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Critiques of neo-classicalism?
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27-01-2009 12:28am#1
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Some criticism of the most popular textbook in the world (Mankiw - Principles of Economics)
http://www.adbusters.org/magazine/75/Economic_Indoctrination.html
snippet...
Mankiw made a blog post about his book being criticised, but didn't address any of the points raised. He did say that this left-wing criticism, and the fact that some right-wingers had previously criticised him "suggests I am getting things about right."
The current collapse of the market system
There are plenty of other interesting articles about economics on the Adbusters website, including one by Herman Daly on the root cause of the current crisis.
snippet:
He argues that the problem is not a lack of credit, as the term 'credit crunch' implies, more that the problem is caused by too much credit, and ridiculous imaginary financial constructs.
Obviously these links will be controversial to many in this forum, and I hope to have the time and knowledge to debate them in other threads. Hopefully they're suitable resources for this thread.
I'd seriously question whether they should be in this thread (a thread of links of resources on the subject of economics rather than a thread for polemics against economics) but I do think each link deserves a thread of its own so its content can be debated. Though controversial would be sufficient to describe the reaction they might provoke.
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More of an aside on Daly, since imho the world is swimming in Neoclassical critiques, whether endogenous or exogenous
Daly's criticisms are broader than just the neoclassical framework, as they are based on the relationship between debt, growth, and the (assumed) limits of the biosphere. I found them to be highly intuitively convincing; I'd be interested if anyone here has some good refutations/counters.
I got short shrift with 'em in Environmental Economics in 3rd Year, where the basic model (with a charmingly simplistic diagram) was that of a throughput, with the environment as a source and sink. While the terms (iirc) migrated from Ecological Economics, the conceptual framework didn't; the issues of scale or limits was deliberately unaddressed. Fancy math followed, and I was told that if I had a problem with the underlying framework then 'this wasn't the right class for me'.
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What's your problem with GE?I was thinking more - general equilibrium
Is an abstract theoretical model and is used to contrast the differencesperfect competition
The definition of a rational consumer is one whose preference set is complete, reflexive and transitive. Do you have a problem with this, or are you assuming "rational" means what journalists occassionally think it means? I'd hate to be using incorrect assumptions in a critique of neo-classicalismbut yea also man is a rational animal ect..
No economist pulls out "let's privatise everything" from rationality. Can you show me any example of where this is the case?I mean the later is a simple tautology, how anyone could pull ''lets privatize everything'' out of that crap is beyond me.
Of course I do. This is not inconsistent with neo-classicalism in the slightest. Indeed most environmental economics derives from a Pigovian neo-classical framework. What's your point?Im sure your aware that people place value on things (immaterial) which are by nature immeasurable, whatsmore these values are often in conflict with the material values.
...what?Denial of this would be paramount to advocating an objective value system. Which I know your not very fond of given the idea forwarded by ''he who is too evil to speak of''.
"Overcomplicated mathematical posturing" allows strict expressions of assumptions. Again, where is your problem with the reflexivity, transitivity or completeness?All the overcomplicated mathematical (posturing) ''because that what it is'' in the world wont save you from the fact that your conclusions are based on faulty assumptions
Lagrangians are not guess-work. As for ignoring real world conditions, I'm not claiming that economists are able to define people's utility functions well. Nor does neo-classicalism, however.fill the gaps with guesswork and completely ignore real world conditions.
What theories? What's distorted about completeness?Your theories arnt drawn from reality, you ''distort'' reality in order to fit your theories.
The vast majority of economics is empirical. Are you confusing who you take issue with? Is the answer politicians or, God forbid, the electorate?Your ''not'' scientists although I am aware that there are empirical branches of economics however my issue is not with them.
And simultaneously the base of many development agencies. What's your point?Economic theory in a global and social context is the ideological base of the bourgeoisie.
"Working in the interests of the social elite", aside from sounding like a quote from Monty Python is a completely unfounded assumption, is it not?Social valuation and institutional organization is determined by university trained con artists working in the interests of the social elite.0 -
The Economist wrote: »What's your problem with GE?
Is an abstract theoretical model and is used to contrast the differences
The definition of a rational consumer is one whose preference set is complete, reflexive and transitive. Do you have a problem with this, or are you assuming "rational" means what journalists occassionally think it means? I'd hate to be using incorrect assumptions in a critique of neo-classicalism.
No economist pulls out "let's privatise everything" from rationality. Can you show me any example of where this is the case?
Of course I do. This is not inconsistent with neo-classicalism in the slightest. Indeed most environmental economics derives from a Pigovian neo-classical framework. What's your point?
...what?
"Overcomplicated mathematical posturing" allows strict expressions of assumptions. Again, where is your problem with the reflexivity, transitivity or completeness?
Lagrangians are not guess-work. As for ignoring real world conditions, I'm not claiming that economists are able to define people's utility functions well. Nor does neo-classicalism, however.
What theories? What's distorted about completeness?
The vast majority of economics is empirical. Are you confusing who you take issue with? Is the answer politicians or, God forbid, the electorate?
And simultaneously the base of many development agencies. What's your point?
"Working in the interests of the social elite", aside from sounding like a quote from Monty Python is a completely unfounded assumption, is it not?
1 - Abstract model, precisely my point.
2 - Rational choice theory, yes its a simple tautology. In addition it confines choice to material utility ie (the market). Its entirely possible that relative preference could be aimed against market - in other words my relative preference for a material good could be canceled out by a higher immaterial want, all these things must be considered. Not to mention it assumes individuals have perfect information, which is nonsense. Overestimates cognitive ability ect ect.
3 - Lagrangian's, OK then not a guess - (an educated guess) LOL
4 - ''I'm not claiming that economists are able to define people's utility functions well. Nor does neo-classicalism, however'' You got that right, which begs the question, why do right wing economists like to pass themselves off as sociologists ?
5- ''The vast majority of economics is empirical'' - Experimental verification and falsifiable hypotheses ? BTW - Hows deduction coming along for you ?
6- And simultaneously the base of many development agencies. What's your point? Development as in ''giving a third world nation a loan on the condition that their markets are opened to competition so outgoing profits exceed what was payed in and transnationals have free reign over natural resources ect ?'' ..... That kind of development or some other kind ?
7- The neo-classical consumer theory states that one persons unit satisfaction from a given package is independent of the satisfaction of other consumption units. Nice way to work socialism out of theoretical underpinnings don't you think ? 0 -
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Rational choice theory, yes its a simple tautology. In addition it confines choice to material utility ie (the market). Its entirely possible that relative preference could be aimed against market - in other words my relative preference for a material good could be canceled out by a higher immaterial want, all these things must be considered.
Rationality doesn't imply only materialistic wants, there are many problems with the rationality assumption but this is not one of them.Not to mention it assumes individuals have perfect information, which is nonsense. Overestimates cognitive ability ect ect.
Indeed, got a better idea of how to model human behaviour mathematically? Serious question.The Economist wrote: »Lagrangians are not guess-work.
To be blunt, yes, yes they can be.
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So you have a fundamental disagreement with abstraction? Why?1 - Abstract model, precisely my point.
You didn't answer my question about general equilibrium.
No it doesn't.2 - Rational choice theory, yes its a simple tautology. In addition it confines choice to material utility ie (the market).
One of the basic examples given to first year undergraduates is whether to work or play. These immaterial wants can absolutely be consistent with rationality.Its entirely possible that relative preference could be aimed against market - in other words my relative preference for a material good could be canceled out by a higher immaterial want, all these things must be considered.
No it doesn't. They are further assumptions sometimes used and have been greatly discredited. Stiglitz/Akerlov/Spence were awarded the Nobel Prize for papers they wrote discrediting the idea of perfect information in the 70s. Economics has changed, just a tad, in the last thirty years.Not to mention it assumes individuals have perfect information, which is nonsense. Overestimates cognitive ability ect ect.
You didn't reply to this:No economist pulls out "let's privatise everything" from rationality. Can you show me any example of where this is the case?
Of course I do. This is not inconsistent with neo-classicalism in the slightest. Indeed most environmental economics derives from a Pigovian neo-classical framework. What's your point?synd wrote:Im sure your aware that people place value on things (immaterial) which are by nature immeasurable, whatsmore these values are often in conflict with the material values.
I don't know of any economist who likes to pass themselves off as sociologists and, at any rate, I'm pretty sure you left out the "some" part of "some right-wing economists". However I'm not entirely sure what you're talking about here, so I'd like you to clarify.4 - ''I'm not claiming that economists are able to define people's utility functions well. Nor does neo-classicalism, however'' You got that right, which begs the question, why do right wing economists like to pass themselves off as sociologists ?
Yes.5- ''The vast majority of economics is empirical'' - Experimental verification and falsifiable hypotheses ?
For me? I typically steer clear of empirical models because of the problem of deduction. Interesting you state that you have no problem with the econometricians but overlook the current financial crisis which was a problem not of theory but of poor econometrics.BTW - Hows deduction coming along for you ?
Strange, that.
You seem to be mixing up politically-motivated development agencies and the study of economics here. It might serve you well to check out the work of professors in Harvard and MIT rather than assuming Robert Fisk will give you a fair treatment of an academic discipline.6- And simultaneously the base of many development agencies. What's your point? Development as in ''giving a third world nation a loan on the condition that their markets are opened to competition so outgoing profits exceed what was payed in and transnationals have free reign over natural resources ect ?'' ..... That kind of development or some other kind ?
Like in most disciplines, economists rank each other by academic references. I'm sure you're familiar with the Nobel Laureate on the top of the list. (Incidentally, for a profession you decry of being "an idealogical front", them's strange listings for the top economists. Number 1 got a Nobel for his work on asymmetric information and is best-known for his development work; Number 2 investigates how markets fails to operate optimally; Number 3 is a Nobel Laureate and spends his time in schools in Clondalkin.) Politically-appointed economists are rarely chosen for their academic credentials alone, and it's the political-appointees who make the news, so you should consider whether you're looking at a biased sample or not.
It would be, if neo-classical consumer theory actually stated that.7- The neo-classical consumer theory states that one persons unit satisfaction from a given package is independent of the satisfaction of other consumption units. Nice way to work socialism out of theoretical underpinnings don't you think ?
If you don't believe me that you're completely biased in your views on neo-classicalism and general equilibrium, I suggest you read about Professor Lange.
The formulation certainly; the calculation, though?nesf wrote:To be blunt, yes, yes they can be.:P0 -
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Point taken. We'll disagree about the potential for abstraction.1- I don’t disagree with abstraction so long as the theory is based upon a realistic depiction of the condition it seeks to explain. An unrealistic theory will result in unrealistic conclusions - (although they may be entirely logical). Take a cosmological proof of gods existence as an analogy LOL.
I think you're not grasping the idea of GE here. Arrow and Debreu showed GE does exist in a free market system at any point in time under certain assumptions, not that it's necessarily reached or that it remains. Lange (and someone else, forget who) showed the same, but no more, for a socialist system. The more general idea of GE (heh, "generalised General Equilibrium", excuse the nomenclature) is to think outside more than one market. So while there might be a change in prices in one market, that shouldn't be considered the end of the story. The only thing that has been proved (for both free market and socialist) systems is that central planning must be a subset of free market outcomes. There's two ways to look at this. One is that the socialist system can be achieved using markets. The other is that the socialist system rules out certain "bad" market outcomes (though creates other ones). This is the extent of the economics of it. It's politics when you start making judgment calls as to which is best.2. General Equilibrium doesn’t exist in the real world - can an economy relying only on price signals for market information be orderly ? With neo-classical assumptions yes, however the assumptions required are unrealistic, so realistically speaking (no).
GE (does) assume perfect info and ignores time.
In dollars of course! :pac: More seriously, you can't. But the idea is that if a person chooses e.g. spending time with kids than working in a job that pays €100, his value of spending time with his kids is more than €100. That's basically the extent of it. Once we can observe that, then we can do lots, but nothing much more controversial than asserting that this person values spending time with his kids.3. Serious question - how do you measure immaterial wants ?
Not every choice is considered rational. In layman's terms, the true economic definition of rational is that "consumers know what they want." (This can include immaterial wants.) Some consumers are irrational. The problem is that if they don't know what they want, or if they do know but pick something else, or something like that, then you simply analyse their decisions.If you want to define every choice as rational then fine - more evidence of circular reasoning. If you don’t define every action as rational then give me an example of an irrational action.
You see I think this is your primary problem. You mention "social democracy" in the same breath as economic theory. You claim that neo-classical economics is an idealogical front but you're clearly falling into an idealogical divide yourself.4. Post-Keynesians reject equilibrium so I don’t have an issue with them. If your some sort of Post Ken social dem then I don’t see the point in arguing, although I am opposed to your intent preservation of the current system.
Economics is best considered as a science in this regard, not necessarily in method but in approach. Ask me what will happen if you raise taxes/lower interest rates/whatever and I will give you an answer that's independent of political bias, or at least do my best to do so. So let's say that, politically, I am a social democrat and want more re-distribution. That's perfectly in line with pointing out that higher taxes will likely cause less growth and that as a result some people may become unemployed. It's politics that makes the call whether that risk is worth it or not.
Incidentally, Keynes was of the "scientific economics" opinion as well. He was simultaneously a social democrat and because of this he is mostly remembered for his social democrat-esque economics. That's unfair on the man. Social democrats/union leaders bash out The General Theory as a cure-all mostly because it suits their political goals of wanting higher taxes. However Keynes himself later trimmed his views considerably, admitting that lower taxes were probably more effective than a government stimulus and also that government spending was often wasteful. That's economics; his politics remained unchanged. There's also the fact that a lot of what Keynes wrote was wrong, and failing to admit this is often a problem of ideology.
So I take fundamental objection to your assertion that you've no problem with me if I have social democratic views.
It's quite possible to be of the Austrian School and still be a social democrat. You're again basing your views on people's "science" on what others have concluded from that analysis. Nobody doubts Darwin's ability because his work was the political base for some eugenicists.5. They tend to hail form the Austrian school.
The method is simple. A theory of human behaviour is postulated. More often than not it uses the economic definition of "rational", yes. For example I recently read an empirical report trying to gauge how important the different factors in the retirement decision are. Obviously there are many things to consider (age, health, income, job security, etc.) They included a variable for whether the person had children under 18 or not, and the survey also asked to rank the "warmth" of the relationship on a 1-5 scale. That's an immaterial want that they felt would effect an important economic question, i.e. retirement. They didn't speculate whether it was "rational" in the cold-hearted way or not; they just expected that a 60 year old with a good relationship with 15 year old might have a different view on life than a single 60 year old. This theory was then tested on the data. (Unfortunately I can't remember the result.)6. Economics is empirical ? So the theories are based upon real world conditions ? informed by empirical actuality ? and adapted as such ?. Or do you use a-priori theorems and ignore evidence - rationalism ? - Or some kind of peculiar mixture ?
I've worked in places that regulate markets. They don't necessarily do a better job than the free market. The ESB rip us off, and their prices are set by a regulator. All the banks are regulated by the Financial Regulator, who clearly didn't do a perfect job. Before Ryanair, the Dept of Transport saw it right to regulate aviation fares. That Department still thinks that CIÉ is doing a bang-up job. The regulation of taxis meant spending ninety minutes acquainting yourself with Molly Malone after a night out. You might think eircom offer a crap service now, but before deregulation calls cost a lot more and there were ridiculous laws such as Telecom were not liable for losses to your business that were due to their failure to fix your line. (That's customer service, for you.)7.Whats strange is that nobody suggested that the market is not a self equilibrating entity and required more regulation in order to prevent crisis. Speculation and greed, clear evidence that people don’t make correct decisions and arn't governed by an '' invisible hand '', the Market isn’t efficient - (unless your going to engage in idiosyncratic redefinition).
In fact regulation is not only not the answer to all of the world's problems, if often makes things much worse. Independent central banks oversee lower inflation than when money supply is in government control. Freddie and Fannie, two state bodies, have perhaps the biggest blame to face for this sub-prime crisis. Why? They were the state bodies, they essentially were the regulator. And what happened? Under political pressure, they started giving out loans to those that couldn't afford them. The rest of the banks followed suit. What did you expect the others to do, think the State agency could be making mistakes?
I disagree. Greg Mankiw served as George Bush's economic adviser. That didn't stop him coming out against plans to limit trade. (He got him fired.)8. I think its reasonable to say a large section of the discipline is politically motivated. Big business fuels political groups and they in turn fund academia - so its reasonable to expect a fair deal of bias given the set-up. BTW - Iv never heard of Robert Fisk.
Maybe by politicians, but any economist who ignores AI will fail their exams. It's bread and butter stuff.9. Information asymmetry - interesting stuff, although Im sure you’d admit that its deliberately ignored by right wingers ?
If you wish to contend that, that's fine. But that's politics, not economics. Economics looks at how moral hazard affects prices etc., not whether it's inherently oppressive or not. That's not to say we don't have a moral consciences, we don't refuse to study things like the effects of dictatorships because they're oppressive.Moral hazard also looks interesting - however I would contend that the capitalist mode of organization is in-itself inherently oppressive and opposed to liberty.
My point about brining up Lange was to show conclusively that the neo-classical framework is not an idealogical front. You can be a neo-classical communist. The assertion you made that neo-classical rationality implies "privatize everything" just isn't true. Others' right-wing political views don't change the "science" of economics. Margaret Thatcher and Tony Blair both used a neo-classical framework but the primary difference was their aversion to poverty/inequality -- a judgment call that's for democracy, not academics. That's my point.10. Look: Im making a broad generalization - of course there are exceptions to the rule, just because most classical economists advocated capitalism didn’t mean they all did - namely Marx. Lange ? Yes he was working from a neo-classical framework, so what ? he went against the tradition of apologetics. What do you make of the economic calculation problem ? finding prices for higher capital goods ? In any case Im for parecon not command economies. :cool:
The problem with socialist systems not having enough information to distribute stuff correctly is pretty solid. For example, radiators break. Here, we get people to fix them. But if your fuel is free, it's easier to not bother. So you had the ridiculous situation in Moscow that people had their radiators burning through the summer with the windows open. It takes a lot of information to cop onto these sorts of problems.
More generally, macroeconomics just doesn't turn me on. I find stuff like the optimal patent length or the revenue equivalence theorem far more interesting. Both are these are grounded to an extent in the assumption that people can own property and set us businesses and stuff, but beyond that they're.... abstract mathematical models
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