Showing posts tagged economics

297 words explaining Econonomics as immoral pseudo-science

And remember, Eugenics used to be respectable as was Galen’s anatomy.  Nobel Prize winning economist Thomas Sargent provides the following list of economics principles, lauded by Vox as deeply insightful

1. Many things that are desirable are not feasible.

On the surface, this is a tired truism that one tries to teach toddlers. Underneath it’s economics default position - a defense of the status quo.


2. Individuals and communities face trade-offs.

See 1.


3. Other people have more information about their abilities, their efforts,
and their preferences than you do.

Hilarious after (1) and (2), but, again, the surface meaning is misdirection. After all, if we took this at face value, we’d give up college tests (evaluate your own abilities, students), employer evaluations, marketing, and market research. Think about how many people knew they wanted a smartphone before someone went out and made one. What he really means is something a lot more ideological. He means that Democratic government cannot shape the economy for the general prosperity. And that’s false.

 
4. Everyone responds to incentives, including people you want to help. That
is why social safety nets don’t always end up working as intended.

What he means here is that poor people won’t work if you feed them. This is neither true nor a finding of research, it’s the timeless excuse of the well fed hack for the privileges of his masters.

5. There are tradeoffs between equality and efficiency.

This is just baldly false otherwise the most “efficient” economy would consist of one King and his slaves. 

6. In an equilibrium of a game or an economy, people are satisfied with their choices. That is why it is difficult for well meaning outsiders to change
things for better or worse.

Equilibrium is one of the most pernicious concepts of economics. Basically it means, shut up and be happy with the crumbs, sucker, because this is how it is.  Certainly industrial economies have never been in equilibrium.


7. In the future, you too will respond to incentives. That is why there are
some promises that you’d like to make but can’t. No one will believe those
promises because they know that later it will not be in your interest to
deliver. The lesson here is this: before you make a promise, think about
whether you will want to keep it if and when your circumstances change.
This is how you earn a reputation.

Economics encourages you to forget about stupid shit like honor and just grab what you can, unless you are poor, in which case, see (6).

8. Governments and voters respond to incentives too. That is why governments sometimes default on loans and other promises that they have made.

Surface meaning: people sometimes don’t tell the truth. Actual meaning: you can’t rely on government programs like Social Security, so we should kill them.


9. It is feasible for one generation to shift costs to subsequent ones. That is
what national government debts and the U.S. social security system do
(but not the social security system of Singapore).

This is just false. The social security system increases the national wealth, reducing the burden on subsequent generations.


10. When a government spends, its citizens eventually pay, either today or
tomorrow, either through explicit taxes or implicit ones like inflation.

This is the empirically false common Econ axiom that government spending cannot create wealth. For example, all that spending the US government did on creating and building out the Internet will have to be paid paid later by citizens of the imaginary Economics world where government spending cannot grow the economy. Here in the actual world, government spending on the Internet paid massive dividends.


11. Most people want other people to pay for public goods and government
transfers (especially transfers to themselves).

For example, rich people don’t want to pay for public order and social functioning that permits them to earn wealth.  Oh wait, that’s not what he means.


12. Because market prices aggregate traders’ information, it is difficult to forecast stock prices and interest rates and exchange rates.

The hidden premise here is that stock prices, interest rates, and exchange rates depend on aggregate traders information. Because, for example, the central banks can’t push interest rates up or down, even though they do.

The best statement was the first:

Economics is organized common sense.

No. Economics is a pseudo-scientific ideology designed to preserve the short term advantages of the privileged and justify selfish  blindly immoral behavior even if the cost is the destruction of the world. 

The gullible nature of Conservative and Mainstream Liberal Foreign Policy

The United States has become almost entirely dependent on the the good will  and stability of the Chinese Communist Party for manufacture of computer boards and many types of electronic components. Much of what manufacturing is not yet in mainland China is in Taiwan.  And it’s not just the components that are made in China, the machines to manufacture the components are more and more made in China (including ones with US or Japanese company names on them).  And yet, the “free trade” economics ideology that dominates US economic decision making is based on the assumption that nothing can go wrong. The Chinese government would never interfere in deliveries for political reasons, disorder or rebellion or even environmental collapse in China is impossible, the rock bottom  shipping costs based on cheap diesel (and foreign flag shipping) are ordained by fate or something. And many of the same people who demand massive levels of military spending for new equipment (that relies on Chinese made components) consider the idea of government industrial policy to preserve and grow US high tech manufacturing “socialism” or worse.

Any critique of this head-in-the-sand attitude it met with the usual false dichotomy argument. One can favor international trade (as I do) and still want to preserve US manufacturing capabilities.One doesn’t even have to consider China a particularly hostile country to consider the condition of dependency to be unstable.

Few of the people who are now raising the alarm over Vlad Putin’s new army were interested when some of us environmentalist wackos warned that sending billions and billions of Euros to Russia to pay for oil and gas was perhaps not so prudent. Well, Vlad has been busy spending that money modernizing the Russian Army. The continued Western tidal wave of money sent to the terrorist financing theocrats in Saudi Arabia and Sudan doesn’t seem to bother the “serious”  Foreign Policy thinkers. The proliferation of off shore banking and “free movement of capital” that our Doctrinaire Economists find so wonderful is a gift to terrorists, pirates, drug dealers, and tax avoiders but hardly anyone concerned with security seems, concerned.

Here’s the bottom line: trade is political too, just like everything else. This was true back when US oil companies and scrap dealers were helping Imperial Japan test out its new airforce in Manchuria, when the Koch Brothers dad was selling oil technology Stalin, and when Germany and the UK fund Putin’s military because “the free market” has decreed Russian gas to be cheap.

Economics and the mathematics of the Koch brothers.

Robert Lucas won the Nobel Prize for Economics and is widely cited as an authority. One of his more important papers from the 1990s  discuses tax policy and uses a mathematical model of the economy to supposedly show that taxing capital gains is a bad idea. The mathematical model is a variation of the “discounted utility” (DU)  proposed in 1937 by Samuelson who, at the time, expressed some reservations. Some testing has been done:

Virtually every assumption underlying the DU model has been tested and found to be descriptively invalid in at least some situations. [Frederick]

So here is Lucas, 60 years later, using the same model.

image

The idea is that we are going to model the whole economy over all time as a single number which is the sum of every infinitely small instant of enjoyment (“utility”) that a single “representative” household extracts from both consuming a single “representative” product and from leisure time. This “representative household” is immortal, but its enjoyment of consuming and hanging out in future shrinks exponentially over time depending on ρ (that “subjective rate of discount”) which is a constant value that is based on absolutely nothing  -just pulled from the air. One choice of ρ means the household  places no value on its members eating even a crust of bread in 10 years, another  postpones that moment for 100 years. There is no room in this model for “I’m not hungry right now” or “I’d prefer more leisure when I retire”  or “I want my great grandchildren not to starve to death”. Nobody in the Household enjoys working, even a little. There is no patriotism, no caring about the poor or the natural world, or beauty, or even civil order. For Lucas, taxes are only an expense, they don’t produce positives like firemen or sidewalks or education or the Internet or national defense or vaccinations against smallpox. And for Lucas, the representative household is  also an investor with inherited wealth and unbounded income from investment. When you get down to it,  Lucas is representing the economy as the Koch brothers - and his model validates their creepy values and politics as good for them.

Despite Samuelson’s manifest reservations about the normative and descriptive validity of the formulation he had proposed, the DU model was accepted almost instantly, not only as a valid normative standard for public policies (e.g., in cost-benefit analyses), but as a descriptively accurate representation of actual behavior. [Frederick]

It’s not just that the Koch brothers ugly politics  is accepted   “as a valid normative standard for public policies (e.g., in cost-benefit analyses)” but that Economists claim this nonsense is science. Here is how Lucas characterizes his work:

 I hope as well that my story will serve as illustration of the way in which the search for theory at a more fundamental level can revolutionalize our thinking about important practical questions, and hence of the way in which progress at the most purely technical, abstract end of economics serves as the fuel for what Alfred Marshall called our “engine for the discovery of truth.”

Even “liberal” economists buy into this. All over the economics literature we see respectful references to “the Lucas critique”  and to “rigorous microfoundations” - which is essentially a program to base all of economics on the kind of model Lucas uses. Because it is assumed, on the basis of nothing, that individual preferences of individual agents determines how large scale economic relations develop.

The usual  defense of this nonsense is that physics 101 is full of formulas that don’t take things like friction into account, and besides, um, quantum mechanics. But, dear Lord, that’s just general purpose misdirection that could be applied to anything at all. You could try to defend numerology with exactly the same argument. Or we often hear that it’s just an approximation. But like much in Economics, microfoundations is not an approximation, it is an ideological proposition. Microfoundations is  Margret Thatcher’s proposition that there is no such thing as society, just individuals. That is a moral assertion, not an approximation. Actually it is an immoral assertion. Mainstream economics has taken the values of rapacious sociopaths  as foundational principles, and then keeps endorsing  stupid, misery inducing policies that satisfy the short-sighted greed of those with too much.

Here’s Paul Krugman - about as far from Lucas as one can get in respectable Economics. After complaining that there has been a decades long “de facto blockade of the journals against anything without rational-actor microfoundations” (something that in itself is an indictment of the entire profession), Krugman writes:

I would agree that being willing to use models with hyperrational, forward-looking agents was a natural step even for Keynesians. The Faustian bargain, however, was the willingness to accept the proposition that only models that were microfounded in that particular sense would be considered acceptable. It’s one thing to accept that models with an Euler condition at their core can sometimes be useful; it’s quite different to restrict your discourse to models with that characteristic, while ruling out everything else.

When, exactly, can these kinds of models be useful? Shouldn’t the eagerness of “Keynesian” economists to latch on to such mythology give pause? Make one fear their judgment and standards are irreparably deficient and they never understood Keynes in the first place? Keynes even said that he had to work very hard to extract himself from the conceptual errors of Marshall’s economics, the same errors that Krugman tells us were so alluring to “Keynesians”.

Here’s Simon Wren-Lewis

I doubt that most New Keynesian modellers adopted the microfoundations perspective against their better judgement. Instead I suspect most saw the power of the microfoundations approach (in analysing consumption, in particular), recognised the dangers in ad hoc theorising about dynamics (as in the traditional Phillips curve), and thought there was no contest

This is a remarkable passage because he is making a favorable contrast between Microfoundations (remember that “subjective discount rate”) and something else he calls ad-hoc? Was that other stuff even less grounded in scientific research than what Lucas describes? But even “left” economists have internalized the microfoundations ideology. Here’s Mike Begg, writing in Jacobin to insist that the value of money is:

determined by countless price-setting decisions by mainly private firms, reacting strategically to the structure of costs and demand they face, in competition with other firms.

That’s a claim of neoclassical economic faith, not an actual fact. But if you believe this stuff you will perhaps unconsciously incorporate right wing ideology into your economic analysis. This is why, for example, Christine Romer dismisses industrial/manufacturing policy and Robert Reich opposed the auto-rescue. If you believe, as a matter of faith or axiom, that economics emerges from the interaction of individual optimizing agents, then you carry the Koch brothers politics into your work intentionally or not.

[This is a rewrite of a previous effort]