I was in the army and got sentence to 2 years less a day in Military prison in Edmonton, I paid $1.70 a day, which the military were so kind to ring up a tab for me, when I got released from prison they handed me my bill and made me work it off before I got my dishonorable discharge

Sort of like college today

[Oct 08, 2018] What an Audacious Hoax Reveals About Academia

Notable quotes:
"... Scholarship based less upon finding truth and more upon attending to social grievances has become firmly established, if not fully dominant, within these fields, and their scholars increasingly bully students, administrators, and other departments into adhering to their worldview. ..."
"... This worldview is not scientific, and it is not rigorous. For many, this problem has been growing increasingly obvious, but strong evidence has been lacking. For this reason, the three of us just spent a year working inside the scholarship we see as an intrinsic part of this problem." ..."
"... We spent that time writing academic papers and publishing them in respected peer-reviewed journals associated with fields of scholarship loosely known as "cultural studies" or "identity studies" (for example, gender studies) or "critical theory" because it is rooted in that postmodern brand of "theory" which arose in the late sixties. ..."
Oct 08, 2018 | www.moonofalabama.org

Dr. Buddy Tubside , Oct 8, 2018 3:41:22 AM | link

What an Audacious Hoax Reveals About Academia

Three scholars wrote 20 fake papers using fashionable jargon to argue for ridiculous conclusions.

Harvard University's Yascha Mounk writing for The Atlantic:

"Over the past 12 months, three scholars -- James Lindsay, Helen Pluckrose, and Peter Boghossian -- wrote 20 fake papers using fashionable jargon to argue for ridiculous conclusions, and tried to get them placed in high-profile journals in fields including gender studies, queer studies, and fat studies. Their success rate was remarkable


Sokal Squared doesn't just expose the low standards of the journals that publish this kind of dreck, though. It also demonstrates the extent to which many of them are willing to license discrimination if it serves ostensibly progressive goals.

This tendency becomes most evident in an article that advocates extreme measures to redress the "privilege" of white students.

Exhorting college professors to enact forms of "experiential reparations," the paper suggests telling privileged students to stay silent, or even BINDING THEM TO THE FLOOR IN CHAINS

If students protest, educators are told to "take considerable care not to validate privilege, sympathize with, or reinforce it and in so doing, recenter the needs of privileged groups at the expense of marginalized ones. The reactionary verbal protestations of those who oppose the progressive stack are verbal behaviors and defensive mechanisms that mask the fragility inherent to those inculcated in privilege."

In an article for Areo magazine, the authors of the hoax explain their motivation: "Something has gone wrong in the university -- especially in certain fields within the humanities.

Scholarship based less upon finding truth and more upon attending to social grievances has become firmly established, if not fully dominant, within these fields, and their scholars increasingly bully students, administrators, and other departments into adhering to their worldview.

This worldview is not scientific, and it is not rigorous. For many, this problem has been growing increasingly obvious, but strong evidence has been lacking. For this reason, the three of us just spent a year working inside the scholarship we see as an intrinsic part of this problem."

We spent that time writing academic papers and publishing them in respected peer-reviewed journals associated with fields of scholarship loosely known as "cultural studies" or "identity studies" (for example, gender studies) or "critical theory" because it is rooted in that postmodern brand of "theory" which arose in the late sixties.

As a result of this work, we have come to call these fields "grievance studies" in shorthand because of their common goal of problematizing aspects of culture in minute detail in order to attempt diagnoses of power imbalances and oppression rooted in identity.

We undertook this project to study, understand, and expose the reality of grievance studies, which is corrupting academic research.

Because open, good-faith conversation around topics of identity such as gender, race, and sexuality (and the scholarship that works with them) is nearly impossible, our aim has been to reboot these conversations.''

To read more, see Areo magazine + "academic grievance studies and the corruption of scholarship"

[Oct 02, 2018] Randy Wray Modern Monetary Theory How I Came to MMT and What I Include in MMT naked capitalism

Notable quotes:
"... By L. Randall Wray, Professor of Economics at Bard College. Originally published at New Economic Perspectives ..."
"... Treatise on Money ..."
"... State Theory of Money ..."
"... Money and Credit in Capitalist Economies ..."
"... Understanding Modern Money ..."
"... Modern Money Theory ..."
"... Payback: Debt and the shadow side of wealth ..."
"... Reclaiming the State ..."
"... Austerity: The History of a Dangerous Idea ..."
"... permanent Zirp (zero interest rate policy) is probably a better policy since it reduces the compounding of debt and the tendency for the rentier class to take over more of the economy. ..."
"... that one of the consequences of the protracted super-low interest rate regime of the post crisis era was to create a world of hurt for savers, particularly long-term savers like pension funds, life insurers and retirees. ..."
"... income inequality ..."
"... even after paying interest ..."
"... It seems to me that the US macroeconomic policy has been operating under MMT at least since FDR (see for example Beardsley Ruml from 1945). ..."
"... After learning MMT I've occasionally thought I should get a refund for the two economics degree's I originally received. ..."
"... See: https://mythfighter.com/2018/08/27/ten-answers-that-are-contrary-to-popular-wisdom/ ..."
"... There is no avoiding bad government. ..."
"... "Taxes or other obligations (fees, fines, tribute, tithes) drive the currency." ..."
"... "JG is a critical component of MMT. It anchors the currency and ensures that achieving full employment will enhance both price and financial stability." ..."
Oct 02, 2018 | www.nakedcapitalism.com

Randy Wray: Modern Monetary Theory – How I Came to MMT and What I Include in MMT Posted on October 2, 2018 by Yves Smith By L. Randall Wray, Professor of Economics at Bard College. Originally published at New Economic Perspectives

I was asked to give a short presentation at the MMT conference. What follows is the text version of my remarks, some of which I had to skip over in the interests of time. Many readers might want to skip to the bullet points near the end, which summarize what I include in MMT.

I'd also like to quickly respond to some comments that were made at the very last session of the conference -- having to do with "approachability" of the "original" creators of MMT. Like Bill Mitchell, I am uncomfortable with any discussion of "rockstars" or "heroes". I find this quite embarrassing. As Bill said, we're just doing our job. We are happy (or, more accurately pleasantly surprised) that so many people have found our work interesting and useful. I'm happy (even if uncomfortable) to sign books and to answer questions at such events. I don't mind emailed questions, however please understand that I receive hundreds of emails every day, and the vast majority of the questions I get have been answered hundreds, thousands, even tens of thousands of times by the developers of MMT. A quick reading of my Primer or search of NEP (and Bill's blog and Warren's blogs) will reveal answers to most questions. So please do some homework first. I receive a lot of "questions" that are really just a thinly disguised pretense to argue with MMT -- I don't have much patience with those. Almost every day I also receive a 2000+ word email laying out the writer's original thesis on how the economy works and asking me to defend MMT against that alternative vision. I am not going to engage in a debate via email. If you have an alternative, gather together a small group and work for 25 years to produce scholarly articles, popular blogs, and media attention -- as we have done for MMT -- and then I'll pay attention. That said, here you go: wrayr@umkc.edu .

******************************************************************************

As an undergraduate I studied psychology and social sciences -- but no economics, which probably gave me an advantage when I finally did come to economics. I began my economics career in my late 20's studying mostly Institutionalist and Marxist approaches while working for the local government in Sacramento. However, I did carefully read Keynes's General Theory at Sacramento State and one of my professors -- John Henry -- pushed me to go to St. Louis to study with Hyman Minsky, the greatest Post Keynesian economist.

I wrote my dissertation in Bologna under Minsky's direction, focusing on private banking and the rise of what we called "nonbank banks" and "off-balance sheet operations" (now called shadow banking). While in Bologna, I met Otto Steiger -- who had an alternative to the barter story of money that was based on his theory of property. I found it intriguing because it was consistent with some of Keynes's Treatise on Money that I was reading at the time. Also, I had found Knapp's State Theory of Money -- cited in both Steiger and Keynes–so I speculated on money's origins (in spite of Minsky's warning that he didn't want me to write Genesis ) and the role of the state in my dissertation that became a book in 1990 -- Money and Credit in Capitalist Economies -- that helped to develop the Post Keynesian endogenous money approach.

What was lacking in that literature was an adequate treatment of the role of the state–which played a passive role -- supplying reserves as demanded by private bankers -- that is the Post Keynesian accommodationist or Horzontalist approach. There was no discussion of the relation of money to fiscal policy at that time. As I continued to read about the history of money, I became more convinced that we need to put the state at the center. Fortunately I ran into two people that helped me to see how to do it.

First there was Warren Mosler, who I met online in the PKT discussion group; he insisted on viewing money as a tax-driven government monopoly. Second, I met Michael Hudson at a seminar at the Levy Institute, who provided the key to help unlock what Keynes had called his "Babylonian Madness" period -- when he was driven crazy trying to understand early money. Hudson argued that money was an invention of the authorities used for accounting purposes. So over the next decade I worked with a handful of people to put the state into monetary theory.

As we all know, the mainstream wants a small government, with a central bank that follows a rule (initially, a money growth rate but now some version of inflation targeting). The fiscal branch of government is treated like a household that faces a budget constraint. But this conflicts with Institutionalist theory as well as Keynes's own theory. As the great Institutionalist Fagg Foster -- who preceded me at the University of Denver–put it: whatever is technically feasible is financially feasible. How can we square that with the belief that sovereign government is financially constrained? And if private banks can create money endogenously -- without limit -- why is government constrained?

My second book, in 1998, provided a different view of sovereign spending. I also revisited the origins of money. By this time I had discovered the two best articles ever written on the nature of money -- by Mitchell Innes. Like Warren, Innes insisted that the dollar's value is derived from the tax that drives it. And he argued this has always been the case. This was also consistent with what Keynes claimed in the Treatise, where he said that money has been a state money for the past four thousand years, at least. I called this "modern money" with intentional irony -- and titled my 1998 book Understanding Modern Money as an inside joke. It only applies to the past 4000 years.

Surprisingly, this work was more controversial than the earlier endogenous money research. In my view it was a natural extension -- or more correctly, it was the prerequisite to a study of privately created money. You need the state's money before you can have private money. Eventually our work found acceptance outside economics -- especially in law schools, among historians, and with anthropologists.

For the most part, our fellow economists, including the heterodox ones, attacked us as crazy.

I benefited greatly by participating in law school seminars (in Tel Aviv, Cambridge, and Harvard) on the legal history of money -- that is where I met Chris Desan and later Farley Grubb, and eventually Rohan Grey. Those who knew the legal history of money had no problem in adopting MMT view -- unlike economists.

I remember one of the Harvard seminars when a prominent Post Keynesian monetary theorist tried to argue against the taxes drive money view. He said he never thinks about taxes when he accepts money -- he accepts currency because he believes he can fob it off on Buffy Sue. The audience full of legal historians broke out in an explosion of laughter -- yelling "it's the taxes, stupid". All he could do in response was to mumble that he might have to think more about it.

Another prominent Post Keynesian claimed we had two things wrong. First, government debt isn't special -- debt is debt. Second, he argued we don't need double entry book-keeping -- his model has only single entry book-keeping. Years later he agreed that private debt is more dangerous than sovereign debt, and he's finally learned double-entry accounting. But of course whenever you are accounting for money you have to use quadruple entry book-keeping. Maybe in another dozen years he'll figure that out.

As a student I had read a lot of anthropology -- as most Institutionalists do. So I knew that money could not have come out of tribal economies based on barter exchange. As you all know, David Graeber's book insisted that anthropologists have never found any evidence of barter-based markets. Money preceded market exchange.

Studying history also confirmed our story, but you have to carefully read between the lines. Most historians adopt monetarism because the only economics they know is Friedman–who claims that money causes inflation. Almost all of them also adopt a commodity money view -- gold was good money and fiat paper money causes inflation. If you ignore those biases, you can learn a lot about the nature of money from historians.

Farley Grubb -- the foremost authority on Colonial currency -- proved that the American colonists understood perfectly well that taxes drive money. Every Act that authorized the issue of paper money imposed a Redemption Tax. The colonies burned all their tax revenue. Again, history shows that this has always been true. All money must be redeemed -- that is, accepted by its issuer in payment. As Innes said, that is the fundamental nature of credit. It is written right there in the early acts by the American colonies. Even a gold coin is the issuer's IOU, redeemed in payment of taxes. Once you understand that, you understand the nature of money.

So we were winning the academic debates, across a variety of disciplines. But we had a hard time making progress in economics or in policy circles. Bill, Warren, Mat Forstater and I used to meet up every year or so to count the number of economists who understood what we were talking about. It took over decade before we got up to a dozen. I can remember telling Pavlina Tcherneva back around 2005 that I was about ready to give it up.

But in 2007, Warren, Bill and I met to discuss writing an MMT textbook. Bill and I knew the odds were against us -- it would be for a small market, consisting mostly of our former students. Still, we decided to go for it. Here we are -- another dozen years later -- and the textbook is going to be published. MMT is everywhere. It was even featured in a New Yorker crossword puzzle in August. You cannot get more mainstream than that.

We originally titled our textbook Modern Money Theory , but recently decided to just call it Macroeconomics . There's no need to modify that with a subtitle. What we do is Macroeconomics. There is no coherent alternative to MMT.

A couple of years ago Charles Goodhart told me: "You won. Declare victory but be magnanimous about it." After so many years of fighting, both of those are hard to do. We won. Be nice.

Let me finish with 10 bullet points of what I include in MMT:

1. What is money: An IOU denominated in a socially sanctioned money of account. In almost all known cases, it is the authority -- the state -- that chooses the money of account. This comes from Knapp, Innes, Keynes, Geoff Ingham, and Minsky.

2. Taxes or other obligations (fees, fines, tribute, tithes) drive the currency. The ability to impose such obligations is an important aspect of sovereignty; today states alone monopolize this power. This comes from Knapp, Innes, Minsky, and Mosler.

3. Anyone can issue money; the problem is to get it accepted. Anyone can write an IOU denominated in the recognized money of account; but acceptance can be hard to get unless you have the state backing you up. This is Minsky.

4. The word "redemption" is used in two ways -- accepting your own IOUs in payment and promising to convert your IOUs to something else (such as gold, foreign currency, or the state's IOUs).

The first is fundamental and true of all IOUs. All our gold bugs mistakenly focus on the second meaning -- which does not apply to the currencies issued by most modern nations, and indeed does not apply to most of the currencies issued throughout history. This comes from Innes and Knapp, and is reinforced by Hudson's and Grubb's work, as well as by Margaret Atwood's great book: Payback: Debt and the shadow side of wealth .

5. Sovereign debt is different. There is no chance of involuntary default so long as the state only promises to accept its currency in payment. It could voluntarily repudiate its debt, but this is rare and has not been done by any modern sovereign nation.

6. Functional Finance: finance should be "functional" (to achieve the public purpose), not "sound" (to achieve some arbitrary "balance" between spending and revenues). Most importantly, monetary and fiscal policy should be formulated to achieve full employment with price stability. This is credited to Abba Lerner, who was introduced into MMT by Mat Forstater.

In its original formulation it is too simplistic, summarized as two principles: increase government spending (or reduce taxes) and increase the money supply if there is unemployment (do the reverse if there is inflation). The first of these is fiscal policy and the second is monetary policy. A steering wheel metaphor is often invoked, using policy to keep the economy on course. A modern economy is far too complex to steer as if you were driving a car. If unemployment exists it is not enough to say that you can just reduce the interest rate, raise government spending, or reduce taxes. The first might even increase unemployment. The second two could cause unacceptable inflation, increase inequality, or induce financial instability long before they solved the unemployment problem. I agree that government can always afford to spend more. But the spending has to be carefully targeted to achieve the desired result. I'd credit all my Institutionalist influences for that, including Minsky.

7. For that reason, the JG is a critical component of MMT. It anchors the currency and ensures that achieving full employment will enhance both price and financial stability. This comes from Minsky's earliest work on the ELR, from Bill Mitchell's work on bufferstocks and Warren Mosler's work on monopoly price setting.

8. And also for that reason, we need Minsky's analysis of financial instability. Here I don't really mean the financial instability hypothesis. I mean his whole body of work and especially the research line that began with his dissertation written under Schumpeter up through his work on Money Manager Capitalism at the Levy Institute before he died.

9. The government's debt is our financial asset. This follows from the sectoral balances approach of Wynne Godley. We have to get our macro accounting correct. Minsky always used to tell students: go home and do the balances sheets because what you are saying is nonsense. Fortunately, I had learned T-accounts from John Ranlett in Sacramento (who also taught Stephanie Kelton from his own, great, money and banking textbook -- it is all there, including the impact of budget deficits on bank reserves). Godley taught us about stock-flow consistency and he insisted that all mainstream macroeconomics is incoherent.

10. Rejection of the typical view of the central bank as independent and potent. Monetary policy is weak and its impact is at best uncertain -- it might even be mistaking the brake pedal for the gas pedal. The central bank is the government's bank so can never be independent. Its main independence is limited to setting the overnight rate target, and it is probably a mistake to let it do even that. Permanent Zirp (zero interest rate policy) is probably a better policy since it reduces the compounding of debt and the tendency for the rentier class to take over more of the economy. I credit Keynes, Minsky, Hudson, Mosler, Eric Tymoigne, and Scott Fullwiler for much of the work on this.

That is my short list of what MMT ought to include. Some of these traditions have a very long history in economics. Some were long lost until we brought them back into discussion. We've integrated them into a coherent approach to Macro. In my view, none of these can be dropped if you want a macroeconomics that is applicable to the modern economy. There are many other issues that can be (often are) included, most importantly environmental concerns and inequality, gender and race/ethnicity. I have no problem with that.

Hilary Barnes , October 2, 2018 at 3:01 am

Out of my depth: "7. For that reason, the JG is a critical component of MMT." The JG?

BillC , October 2, 2018 at 3:07 am

Job guarantee (especially as distinguished from a basic income guarantee). See here for fairly recent coverage by Lambert.

Epistrophy , October 2, 2018 at 6:16 am

I had exactly the same question. Thank you.

skippy , October 2, 2018 at 7:04 am

A JG is to discontinue NAIRU or structural under-unemployment with attendant monetarist/quasi inflation views. Something MMT has be at pains to point out wrt fighting a nonexistent occurrence due to extended deflationary period.

dcrane , October 2, 2018 at 5:31 am

The paragraph on "double entry book-keeping" is also a bit too inside-baseball. Otherwise I enjoyed the essay.

PlutoniumKun , October 2, 2018 at 6:11 am

Yup, he lost me on quadruple entry book-keeping, thats the first time I ever heard of that concept.

Quanka , October 2, 2018 at 8:02 am

Its double entry accounting counting both sides of the equation. Fed deposits money into bank requires 4 entries, a double entry for the Fed and for the bank. Typical double entry accounting only looks at the books of 1 entity at a time. Quadruple Entry accounting makes the connection between the government monetary policy and private business accounting. I'm not an accountant, I may have butchered that.

todde , October 2, 2018 at 12:15 pm

that's pretty much it

Peter Pan , October 2, 2018 at 1:37 pm

Does Steve Keen's "Minsky" program utilize quadruple-entry bookkeeping?

Todde , October 2, 2018 at 1:47 pm

Double entry

Grebo , October 2, 2018 at 3:12 pm

Yes it does. Double entry for each party to the transaction.

todde , October 2, 2018 at 3:29 pm

you are right – it does give each parties transactions.

horostam , October 2, 2018 at 8:43 am

think about banks and reserves, your money is on the bank's liability side (and your asset), while the reserves are on the bank's asset side (and gov't or fed's liability.)

i think its the reserves that quadruple it, reserves are confusing because when you move $5 from a bank account to buy ice cream its not just one copy of the $5 that moves between checking accounts, there is another $5 that moves "under the hood" so to speak in reserve world

HotFlash , October 2, 2018 at 12:10 pm

Very briefly, double entry bookkeeping keeps track of how money comes in/out, and where it came from/went. Cash is the determining item (although there may be a few removes). Hence, say I buy a $20 dollar manicure from you. I record my purchase as "Debit (increase) expense: manicure $20, credit (decrease) cash, $20". Bonus! If my bookkeeping is correct, my debits and credits are equal and if I add them up (credits are minus and debits are plus) the total is zero – my books "balance". So, double-entry bookkeeping is also a hash-total check on my accounting accuracy. But I digress.

On your books, the entry would be "Debit (increase) cash $20, credit (decrease) sales, $20".

So, your double-entry book plus my double-entry books would be quadruple-entry accounting.

JCC , October 2, 2018 at 9:40 am

#7 was my immediate stopper, too. It drives me nuts when people introduce 2-3-4 letter acronyms with no explanation (I work for the DoD and I'm surrounded by these "code words". I rarely know what people are talking about and when I ask, the people talking rarely know what these TLAs – T hree L etter A cronyms – stand for either!).

Next question regarding #7: What is ELR?

Other than #7, I really appreciate this article. NC teaches and/or clarifies on a daily basis.

Mel , October 2, 2018 at 10:11 am

Employer of Last Resort? (Wikipedia)

Matthew Platte , October 2, 2018 at 11:29 am

DoD?

JCC , October 2, 2018 at 2:45 pm

Guilty as charged :-)

For non-US readers, DoD is D epartment o f D efense, the undisputed-by-many home of TLAs.

lyman alpha blob , October 2, 2018 at 3:10 pm

Ha! I really love this blog.

somecallmetim , October 2, 2018 at 12:51 pm

NC?

;)

Bill C , October 2, 2018 at 3:02 am

Thank you for this post!

This quick, entertaining read is IMHO nothing less than a "Rosetta Stone" that can bring non-specialists to understand MMT: not just how , but why it differs from now-conventional neoliberal economics. I hope it finds a wide readership and that its many references to MMT's antecedents inspire serious study by the unconvinced (and I hope they don't take Wray's invitation to skip the 10 bullet points).

This piece is a fine demonstration of why I've missed Wray as he seemed to withdraw from public discourse for the last few years.

HotFlash , October 2, 2018 at 12:14 pm

No no! He said "Many readers might want to skip to the bullet points near the end, which summarize what I include in MMT."

el_tel , October 2, 2018 at 4:55 am

Thank you! The (broad) analogies with my own experience are there. I had a decidedly "mainstream" macro education at Cambridge (UK); though many of the "old school" professors/college Fellows who, although not MMT people as we'd currently understand (or weren't at *that* stage – Godley lectured a module I took but this was in the early 1990s) were still around, in hindsight the "university syllabus" (i.e. what you needed to regurgitate to pass exams) had already steered towards neoliberalism. I never really understood why I never "got" macro and it was consistently my weakest subject.

It was later, having worked in the City of London, learned accountancy in my actuarial training, and then most crucially starting reading blogs from people who went on to become MMT leading lights, that I realised the problem wasn't ME, it was the subject matter. So I had to painfully unlearn much of what I was taught and begin the difficult process of getting my head around a profoundly different paradigm. I still hesitate to argue the MMT case to friends, since I don't usually have to hand the "quick snappy one liners" that would torpedo their old discredited understanding.

I'm still profoundly grateful for the "old school" Cambridge College Fellows who were obviously being sidelined by the University and who taught me stuff like the Marxist/Lerner critiques, British economic history, political economy of the system etc. Indeed whilst I had "official" tutorials with a finance guy who practically came whenever Black-Scholes etc was being discussed, an old schooler was simultaneously predicting that it would blow the world economy up at some point (and of course he was in the main , correct). I still had to fill in some gaps in my knowledge (anthropology was not a module, though Marxist economics was), with hindsight I appreciate so much more of what the "old schoolers" said on the sly during quiet points in tutorials – Godley being one, although he wasn't ready at that time to release the work he subsequently published and was so revolutionary. Having peers educated elsewhere during my Masters and PhD who knew nothing of the subjects that – whilst certainly not the "key guide" to "proper macro" described in the article – began to horrify me later in my career.

skippy , October 2, 2018 at 5:07 am

Thanks for your efforts Mr Wray, your provide a rich resource to familiarize most and in some cases refute doctrinaire attitudes. Kudos.

BTW completely agree with the perspective against PR marketing of the topic or individuals wrt MMT or PK.

Lambert Strether , October 2, 2018 at 5:23 am

This is really great. Thanks a ton, as Yves would say.

I know I have used to "rock star" metaphor on occasion, so let me explain that to me what is important in excellent (i.e., live) rock and roll is improvisational interplay among the group members -- the dozen or so who understood MMT in the beginning, in this case -- who know the tune, know each other, and yet manage to make the song a little different each time. It's really spectacular to see in action. Nothing to do with spotlights, or celebrity worship, or fandom!

DavidEG , October 2, 2018 at 5:54 am

I'm no MMT expert, but I think this article does a good job of juxtaposing MMT with classic (non-advanced) macroeconomics. I quote:

In the language of Tinbergen (1952), the debate between MMT and mainstream macro can be thought of as a debate over which instrument should be assigned to which target. The consensus assignment is that the interest rate, under the control of an independent central bank, should be assigned to the output gap target, while the fiscal position, under control of the elected budget authorities, should be assigned to the debt sustainability target. [ ] The functional finance assignment is the reverse -- the fiscal balance under the budget authorities is assigned to the output target, while any concerns about debt sustainability are the responsibility of the monetary authority.

What about interest rate fixing? The central bank would remain in charge of that, but in an MMT context this instrument would lose most of its relevance:

[W]hile a simple swapping of instruments and targets is one way to think about functional finance, this does not describe the usual MMT view of how the policy interest rate should be set. What is generally called for, rather, is that the interest rate be permanently kept at a very low level, perhaps zero. In an orthodox policy framework, of course, this would create the risk of runaway inflation; but keep in mind that in the functional framework, the fiscal balance is set to whatever level is consistent with price stability.

It may be a partial reconstruction of MMT, but to me this seems to be a neat way to present MMT to most people. Saying that taxes are there just to remove money from the economy or to provide incentives is a rather extreme statement that is bound to elicit some fierce opposition.

Having said that, I've never seen anyone address what I think are two issues to MMT: how to make sure that the power to create money is not exploited by a political body in order to achieve consensus, and how to assure that the idea of unlimited monetary resources do not lead to misallocation and inefficiencies (the bloated, awash-with-money US military industry would probably be a good example).

larry , October 2, 2018 at 6:14 am

The best comparison of MMT with neoliberal neoclassical economics, in my view, is Bill Mitchell's blog post, "How to Discuss Modern Monetary Theory" ( http://bilbo.economicoutlook.net/blog/?p=25961 ). I especially recommend the table near the end as a terrific summary of the differences between the mainstream narrative and MMT.

el_tel , October 2, 2018 at 8:53 am

Thanks! I have enormous respect for Mitchell, given the quantity and quality of his blogging. However, my only nitpick is that a lot of his blog entries are quite long and "not easily digestible". I have long thought that one of those clever people who can do those 3 minute rapid animation vids we see on youtube is needed to "do a Lakoff" and change the metaphors/language. But this post of Mitchell (which I missed, since I don't read all his stuff) is, IMHO, his best at "re-orienting us".

kgw , October 2, 2018 at 11:15 am

I get this "http's server IP address could not be found." I'll try, gasp, googling it

el_tel , October 2, 2018 at 11:24 am

FWIW I mucked around with the link in Firefox (although I typically use Opera, which gave me that same error) and could read it.

Epistrophy , October 2, 2018 at 6:34 am

Saying that taxes are there just to remove money from the economy or to provide incentives is a rather extreme statement that is bound to elicit some fierce opposition.

Yes this is a frightening statement. The power to tax is the power to destroy. If this is a foundation point of the proposal then

Having said that, I've never seen anyone address what I think are two issues to MMT: how to make sure that the power to create money is not exploited by a political body in order to achieve consensus, and how to assure that the idea of unlimited monetary resources do not lead to misallocation and inefficiencies (the bloated, awash-with-money US military industry would probably be a good example).

Bingo. My thoughts exactly. Too much power in the hands of the few. Easy to slide into Orwell's Animal Farm – where some people are more equal than others.

MMT is based upon very good intentions but, in my view, there is a moral rot at the root of the US of A's problems, not sure this can be solved by monetary policy and more centralized control.

And the JG? Once the government starts to permanently guarantee jobs

skippy , October 2, 2018 at 7:12 am

I suggest you delve into what is proposed by the MMT – PK camp wrt a JG because its not centralized in the manner you suggest. It would be more regional and hopefully administrated via social democratic means e.g. the totalitarian aspect is moot.

I think its incumbent on commenters to do at least a cursory examination before heading off on some deductive rationalizations, which might have undertones of some book they read e.g. environmental bias.

Epistrophy , October 2, 2018 at 7:38 am

Skippy, I read the article, plus the links, including those links of the comments. I will admit that I am a little more right of center in my views than many on the website.

The idea is interesting, but the administration of such a system would require rewriting the US Constitution, or an Amendment to it if one thinks the process through, would it not? I think of the Amendment required to create the Federal Reserve System when I say this.

skippy , October 2, 2018 at 7:45 am

I think WWII is instructive here.

Clive , October 2, 2018 at 7:58 am

One thing I really don't like at all -- and I've crossed swords with many over this -- is that we do tend to take (not just in the US, this is prevalent in far too many places) things like the constitution, or cultural norms, or traditions or other variants of "that's the way we've always done this" and elevate them to a level of sacrosanctity.

Not for one moment am I suggesting that we should ever rush into tweaking such devices lightly nor without a great deal of analysis and introspective consultations.

Constitutions get amended all the time. The Republic of Ireland changed its to renounce a territorial claim on Northern Ireland. The U.K. created a right for Scotland to secede from the Union. There's even a country in Europe voting whether to formally change its name right now. Britain "gave up" its empire territories (not, I would add speedily, without a lot of prodding, but still, we got there in the end). All of which were, at one time or another, "unthinkable". Even the US, perhaps the most inherently resistant to change country when it thinks it's being "forced" to do so, begrudgingly acknowledged Cuba.

If something is necessary, it should be done.

vlade , October 2, 2018 at 8:06 am

Human laws (any and all, for simplicity I include culture, customs etc.. here) are not laws of nature.

They change over time to survive. The easy way, or the hard way.

Or they don't survive at all, that's an option too.

witters , October 2, 2018 at 9:09 am

"Human laws (any and all, for simplicity I include culture, customs etc.. here) are not laws of nature."

Wave Function Collapse?

voteforno6 , October 2, 2018 at 8:14 am

Why would a jobs guarantee require a constitutional amendment? The federal government creates jobs all the time, with certain defined benefits. This would merely expand upon that, to potentially include anyone who wants a job.

Epistrophy , October 2, 2018 at 8:26 am

I was thinking of implementing the whole concept of MMT, of which the JG is but one part, with this statement. Perhaps I did not make that clear.

voteforno6 , October 2, 2018 at 8:36 am

There are a couple different aspects of this that people are getting mixed together, I think. The core of MMT is not a proposal for government to implement. Rather, it is simply a description of how sovereign currencies actually operate, as opposed by mainstream economics, which has failed in this regard. In other words, we don't need any new laws to implement MMT – we need a paradigm shift.

The Jobs Guarantee is a policy proposal that flows from this different paradigm.

skippy , October 2, 2018 at 3:16 pm

It has been stated many times that it is to inform policy wrt to potential and not some booming voice from above dictating from some ridged ideology.

Persoanly as a capitalist I can't phantom why anyone would want structural under – unemployment. Seems like driving around with the hand brake on and then wondering why performance is restricted or parts wear out early.

todde , October 2, 2018 at 4:37 pm

Power.

I want 12 people lined up at the door to take your job, and then you will know where the power lies

Carla , October 2, 2018 at 11:18 am

Re-writing the U.S. Constitution is something people think about and talk about all the time, FYI.

todde , October 2, 2018 at 1:08 pm

the Amendment required to create the Federal Reserve System

What Amendment was that?

And since the Constitution gives Congress the power to coin money I am unaware of any reason an amendment would be necessary.

Epistrophy , October 2, 2018 at 3:43 pm

Thinking of the Federal Reserve Act being enabled by the Federal Income Tax of the 16th Amendment.

Using Federal taxes to fund the JG; I do not think that this aspect of it (and others) would survive a Constitutional challenge. Therefore ultimately an Amendment might be needed.

Then again I may be wrong. Technically Obamacare should have been implemented by an Amendment were strict Constitutional law applied.

Rights to health care and jobs are not enumerated in either the Constitution or Bill of Rights, as far as I am aware.

todde , October 2, 2018 at 4:05 pm

16th Amendment had nothing to do with the Federal Reserve.

And I think you are confusing 'you must buy health insurance or face a tax", with "You have a right to have healthcare".

If the government forced you to work, you may have a case.

There are 3 things the feds can spend federal funds on, pay debt, provide for the common defense, and the general welfare clause.

The General Welfare clause has been interpreted very widely in regards to Government spending.

New Deal, Social Security, Medicare/aid all survived court challenges, or if they lost, they lost on regulatory issues, and not 'spending' issues

Epistrophy , October 2, 2018 at 7:28 am

Not opposed to some of the principles of MMT, just don't understand, in this modern age where effectively all currency is electronic digits in a banking computer system, the issue of a currency must be tied to taxes. In years past, where currency was printed and in one's pocket, or stuffed under a mattress, or couriered by stagecoach, then yes – taxes would be needed. But today can we not just print (electronically) the cash needed for government operations each year based upon a fixed percentage of private sector GDP? Why therefore do we need government debt? Why do we need an income tax?

skippy , October 2, 2018 at 7:37 am

A. GDP is non distributional.

B. Had taxation not been promoted as theft in some camps Volcker would have not had to jack IR to such a upper bound during the Vietnam war.

C. Government Debt allocated to socially productive activities is a long term asset with distributional income vectors.

D. Ask the Greeks.

Epistrophy , October 2, 2018 at 7:48 am

Skippy, I have lived and worked in countries without income tax (but instead indirect tax) and where government operating revenue was based upon a percentage of projected national revenue. I have been involved in the administration of such budgets.

I am in favor of government spending, or perhaps more accurately termed investing, public money on long-term, economically beneficial projects. But this is not happening. The reality is that government priorities can easily be hijacked by political interests, as we currently witness.

larry , October 2, 2018 at 7:58 am

While I agree that political highjacking is possible and must be dealt with, this is not strictly speaking part of an economic theory, which is what MMT is. While MMT authors may take political positions, the theory itself is politically neutral.

Income taxes, tithes, or any other kind of driver is what drives the monetary circuit. Consider it from first principles. You have just set up a new government with a new currency where this government is the monopoly issuer. No one else has any money yet. So, the government must be the first spender. However, how is this nascent government going to motivate anyone to use this new currency? Via taxation, or like means, that can only be met by using the national currency, whatever form that currency may take, marks on a stick, paper, an entry in a ledger, or the like.

Epistrophy , October 2, 2018 at 8:34 am

Thank you for this explanation. I understand that, for example, this is why the Federal Reserve Act of 1913, I believe, created the Federal Reserve and Federal Income Tax at the same time.

But the US economy functioned adequately, survived a civil war, numerous banking crises, experienced industrialization, national railways, etc without a central bank or federal income tax from the 1790's to 1913.

To me, the US's state of perpetual war is enabled by Federal Income Tax. Without it the MIC would collapse, I am certain.

John k , October 2, 2018 at 10:31 am

Functioned adequately
During the 150 yr hard money period we had recessions/depressions that we're both far more frequent (every three years) and on avg far deeper than what we have had since fdr copied the brits and took us off the gold standard. Great deprecession was neither the longest or deepest.
Two reasons
Banks used to fail frequently, a run on one bank typically leading to runs on other banks, spreading across regions like prairie fires if your bank failed you lost all your money. Consequences were serious.
During GR so many banks failed in the Midwest, leading to farm foreclosures, the region was near armed insurrection in 1932. Fiat meant that the fed can supply unlimited liquidity. Since then banks have failed but immediately taken over by another. Critically, no depositor has lost a penny, even those with far more exposed than the deposit insurance limit. No runs on us banks since 1933.
Second, we now have auto stabilizers, spending continues during downturns because gov has no spending limit. Note previously in an emergency gov borrowed. 10 mil from J.P. Morgan.

Brian , October 2, 2018 at 11:30 am

But at what cost? no depositor loses money, yet huge amounts are required to be printed, thus devaluing the "currency". So is the answer inflation that must by necessity become hyperinflation?
I don't understand why it is important to protect a bank vs. making it perform its function without risking collapse. This is magical thinking as we have found very few banks in this world not ready and willing to pillage their clients, be it nations or just the little folk.
Why would anyone trust a government to do the right thing by its population? When has that ever worked out in favor of the people?
I can not understand the trust being demanded by this concept. It wants trust for the users, but in no way can it expect trust or virtue from the issuer of the "currency"

also, I can't help but think MMT is for growth at all costs. Hasn't the growth shown that it is pernicious in itself? Destroy the planet for the purpose of stabilizing "currency".

Our federal reserve gave banks trillions of dollars, and then demanded they keep much of it with the Fed and are paid interest not to use it. It inflated the "currency" in circulation yet again and now it is becoming clear a great percentage of people in our country can no longer eat, no longer purchase medications, a home, a business

If being on a hard money system as we were causes recessions and depressions, would we find that it was a natural function to cut off the speculators at their knees?

How does MMT promote and retain value for the actual working and producing people that have no recourse with their government? I would like to read about what is left out of this monumental equation.

TroyMcClure , October 2, 2018 at 12:10 pm

Money is not a commodity and does not "lose value" the more of it there is.

todde , October 2, 2018 at 12:57 pm

we used to protect the banks depositors and the government put the the bank in receivership.

That went away in the 21st century for some reason.

Now we protect the bank and put the Government in receivership (Greece).

todde , October 2, 2018 at 12:08 pm

Some points:

US had a federal income tax during the civil war and for a decade or so after.

I have always assumed that mass conscription and the Dreadnought arms race led to the implementation of the modern taxing/monetary system. (gov't needed both warfare and welfare)

Taxes, just as debt, create an artificial demand for currency as one must pay back their taxes in {currency}, and one must pay back debt in {currency}. It doesn't have to be an income tax, and I think a sales tax would be a better driver of demand than an income tax.

The US had land sales that helped fund government expenditures in the 1800s.

HotFlash , October 2, 2018 at 12:32 pm

Not all taxes are income taxes. Back in the day (20's/30's/40's),my grandfather could pay off the (county) property taxes on his farm by plowing snow for the county in the winter -- and he was damned careful to make sure that the county commissioners' driveways were plowed out as early as possible after a storm.

In the 30's/40's the property tax laws were changed to be payable only in dollars.

So Grandpa had to make cash crops. Things changed and money became necessary.

Benjamin Wolf , October 2, 2018 at 7:44 am

But today can we not just print (electronically) the cash needed for government operations each year based upon a fixed percentage of private sector GDP?

The élites could, but it would be totally undemocratic and the economics profession's track record of forecasting growth is no better than letting a cat choose a number written on an index card.

Why therefore do we need government debt?

There is no government debt. It's just a record of interest payments Congress has agreed to make because the wealthy wanted another welfare program.

Why do we need an income tax?

The only logically consistent purpose is because people have too much income.

voteforno6 , October 2, 2018 at 8:19 am

I think the point they're driving at, is that by requiring the payment of taxes in a particular currency, a government creates demand for that currency. There are other uses for federal taxes, not the least of which is to keep inflation in check.

Government debt is not needed, at least not at the federal level. My understanding of it is that it's a relic from the days of the gold standard. It's also very useful to some rather large financial institutions, so eliminating it would be politically difficult.

WobblyTelomeres , October 2, 2018 at 9:23 am

Wray has said in interviews that the debt (and associated treasury bonds), while not strictly necessary in a fiat currency, is of use in that it provides a safe base for investment, for pensioners and retirees, etc.

Sure, it could be eliminated by (a) trillion dollar platinum coins deposited at the Federal Reserve followed by (b) slowly paying off the existing debt when the bonds mature or (c) simply decreeing that the Fed must go to a terminal and type in 21500000000000 as the US Gov account balance (hope I got the number of zeroes correct!).

It could be argued that the US doesn't strictly need taxes to drive currency demand as long as our status as the world reserve currency is maintained (see oft-discussed petrodollar, Libya, etc). If that status is imperiled, say by an push by a coalition of nations to establish a different currency as the "world reserve currency") taxes would be needed to drive currency demand.

I think most of this is covered in one way or another here:

http://neweconomicperspectives.org/modern-monetary-theory-primer.html

HotFlash , October 2, 2018 at 12:39 pm

Government debt is not actually a 'real thing'. It is a residue of double-entry bookkeeping, as is net income (income minus expenses, that's a credit in the double-entry system). It could as well be called 'retained earnings (also a 'book' credit in the double-entry system). If everybody had to take bookkeeping in high school there would be far few knickers in knots!

Todde , October 2, 2018 at 3:10 pm

Its real if you pay an interest rate on it

Grebo , October 2, 2018 at 3:48 pm

There are two kinds of government 'debt': the accumulated deficit which is the money in circulation not a real debt, and outstanding bonds which is real in the sense that it must be repaid with interest.

However, the government can choose the interest rate and pay it (or buy back the bonds at any time) with newly minted money at no cost to itself, cf. QE.

Neither kind warrant bunched panties.

todde , October 2, 2018 at 4:39 pm

no panties bunched.

horostam , October 2, 2018 at 8:51 am

seems to me that the guaranteed jobs would be stigmatized, and make it harder for people to get private sector jobs. "once youre in the JG industry, its hard to get out" etc.

how much of a guarantee is the job guarantee supposed to be? ie. at what point can you get fired from a guaranteed job?

Epistrophy , October 2, 2018 at 9:31 am

Yes, my mind wandered into the same territory. While I agree that something needs to be done, it also has the potential to strike at the heart of a lean, merit-based system by introducing another layer of bureaucracy. In principle, I am not against the idea, but as they say, "God (or the Devil – take your pick) is in the details ".

The Rev Kev , October 2, 2018 at 9:48 am

Is there any point in working for a jobs guarantee when the only sort of jobs that would probably be guaranteed would be MacJobs and Amazon workers?

Newton Finn , October 2, 2018 at 11:23 am

If you haven't already read it, "Reclaiming the State" by Mitchell and Fazi (Pluto Press 2017) provides a detailed and cogent analysis of how neoliberalism came into ascendency, and how the principles of MMT can be used to pave the way to a more humane and sustainable economic system. A new political agenda for the left, drawing in a different way upon the nationalism that has energized the right, is laid out for those progressives who understand the necessity of broadening their appeal. And the jobs guarantee that MMT proposes has NOTHING to do with MacJobs and Amazon workers. It has to do with meeting essential human and environmental needs which are not profitable to meet in today's private sector.

HotFlash , October 2, 2018 at 12:51 pm

Job guarantee, or govt as employer of last resort -- now there is a social challenge/opportunity if there ever was one.

Well managed, it would guarantee a living wage to anyone who wants to work, thereby setting a floor on minimum wages and benefits that private employers would have to meet or exceed. These minima would also redound to the benefit of self-employed persons by setting standards re income and care (health, vacations, days off, etc) *and* putting money in the pockets of potential customers.

Poorly managed it could create the 'digging holes, filling them in' programs of the Irish Potato Famine ore worse (hard to imagine, but still ). It has often been remarked that the potato blight was endemic across Europe, it was only a famine in Ireland -- through policy choices.

So, MMT aside (as being descriptive, rather than prescriptive), we are down to who controls policy. And that is *really* scary.

Todde , October 2, 2018 at 3:11 pm

Government job guarantees is an idea as old as the pyramids.

Frankly so is mmt

Mel , October 2, 2018 at 11:34 am

In terms of power, the government has the power to shoot your house to splinters, or blow it up, with or without you in it. We say they're not supposed to, but they have the ability, and it has been done.
The question of how to hold your government to the things it's supposed to do applies to issues beyond money. We'd best deal with government power as an issue in itself. I should buckle down and get Mitchell's next-to-newest book Reclaiming the State .

HotFlash , October 2, 2018 at 12:56 pm

Ding ding ding!

Grebo , October 2, 2018 at 3:23 pm

Bill Mitchell was not too impressed with the INET paper: Part 1 .
There's three parts! Mitchell rarely has the time to be brief.

Tinky , October 2, 2018 at 6:02 am

I don't claim to fully understand MMT yet, but I find Wray's use of the derogatory term "gold bugs" to be both disappointing and revealing. To lump those, some of whom are quite sophisticated, who believe that currencies should be backed by something of tangible value (and no, "the military" misses the point), or those who hold physical gold as an insurance policy against political incompetence, and the inexorable degradation of fiat currencies, in with those who promote or hold gold in the hopes of hitting some type of lottery, is disingenuous at best.

Wukchumni , October 2, 2018 at 7:06 am

OMT seemingly has no reason to exist being old school, but for what it's worth, the almighty dollar has lost over 95% of it's value when measured against something that matters, since the divorce in 1971.

I found this passage funny, as in flipping the dates around to 1791, is when George Washington set an exchange rate of 1000-1 for old debauched Continental Currency, in exchange for newly issued specie. (there was no Federal currency issued until 1861)

So yeah, they burned all of their tax revenue, because the money wasn't worth jack.

Farley Grubb -- the foremost authority on Colonial currency -- proved that the American colonists understood perfectly well that taxes drive money. Every Act that authorized the issue of paper money imposed a Redemption Tax. The colonies burned all their tax revenue.

skippy , October 2, 2018 at 7:30 am

Gold bug is akin to money crank e.g. money = morals. That's not to mention all the evidence to date does not support the monetarist view nor how one gets the value into the inanimate object or how one can make it moral.

Benjamin Wolf , October 2, 2018 at 8:01 am

Gold doesn't historically perform as a hedge but as a speculative trade. Those who think it can protect them from political events typically don't realize that a gold standard means public control of the gold industry, thereby cutting any separation from the political process off at the knees.

When a government declares that $20 is equal in value to one ounce of gold, it also declares an ounce of gold is equal to $20 dollars. It is therefore fixing, through a political decision subject to political changes, the price of the commodity.

Tinky , October 2, 2018 at 9:44 am

Nonsense. When fiat currencies invariably degrade, and especially at a fast rate, gold has proven to be a relative store of value for millennia . All one need do is to look at Venezuela, Argentina, Turkey, etc., to see that ancient dynamic in action today.

You, and others who have replied to my comment, are using the classical gold standard as a straw man, as well. Neither I, nor many other gold "bugs" propose such a simple solution to the obviously failed current economy, which is increasingly based on mountains of debt that can never be repaid.

WobblyTelomeres , October 2, 2018 at 9:48 am

gold has proven to be a relative store of value for millennia.

As long as one is mindful that gold is just another commodity, subject to the same speculative distortions as any other commodity (see Hunt brothers and silver).

Tinky , October 2, 2018 at 9:54 am

But that is obviously false, given that no other commodity has remotely performed with such stability over such a long period of time.

It is true that over short periods distortions can appear, and the *true* value of gold has been suppressed in recent years through the use of fraudulent paper derivatives. But again, I'm not arguing for the return of a classical gold standard.

Wukchumni , October 2, 2018 at 10:13 am

The only way the gold standard returns, is if it's forced on the world on account of massive fraud in terms of fiat money, but that'll never happen.

WobblyTelomeres , October 2, 2018 at 10:56 am

Tinky:

I'm curious as to what you consider the "*true* value of gold". Could you elaborate?

I'm dense/obtuse and thus not an economist!

Tinky , October 2, 2018 at 11:18 am

Don't worry, I'm likely to be at least equally dense!

I didn't mean to suggest that there is some formula from which a *true* value of precious metals might be derived. I simply meant that gold has clearly been the object of price suppression in recent years through the use of paper derivatives (i.e. future contracts). The reason for such suppression, aside from short-term profits to be made, is that gold has historically acted as a barometer relating to political and economic stability, and those in power have a particular interest in suppressing such warning signals when the system becomes unstable.

So, while the Central Banks created previously unimaginable mountains of debt, it was important not to alarm the commoners.

The suppression schemes have become less effective of late, and will ultimately fail when the impending crisis unfolds in earnest.

Wukchumni , October 2, 2018 at 10:00 am

As long as one is mindful that gold is just another commodity, subject to the same speculative distortions as any other commodity

It sounds good in theory, but history says otherwise.

The value remained more or less the same for well over 500 years as far as an English Pound was concerned, the weight and value of a Sovereign hardly varied, and the exact weight and fineness of one struck today or any time since 1817, is the same, no variance whatsoever.

Thus there was no speculative distortions in terms of value, the only variance being the value of the Pound (= 1 Sovereign) itself.

https://en.wikipedia.org/wiki/Sovereign_(British_coin)

Benjamin Wolf , October 2, 2018 at 12:23 pm

When fiat currencies invariably degrade, and especially at a fast rate, gold has proven to be a relative store of value for millennia.

Currencies do not degrade. Political systems degrade.

Bridget , October 2, 2018 at 8:25 am

" who believe that currencies should be backed by something of tangible value"

As I understand it, MMT also requires that currency be backed by something of tangible value: a well managed and productive economy. It doesn't matter in the least if your debt is denominated in your own currency if you have the economy of Zimbabwe.

Tinky , October 2, 2018 at 9:48 am

Sounds reasonable in theory, but that was supposed to be the case with the current economic system, as well, and we can all see where that has led.

I'm not arguing that there isn't a theoretically better way to create and use "modern" money, but rather doubt that those empowered to create it out of thin air will ever do so without abusing such power.

Bridget , October 2, 2018 at 10:10 am

Oh, I agree with you. In no universe that I am aware of would the temptation to create money beyond the productive capacity of the economy to back it up be resisted. I think Zimbabwe is a pretty good example of where the theory goes in practice.

TroyMcClure , October 2, 2018 at 12:20 pm

That's exactly wrong. Zimbabwe had a production collapse. Same amount of money to buy a much smaller amount of goods. The gov responded not by increasing goods, but increasing money supply.

Bridget , October 2, 2018 at 1:30 pm

Maybe because the economy did not have the productive capacity to increase goods? It takes more than a magic wand and wishful thinking.

voteforno6 , October 2, 2018 at 8:29 am

Mark Blyth has a good discussion of the gold standard in his book Austerity: The History of a Dangerous Idea . He makes the point that, in imposing the adjustments necessary to keep the balance of payments flowing, the measures imposed by a government would be so politically toxic, that no elected official in his or her right mind would implement them, and expect to remain in office. In short, you can have either democracy, or a gold standard, but you can't have both.

Also, MMT does recognize that there are real world constraints on a currency, and that is represented by employment, not some artificially-imposed commodity such as gold (or bitcoin, or seashells, etc). The Jobs Guarantee flows out of this.

Tinky , October 2, 2018 at 9:50 am

As mentioned above, you, among others who have replied to my original comment, are using the classical gold standard as a straw manl. Neither I, nor many other gold "bugs", propose such a simple solution for the failed current economic system, which is increasingly based on mountains of debt that can never be repaid.

WobblyTelomeres , October 2, 2018 at 11:35 am

increasingly based on mountains of debt that can never be repaid.

Huh? I listed two ways they could be repaid above. In the US, the national debt is denominated in dollars, of which we have an infinite supply (fiat). In addition, the Federal Reserve could buy all the existing debt by [defer to quad-entry accounting stuff from Wray's primer] and then figuratively burn it. Sure, the rest of the world would be pissed and inflation *may* run amok, but "can never" is just flat out wrong.

Tinky , October 2, 2018 at 1:59 pm

Of course it can be extinguished through hyperinflation. I didn't think that it would be necessary to point that out. No "may" about it, though, as if the U.S. prints tens of trillions of dollars to extinguish the debt, hyperinflation will be assured.

todde , October 2, 2018 at 2:14 pm

not if it would be done over time, as the debt comes due.

We could also tax the excess dollars from the system with a large capital gains tax rate.

todde , October 2, 2018 at 3:04 pm

so I don't believe there will be a hyper-inflation of goods, but in asset prices. That is why I would raise the capital gains rate.

The failure of MMT is when the hyper-inflation occurs in goods and services.

Taxing a middle class person while his cost of living is rising will be a tough political act to do.

WobblyTelomeres , October 2, 2018 at 2:19 pm

I didn't think that it would be necessary to point that out.

Sorry, but I'm an old programmer; logic rules the roost. When one's software is expected to execute billions of times a day without fail for years (and this post is very likely routed through a device running an instance of something I've written). Always means every time, no exceptions; never means not ever, no matter what.

You said never.

Tinky , October 2, 2018 at 3:30 pm

Yes I did. I was simply being lazy, as I typically do add "except via hyperflation", when discussing debts that can only be repaid in that manner.

That "solution" is obviously no solution at all, as it would lead to chaos.

Interpret it any way that you wish.

todde , October 2, 2018 at 11:37 am

So what is the new solution proposed by 'gold bugs'?

Tinky , October 2, 2018 at 2:06 pm

I'm sure that there is no one solution proposed, though an alternative to the current system which seems plausible would be a currency backed by a basket of commodities, including gold.

todde , October 2, 2018 at 2:26 pm

and when commodity prices fluctuate you will still have government printing and eliminating money to maintain the price.

I would say, if that was the argument, stick to gold as it is one of the more stable commodities.

AlexHache , October 2, 2018 at 11:43 am

Can I ask what your solution would be? I don't think you've mentioned it.

HotFlash , October 2, 2018 at 1:08 pm

Hi Tinky, much late but still. Gold will have value as long as people believe it has value. But what will they trade it for? The bottom line is your life.

I don't have any gold, too expensive, and it really has no use. But I remember Dimitri Orlov's advice : I am long in needles, pins, thread, nails and screws, drill bits, saws, files, knives, seeds, manual tools of many sorts, mechanical skills and beer recipes. Plus I can sing.

Bridget , October 2, 2018 at 1:31 pm

Don't forget a nice supply of 30 year old single malt scotch!

Tinky , October 2, 2018 at 2:04 pm

The vast majority of people who hold physical gold are well aware of the value of having skills and supplies, etc., in case of a serious meltdown. But it's not a zero-sum game, as you suggest. Gold will inexorably rise sharply in value when today's fraudulent markets crash, and there will be plenty of opportunities for those who own it to trade it for other assets.

Furthermore, as previously mentioned, gold's utility is already on full display, to those who are paying attention, and not looking myopically through a USD lens.

Wukchumni , October 2, 2018 at 2:19 pm

Why not the GOILD standard?, one mineral moves everything, while the other just sits around gathering dust, after being extracted.

David Swan , October 2, 2018 at 2:28 pm

"Mountains of debt that can never be repaid" is a propaganda statement with no reference to any economic fact. Why do you feel that this "debt" needs to be "repaid"? It is simply an accounting artifact. The "debt" is all of the dollars that have been spent *into* the economy without having been taxed back *out*. The word "debt" activates your feels, but has no intrinsic meaning in this context. Please step back from your indoctrinated emotional reaction and understand that the so-called national "debt" is nothing more than money that has been created via public spending, and "repaying" it would be an act of destruction.

WobblyTelomeres , October 2, 2018 at 3:27 pm

THIS!!!

I keep telling (boring, annoying, infuriating) people that, in the simplest terms, the national debt is the money supply and they won't grasp that simple declaration. When I said it to my Freedom Caucus congress critter (we were seated next to each other on an exit aisle) his head started spinning, reminding me of Linda Blair in The Exorcist.

Tinky , October 2, 2018 at 3:44 pm

The debt may not have to be repaid, but the interest does have to be serviced. Good luck with that in the long run.

WobblyTelomeres , October 2, 2018 at 4:18 pm

As I said to my congress critter, if the debt bother's y'all so much, why not just pay it off, dust off your hands, and be done with it?

Personally, if I were President for a day, I'd have the mint stamp out 40 or so trillion dollar platinum coins just to fill the top right drawer of the Resolute desk. Would give me warm fuzzy feelings all day long.

p.s. I also told him that the man with nothing cares not about inflation. He didn't like that either.

MisterMr , October 2, 2018 at 8:46 am

"those, some of whom are quite sophisticated, who believe that currencies should be backed by something of tangible value (and no, "the military" misses the point), or those who hold physical gold as an insurance policy against political incompetence, and the inexorable degradation of fiat currencies"

I suspect that Wray exactly means that these people are the goldbugs, not the ones who speculate on gold.

The whole point that currencies should be backed by something of tangible value IMO is wrong, and I think the MMTers agree with me on this.

Tinky , October 2, 2018 at 9:56 am

If so, then he should clarify his position, as again, lumping the billions – literally – of people who consider gold to be economically important, together as one, is disingenuous.

skippy , October 2, 2018 at 3:55 pm

I think people that consider gold to be a risk hedge understand its anthro, per se an early example of its use was a fleck of golds equal weight to a few grains of wheat e.g. the gold did not store value, but was a marker – token of the wheat's value – labour inputs and utility. Not to mention its early use wrt religious iconography or vis-à-vis the former as a status symbol. Hence many of the proponents of a gold standard are really arguing for immutable labour tokens, problem here is scalability wrt high worth individuals and resulting distribution distortions, unless one forwards trickle down sorts of theory's.

Not to mention in times of nascent socioeconomic storms many that forward the idea of gold safety are the ones selling it. I think as such the entire thing is more a social psychology question than one of factual natural history e.g. the need to feel safe i.e. like commercials about "peace of mind". I think a reasonably stable society would provide more "peace of mind" than some notion that an inanimate object could lend too – in an atomistic individualistic paradigm.

WobblyTelomeres , October 2, 2018 at 4:26 pm

I once had an co-worker that was a devout Christian. When he realized I wasn't religious, he asked me, incredulously, how I was able to get out of bed in the morning. Meaning, he couldn't face a world without meaning.

I think a lot of people feel that same way about money. They fight over it, lie for it, steal it, kill for it, go to war over it, and most importantly, slave for it. Therefore, it must have intrinsic value. I think gold bugs are in this camp.

Fried , October 2, 2018 at 6:06 am

Talking about Warren's blog ( http://moslereconomics.com/ ), everytime I try to go there, Cloudflare asks me to prove that I am human. Anyone know what's up with that? It's the only website I've ever seen do that.

Tinky , October 2, 2018 at 6:13 am

No such prompt for me (using Mac desktop computer, OS 10.11.6 and Safari browser.

Fried , October 2, 2018 at 7:35 am

Thanks. It seems to be blocking my IP address, no idea why. Not sure why I have to be human to look at a website.

Epistrophy , October 2, 2018 at 8:46 am

Try running your IP address through a blacklist checker maybe it's been flagged

Fried , October 2, 2018 at 10:03 am

Hm, I can't find anything that would explain it. Maybe the website just generally blocks Austrians. ;-)

el_tel , October 2, 2018 at 10:10 am

That's a good suggestion. Unfortunately, as I sometimes find, you can pass ALL the major test-sites but something (a minor, less-used site using out-of-date info?) can give you grief. NC site managers once (kindly) took the time to explain to me why I might have problems that they had no ability to address at their end. I had to muck around with a link given earlier to Bill Mitchell's blog before my browser would load it.
I think there can be quirks that are beyond our control (unfortunately) – for instance I think a whole block of IP addresses (including mine) used by my ISP have been flagged *somewhere* – no doubt due to another customer doing stuff that the checker(s) don't like. (The issue I mentioned above was more likely due to a strict security protocol in my browser, however.)

kgw , October 2, 2018 at 11:57 am

I ended up physically typing in the url to Bill Mitchell's blog: that worked.

el_tel , October 2, 2018 at 12:43 pm

yeah think that's what I did

larry , October 2, 2018 at 6:45 am

Monetary policy in terms of interest rates is not just weak, it also tends to treat all targets the same. Fiscal policy can be targetted to where it is felt it can do the most good.

William Beyer , October 2, 2018 at 7:00 am

Christine Desan's book, "Making Money," exhaustively documents the history of money as a creature of the state. Recall as well that creating money and regulating its value are among the enumerated POWERS granted to our government by we, the people. Money, indeed, is power.

Grumpy Engineer , October 2, 2018 at 8:26 am

Hmmm Randy Wray states that " permanent Zirp (zero interest rate policy) is probably a better policy since it reduces the compounding of debt and the tendency for the rentier class to take over more of the economy. "

But just last week, Yves stated that " that one of the consequences of the protracted super-low interest rate regime of the post crisis era was to create a world of hurt for savers, particularly long-term savers like pension funds, life insurers and retirees. " [ https://www.nakedcapitalism.com/2018/09/crisis-caused-pension-train-wreck.html ]

So are interest rates today too high, or too low? We're getting mixed messages here.

IMO, interest rates are too low . Beyond the harmful effect to savers, it also drives income inequality . How? When interest rates are less than inflation, it is trivial to borrow money, buy some assets, wait for the assets to appreciate, sell the assets, repay the debt, and still have profit left over even after paying interest . Well, it's trivial if you're already rich and have a line of credit that is both large and low-interest. If you're poor with a bad FICO score, you don't get to play the asset appreciation game at all.

I can't think of another reason inequality skyrocketed so badly during the Obama years: https://www.newsweek.com/2013/12/13/two-numbers-rich-are-getting-richer-faster-244922.html . Other than interest rates, his policies weren't all that different from Clinton or Bush.

Tinky , October 2, 2018 at 10:38 am

Not to mention that interest rates are designed to reflect risk . Artificially suppressed rates mask risk, and inevitably lead to gross malinvestment.

todde , October 2, 2018 at 12:31 pm

The rates between riskier and less risky borrowers will still be reflected in the different rates given to each.

The low rates encourage greater risk taking to increase the reward(a higher rate of return). This is what leads to the gross malinvestment.

Case in point: the low rates led to more investments into the stock market, where the returns are unlimited. This is what led to the income inequality of Obama's term, as mentioned above.

todde , October 2, 2018 at 3:07 pm

if government creates money to lend to borrowers it should be at a zero interest rate.

The loans would be based on public policy decisions, and not business decisions.

HotFlash , October 2, 2018 at 1:36 pm

I cannot speak for Yves, nor or Randy, but IMO, interest rates are too low for people who depend on interest for their living -- as an old person, I have seen my expected income drop to about zilch when I had expected 7 to 10% on my savings. Haha! So yeah, too low for us who saved for 'retirement'.

Too high for people financing on credit, since a decent mortgage on a modestly-priced house will cost you almost the same as the house . And that doesn't even begin to look at unsecured consumer credit (ie, credit card debt), which is used in the US and other barbaric countries for medical expenses, not to mention student debt. The banks can create the principal with their keystrokes, but they don't create the interest. Where do you suppose that comes from? Hint: nowhere, as in foreclosures and bankruptcies.

Adam1 , October 2, 2018 at 3:12 pm

Wray's statement reflects his preferences from an operational policy perspective. Sovereign government debt cares no risk and therefore should not pay interest. The income earned from that interest is basically a subsidy and all income when spent caries a risk of inflation induced excess demand. Therefore who unnecessarily add the risk to the economy and potential risk needing to reduce other policy objectives to accommodate unnecessary interest income subsidies to mostly rich people?

Yves comment reflects the reality of prior decades of economic history. Even if Wray's policy perspective is optimal, there are decades of people with pensions and retirement savings designed around the assumption of income from risk-free government debt. It's this legacy that Yves is commenting on and is a real problem that current policy makers are just ignoring.

As for your comments on how low cost credit can be abused, I believe you'll find most MMT practitioners would recommend far more regulation on the extension of credit for non-productive purposes.

michael hudson , October 2, 2018 at 8:38 am

I just wrote a note to Randy:
The origin of money is not merely for accounting, but specifically for accounting for DEBT -- debt owed to the palatial economy and temples.
I make that clear in my Springer dictionary of money that will come out later this year: Origins of Money and Interest: Palatial Credit, not Barter

horostam , October 2, 2018 at 8:57 am

The Babylonian Madness is contagious thanks prof hudson

gramsci , October 2, 2018 at 9:22 am

Can somebody help me out here? It seems to me that the US macroeconomic policy has been operating under MMT at least since FDR (see for example Beardsley Ruml from 1945).

Since then, insofar as I understand MMT, fiat has been printed and distributed to flow primarily through the MIC and certain other periodically favored sectors (e.g. the Interstate Highway System). Then, rather than destroying this fiat through taxation, the sectoral balances have been kept deliberately out of balance: Taxes on unearned income have been almost eliminated with an eye to not destroying fiat, but to sequestering as much as possible in the private hands of the 1%. This accumulating fiat cannot be productively invested because that would cause overproduction, inflation, and reduce the debt burden by which the 1% retains power over the 99%. So the new royalists, as FDR would have styled them, keep their hoard as a war chest against "socialists".

I get all this, more or less, and I appreciate that it is well and good and important that MMTers insistently point out that the emperor has no clothes. This is a necessary first step in educating the 99%.

But I don't see MMT types discussing the fact that US (and NATO) macroeconomic policy already has a Job Guarantee: if you don't want to work alongside undocumented immigrants on a roof or in a slaughterhouse or suffer the humiliation of US welfare, such as it is, you can always get a job with the army, or the TSA, or the police, or as a prison guard, or if you have some education, with a health unsurance company or pushing drone buttons. You only have to be willing to follow orders to kill–or at least help to kill–strangers.

(Okay, perhaps I overstate. If you're a medical doctor or an "educator" with university debt you don't have to actively kill. You can decline scant Medicaid payments and open a concierge practice, or you can teach to the test in order that nobody learns anything moral.)

It is difficult to get a man to understand something, when his salary depends on his not understanding it. Wouldn't it be clarified matters if MMTers acknowledged that we already have a JG?

Wukchumni , October 2, 2018 at 12:50 pm

We have been operating on MMT since the end of WW2, with 2 exceptions in 1968 when Silver Certificate banknotes no longer were redeemable for silver, and in 1971 when foreign central banks (not individuals!) weren't allowed to exchange FRN's for gold @ $35 an ounce anymore.

It's been full on fiat accompli since then and to an outsider looks absurd in that money is entirely a faith-based agenda, but it's worked for the majority of all of lives, so nobody squawks.

It's an economic "the emperor has no clothes" gig.

HotFlash , October 2, 2018 at 1:54 pm

It seems to me that the US macroeconomic policy has been operating under MMT at least since FDR (see for example Beardsley Ruml from 1945).

Yup, you are correct, IMO. And about the jobs guarantee, too. The point of MMT is not that we have to adopt, believe in, or implement it, but that *this is how things work* and we need to get a %&*^* handle on it *STAT* or they will ride it and us to the graveyard. The conservatives and neo-cons are already on to this, long-time.

I believe the chant is:

We can have anything we want that is available in our (sovereign) currency and for which there are resources

What we get depends on what we want and how well we convince/coerce our 'leaders' to make it so.

David Swan , October 2, 2018 at 2:43 pm

JG is geared toward community involvement to create an open-ended collection of potential work assignments, not top-down provision of a limited number of job slots determined by bureaucrats on a 1% leash.

Wukchumni , October 2, 2018 at 9:31 am

About every 80 years, there has been a great turning in terms of money in these United States

Might as well start with 1793 and the first Federal coins, followed in 1861 by the first Federal paper money, and then the abandonment of the gold standard (a misnomer, as it was one of many money standards @ era, most of them fiat) in 1933.

We're a little past our use-by date for the next incarnation of manna, or is it already here in the guise of the great giveaway orchestrated since 2008 to a selected few?

Adam1 , October 2, 2018 at 9:40 am

After learning MMT I've occasionally thought I should get a refund for the two economics degree's I originally received. One of the primary mainstream teachings that I now readily see as false is the concept of money being a vale over a barter economy. It's lazy, self-serving analysis. It doesn't even pass a basic logical analysis let alone archeological history. Even in a very primitive economy it would be virtually impossible for barter to be the main form of transaction. The strawberry farmer can't barter with the apple farmer. His strawberries will be rotten before the apples are ripe. He could give the apple farmer strawberries in June on the promise of receiving apples in October, but that's not barter that's credit. The apple farmer could default of his own free will or by happenstance (he dies, his apple harvest is destroyed by an act of god, etc ). How does the iron miner get his horse shoed if the blacksmith needs iron before he can make the horse show? Credit has to have always been a key component of any economy and therefore barter could never have been the original core.

HotFlash , October 2, 2018 at 2:00 pm

After learning MMT I've occasionally thought I should get a refund for the two economics degree's I originally received.

Agreed. Richard Wolff notes that in most Impressive Universities there are two schools, one for Economics (theory) and another for Business (practice). Heh. I say, go for the refund, you was robbed.

Wukchumni , October 2, 2018 at 10:11 am

Take Indians for instance

All the Rupee* has done over time is go down in value against other currencies, and up in the spot price measured in Rupees even as gold is trending down now, and that whole stupid demonetization of bank notes gig, anybody on the outside of the fiat curtain looking in, had to be laughing, and ownership there is no laughing matter, as it's almost a state financial religion, never seen anything like it.

* A silver coin larger than a U.S. half dollar pre-post WW2, now worth a princely 1.4 cents U.S.

Chauncey Gardiner , October 2, 2018 at 12:34 pm

Not an economist, but I appreciate both the applicability of MMT and the fierce, but often subtle resistance its proponents have encountered academically, institutionally and politically. However, I have questioned to what extent MMT is uniquely applicable to a nation with either a current account surplus or that controls access to a global reserve currency.

How does a nation that is sovereign in its own currency, say Argentina for example (there are many such examples), lose 60 percent of its value in global foreign exchange markets in a very short time period?

Is this due primarily to private sector debts denominated in a foreign currency (and if so, what sectors of the Argentine economy undertook those debts, for what purposes, and to whom are they owed?), foreign exchange market manipulation by external third parties, the effective imposition of sanctions by those who control the global reserve currency and international payments system, or some combination of those or other factors?

Mel , October 2, 2018 at 12:53 pm

Michael Hudson described some of it earlier this year:
https://www.nakedcapitalism.com/2018/07/michael-hudson-argentina-gets-biggest-imf-loan-history.html

Rodger Malcolm Mitchell , October 2, 2018 at 3:48 pm

All hyperinflations are caused by shortages, usually shortages of food. See: https://mythfighter.com/2018/08/27/ten-answers-that-are-contrary-to-popular-wisdom/

There is no avoiding bad government.

PKMKII , October 2, 2018 at 1:57 pm

MMT makes more sense than orthodox neoliberal accounts of currency and sovereign spending to me, as it does a better job of acknowledging reality. MMT recognizes that currency is an artifice and that imagined limitations on it are just that, and real resources are the things which are limited. Neoliberal economics acts as if all sorts of byzantine factors mean currency must be limited, but we can think of resources, and the growth machine they feed, as being infinite.

Rodger Malcolm Mitchell , October 2, 2018 at 3:41 pm

"Taxes or other obligations (fees, fines, tribute, tithes) drive the currency."

Specifically, what does "drive" mean? Does it mean:
1. When taxes are reduced, the value of money falls?
2. If taxes were zero, the value of money would be zero?
3. Cryptocurrencies, which are not supported by taxes, have no value?

"JG is a critical component of MMT. It anchors the currency and ensures that achieving full employment will enhance both price and financial stability."

Specifically, what do "anchors" and "critical component" mean? Do they mean:
1. Since JG does not exist, the U.S. dollar is unanchored and MMT does not exist?
2. Providing college graduates with ditch-digging jobs enhances price and financial stability?
3. Forcing people to work is both morally and economically superior to giving them money and benefits?

Grebo , October 2, 2018 at 4:20 pm

"Drive" means "creates initial demand for":
1. No, not for an established currency.
2. See 1.
3. Crypto is worth what you can buy with it.

"Anchors" means it acts against inflation and deflation. "Critical component" means the economy works better if it has it.
1. Yes and no.
2. Yes, if no-one else will hire them.
3. No element of force is implied.

[Sep 29, 2018] Steve Keen How Economics Became a Cult

Highly recommended!
Notable quotes:
"... I still find it incredible that this video by Samuelson essentially acknowledging that a key part of his multi-decade "core" textbook is religion, not science, is not more widely shared. ..."
Sep 29, 2018 | www.nakedcapitalism.com

Steve Keen of Kingston University, London gives an important high-level talk on the considerable shortcomings of mainstream economics. Keen argues that a major objective of the discipline is to justify the virtues of markets, which in turn leads them to adopt a strongly ideological posture along with highly simplified models and narrow mathematical approaches to reach conclusions that they find acceptable.

Keen has many informative asides, like the introductory level texts he used in the 1970s were more advanced than many graduate level guides.

https://www.youtube.com/embed/JeplRmADW3E


el_tel , September 29, 2018 at 7:09 am

I still find it incredible that this video by Samuelson essentially acknowledging that a key part of his multi-decade "core" textbook is religion, not science, is not more widely shared.

OK the person who constructed the complete youtube vid has typos etc and editing probably didn't help the cause. but still

[Sep 22, 2018] Transphobic Swedish Professor May Lose Job After Noting Biological Differences Between Sexes

Looks like Lysenkoism got a second life in the West...
Sep 22, 2018 | theduran.com

A university professor in Sweden is under investigation after he said that there are fundamental differences between men and women which are "biologically founded" Published

1 day ago

on

September 21, 2018 By

Tyler Durden 1,539 Views ,

[Sep 07, 2018] Neomodernism - Wikipedia

Highly recommended!
Sep 07, 2018 | en.wikipedia.org

Ágnes Heller

Ágnes Heller's work is associated with Moral Anthropology and "probing modernity's destiny for a non-predatory humanism that combines the existential wisdom of ancient theory with modern values." [1]

Neomodernism accepts some aspects of postmodernism's critique of modernism, notably that modernism elevated the world view of dominant groups to the status of objective fact, thereby failing to express the viewpoint of " subaltern groups," such as women and ethnic minorities. However, in her view, neomodernism rejects postmodernism as:

Victor Grauer

In 1982, Victor Grauer attacked "the cult of the new," and proposed that there had arisen a "neo-modern" movement in the arts which was based on deep formal rigor, rather than on "the explosion of pluralism." [2] His argument was that post-modernism was exclusively a negative attack on modernism, and had no future separate from modernism proper, a point of view which is held by many scholars of modernism. [2]

Carlos Escudé

In "Natural Law at War", a review essay published on 31 May 2002 in The Times Literary Supplement (London, TLS No. 5174), Carlos Escudé wrote: "Postmodern humanity faces a major challenge. It must solve a dilemma it does not want to face. If all cultures are morally equivalent, then all human individuals are not endowed with the same human rights, because some cultures award some men more rights than are allotted to other men and women. If, on the other hand, all men and women are endowed with the same human rights, then all cultures are not morally equivalent, because cultures that acknowledge that 'all men are created equal' are to be regarded as 'superior,' or 'more advanced' in terms of their civil ethics than those that do not." Escudé's brand of neomodernism contends with "politically-correct intellectuals who prefer to opt for the easy way out, asserting both that we all have the same human rights and that all cultures are equal."

Andre Durand and Armando Alemdar

Published their own Neomodernist Manifesto in 2001. The Neomodern Manifesto posits criteria for a revitalised approach to works of art founded on history, traditional artistic disciplines, theology and philosophy. Durand's and Alemdar's Neomodernism views art as an act of expression of the sublime; in Neomodern painting as a representation of the visual appearance of things with correspondence to the physical world understood as a model for beauty, truth, and good. Neomodern works of art via mimesis interpret and present the universe and man's existence, in line with the belief that the reality we live is but a mirror of another universe that can only be accessed through inspiration and imagination.

Gabriel Omowaye

Gabriel Lolu Omowaye, in his speech 'A new challenging time' to a group of college students in Nigeria, in 2005, took a different approach to neomodernism. He viewed neomodernism as a political philosophy that became more prominent in the early 21st century. To him, it involves common goal and joint global effort - universalism - to address arising global challenges such as population growth, natural resources, climate change and environmental factors, natural causes and effects, and health issues. Omowaye posited that political will is the major driver of economic necessities. As a result, he added that neomodernism involves limited government-regulated liberalism along with high drive innovation and entrepreneurship, high literacy rate, progressive taxation for social equity, philanthropism, technological advancement, economic development and individual growth. He perceived the quest for equal representation of men and women in the neomodern era as a strong signal for advent of postmodernism. So also, the quest for youths engagement in resourceful and rewarding ways especially in governance, peace building and self-productivity has not taken a formidable shape than it is at this time. As far as he was concerned, he believed most of these challenges were not adequately tackled in preceding eras and the arising challenges thus stated were not prepared for and that cause for change in mentality and thinking which the neomodern era is providing for solutions to the era's challenges, with a prospective view to global stability and social inclusion. His philosophical thought premised on a fact that new times require new approaches from new reasonings, even if some applicable ideas or methologies could be borrowed from the past, an acute form of paradigm-shift.

Omowaye believed in idealism as guiding realism and in turn, realism as defining idealism. Moral concepts cannot be wished away from social norms, but evolving social trends dissipate morality in form of religion and logical standards and adheres to current norms in form of 'what should be'. Consequently, the manner at which 'what should be' is driven at in the modern and postmodern eras, being widely accepted became 'what is'. The manner at which the damage of the new 'what is' is hampering development process in the form of higher mortality rate and decadence of cultural good, calls to question the ideology behind the norms that are less beneficial to a wider society in form of globalization. The world as a whole through technological advancement became a global community particularly, in the 21st century. Former Secretary General of the United Nations, Kofi Annan then stated that the "suffering anywhere concerns people everywhere". Champions of neomodern age such as Bill Gates and Richard Branson in the field of philanthropy expounded their vision to encompass the global community in social good such as alleviating poverty, eradicating diseases, enhancing literacy rates and addressing climate changes.

Technological advancement of the neomodern era however has its downturns in that it added to the decadence in cultural good such that people everywhere, especially high number of youths follow the trends in the new 'what is', which include social celebrities in the form of dressing, sexual activities, extravagancies, and less interest in learning and even, working but more interest in making money. Money became a value-determinant than utility. This brought about frauds in various sectors. This latter aspect is not limited to youths but even company executives, and politicians of many societies. Technological advancement has made privacy less safer for intrusion and people more safer for protection. The supposedly good of technological advancement in the neomodern era has included whistle blow such as Wikileaks' Julian Assange. The more good has been in the level of innovations and innovators it has sprung up such as Facebook's Mark Zuckerberg and easier business models and broader social connectivity. This latter part has lessened more amity in immediate environment and many people tend to live more in the virtual world neomodern technological advancements have created.

Neomodernism checks more into the current relative way of living of people and the society to correct necessary abnormalities and to encourage virtues and values within the global community in the 21st century.

In furtherance, Gabriel Omowaye's view of neomodernism was that knowledge comes from learning and experience, and wisdom primarily from intuition. Knowledge is a variable of set occurrences of that which happens to a man and that which a man seeks to know. Knowledge is vital and good for discretion but a minor part of discernment wherein what is known might not be applicable. Intuition is a function of the mind and the mind, not seen, and yet unknown to the carrier, is a function of what put the thoughts, ideas and discretion in it. Wisdom without knowledge is vague, and knowledge without wisdom, unworthy. Wisdom perfects knowledge, and in the absence of either, the sole is delusory.

[Aug 28, 2018] South Africa is cursed with neo-liberal trickle-down baloney stifling radical economic change by Kevin Humphrey

Notable quotes:
"... There is consensus between commentators who have studied the effects of neo-liberalism that it has become all pervasive and is the key to ensuring that the rich remain rich, while the poor and the merely well to do continue on a perpetual hamster's wheel, going nowhere and never improving their lot in life while they serve their masters. ..."
"... Monbiot says of this largely anonymous scourge: "Attempts to limit competition are treated as inimical to liberty. Tax and regulations should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous, a reward for utility and a genera-tor of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve." ..."
"... Senior cadres co-opted Unfortunately, history shows that some key senior cadres of the ANC were all too keen to be coopted into the neo-liberal fold and any attempts to put forward radical measures that would bring something fresh to the table to address the massive inequalities of the past were and continue to be kept off the table and we are still endlessly fed the neo-liberal trickle-down baloney. ..."
medium.com

SA is cursed with neo-liberal trickle-down baloney stifling radical economic change Kevin Humphrey, The New Age, Johannesburg, 1 December 2016

South Africa's massive inequalities are abundantly obvious to even the most casual observer. When the ANC won the elections in 1994, it came armed with a left-wing pedigree second to none, having fought a protracted liberation war in alliance with progressive forces which drew in organised labour and civic groupings.

At the dawn of democracy the tight knit tripartite alliance also carried in its wake a patchwork of disparate groupings who, while clearly supportive of efforts to rid the country of apartheid, could best be described as liberal. It was these groupings that first began the clamour of opposition to all left-wing, radical or revolutionary ideas that has by now become the constant backdrop to all conversations about the state of our country, the economy, the education system, the health services, everything. Thus was the new South Africa introduced to its own version of a curse that had befallen all countries that gained independence from oppressors, neo-colonialism.

By the time South Africa was liberated, neo-colonialism, which as always sought to buy off the libera-tors with the political kingdom while keep-ing control of the economic kingdom, had perfected itself into what has become an era where neo-liberalism reigns supreme. But what exactly is neo-liberalism? George Monbiot says: "Neo-liberalism sees competi-tion as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that 'the market' delivers benefits that could never be achieved by planning."

Never improving

There is consensus between commentators who have studied the effects of neo-liberalism that it has become all pervasive and is the key to ensuring that the rich remain rich, while the poor and the merely well to do continue on a perpetual hamster's wheel, going nowhere and never improving their lot in life while they serve their masters.

Monbiot says of this largely anonymous scourge: "Attempts to limit competition are treated as inimical to liberty. Tax and regulations should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous, a reward for utility and a genera-tor of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve."

Nelson Mandela

South Africa's sad slide into neo-liberalism was given impetus at Davos in 1992 where Nelson Mandela had this to say to the assembled super rich: "We visualise a mixed economy, in which the private sector would play a central and critical role to ensure the creation of wealth and jobs. Future economic policy will also have to address such questions as security of investments and the right to repatriate earnings, realistic exchange rates, the rate of inflation and the fiscus."

Further insight into this pivotal moment was provided by Anthony Sampson, Mandela's official biographer who wrote: "It was not until February 1992, when Mandela went to the World Economic Forum in Davos, Switzerland, that he finally turned against nationalisation. He was lionised by the world's bankers and industrialists at lunches and dinners."

This is not to cast any aspersions on Mandela, he had to make these decisions at the time to protect our democratic transition. But these utterances should have been accom-panied by a behind the scenes interrogation of all the ANC's thoughts on how to proceed in terms of the economy delivering socialist orientated solutions without falling into the minefield of neo-liberal traps that lay in wait for our emerging country.

Senior cadres co-opted Unfortunately, history shows that some key senior cadres of the ANC were all too keen to be coopted into the neo-liberal fold and any attempts to put forward radical measures that would bring something fresh to the table to address the massive inequalities of the past were and continue to be kept off the table and we are still endlessly fed the neo-liberal trickle-down baloney.

Now no one dares to express any type of radical approach to our economic woes unless it is some loony populist. Debate around these important issues is largely missing and the level of commentary on all important national questions is shockingly shallow.

Anti-labour, anti-socialist, anti-poor, anti-black The status quo as set by the largely white-owned media revolves around key neo-liberal slogans mas-querading as commentary that is anti-labour, anti-socialist and anti-poor, which sadly translates within our own context as anti-black and therefore repugnantly racist.

We live in a country where the black, over-whelmingly poor majority of our citizens have voted for a much revered liberation movement that is constantly under attack from within and without by people who do not have their best interests at heart and are brilliant at manipulating outcomes to suit themselves on a global scale.

Kevin Humphrey is associate executive editor of The New Age

[Aug 27, 2018] Chemically induced fanaticism. We have no idea which of our 'opinion leaders' have undergone such antidepressant induced change

Notable quotes:
"... Further to my idea, what distinguishes the person on antidepressants is the complete self assurance with which they say the most ridiculous things. ..."
"... If one in ten people use the drugs, and more than one in ten higher up the social ladder, then each of us deals every day with someone who looks normal but displays chemically induced fanaticism. ..."
Aug 27, 2018 | www.unz.com

Gordon Pratt , says: July 23, 2018 at 6:23 pm GMT

@AnonFromTN

Thank you for replying to my post.

And you may be right. Scam artists know how easy it is to convince a mark of something silly once the mark has dollar signs in his eyes.

Further to my idea, what distinguishes the person on antidepressants is the complete self assurance with which they say the most ridiculous things. It is that inability to say "I could be wrong, but " which is the giveaway plus of course the unquestioning belief they are right.

If one in ten people use the drugs, and more than one in ten higher up the social ladder, then each of us deals every day with someone who looks normal but displays chemically induced fanaticism.

A chap I have known for forty years used to be shy, sensitive, well-read and funny. Now he is spending his retirement playing World of Warcraft and has nothing to say. Big Pharma says antidepressants turn introverts like him into extroverts. In fact the drugs have turned him into a jerk.

We have no idea which of our 'opinion leaders' have undergone a similar change.

[Jul 19, 2018] Axiom of Uncertainty by Dan Corjescu

Notable quotes:
"... secular hubris. ..."
"... axiom of uncertainty ..."
"... explanations about everything ..."
"... axiom of uncertainty ..."
"... Indeed, although knowledge is power,; true, absolute knowledge may be unattainable and thus call forth, even demand an attitude of deep humility with respect to the true nature of the universe as a whole and a sharply critical stance towards all publicly held theories, beliefs, and viewpoints. ..."
Jul 10, 2018 | www.counterpunch.org

It's simple. Given that there might well be an absolute nature/structure of the universe and our perhaps fundamentally limited cognitive position/abilities within it can we be certain that we can be sure about the true nature of anything? Can there be fundamental forces, matter, and material relationships of which we will never know?

While unanswerable in principle, the mere possibility of such an epistemological situation has many consequences.

Firstly, it considerably lets out the air out of our current secular hubris.

Science and technology have given us what is perhaps a false impression of our own cognitive and technical omnipotence. While we rightly marvel at what we have achieved during the last five centuries, it does not necessarily give us the right to think that we can, even theoretically, master and understand all that there is.

Would it be so far fetched to think that the human mind, both as it is now and will be in the future, will always be limited in what it can know?

Although we cannot even judge the actual probability of such a proposition it should nevertheless give us pause while constructing brash anthropocentric scenarios which inflate our own importance within the universe.

If we stop to consider the possible theoretical implications of this axiom of uncertainty we will quickly realize that we may never know more than a part, even just a small part of existence past, present, and future.

Of course that does not mean we should stop trying to know all we can.

On the other hand, it does mean that we should be far more circumspect when offering explanations about everything whether scientific, political, or religious.

In each of these domains, we may, it might turn out, be far off the mark.

Yet, the deeper point is that according to the above axiom we can never know for sure.

Do such thoughts open the door then to superstition and fantastical ideas of all kinds?

Yes and no.

Privately, one can believe in whatever one wants to.

However, publicly, the commonly accepted standards of reason, logic, and evidence would still apply.

In order for a proposition such as "Three-eyed pink giraffes eat hamburgers on Titan" to be even remotely true there would have to be substantial scientific research to back it up.

Yet, even if there is credible evidence for totalistic viewpoints of any kind the axiom of uncertainty can always, potentially, call them into question. For if there are indeed fundamental aspects of existence that are forever closed off to us; then it follows that no comprehensive theory of everything could be completely and forever considered true. Such an axiom will always allow for some doubt, however small, to remain.

Indeed, although knowledge is power,; true, absolute knowledge may be unattainable and thus call forth, even demand an attitude of deep humility with respect to the true nature of the universe as a whole and a sharply critical stance towards all publicly held theories, beliefs, and viewpoints.

[Jul 06, 2018] Are there certain things that can't be questioned in a given society, without the risk of destruction of this society?

Sergey Krueger is wrong about questioning of gender roles. That comes from the necessity to to have an identity wedge during neoliberal period of the USA society.
Jul 06, 2018 | www.unz.com

Sergey Krieger , June 16, 2018 at 9:42 am GMT

@Rurik

Well, you put it yourself. Liberalism as is it was during the Enlightenment was questioning all dogmas and everything that is considered normal here we have a double aged sword. When and what you stop questioning and reasoning about logic of certain things.

Logically they started with kings and after all things were questioned they came now to roles of males and females, sex, gender and god forbids where this can takes us.

There are certain things that cannot be questioned for society to have a back bone. A moral and cultural one. Otherwise things turn the way they are now. There is nothing sacred and everything can be questioned and reasoned about.

[Jun 28, 2018] Koch Money and the Unflappable Economist naked capitalism

Notable quotes:
"... By Philip E. Mirowski, Carl Koch Chair of Economics and the History and Philosophy of Science, University of Notre Dame. Originally published at the Institute for New Economic Thinking website ..."
"... Inside Job ..."
"... Philosophy. The neoliberal PR campaign of 'the market is the ultimate and true arbiter of all' has all the appearance of a regression to what I can only call inverted marxist dialectical-materialism as espoused by the old soviets; where anything, even scientific findings, that threatened the supremacy of the doctrine's claim of economic inevitability, was suppressed. ( No wonder the old soviet finally collapsed. ) The neoliberals substitutes a sort of libertarian dialectical-materialism that requires suppression of any theory that contradicts their claim of 'market infallibility' and inevitability. This is dogma, not science or even economics. ..."
Jun 27, 2018 | www.nakedcapitalism.com

Koch Money and the Unflappable Economist Posted on June 27, 2018 by Yves Smith By Philip E. Mirowski, Carl Koch Chair of Economics and the History and Philosophy of Science, University of Notre Dame. Originally published at the Institute for New Economic Thinking website

At the beginning of May 2018, there was a brief furor over donations from Koch family-affiliated philanthropies to fund the Mercatus Institute and the newly-named Antonin Scalia School of Law at George Mason University (GMU). Although articles concerning the admirable efforts of the GMU student organization UnKoch My Campus appeared in many of the prominent news outlets, the attention span of journalists seemed to barely outpace that of interest in one of Donald Trump's tweets, with even less consequence. But more to the point, the silence of the economics profession concerning the revelations was pretty deafening. Briefly, I would like to revisit why this was so and why it matters.

The details of the controversy can be briefly summarized: the assortment of Koch family foundations and allied charitable cutouts (which some libertarians have dubbed the "Kochtopus," but will henceforth here be shortened to 'the Kochs') have been making targeted donations to more than 300 schools since 2005, predominantly to economics departments. But George Mason University has been the most lavishly favored, garnering more than a third of the estimated $150 million bequeathed to universities from 2005-2015. The event that stirred campus resistance at GMU was a massive donation of $10 million from the Kochs tied to a $20 million donation from an anonymous benefactor to rename the Law School after Antonin Scalia, "formally" earmarked for "student scholarships." The first thing one notices was the budgetary legerdemain which obscured the relationship between faculty selection and line items in budgetary terms. Thus, the GMU Provost S. David Wu could tell his Faculty Senate in April 2016 that the bequest came with "no strings attached The entire $30M is for scholarships for students and nothing else." This narrative might have prevailed, if not for the document dump by UnKoch My Campus at the end of April, [1] a result of a FOIA suit by Transparency GMU , which detailed the series of negotiations with the Kochs (including the overwhelming role of figures from the Federalist Society as intermediaries: another Koch funded arm), including stipulations of how designated representatives would have input into GMU hiring decisions. This forced GMU President Angel Cabrera to reverse earlier statements that existing donor arrangements had not been allowed to influence internal academic matters. This, in turn, was the trigger which attracted the national press. As Inside Higher Ed put it: "academic values have long held that donors don't get to pick who holds chairs, or evaluate them."

"It's now abundantly clear that the administration of Mason, in partnership with the Mercatus Center and private donors, violated principles of academic freedom, academic control and ceded faculty governance to private donors," said Bethany Letiecq, President of GMU's chapter of the AAUP. But this reaction might underestimate the scope of the problem, reducing it to a mere matter of moral integrity. I shall argue instead that this event has more structural underpinnings, touching upon the very conception of education in relation to markets, and involve some crucial aspects of economic theory.

Broadly speaking, economists greeted this controversy with a big yawn: this sort of thing happens all the time, so don't get your panties in a twist. Indeed, the Kochs have been making similar grants to many universities for more than a decade, as have other philanthropies. The attitude was that the GMU case was nothing special.

How do economists justify the unflappable lightness of their nonchalance?

First off, many opine that the donors don't really interfere in academic matters; it is just the optics that are less than optimal. There are some crucial details which mitigate this pronouncement when it comes to the GMU case, which are dealt with in a footnote. [2] Nevertheless, in general, most economists are quick to denounce the idea that there are subtle procedural moves attached to donations that substantially alter the practices of universities, as well as the composition of what is taught and researched.

Secondly, for most economists, there are no such things as conflicts of interest, at least when it comes to economic thinking. They regularly declare with ardor that no one is compromising their pronouncements or perverting their beliefs for money. Years ago, I documented this attitude with regard to the culpability of economists for the Great Crash of 2007-8, even in the face of embarrassments such as the scathing portrayal of certain figures in the documentary Inside Job , or the prospect of a code of ethics for economists by the American Economics Association (AEA), a point to which I will return. [3] In the GMU case, the prescription for disclosure was rejected -- hence the need for FOIA requests. The economists generally argued that the people involved had long ago settled upon their personal political beliefs; they were just being selected by the donors to provide a coherent curriculum in "free market doctrine." I shall argue below that this imprecision over the criteria of which doctrines have been selected allow this sense that the ecology of knowledge persists unaltered in the face of concerted Koch intervention.

Third, the orthodox economist would be inclined point out that all potential donors, just like all fledgling academics, possess their own prior interests and convictions, which will be subject to further selection one way or another. It is not the money that makes the difference in the larger scheme of things. As the late Craufurd Goodwin of Duke University used to say, "The only tainted money is the money that t'aint [ sic ] mine." In other words, the sociology of knowledge pretty much works independently of the wishes of any funders involved, since everyone is selfishly scrambling for support. Money as such never taints the well of human inquiry, or so most economists postulate. Of course, one's appreciation for this putative conservation rule might be qualified when one learns that Goodwin had himself been a Program Officer for European and International Affairs under McGeorge Bundy at the Ford Foundation during the Cold War. [4]

Finally, although they might not say this out loud in front of journalists, many economists tend to suspect that all the complaints about the Kochs are just sour grapes, an ideological reaction deriving from the wailers' disdain for the politics of the Koch brothers and their minions. After all, what's so suspicious about wanting to "rectify the bias" of academics hostile to free markets and freedom of speech? That sounds like something most economists would voluntarily support in any event, independent of whomever was fronting the funding. But, just as in the previous cases, this ignores the actual content of the doctrines that the Koch brothers, as well as that of many of their fellow travelers and cooperating philanthropists, [5] seek to promote through their initiatives.

It will come as no surprise to realize that public education is being brutally weaned from state support across the developed world in the recent past, and that private funding has been touted as the deliverance for cash-strapped universities. In this regard, it is pivotal to realize the significance of the fact that George Mason University is a public and not a private university. Far from being a mere shifting of sources of sustenance, this trend itself constitutes one of the prime prescriptions of the political doctrine that motivates the Kochs, namely, neoliberalism. [6] Neoliberalism shouldn't be confused with actual libertarianism; it is predicated upon intervention to bring about the types of government and markets that the neoliberals believe are necessary for the success of capitalism: it just won't happen by itself. One of their central doctrines relevant to the current controversy is their belief that an efficient market is one that processes and validates information, and conveys it to the appropriate agents when and where they need it. Human knowledge is thus first and foremost a market phenomenon.

A direct consequence of this doctrine is that the state should not control public education: the purpose of education is the personal accumulation of human capital, and not the creation of the common denominator of an educated citizenry. Hence many of the major figures of the Neoliberal Thought Collective -- Milton Friedman, James Buchanan, Charles Koch -- long ago proposed that education be "privatized" in most of its various manifestations. Knowledge is paltry if not put up for sale, as they see it. This is the major consideration which dictates that the points at issue at GMU and elsewhere are not merely some symmetrical offsetting response to left wing donations to universities; rather, the whole point of the Koch brothers' intervention is to produce a different kind of university , one which renders government-run education much more responsive to market signals and market dictates. It is a world where people of means can freely buy the kinds of doctrines that they wish to be conveyed to the young, without being coy or ambagious about it. Hence the Koch's doctrines and their philanthropic behaviors are tightly bound into a single package, displaying a coherence not found in the motives of lesser philanthropists. This explains why the Kochs are willing to conduct their negotiations with universities in secret, to carry out their stipulations through cutouts and hard to trace intermediaries and foundations, to package their offers with other rich (and anonymous) donors en banc and to impose conditions upon their bequests that effectively neutralize all previous principles of academic freedom in the long run.

There is a different implication of neoliberal conceptions of knowledge, and that extends to the ideas which constitute the microeconomic orthodoxy. Once information was introduced into the standard pricing model, it was discovered there was no single correct way to formalize epistemology. Through a sequence of different models, the profession moved from the agent as capable of super-cognition, to the portrait of the agent as a flawed vessel for knowledge, offset by a neoliberal notion of the market as super-information processor. [7] Truth became a function of the skewed and arbitrary ability to pay; and consequently, economists were deemed to have possessed superior wisdom concerning whom should get to know what under which circumstances. As self-appointed Engineers of the Human Soul, this reinforced their conviction that there was no need to worry about conflicts of interest, nor indeed, about the increasing prevalence of unashamed mendacity and fake news. [8] Thus, the Koch interventions were therefore regarded as essentially harmless.

Of course, economists would be most interested in the ways this promotes the careers of other economists, but the ambitions of the neoliberal thought collective extends well beyond the social sciences, even unto the realm of the natural sciences. Neoliberalism is supremely hostile to expertise, which is the flip side of its hostility to old-school universities. Hayek denounced intellectuals as 'second-hand dealers in ideas', and modern neoliberals extrapolate that inclination to the limit. In their view, even natural scientists need to learn to subordinate their own research to "the market," and accept that tomorrow the market might devalue their own expertise in favor of the beliefs of less trained participants. "Freedom" is in this instance made manifest as the ability to insert your own 2 cents at will; let the market sort it out. This insight prompts another reconstruction of university life, this time in the direction of so-called 'open science' and 'citizen science'. [9] The literal construction of a 'marketplace of ideas' leads directly to the elevation of the market as the ultimate validator of truth in most dimensions, and the subordination of professional researchers to a less central role, surrounded by platforms that harvest the unremunerated labor of the reserve army of the undereducated. This is creative destruction with a vengeance, which further diminishes the role of the university.

Consequently, while economists tend to think they come equipped to understand all the implications of a thoroughgoing marketplace of ideas, the four conventional ideas sketched above reveal that they currently are far from having a comprehensive appreciation of the "economics of information" as it plays out in the world.

An example of this inadequate approach is a very brief code of professional conduct ratified in April 2018 by the AEA. Its actual wording is significant. It states, "Integrity demands honesty, care and transparency in conducting and presenting research; disinterested assessment of ideas; acknowledgement of the limits of expertise; and disclosure of real and perceived conflicts of interest." [10] There was nothing in the statement proposing that the AEA or any other institution should promote or enforce disclosure, nor indeed define what should be disclosed; it says absolutely nothing at all about "academic freedom." "Integrity" is apparently conceived as personal virtue, although a subsequent paragraph promotes "a professional environment with equal opportunity and fair treatment for all economists." This species of "environment" seems be more concerned with employment of economists than the preservation of academic inquiry as such.

This is why the GMU incident deserves far more scrutiny than it has received from economists, and academics in general.

[1] http://www.unkochmycampus.org/charles-koch-foundation-george-mason-mercatus-donor-influence-exposed

[2] Some sources report the document dump reveals that 'the Kochs' reserved the right of designation of members on faculty selection committees and veto rights in earlier gifts to Mercatus, but in the Scalia School case, the agreement stated that they would have no power over retention or promotion. On this, see https://www.nationalreview.com/2018/05/washington-post-koch-brothers-scoop-falls-apart/ . However, the situation at GMU was far more complex than that, because the emails independently stipulated whom among existing Koch-financed GMU faculty and the Federalist society would make such decisions for the Law School; and furthermore, the Kochs reserved the right to withdraw from the agreement without notice or just cause. Clearly, this Sword of Damocles allowed them to veto any subsequent choices, all the while asserting formally in the document that they unreservedly supported academic freedom. The Kochs, after decades of experience, have gotten good at circumventing faculty who don't understand how the takeover of universities actually works.

[3] See Philip Mirowski, Never Let a Serious Crisis Go to Waste (Verso, 2013), pp. 218-223.

[4] See, for instance, James Petras, "The Ford Foundation and the CIA," at: https://www.ratical.org/ratville/CAH/FordFandCIA.html .

[5] See, for instance, the fascinating case of BB&T: Douglas Beets, "BB&T, Atlas Shrugged, and the ethics of corporation influence on college curricula," Journal of Academic Ethics , 2015, (13):311-344.

[6] This is not the place to explicate fine points of political doctrine. However, see Mirowski, Never Let.. (op. cit.) as well as: https://www.ineteconomics.org/research/research-papers/the-political-movement-that-dared-not-speak-its-own-name-the-neoliberal-thought-collective-under-erasure .

[7] This is described in detail in: Philip Mirowski and Edward Nik-Khah, The Knowledge we Have Lost in Information , (Oxford, 2017).

[8] See, for instance, Matthew Gentzkow & Jesse Shapiro, "Competition and Truth in the Market for News," Journal of Economic Perspectives , (2008) 22:133-154. On his later work, "A reader of our study could very reasonably say, based on our set of facts, that it is unlikely that fake news swayed the election," said Gentzkow. At: https://news.stanford.edu/2017/01/18/stanford-study-examines-fake-news-2016-presidential-election .

[9] For a greater elaboration of this argument, see Philip Mirowski, "The Future(s) of Open Science," Social Studies of Science , 2018 at: http://journals.sagepub.com/doi/abs/10.1177/0306312718772086

[10] https://www.aeaweb.org/about-aea/code-of-conduct


JTMcPhee , June 27, 2018 at 10:39 am

The New Golden Rule: "Them as has the gold (or money and influence) rules." (re-cast to avoid any charge that I am a Gold Bug )

I recall other actions by many sociopathic malefactors of great wealth to control the larger narrative and school curricula through history, like "supporting" the Catholic Church in all its machinations. The Reformation opened the door, along with common understandings of Darwin's notions, to Calvinism. I was bred up in the Presbyterian church, where TULIP blossomed in the young minds of the catechism classes and was reinforced in every bit of the Westminster Fellowship youth group's activities (the Total Depravity proven by all the efforts of young hormone sufferers to get into each others; pants). A pretty sick set of doctrines, http://www.auburn.edu/~allenkc/openhse/calvinism.html , when one gets on a little bit in life, and sees how humans really interact, and how "the Calvinist economics" actually work. https://marketmonetarist.com/2011/10/20/calvinist-economics-the-sin-of-our-times/

So the ho-hum economists and the media midgets are sort of right, at least in pointing out that there's nothing new in what the Kochtopus and all the other wealthy individuals and their "philanthropies" are about. Huge amounts are spent to control the content of Texas lower-grade text books, because as those go, so goes all the curricula of most of the country. http://www.nybooks.com/articles/2012/06/21/how-texas-inflicts-bad-textbooks-on-us/

"If only the people were aware of what is being done to them, they would __________________."

allan , June 27, 2018 at 11:02 am

The fact that the evergreen Glenn Hubbard interview from Inside Job didn't make Hubbard a pariah
in the economics community tells us all we need to know about
the intersectionality of integrity and academic economics.

Patrick , June 27, 2018 at 11:22 am

How ironic that economists are arguing that monetary incentives don't matter.

Larry Motuz , June 27, 2018 at 4:17 pm

Oh, they don't argue that. They know that monetary incentives work. They just don't want to agree that money isn't neutral in terms of what it 'incentivises' any more than does how money is distributed in terms of macroeconomic 'growth'.

This allows them to pretend that money is neutral.

chuck roast , June 27, 2018 at 11:34 am

Back in day, our Economics faculty used to tell us that the study of economics was "value free." What was presented was simply a reflection of real world conditions. No value judgements were to be made. These fellows, like many of our parents, were all deeply scared products of the Great Depression and committed Keynesians (public policy anyone?) to a man. Of course, all we had to do was pick up a copy of Theory of the Leisure Class, and if Veblen's prose didn't hurt our hair to badly, we knew this was a bunch of nonsense.
The worthy successors to this faculty now offer two different Bachelor of Science in Economics degrees. Indeed, the profession has gone entirely through the looking-glass. If we see the past (economic anthropology) or the future (post-capitalism), history will be destroyed. Now we all know that the Red Queen has a cock-eyed head and the royal crown would never fit her. Moreover, the Red Queen ate the stolen tart and is beyond redemption in any case. Are we to believe the Jabberwocky? Is time itself in danger? Can we recapture the Chronosphere? Can we get back through the looking-glass? And if we do, will we all wake up in mental hospitals?

Synoia , June 27, 2018 at 11:49 am

Antonin Scalia School of Law at George Mason University

Hmm.. ASSoL at George Mason University.
Can these people be that stupid?
I'm enrolled in ASSoL at GMU, or
I'm an ASSoL Graduate

One could not have chosen a better name working for Monty Python.

Secondly, for most economists, there are no such things as conflicts of interest,

Because each item, pronouncement, thesis, or work product is to ensure the Economist's Master that their view of the universe is correct, then, obviously there is no Conflict of Interest.

Moe N. DeLawn , June 27, 2018 at 4:01 pm

The internet already got to that.

They changed it to the Antonin Scalia Law School in response .

teacup , June 27, 2018 at 2:21 pm

"The Corruption of Economics" by Mason Gaffney dives deep into this. "False Education in our Colleges and Universities" by Emil O. Jorgensen referenced within this gem gives an example – ' in the 1924 Professor Richard T. Ely was the director of the Institute for Research in Land Economics and Public Utilities at the University of Wisconsin at Madison but relocated over questions of it being entirely financed by certain corporations and economic groups seeking to have privilege and monopoly taxed less and industry and consumption taxed more Although it was denied that the removal of Prof. Ely was in any way due to compulsion, it is a curious fact that no sooner had Prof. Ely gone than the Board of Regents voted that no more money "shall in the future be accepted by or in behalf of the University of Wisconsin from any incorporated educational endowments or organizations of like character." But Prof. Ely with his old-time shrewdness and skill had dodged the descending ax. Suspecting evidently that such a resolution would sooner or later be passed, the Professor began in the early part of the year to cast about for a safe place to escape and picked out as his refuge Northwestern University in Evanston – a privately endowed institution noted for its conservatism and its close affiliation with the powers that be Having definitely laid his plans Prof. Ely then added Frank O. Lowden (former governor of Illinois) and Nathan W. MacChesney (General Counsel for the National Association of Real Estate Boards as well as a trustee of Northwestern University) to his own board of trustees Very grateful for the welcome extended to him by Northwestern University, Prof. Ely commences his activities in that institution with larger plans, wider ambitions and a harder determination than ever to build up a great national machine that will promote, under the cloak of "disinterested research," not the welfare of all, but the special interests of a few '

Left in Wisconsin , June 27, 2018 at 6:23 pm

Ely had a complicated history. Business interests tried to drive him out of the Univ of Wisconsin in the 1890s not because he was a corrupt neoclassical economist but because he was argued to be a socialist. (He wasn't.) He was responsible for bringing JR Commons, one of the great institutional economists, to Wisconsin and at least partly responsible for the quality of the economics faculty at Wisconsin that developed in the 1910s many of the state programs (unemployment insurance, workers compensation) that ultimately became models for the New Deal.

But he became more right-wing as he got older. He campaigned to have Robert LaFollette removed from the Senate because LaFollette was anti-WW1 and then went off to Northwestern as a pretty conventional rightwing economist.

Interestingly, a number of pro-labor New Deal economists followed a similar trajectory. For example, Leo Wolman.

flora , June 27, 2018 at 4:38 pm

Thanks very much for this post. This has been playing out at my uni for some time now.

2 thoughts:

Money. The Kochs certainly appear to hate taxes almost as much as regulation. Public universities and colleges require adequate funding from the public(taxes) to support the mission of education – as opposed to just training.

A good education requires good teachers; professors who are paid well enough to make a career in academia – not a king's ransom but not a church mouse salary either – and the freedom to research into all areas.

So, the neoliberals get a huge tax cut passed in states and at the federal level; then claim there's not enough state/federal money to support higher ed (please, no MMT talk here, I'm making a different point); as higher ed struggles financially, pretend to be a white knight riding in with grant money to save the day. It's cheaper than taxes for the grantors, since the "white knight" controls how much and how often they give money. And, it gives them leverage over the curriculum. There are many tricks to claim a "chaired" position isn't "really in the department", so the grants are "not changing the quality of education" they will argue. It's a vicious financial circle for higher ed .

Philosophy. The neoliberal PR campaign of 'the market is the ultimate and true arbiter of all' has all the appearance of a regression to what I can only call inverted marxist dialectical-materialism as espoused by the old soviets; where anything, even scientific findings, that threatened the supremacy of the doctrine's claim of economic inevitability, was suppressed. ( No wonder the old soviet finally collapsed. )
The neoliberals substitutes a sort of libertarian dialectical-materialism that requires suppression of any theory that contradicts their claim of 'market infallibility' and inevitability. This is dogma, not science or even economics.

Just my opinion, of course.

Summer , June 27, 2018 at 5:30 pm

We're about to get to see Koch money and the unflappable Supreme Court Judges.

greg , June 27, 2018 at 11:38 pm

People who are paid to think, think what they are paid to think.

The Kochs, and those like them, seem to labor under under the delusion that reality will conform to their beliefs. Since they are powerful, they are able to inflict this delusion on society.

The return to the real world from the world of delusion is always extremely costly. We will all pay.

[Jun 15, 2018] Creationists and George W Bush: Bush junior is the best argument against intelligent design

Jun 15, 2018 | www.unz.com

AnonFromTN ,

There are many other clear traces of evolution (constantly developing antibiotic resistance of disease-causing bacteria being one of the most obvious), but the funniest argument for evolution I know is this: "Bush junior is the best argument against intelligent design: nobody intelligent would ever design that".

[Jun 12, 2018] An article about the Krugman tweets

Jun 12, 2018 | crooksandliars.com

I am copying in the first 2 that show the economic clarity he brings to the subject and make my point

Paul Krugman
It's normal to feel that people you disagree with politically are offering bad solutions to our problems. But Trump has brought something new: his policy agenda is almost entirely directed at problems we don't have -- problems that exist only in his warped imagination 1/

Paul Krugman
These include:
- A wave of violent crime by undocumented immigrants
- Massive illegal voting by the same
- Massive Canadian tariffs against US goods
- Conspiracy by the Elders of Zion to take over the world

OK, he hasn't actually gone after point #4, but give him time 2/

End of Paul Krugman tweet quote

So why did Krugman write about the Elders of Zion (What does he know and when did he find out?..grin) and not about the proclivities of global private finance?.....that pays him nicely to be part of propaganda central

Posted by: psychohistorian | Jun 10, 2018 10:40:00 PM | 17

[Jun 06, 2018] Neoliberal Economics has a lot of similarities with Theology

Jun 06, 2018 | discussion.theguardian.com

Carlosthepossum -> innercity leftie , 3 Jun 2018 19:10

Economics has a lot of similarities with Theology.
People can believe whatever interpretation fits with their own indoctrination.
The difference being there is a truth to economics that seems to be invisible to most people, major economists included.
Your post highlights some of the stark realities that people just refuse to accept for some inexplicable reason.
Maybe the better economic managers will come to the rescue or maybe there will be a collective awakening when in a moment of clarity we start to realise how badly we have been conned.

[Jun 03, 2018] Economist's View Is GDP Overstating Economic Activity

Notable quotes:
"... Economic Letter ..."
"... Economic Letter ..."
"... Journal of Econometrics ..."
"... Brookings Papers on Economic Activity ..."
"... FRBSF Economic Letter ..."
"... Brookings Papers on Economic Activity ..."
"... Journal of Money, Credit, and Banking ..."
"... Opinions expressed in FRBSF Economic Letter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System. ..."
Jun 03, 2018 | economistsview.typepad.com

Is GDP Overstating Economic Activity? From an Economic Letter at the FRBSF:

Is GDP Overstating Economic Activity?, by Zheng Liu, Mark M. Spiegel, and Eric B. Tallman : Two common measures of overall economic output are gross domestic product (GDP) and gross domestic income (GDI). GDP is based on aggregate expenditures, while GDI is based on aggregate income. In principle, the two measures should be identical. However, in practice, they are not. The differences between these two series can arise from differences in source data, errors in measuring their components, and the seasonal adjustment process.
In this Economic Letter , we evaluate the reliability of GDP relative to two alternatives, GDI and a combination of the two known as GDPplus, for measuring economic output. We test the ability of each to forecast a benchmark measure of economic activity over the past two years. We find that GDP consistently outperforms the other two as a more accurate predictor of aggregate economic activity over this period. This suggests that the relative weakness of GDI growth in recent years does not necessarily indicate weakness in overall economic growth.
Discrepancies between GDP and GDI
What drives the discrepancies between GDP and GDI is not well understood. The source data for the components that go into GDP and GDI are measured with errors, which may lead to discrepancies between the two. Further discrepancies can arise because those different components are adjusted for seasonality at different points in time (see, for example, Grimm 2007).
The differences between these two series can be large. For example, in the last two quarters of 2007, inflation-adjusted or "real" GDI was declining whereas real GDP was still growing. The year-over-year growth rate of GDP exceeded that of GDI by almost 2.6 percentage points. Over long periods, however, final measures of growth in GDP and GDI tend to yield roughly equivalent assessments of economic activity. Since 1985, real GDP grew at an average annual rate of about 3.98%, while real GDI grew at a similar average rate of 4.02%.
Since late 2015, the two series have diverged, with real GDP growth consistently exceeding real GDI growth (Figure 1). The differences in growth are significant in this period. For example, if we used GDI growth to assess overall economic activity since July 2015, then the size of real aggregate output by the end of 2017 would be $230 billion smaller than if GDP growth were used. This divergence between the two sends mixed signals regarding the strength of recent economic activity.

Figure 1
Mixed signals from GDP and GDI growth

2018-14-1

Source: Bureau of Economic Analysis.

Evaluating GDP, GDI, combination
Researchers often debate which of these series measures economic activity more accurately. Nalewaik (2012) argues that GDI outperforms GDP in forecasting recessions. GDI does appear to exhibit more cyclical volatility than GDP. One reason may be that GDI is more highly correlated with a number of business cycle indicators, including movements in both employment and unemployment (Nalewaik 2010). On the other hand, the Bureau of Economic Analysis has resisted this conclusion, arguing that GDP is in general based on more reliable source data than GDI is (Landefeld 2010).
To evaluate the relative reliability of GDP versus GDI for measuring economic output, we compare their abilities to forecast a benchmark measure of economic activity. We focus on the Chicago Fed National Activity Index (CFNAI) as the benchmark, since it is publicly available. The CFNAI is a monthly index of national economic activity, generated as the common component of 85 monthly series in the U.S. economy. These underlying series include a wide variety of data covering production and income, employment and unemployment, personal consumption and housing, and sales and orders. The CFNAI has been shown to help forecast real GDP (Lang and Lansing 2010). We use the CFNAI as a benchmark activity indicator to evaluate the relative forecasting performances of GDP and GDI and their combinations. Since the discrepancy between these two series has persisted for several years, we focus on the final releases of the GDP and GDI series.
Some have argued that, because the GDP and GDI series contain independent information, it may be preferable to combine the two series into a single more informative activity indicator. One series that uses such a combination is the Philadelphia Fed's GDPplus series, which is a weighted average of GDP and GDI, with the weights based on the approach described by Aruoba et al. (2016). As a weighted average, GDPplus indicates activity levels between the two individual series. We therefore also consider the forecasting performance of the GDPplus series over this period of extended discrepancy between reported GDP and GDI growth.
To confirm the accuracy of our approach, we repeated our investigation with two alternative series constructed using methodologies similar to the CFNAI. The first alternative is an aggregate economic activity index (EAI) we constructed by extracting the common components of 90 underlying monthly time series. The EAI covers a broader set of monthly indicators than the CFNAI, since we also include information from goods prices and asset prices.
The second alternative indicator we considered is an activity index constructed by Barigozzi and Luciani (2018), which we call the BL index. Like our index, the BL index includes price indexes and other measures of labor costs. The authors base their estimates on the portions of GDP and GDI that are driven by common macroeconomic shocks under the assumption that they have equivalent effects on GDP and GDI. This restriction implies that deviations between GDP and GDI are transitory, and that the two series follow each other over time.
The EAI and the BL index are both highly correlated with the CFNAI and thus yielded similar conclusions. We describe the source data and our methodology for constructing the EAI as well as the analysis using both it and the BL index in an online appendix .
Empirical results
To examine the relative performances of GDP, GDI, and GDPplus for forecasting the CFNAI, we first estimate an empirical model in which the CFNAI is related to four lagged values of one of these measures of aggregate output. Ideally, we would have used the full sample of postwar data in our model, but there are some structural breaks in the data related to factors such as changes in the monetary policy regime since the mid-1980s and the Great Moderation that make this challenging. We therefore choose to focus on the sample starting from the first quarter of 1985 in this discussion; our results using the full sample are similar, as we report in the online appendix .
To examine how well each of the measures of aggregate output are able to forecast the CFNAI, we estimate the model using the sample observations up to the end of 2015, the period before GDP and GDI diverged. Once we determine the estimated coefficients that describe each relationship, we use those values to estimate forecasts for the period when discrepancies developed, from the first quarter of 2016 to the end of 2017. We then calculate the prediction errors, measured by the root mean-squared errors, for each measure of aggregate output. The smaller the prediction error, the better the forecasting performance.
In addition to examining the forecasting performance of GDP, GDI, and GDPplus for predicting the CFNAI economic activity indicator, we also examined their forecasting performance for the unemployment rate as reported by the Bureau of Labor Statistics.
Figure 2 displays the prediction errors from 2016 to 2017 for each of the alternative output measures -- GDP, GDI, and GDPplus -- estimated from our model for CFNAI and unemployment. For ease of comparison, we normalize the prediction errors from the model with GDP to one. The figure shows that the prediction errors over this period based on the GDP series are substantively lower than those based on GDI or GDPplus. This finding holds true not just for these proxies for economic activity but also for our EAI and the BL index (see the online appendix ). Moreover, formal statistical tests of forecasting performance indicate that the forecasts based on GDP are significantly better than those based on GDI or GDPplus at the 95% confidence level. This result suggests that, in recent periods, GDP has been a more reliable independent indicator of economic activity than either GDI or GDPplus.

Figure 2
GDP outperforms GDI, GDPplus in predicting activity

2018-14-2

Note: Figure shows prediction errors with GDP indexed to 1.

Conclusion
While GDP and GDI are theoretically identical measures of economic output, they can differ significantly in practice over some periods. The differences between the two series have been particularly pronounced in the past two years, when GDP growth has been consistently stronger than GDI growth. Based on this observation, some analysts have claimed that GDP might be overstating the pace of growth and that GDI, or some combination of GDP and GDI, should be used to evaluate the levels and growth rate of economic activity.
To evaluate the validity of this claim, we compared the relative performances of GDP, GDI, and a combined measure, GDPplus, for forecasting the CFNAI, which we use as a benchmark measure of economic activity over the past two years. We find that GDP consistently outperforms both GDI and combinations of the two, such as GDPplus, in forecasting aggregate economic activity during the past two years. In this sense, GDP is a more accurate predictor of aggregate economic activity than GDI over this period. Therefore, the relative weakness of GDI growth observed in recent years does not necessarily indicate weakness in overall economic growth.
Zheng Liu is a senior research advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco.
Mark M. Spiegel is a vice president in the Economic Research Department of the Federal Reserve Bank of San Francisco.
Eric B. Tallman is a research associate in the Economic Research Department of the Federal Reserve Bank of San Francisco.
References
Aruoba, S. Boragan, Francis X. Diebold, Jeremy Nalewaik, Frank Schorfheide, and Dongho Song. 2016. "Improving GDP Measurement: A Measurement-Error Perspective." Journal of Econometrics 191(2), pp. 384–397.
Barigozzi, Matteo, and Matteo Luciani. 2018. "Do National Account Statistics Underestimate U.S. Real Output Growth?" Board of Governors FEDS Notes , January 9.
Grimm, Bruce T. 2007. "The Statistical Discrepancy." Bureau of Economic Analysis Working Paper 2007-01, March 2.
Landefeld, J. Steven. 2010. "Comments and Discussion: The Income- and Expenditure-Side Estimates of U.S. Output Growth." Brookings Papers on Economic Activity , Spring, pp. 112–123.
Lang, David, and Kevin J. Lansing. 2010. "Forecasting Growth Over the Next Year with a Business Cycle Index." FRBSF Economic Letter 2010-29 (September 27).
Nalewaik, Jeremy J. 2010. "The Income- and Expenditure-Side Estimates of U.S. Output Growth." Brookings Papers on Economic Activity , Spring, pp. 71–106.
Nalewaik, Jeremy J. 2012. "Estimating Probabilities of Recession in Real Time Using GDP and GDI." Journal of Money, Credit, and Banking 44, pp. 235–253.

Opinions expressed in FRBSF Economic Letter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.


Paine , May 29, 2018 at 06:32 PM

Love to read stuff like this


Refining methods of data collection and aggregation

Why ?

Irony

Paine -> Paine ... , May 29, 2018 at 06:34 PM
Vickrey macro ...NOW.
anne -> Paine ... , May 29, 2018 at 06:44 PM
Fine, "Vickrey macro," but every time that is asserted there needs to be a reference to a clear summary statement of what that means. A Wikipedia reference would do, but the assertion has almost no influence unless made immediately, simply meaningful.

Just one simple reference summary will do, continually repeated.

Gibbon1 -> anne... , May 30, 2018 at 01:18 AM
Read this. Fifteen Fatal Fallacies of Financial Fundamentalism. A Disquisition on Demand Side Economics

http://www.columbia.edu/dlc/wp/econ/vickrey.html

anne -> Gibbon1... , May 30, 2018 at 08:17 AM
http://www.columbia.edu/dlc/wp/econ/vickrey.html

October 5, 1996

Fifteen Fatal Fallacies of Financial Fundamentalism
A Disquisition on Demand Side Economics
By William Vickrey

[ I appreciate this reference, which I will read carefully. ]

anne -> Gibbon1... , May 30, 2018 at 11:16 AM
Summary:

http://www.columbia.edu/dlc/wp/econ/vickrey.html

October 15, 1996

Fifteen Fatal Fallacies of Financial Fundamentalism
A Disquisition on Demand Side Economics
By William Vickrey

Much of the conventional economic wisdom prevailing in financial circles, largely subscribed to as a basis for governmental policy, and widely accepted by the media and the public, is based on incomplete analysis, contrafactual assumptions, and false analogy. For instance, encouragement to saving is advocated without attention to the fact that for most people encouraging saving is equivalent to discouraging consumption and reducing market demand, and a purchase by a consumer or a government is also income to vendors and suppliers, and government debt is also an asset. Equally fallacious are implications that what is possible or desirable for individuals one at a time will be equally possible or desirable for all who might wish to do so or for the economy as a whole.

And often analysis seems to be based on the assumption that future economic output is almost entirely determined by inexorable economic forces independently of government policy so that devoting more resources to one use inevitably detracts from availability for another. This might be justifiable in an economy at chock-full employment, or it might be validated in a sense by postulating that the Federal Reserve Board will pursue and succeed in a policy of holding unemployment strictly to a fixed "non-inflation-accelerating" or "natural" rate. But under current conditions such success is neither likely nor desirable.

Some of the fallacies that result from such modes of thought are as follows. Taken together their acceptance is leading to policies that at best are keeping us in the economic doldrums with overall unemployment rates stuck in the 5 to 6 percent range. This is bad enough merely in terms of the loss of 10 to 15 percent of our potential production, even if shared equitably, but when it translates into unemployment of 10, 20, and 40 percent among disadvantaged groups, the further damages in terms of poverty, family breakup, school truancy and dropout, illegitimacy, drug use, and crime become serious indeed. And should the implied policies be fully carried out in terms of a "balanced budget," we could well be in for a serious depression.

Fallacy 1

Deficits are considered to represent sinful profligate spending at the expense of future generations who will be left with a smaller endowment of invested capital. This fallacy seems to stem from a false analogy to borrowing by individuals.

Fallacy 2

Urging or providing incentives for individuals to try to save more is said to stimulate investment and economic growth. This seems to derive from an assumption of an unchanged aggregate output so that what is not used for consumption will necessarily and automatically be devoted to capital formation.

Fallacy 3

Government borrowing is supposed to "crowd out" private investment.

Fallacy 4

Inflation is called the "cruelest tax." The perception seems to be that if only prices would stop rising, one's income would go further, disregarding the consequences for income.

Fallacy 5

"A chronic trend towards inflation is a reflection of living beyond our means." Alfred Kahn, quoted in Cornell '93, summer issue.

Fallacy 6

Fallacy 7

Many profess a faith that if only governments would stop meddling, and balance their budgets, free capital markets would in their own good time bring about prosperity, possibly with the aid of "sound" monetary policy. It is assumed that there is a market mechanism by which interest rates adjust promptly and automatically to equate planned saving and investment in a manner analogous to the market by which the price of potatoes balances supply and demand. In reality no such market mechanism exists; if a prosperous equilibrium is to be achieved it will require deliberate intervention on the part of monetary authorities.

Fallacy 8

If deficits continue, the debt service would eventually swamp the fisc.

Fallacy 9

The negative effect of considering the overhanging burden of the increased debt would, it is claimed, cancel the stimulative effect of the deficit. This sweeping claim depends on a failure to analyze the situation in detail.

Fallacy 10

The value of the national currency in terms of foreign exchange (or gold) is held to be a measure of economic health, and steps to maintain that value are thought to contribute to this health. In some quarters a kind of jingoistic pride is taken in the value of one's currency, or satisfaction may be derived from the greater purchasing power of the domestic currency in terms of foreign travel.

Fallacy 11

It is claimed that exemption of capital gains from income tax will promote investment and growth.

Fallacy 12

Debt would, it is held, eventually reach levels that cause lenders to balk with taxpayers threatening rebellion and default.

Fallacy 13

Authorizing income-generating budget deficits results in larger and possibly more extravagant, wasteful and oppressive government expenditures.

Fallacy 14

Government debt is thought of as a burden handed on from one generation to its children and grandchildren.

Fallacy 15

Unemployment is not due to lack of effective demand, reducible by demand-increasing deficits, but is either "structural," resulting from a mismatch between the skills of the unemployed and the requirements of jobs, or "regulatory", resulting from minimum wage laws, restrictions on the employment of classes of individuals in certain occupations, requirements for medical coverage, or burdensome dismissal constraints, or is "voluntary," in part the result of excessively generous and poorly designed social insurance and relief provisions.

anne -> anne... , May 30, 2018 at 11:17 AM
Correcting omission:

Fallacy 6

It is thought necessary to keep unemployment at a "non-inflation-accelerating" level ("NIARU") in the range of 4% to 6% if inflation is to be kept from increasing unacceptably.

point -> anne... , May 30, 2018 at 01:02 PM
Very nice. Once again, it turns out a number of my great new ideas are someone else's previously solved problems.
anne -> point... , May 30, 2018 at 02:00 PM
Once again, it turns out a number of my great new ideas are someone else's previously solved problems.

[ I like this. ]

mulp said in reply to anne... , May 30, 2018 at 03:33 PM
"Deficits are considered to represent sinful profligate spending at the expense of future generations who will be left with a smaller endowment of invested capital. This fallacy seems to stem from a false analogy to borrowing by individuals."

Except, we do not say a worker with $1000 a week income buying a $100,000 home first week in May ran a $99,200 deficit (still needed food and gas) that week.

But government might run a $10 billion per week deficit from paying workers to build infrastructure that will last a century plus with maintenance which will be repaid with higher taxes over the next 50 years plus higher taxes for operations,....

Or the $10 billion per week deficit might be from ending all infrastructure building and slashing spending on operations so a $11 billion per week tax cut could be implemented ($1 billion in taxes to repay and operate the infrastructure being built at $10 billion per week).

Households and businesses maintain four ledgers, one pair is income and expense, and the other is assets and liabilities. Buying a car, house, factory or car is not an expense, but an addition to assets with offsetting liability. They are expensed over time as depreciation. Excess income over expense is added to assets, in a cash account. Paying cash for an asset moves the value from one part of the asset ledger, unless you have a separate fund for emergency or retire and you borrow from it to pay for the car creating two new entries, a liability for borrowing your money offset by the asset car.

I did this in the 60s and 70s with a ledger I then punched on IBM cards so I could create multiple reports from one set of transactions, like a business. In the 90s, I did this for a year or two with Quicken. It was not part of the "quick" entry and report which was more like a check register, but it had all the options for asset and liability ledgers, with tied entries between ledgers, mostly focused on investment accounts. It lacked a comprehensive asset ledger function to tally house, car, truck, boat, home theater, cabin, and then depreciate them, but I'm guessing QuickBooks has these functions.

For the Federal government, and State governments, many assets are on the books of local government or government subunits, but finance by a bigger government. For example, NH State government funds building most of new schools out of a cash account, while half a century ago, a local government would hike a tax to fund issuing a bond, which means the State mandated school was easy to fund for the rich towns, but almost impossible for poor towns with very low tax base. Once moved to the conservative State level, issuing tax backed bonds became politically difficult.

In the 60s, government debt was for building assets and bonds had tax revenue streams to repay them. But conservatives hated the investment part of government because while it meant jobs, it also required taxes.

For example, the highway trust fund was based on taxes to fill it to pay States to pay workers. If a bunch of States wanted more jobs, that led to higher taxes.

Social Security Trust funds are based on an investment asset and liability model. The assets are the current and future workers plus trust funds and the liabilities are current and future beneficiaries being paid and to be paid. The Trustees report on these two ledgers annually, along with income and expense. For a number of years, they have reported the liabilities are growing slightly faster than assets.

But the rise of free lunch economics that basically rejects capitalism and it's accounting, simply call liabilities the FICA revenue and the expenses and claim there are no SS assets.

Progressives seem to live hand to mouth, rejecting capitalist principles.

pgl -> anne... , May 30, 2018 at 05:53 AM
Here you go Anne:

http://www.columbia.edu/dlc/wp/econ/vickrey.html

Of course Paine is either too lazy or too arrogant to provide a link to what William Vickrey wrote.

Or maybe he enjoys misrepresenting what his own guru had to say. He does seem to just babble on.

Teapot -> pgl... , May 30, 2018 at 06:49 AM
Who hurt you pgl?
RC AKA Darryl, Ron said in reply to Teapot... , May 30, 2018 at 08:15 AM
:<)
Christopher H. said in reply to pgl... , May 30, 2018 at 08:04 AM
Misrepresenting everything is what you do. You sure do project a lot. You're a whole bundle of neuroses.
kurt -> Christopher H.... , May 30, 2018 at 03:08 PM
You make claims like this all the time. Without a shred of evidence. Why don't you SPECIFICALLY point to a time when you think pgl misrepresented something.

You did this for me once, and it became instantly clear that you cannot read - or at least read things into comments that are not there. What did pgl misrepresent. Waiting.

Paine -> anne... , May 30, 2018 at 06:51 AM
Anne. You are absolutely right

I've stopped linking to his work

Wild Bill
Is best viewed thru his presidential address to the economists of the AEA

Paine -> Paine... , May 30, 2018 at 06:53 AM
However willful misreading
And misconstruing
is never useful commentary

Not that attaching a firecracker
To a goat's or a cows or a pigs tail
isn't good old farm yard fun

RC AKA Darryl, Ron said in reply to Paine... , May 30, 2018 at 08:16 AM
:<)
anne -> Paine... , May 30, 2018 at 08:22 AM
Vickrey
Is best viewed thru his presidential address to the economists of the AEA

[ Having looked unsuccessfully, I need a precise reference. ]

anne -> anne... , May 30, 2018 at 08:24 AM
This essay is about the Vickrey AEA address, but does not serve as a summary of the macroeconomics:

http://works.bepress.com/cgi/viewcontent.cgi?article=1027&context=timothy_canova

March, 1997

The Macroeconomics of William Vickrey
By Timothy A. Canova

anne -> anne... , May 30, 2018 at 08:25 AM
Another possibility, but a summary is still needed:

http://community.middlebury.edu/~colander/articles/Vickrey-latest%20latest.pdf

January 4, 1998

Was Vickrey 10 Years Ahead of the Profession in Macro?
By David Colander (Middlebury College)

Paine -> anne... , May 30, 2018 at 08:33 AM
Anne

My daughter is planning a web site
To present in integrated form
Kalecki Lerner and Vickrey

KLV MACRO

I'M MERELY A CONSULTANT OF COURSE
PART ONE WILL BE VICKREY CHOCK.FULL EMPLOYMENT
AND THE END TO CONTRIVED JOB SCARCITY

pgl -> Paine... , May 30, 2018 at 11:06 AM
Give us the cite when she does. Maybe she will be a lot clearer than her old man. Let's hope so.
Paine -> anne... , May 30, 2018 at 09:15 AM
This is a good introduction to wild Bill


anne -> Paine... , May 30, 2018 at 10:07 AM
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.172.5394&rep=rep1&type=pdf

July, 1999

Saving-Recycling Public Employment: An Assets-Based Approach To Full Employment and Price Stability
By Mathew Forstater

William Vickrey's single-minded commitment to full employment is evident in a series of papers written in the last years of his life....

[ All I wish is a clear summary that takes me to the essence and relevance of Vickrey's ideas, but this paper also seems wanting. ]

pgl -> anne... , May 30, 2018 at 11:05 AM
Vickrey wrote on a wide range of topics besides macroeconomics. Now he also had certain progressive Keynesian views, which I share. Of course I'm not into the mindless name dropping that Paine is into. I would rather actually read what economists wrote. A couple of us provided the 1996 Fifteen Fallacies paper he wrote which is an excellent read.

I do wonder if Paine himself ever bothered to read it as he sure has never bothered to explain what it said.

Christopher H. said in reply to pgl... , May 30, 2018 at 06:58 PM
"Of course I'm not into the mindless name dropping that Paine is into."

LOL all you do is name drop and kiss up and kick down!

You're the worst of that type of person!

anne -> Paine... , May 30, 2018 at 10:13 AM
Vickrey
Is best viewed thru his presidential address to the economists of the AEA

[ I have again looked but cannot find the address. I am saddened at my inability, but will pass on. ]

Paine -> anne... , May 30, 2018 at 11:02 AM
Anne do you agree with what you have read about Vickrey macro
Do you have any questions
Paine -> Paine... , May 30, 2018 at 11:06 AM
Note these key goals.

A Beveridge ratio :

(Job openings to job seekers )

Greater then one to one

Ie where firms
are looking
For more hires
then there are
potential hires looking for jobs

Paine -> Paine... , May 30, 2018 at 11:08 AM
Vickrey called
getting immediately
to this beveridge ratio
on Job markets
And remaining there

a social imperative

Paine -> Paine... , May 30, 2018 at 11:10 AM
Inflation is no excuse
If inflation accelerates

Impose price control mechanism
a la Lerner map
Make it work
No return to high unemployment
Like volckerism demands

Paine -> Paine... , May 30, 2018 at 11:12 AM
Key distinction between
Vickrey
and the job guarantee program
These are market mediated non government jobs

Not a works project administration
rebirth

Paine -> Paine... , May 30, 2018 at 11:14 AM
Vickrey macro ises fiscal deficits
not interest rate and credit flow
As thr demand injector instrument
anne -> Paine... , May 30, 2018 at 11:54 AM
Yes, I agree with the ideas of Vickrey and can use my abstract of the 15 fallacies as a guide. I am pleased. The post below can then be linked to in future...
pgl -> Paine ... , May 30, 2018 at 05:49 AM
Leave it to you to confuse a measurement issue with a modeling issue. Babble on!
Gibbon1 -> pgl... , May 30, 2018 at 06:55 PM
Last night found and read the Vickrey reference. Made a bet with myself that the toxic troika's response would be to hurl low quality insults and disrupt.

I owe myself a beer.

Christopher H. said in reply to Gibbon1... , May 30, 2018 at 06:59 PM
"the toxic troika's response would be to hurl low quality insults and disrupt."

It's like clockwork.

point , May 30, 2018 at 05:55 AM
Would be interesting for feminist economists to weigh in on measurement and modeling error.
pgl -> point... , May 30, 2018 at 11:08 AM
I'm sure there is some humor here but be careful as some gals might take offense at this!
Paine -> point... , May 30, 2018 at 11:16 AM
Housework is not included

We need to pay a domestic wage

Women on average do 20 hours of domestic work men about 8 as I recall surveys indicate

anne -> Paine... , May 30, 2018 at 12:03 PM
Looking to housework in China, and how it has been radically changed with development, I realize to my surprise that per capita GDP growth and distribution of income surely measures housework. A house with electricity alone allows for a revolution in housework. Detergent (non-phosphate) works wonders...
point -> Paine... , May 30, 2018 at 01:10 PM
Housework, especially as embodied as capital in the young, which then yields for employers.
anne -> point... , May 30, 2018 at 03:32 PM
Housework, especially as embodied as capital in the young, which then yields for employers.

[ Do explain further, this seems interesting but is not entirely clear to me. ]

Gibbon1 -> anne... , May 30, 2018 at 07:03 PM
Neoliberal Economics being the creation of middle aged upper middle class men during the 1940's through the 1990's places value of zero on 'women's work'

Despite that much of it involves supporting current workers, birthing and raising next gen workers.

The Socialist/Communist Critique is families require some amount of resources in order to effectively perform that work. As such if you're going to have paid work then the state should require that the level of pay is adequate.

The neoliberal response is to get the vapors and engage in gate keeping behavior.

point -> anne... , May 31, 2018 at 04:36 AM
Yes, this is huge.

As a child grows up and receives all forms of social training and other preparation to participate in society ("get a job"), it is generally a quantity of "women's' work" that is "spent" to do this. But it's not "spent" so much as "invested", as the product of the work is a much improved human being. The young person embodies the investment. I guess we now call this "human capital". In any event, it's an investment of women's work that creates it.

Now, one would think that someone possessing such capital might face better prospects than one who does not, and that seems to be true. But it seems you can look at how competitive the asset is by looking at how it faires in the market. In recent decades, look at the gain in starting salaries. I have not seen a good series, but it seems they have lagged inflation, let alone GDP per capita. Thus the real yield on the asset has been negative, or one could say the yield has been on average entirely captured by employers. Others might make statements using "exploitation".

The job market for young people has been a cruel game of musical chairs: make a lifetime of investment just to join a circle for which there are too few chairs, and the employer gets all the yield.

anne , May 30, 2018 at 11:55 AM
http://www.columbia.edu/dlc/wp/econ/vickrey.html

October 15, 1996

Fifteen Fatal Fallacies of Financial Fundamentalism
A Disquisit