Neoclassical Economists are blinkered

edanto

For a long time, I've been convinced of the shallowness and pseudosciencry of Economics, supported both by the huge increase in global poor over the past 60 years and the damage to our environment.

Here's an excerpt from an adbusters article which gets across what I think.

"
Economists are now warning us that the global economy is in danger of experiencing a lost decade, similar to the one Japan experienced after its real estate and equity bubbles burst in the ’90s. But the economists stop short of cautioning that we risk losing a century, or even a millennium, if climate change suddenly lurches out of control.

The logic freaks of neoclassical economics don’t like to talk ecology – their models don’t account for melting glaciers, dying coral reefs or the possible collapse of the entire Australian continent.

But the reality is that it takes centuries to restore codfish to the Atlantic or to reboot a coral reef and it takes a thousand years to grow a single inch of topsoil. This is the kind of bio-speak that falls outside the theoretical framework of neoclassical economists.

They’re much more comfortable talking money – the language of liquidity, stimulus packages and hedge fund regulation.

There is no discussion within their profession of the real-world impacts of their economic philosophies.
"

I'm not anti-capitalist, but I do believe that the market models are flawed by over simple, assumptions and that that we need a new way of doing business.

I just don't know what that new way is. What other realistic options are there?

Environmental economics is an underappreciated field.

Time Magazine

Good topic.

Can you explain why "the huge increase in global poor over the past 60 years and the damage to our environment" affects your opinion on the scientific status of economics? To what extent is this like blaming the spread of AIDS on the study of biology?

suckslikeafox

Important issues alright, but theres no way to quantify them. Economics is all about quantifying and inserting variables into models, this is the problem for environmental economics.

Flamed Diving

The most simple model of all is:

Neoclassical Economics = All of Economics

This is the commonly held view of the armchair economist, as is the view that Economics has not moved beyond the mathematical models of the 1950's. As is the view that Economics itself is one homogeneous blob, with no division or sub-fields.

This irritates me.

edanto

Yes, of course there are lots of sub-fields.

But which are the ones that influence government policy?

Which are the ones that influence corporate behaviour?

On a global scale, corporate behaviour is more co-ordinated and powerful than any single government. And practically unregulated.

It seems to me, from my armchair, that Economists support that type of activity. I mean the economists that appear on in the media, those that appear to advice governments. Or am I missing some way that environmental economists (for example) actually influence policy?

Here's an interesting paper that I came across which details and supports several criticisms of neoclassical economics.
http://www.neweconomicthinking.org/thinking.htm

But it doesn't provide an alternative that is any way detailed.

Flamed Diving

edanto wrote: »

Yes, of course there are lots of sub-fields.

But which are the ones that influence government policy?

Which are the ones that influence corporate behaviour?

On a global scale, corporate behaviour is more co-ordinated and powerful than any single government. And practically unregulated.

It seems to me, from my armchair, that Economists support that type of activity. I mean the economists that appear on in the media, those that appear to advice governments. Or am I missing some way that environmental economists (for example) actually influence policy?

Here's an interesting paper that I came across which details and supports several criticisms of neoclassical economics.
http://www.neweconomicthinking.org/thinking.htm

But it doesn't provide an alternative that is any way detailed.

Again, you use a mass of generalisations in your post and you have strayed from your original point, which was hazy to begin with. Firstly, you seem to see a chosen economic fields influence on government as a measure of how 'Economics' views this field. Conveniently glazing over the fact that it is politicians who choose to implement policy, and that they will always choose whatever it is that makes them popular, whether it be neoclassical, kenyesian, etc. I don't see what this has to do with economics as a science. This is politics.

Economists that appear on the media are rarely actual economists. They are journalists, bankers or company executives who studied an economics undergraduate degree and haven't a single publication to their name. Try not to get these people confused with economists and don't ever believe what they say when it comes to economics, they are in the media to further their own interest and nothing more.

If you think that 'The Economists' support unregulated markets, then you have barely been making an effort to understand the field. It seems to me that you are just looking for reasons to have a go, probably based on current events and the latest copy of the Socialist Worker.

I will say it again:

Neoclassical Economics = All of Economics

is not true. It never has been, and never will be.

eamonnm79

Flamed Diving wrote: »

Again, you use a mass of generalisations in your post and you have strayed from your original point, which was hazy to begin with. Firstly, you seem to see a chosen economic fields influence on government as a measure of how 'Economics' views this field. Conveniently glazing over the fact that it is politicians who choose to implement policy, and that they will always choose whatever it is that makes them popular, whether it be neoclassical, kenyesian, etc. I don't see what this has to do with economics as a science. This is politics.

Economists that appear on the media are rarely actual economists. They are journalists, bankers or company executives who studied an economics undergraduate degree and haven't a single publication to their name. Try not to get these people confused with economists and don't ever believe what they say when it comes to economics, they are in the media to further their own interest and nothing more.

If you think that 'The Economists' support unregulated markets, then you have barely been making an effort to understand the field. It seems to me that you are just looking for reasons to have a go, probably based on current events and the latest copy of the Socialist Worker.

I will say it again:

Neoclassical Economics = All of Economics

is not true. It never has been, and never will be.

Why do you pointr presume this guy is from the far left?
He seems much more moderate to me.
All he is doing is expressing a concern that economists in general underprice risk.
If you agree to sell your second car to me, it would be measured by a non environmental economist as a simple transation.
However what about the unintended consiquences like the carbon created or the fact one less person is using public transport making that persons bus route more likely to be closed down etc etc. All these flapping butterfly wings eventually cause a tidal wave as we saw in the credit crunch.

As I have said on this forum before, although mathmatical modeling that economics provides is very useful, I think many Economists overestimate the science bit and underestimate the social part of this social science.

Most times economists are asked moral questions they seem to not want to get involved. Well thats a cop out.

silverharp

eamonnm79 wrote: »

Most times economists are asked moral questions they seem to not want to get involved. Well thats a cop out.

To be honest its better not to ask some Economists questions about Economics let alone moral questions.:D

"We have a global glut of savings, which is why there is, in fact, no upward
pressure on interest rates."
– Paul Krugman, May 10, 2009

Yes, this whole science vs social science thing has bothered me a wee bit since the forum has been moved..Id be reluctant to call economics a science..

Flamed Diving

eamonnm79 wrote: »

Why do you pointr presume this guy is from the far left?
He seems much more moderate to me.
All he is doing is expressing a concern that economists in general underprice risk.
If you agree to sell your second car to me, it would be measured by a non environmental economist as a simple transation.
However what about the unintended consiquences like the carbon created or the fact one less person is using public transport making that persons bus route more likely to be closed down etc etc. All these flapping butterfly wings eventually cause a tidal wave as we saw in the credit crunch.

As I have said on this forum before, although mathmatical modeling that economics provides is very useful, I think many Economists overestimate the science bit and underestimate the social part of this social science.

Most times economists are asked moral questions they seem to not want to get involved. Well thats a cop out.

Change:

It seems to me that you are just looking for reasons to have a go, probably based on current events and the latest copy of the Socialist Worker.

To:

It seems to me that you are just looking for reasons to have a go, probably based on current events and/or the latest copy of the Socialist Worker.

Better?

I'm particularly impressed by the way you focused on just two words at the end of a sentence while wilfully ignoring the rest of my post, and going off on a unrelated tangent.

eamonnm79

Flamed Diving wrote: »

Change:

It seems to me that you are just looking for reasons to have a go, probably based on current events and the latest copy of the Socialist Worker.

To:

It seems to me that you are just looking for reasons to have a go, probably based on current events and/or the latest copy of the Socialist Worker.

Better?

I'm particularly impressed by the way you focused on just two words at the end of a sentence while wilfully ignoring the rest of my post, and going off on a unrelated tangent.

Someone got up on the wrong side of the bed;)

Flamed Diving

eamonnm79 wrote: »

Someone got up on the wrong side of the bed;)

I fell out of it.

Akrasia

There is a very valid point to this topic.

Human society is intergenerational, but economics is only about pricing the current market value of commodities.

There are communities who have developed culture arts and agriculture over thousands of years without ascribing ownership of these valuable assets to any individual or class, but within a hundred years of capitalism and the ownership society, we have privatised almost every aspect of culture, agriculture and art.

The Ultra Liberals believe that everything ought to be privately owned because then someone will have an interest in preserving it and putting it to an 'efficient' use (whatever it may be), but they ignore the fact that an individual operates in a human timescale of weeks, months and years, but our society and ecology needs to last for much much longer, and what's good for the individual in the short term could be very very bad for the collective in the medium and long term.

Time Magazine

To be fair Akrasia, environmental economics (for example) makes none of the assumptions you just did about timescales you just did.

Typically the complaint about discounting theory in economics is the opposite you claim. Most rational expectations economics (which, I think, is the sort of economics you'd hate) assumes an infinite time-span. Milton Friedman is well known for his permanent income hypothesis, that people care about what's going to happen to their world in an infinite amount of time, albeit discounted heavily. The discount rate is usually the prevailing interest rate. So I don't accept this idea that neo-classical economic theory only assumes that in the long-run we're all dead. I associate that line of thought with someone else altogether.

eamonnm79

Found it!
Ok, this guy for my money is the smartest man alive. And since he has an opinion on this its probobly worth reading.
http://www.stwr.org/global-financial-crisis/the-financial-crisis-of-2008-interview-with-noam-chomsky.html

silverharp

eamonnm79 wrote: »

Found it!
Ok, this guy for my money is the smartest man alive. And since he has an opinion on this its probobly worth reading.
http://www.stwr.org/global-financial-crisis/the-financial-crisis-of-2008-interview-with-noam-chomsky.html

I didnt read it yet but Chomsky has some very wolly ideas , its easy to know what he is against but never quite figured out what he wants

silverharp

silverharp wrote: »

I didnt read it yet but Chomsky has some very wolly ideas , its easy to know what he is against but never quite figured out what he wants

You never will - I get a little frustrated by people who will critique but never offer alternatives.

Ronando

To the original poster, it's probably worth reading "The Undercover Economist" by Tim Harford.

It's readable and gives a good overview of what economics is and isn't. The one that really gets my goat is how business and government have hopped on the idea of GDP as the be-all-and-end-all, whereas economists will be the first to tell you that at best this should one in a three or five indicator strong measurement of welfare.

The book also outlines some of the issues the OP mentioned, such as market failures, imperfect information and how government can use economics to understand issues such as pollution, congestion, etc. Market mechanisms are excellent ways for people to reveal their preferences and for society to allocate its resources. Provided those market mechanisms include social costs that aren't always reflected in the price (such as pollution, potential costs of climate change, wasted time due to congestion, etc.), they will be far superior to any other policy intervention.

Just look at carbon trading, smart utility networks, road pricing, etc., as exciting new ways of using technology to bring the full range of costs inside the market mechanism.

book smarts

Whatever model is used, it will always be incomplete. There are just too many variables. The variables are almost infinite, effectively. The more complex the model the greater the illusion of completeness. Humanity and the world just cannot be summed up in a few equations. Sorry if this deflates your self-importance and self-congratulatory know-it-alledness bubble.

Flamed Diving

book smarts wrote: »

Whatever model is used, it will always be incomplete. There are just too many variables. The variables are almost infinite, effectively. The more complex the model the greater the illusion of completeness. Humanity and the world just cannot be summed up in a few equations. Sorry if this deflates your self-importance and self-congratulatory know-it-alledness bubble.

Wow, I wish I was like you.

Time Magazine

Flamed Diving wrote: »

Wow, I wish I was like you.

And I wish I'd never heard of empirically testing models so that I could simply assume life is reducible to a set of four equations and retain my sense of self-importance

Flamed Diving

The Economist wrote: »

And I wish I'd never heard of empirically testing models so that I could simply assume life is reducible to a set of four equations and retain my sense of self-importance

It's a heavy burden we carry, Econy. A heavy burden.

Ronando

book smarts wrote: »

Whatever model is used, it will always be incomplete. There are just too many variables. The variables are almost infinite, effectively. The more complex the model the greater the illusion of completeness. Humanity and the world just cannot be summed up in a few equations. Sorry if this deflates your self-importance and self-congratulatory know-it-alledness bubble.

You got us alright!
"How do numbers make you feel? What does a plus sign smell like? Is the number 7 odd, or just different?"

Time Magazine

The point we're making, book smarts, is that economists don't write out a set of four equations and presume they've cracked life. Almost every model that has been created in the past two decades has been then tested empirically, with real data. The results provide an indication of how good your model is.

So economists want to know what explains the differences in pay rates. So they throw in a few variables they think might be important: education, gender, health, experience, etc. Then they think the relationship between experience and wages may be nonlinear, so they add a nonlinear term. Then they try and account for unobserved heterogeneity between education and wages (maybe harder-working people get more education and wages) so they instrument for education and sub the equations in. These models might explain 80% of the variation in wages. By no means is that explaining everything, but it does give a very good idea of how you might make society richer. Say it's found that experience is twice as important as education, then even if you model only explains 80% of the variation then it would be foolish to think that pouring money into education will make people richer.

Now of course there are completely other arguments for education and why it should be funded, things like people's happiness, propensity to commit crime, likelihood of voting and so on. Completely agree there. But that's a completely different topic to what causes differences in wages, which is what the economist set out to find out in the first place. And (fao: edanto) he did so without any underhanded political bias, he just crunched the numbers. The political questions of what to do with the results of such analyses typically only get a sentence or two in any paper. Why? It's not our job. Economics isn't a science by most definitions of the word, but the parallel between physicists trying to find out how the universe was formed but refusing to tell governments whether to consequently legislate against blasphemy is something most economists would associate with. Economists have their political views, and disagree on them, but there is strong consensus on what's factually true or not. Associating economic theory with actions of governments is, at best, missing part of the story.

synd

The point we're making, book smarts, is that economists don't write out a set of four equations and presume they've cracked life. Almost every model that has been created in the past two decades has been then tested empirically, with real data. The results provide an indication of how good your model is.

Oh please - your attempts to quantify emotive incentives illustrate your complete ignorance of empiricism and reality in general.

So economists want to know what explains the differences in pay rates. So they throw in a few variables they think might be important: education, gender, health, experience, etc. Then they think the relationship between experience and wages may be nonlinear, so they add a nonlinear term. Then they try and account for unobserved heterogeneity between education and wages (maybe harder-working people get more education and wages) so they instrument for education and sub the equations in. These models might explain 80% of the variation in wages. By no means is that explaining everything, but it does give a very good idea of how you might make society richer. Say it's found that experience is twice as important as education, then even if you model only explains 80% of the variation then it would be foolish to think that pouring money into education will make people richer.

We see clear class re-production within capitalist society. 1997 admission to third level education 4.5% for students from clondalkin, 57% for students from rathgar. Studies consistently show that the offspring of those from unskilled manual backgrounds rank lowest with regards educational attainment while those from the upper professional category rank highest. Differences in pay can be explained in class terms, the upper class's with more access to resources both material and intellectual benefit. Methodological individualism utilized by economists is neo-liberal nonsense designed to obscure the reality of class structure by engaging in atomization.

The separation of individual effort and social condition amounts to false dichotomy (purposefully upheld within liberal ideology in order to justify the given mode of social stratification) - individual effort is determined by and predicated upon social externalities.

Now of course there are completely other arguments for education and why it should be funded, things like people's happiness, propensity to commit crime, likelihood of voting and so on. Completely agree there. But that's a completely different topic to what causes differences in wages, which is what the economist set out to find out in the first place. And (fao: edanto) he did so without any underhanded political bias, he just crunched the numbers. The political questions of what to do with the results of such analyses typically only get a sentence or two in any paper. Why? It's not our job. Economics isn't a science by most definitions of the word, but the parallel between physicists trying to find out how the universe was formed but refusing to tell governments whether to consequently legislate against blasphemy is something most economists would associate with. Economists have their political views, and disagree on them, but there is strong consensus on what's factually true or not. Associating economic theory with actions of governments is, at best, missing part of the story.

Stop trying to imply that neo-classical economics is non-politically motivated or somehow objective - its incredibly deceptive. The fact that economics makes claim to objectivity is evidence of just how subjective it really is. Clues of the inherent subjectivity include the idiosyncratic redefinition of terms - ie rationality. Only an economist could hold a straight face and proclaim the market to be rational in its allocation of resources.

This touches on the general truth, that very little is objective - rationality as the economist has been trained to understand it = profit maximization, high GDP ect. Indeed these things are rational for the capitalist class. One groups pursuit of the rational objective is often to the detriment of the opposing groups objective. Economics pre-supposes the centrality of one rationality - namely that which facilitates the process of bourgeoisie accumulation. This understood, we see the neo-classical orthodoxy for what it is, a component of upper class ideology.

No consideration is made of human needs - a rational form of economic organization would allocate resources based on need, something the capitalist market doesn't do, rendering it highly inefficient, wasteful and irrational. Of course economists may see these as problems, problems however only solved within the realm of the capitalism ie. to be solved as peripheral objectives subordinated to the ''eternal'' process of capitalist accumulation.

Bourgeoisie economics is just that, nothing more and nothing less - confined to the limits of its own presuppositions. Price need not be determined by supply and demand - it can be calculated via labor time. Money need not be the medium of exchange. Capital need not be private. The economy can largely be planned via IT - despite what jumped up econ grads think they know from reading the Austrian calculation argument - complexity theorems ect - outdated and refuted beyond doubt.

Flamed Diving

Once again we are reduced to the magic equation:

All Economic Thought = Neo-Classical Economics

Myopic, ignorant and willful of both.

Économiste Monétaire

Don't forget the great attack on 'rationality'. Complete, reflexive and transitive preferences. Yep, clearly a bourgeoisie concept.

synd

Économiste Monétaire wrote: »

Don't forget the great attack on 'rationality'. Complete, reflexive and transitive preferences. Yep, clearly a bourgeoisie concept.

Attack on rationality ? I suppose a system defined by asymmetric info, monopoly and exploitation can facilitate the rational action described in that book of mythology your reading ?

In fact would it not be rational for the appropriating class to maintain competitive monopoly via the preservation of asymmetric info ect ?

Btw - explain how people are rational utility maximizers - Oh wait Iv just figured it out ...........

Économiste Monétaire

synd wrote: »

Btw - explain how people are rational utility maximizers - Oh wait Iv just figured it out ...........

I wasn't aware this was a thread on first year microeconomics. Judging by your posts, I guess that's the direction you intend to go. Allow me to link some relevant literature for you: Hi.

synd

Économiste Monétaire wrote: »

I wasn't aware this was a thread on first year microeconomics. Judging by your posts, I guess that's the direction you intend to go. Allow me to link some relevant literature for you: Hi.

It must be painful to live in denial

"Economics has increasing become an intellectual games played for its own sake and not for its practical consequences. Economists have gradually converted the subject into a sort of social mathematics in which analytical rigor as understood in math departments is everything and empirical relevance (as understood in physics departments) is nothing general equilibrium theory using economic terms like 'prices', 'quantities', 'factors of production,' and so on, but that nevertheless is clearly and even scandalously unrepresentative of any recognizable economic system.

"Perfect competition never did exist and never could exist because, even when firms are small, they do not just take the price but strive to make the price. All the current textbooks say as much, but then immediately go on to say that the 'cloud-cuckoo' fantasyland of perfect competition is the benchmark against which we may say something significant about real-world competition . But how can an idealised state of perfection be a benchmark when we are never told how to measure the gap between it and real-world competition? It is implied that all real-world competition is 'approximately' like perfect competition, but the degree of the approximation is never specified, even vaguely


"Think of the following typical assumptions: perfectly infallible, utterly omniscient, infinitely long-lived identical consumers; zero transaction costs; complete markets for all time-stated claims for all conceivable events, no trading of any kind at disequilibrium prices; infinitely rapid velocities of prices and quantities; no radical, incalculable uncertainty in real time but only probabilistically calculable risk in logical time; only linearly homogeneous production functions; no technical progress requiring embodied capital investment, and so on, and so on -- all these are not just unrealistic but also unrobust assumptions. And yet they figure critically in leading economic theories." ["Disturbing Currents in Modern Economics", Challenge!, Vol. 41, No. 3, May-June, 1998]

Flamed Diving

Once again we are reduced to the magic equation:

All Economic Thought = Neo-Classical Economics

Myopic, ignorant and willful of both.

Time Magazine

Jaysis.

I'll get back to this thread in due course, but can anyone enlighten me as to when economists started claiming that complete, reflexive and transitive preferences would result in kids from Clondalkin getting into college?

Économiste Monétaire

The Economist wrote: »

Jaysis.

I'll get back to this thread in due course, but can anyone enlighten me as to when economists started claiming that complete, reflexive and transitive preferences would result in kids from Clondalkin getting into college?

About the same time that rationality was equated to GDP growth. It's also a bourgeoisie concept, duh.

synd wrote: »

It must be painful to live in denial

I'm not the one living in Egypt, my friend.

Time Magazine

Okay, I won't get to the substantive post until at least tonight, but synd I want you to answer me three questions (below) first. I'm not demanding it as a mod or anything, but it would help me clarify my post.

Rationality in microeconomic theory is defined as a preference set that is:

1. Complete. Consumers know which they'd prefer between A or B, or acknowledge that they like them equally.
2. Transitive. If A > B, and B > C, then A > C.
3. Reflexive. (This is a stupid mathematical one, where A = A, basically.)

Let's omit reflexivity because it's really just there for mathematical prettiness. So the two assumptions of rationality are completeness and transitivity. I can see how both could fail. I'm not sure whether I'd rather go to a gig or play football tonight, so perhaps completeness is too strong. And maybe transitivity isn't water-tight, either: if I prefer polo mints to white magnums, and white magnums to steak, I may not necessarily prefer polo mints to steak. So I can see how perhaps they're invalid assumptions.

But here's the bit I don't get, that leads to the questions: Given that A and B are just variables and are not specified, how can you claim that rationality implies a preference for capitalism over communism? Can you make any tweaks to the rationality criteria that would destroy the under-handed neo-liberal agenda? If I were to point you to dozens of highly-respected economists who use the neo-classical framework to promote greater socioeconomic equality, to what extent would that weaken your argument that economics is a political cult?

edanto

I'm enjoying this thread, and learning a lot from it, but haven't really had much to say yet.

Rationality, as defined above, seems to ignore advertising as influencing preferences. It seems a bit simplistic to be of any actual use, but perhaps I'm missing some useful application of it.

The point above that physicists don't speak on religion just isn't true - here is something from the hand of the most famous physicist
"I do not believe in a personal God and I have never denied this but have expressed it clearly. If something is in me which can be called religious then it is the unbounded admiration for the structure of the world so far as our science can reveal it." Gould's writings are also well known.

Much more importantly, when it comes to the position that it is not the responsibility of the economist to say what should be done politically, I refute that absolutely as being a cosy arrangement and ultimately quite cowardly.

For it is the application of neo-classical economics that appears to have worsened the state of the world (judged by global poverty) lately. And if there were economists that knew something bad was happening, yet were too timid to say anything about it, then some of the fault lies with them.

Adbusters, again wrote:

Affiliates of the school like Milton Friedman shaped Ronald Reagan’s and Margaret Thatcher’s economic agendas and helped set the tone for the era of fervent free-enterprise boosterism, market liberalization and privatization that swept the globe during the 1980s and 1990s. Their thinking has also helped shape the International Monetary Fund and World Bank directives that have only managed to widen the gap between the rich and poor.

A special point for Flamed Diving - let's just assume that most people on this thread can read and repetition isn't needed. You'll notice from the title, and my post at 12.02 on 11/6 that this thread isn't about the advanced fields of economics that seem to be looking to improve our world, but more about the neo-classical perspective that to my mind has dominated political thinking since at least the 1950s.

Flamed Diving

edanto, I can read, thanks. But unfortunately I keep coming across several posts who seem to think that:

All Economic Thought = Neo-Classical Economics

There people are, in my opinion, talking our their arse. If they want to keep the topic on neo-classical economics, then fine. No problem. But stop pretending that one school of thought in economics represents all of economics. I really don't care if it has dominated politics. It has nothing to do with the science of economics.

nesf

edanto wrote: »

Rationality, as defined above, seems to ignore advertising as influencing preferences.

It doesn't, all it states is how a person's preferences are ordered etc, it says nothing about how a person comes to have said preferences or how they can be changed. It's only a statement on how at a single given moment how someone's preferences should be.

Personally I've a lot of problems with rationality as defined above but criticism of it should at least be accurate.

edanto wrote: »

A special point for Flamed Diving - let's just assume that most people on this thread can read and repetition isn't needed. You'll notice from the title, and my post at 12.02 on 11/6 that this thread isn't about the advanced fields of economics that seem to be looking to improve our world, but more about the neo-classical perspective that to my mind has dominated political thinking since at least the 1950s.

Arguably the real domination of the neo-classical perspective in politics happened in the 70s not the 50s when the oil crises presented conditions that the traditional view of Keynesian economics thought to be impossible.

synd

y not necessarily prefer polo mints to steak. So I can see how perhaps they're invalid assumptions.

Word

But here's the bit I don't get, that leads to the questions: Given that A and B are just variables and are not specified, how can you claim that rationality implies a preference for capitalism over communism? Can you make any tweaks to the rationality criteria that would destroy the under-handed neo-liberal agenda? If I were to point you to dozens of highly-respected economists who use the neo-classical framework to promote greater socioeconomic equality, to what extent would that weaken your argument that economics is a political cult?

I had a feeling the term rationality would be immediately taken in the precious neo-liberal context - ''rational choice theory''. I was using it as a general term, check an English dictionary. Rationality has various meanings within fields of sociology, philosophy ect - weberian theory and so forth.

In retrospect the term I should have used was efficiency - ie. capitalism is not efficient in its allocation of resources so far as production for profit is both wasteful and leaves human needs untended. BTW I don't think wants are identical to needs - my considering diamond dog collars a ''want'' and assuming food for African children falls under the category of ''need'' is just one of many Marxist flaws.

As for the dozens of liberals and social dems who advocate a greater share in the re-distribution of social surplus - they do so acting to reduce the class antagonisms that arise under conditions of socio-economic polarization. Take this as an analogy (a man beats his wife, the wife threatens to leave - so he tells her he wont ''physically'' assault her anymore - a concession ''of sorts'' is made in order to preserve the exploitative relationship). Such is the function of social welfare - without it the overt polarization caused by market competition would lead to a revolutionary situation.

If your going to define rationality as something so simplistic as (people act in what they perceive to be their own best interest - their own interest is defined by however they act) then your engaging in circular reasoning. If however you can read minds and tell us about psychological variables (admitting that a dichotomy exists between acting in ones interest and against), your not engaging in circular reasoning - but I do suggest you seek mental treatment. Given that its near impossible to know why people act as they do - calculations based on assumptions, models ''quantifying'' emotion ect. don't even merit the title pseudo science, its more like quasi mystical neo-liberal bull**** with numerical equations thrown in to give a veneer of credibility. Now excuse me, I need to go and take a piss on a book of rational egoism.

Flamed Diving

Do you think that neoclassical economics makes normative statements about an individuals preferences?

Time Magazine

synd wrote: »

Now excuse me, I need to go and take a piss on a book of rational egoism.

When you're done will you address the questions I've posed?

Time Magazine

edanto wrote: »

I'm enjoying this thread, and learning a lot from it, but haven't really had much to say yet.

Glad to hear you're enjoying it. It's nice to get a good challenge from an "outsider" now and again.

Rationality, as defined above, seems to ignore advertising as influencing preferences. It seems a bit simplistic to be of any actual use, but perhaps I'm missing some useful application of it.

An awful lot of people would argue that its simplicity is its strength. The assumptions are really just the bare bones needed to make any analysis whatsoever. When designing policy to give the public what they want, they need to at least know what they want. That's basically it.

The point above that physicists don't speak on religion just isn't true - here is something from the hand of the most famous physicist
"I do not believe in a personal God and I have never denied this but have expressed it clearly. If something is in me which can be called religious then it is the unbounded admiration for the structure of the world so far as our science can reveal it." Gould's writings are also well known.

Yep but I doubt you'll find Gould getting his personal views published in a Physics journal. Similarly economists might be a member of a political party, but you won't find their politics in an economics journal.

Much more importantly, when it comes to the position that it is not the responsibility of the economist to say what should be done politically, I refute that absolutely as being a cosy arrangement and ultimately quite cowardly.

The issue here is that the accusation of economics is that it's a politically-motivated pseudo-science etc etc. I'm refuting that. I'm arguing strongly that it should remain in the realm of "what's true" rather than "what's right", because then it's really moving away from being a science.

An economist will say that if you take a dollar from a rich westerner and give it to a poor sub-Saharan African, it will probably make the world a happier place. The economist will also point out that there are serious problems with this (disincentive effects, emergence of dependency, administrative costs, Dutch disease...) but will generally fall short of saying "this should be done" because it's not his call whether that dollar should be taken or not. That's a political question. The world would be a happier place were we to quietly kill the world's richest 100 men and redistribute their wealth, but that's not for economists to say either.

The problem with you saying economists have a responsibility to say what should be done politically opens you right up to economics becoming a neo-liberal pseudo-science which further harms the billion people most at risk in the world. And you can't say you didn't ask for it. If it remains analytical/scientific, then the risk of its bias declines considerably.

For it is the application of neo-classical economics that appears to have worsened the state of the world (judged by global poverty) lately.

Could you back that up? I'm of the opinion that global poverty has fallen hugely over the past century or so. Inequality has risen, but that's a different thing altogether: the poor aren't poor because the rich are rich.

the neo-classical perspective that to my mind has dominated political thinking since at least the 1950s.

You're mixing up neo-classicalism with politics. I'm broadly a neo-classicalist insofar as I appreciate the importance and power of markets and there are further complicated mathematical reasons that I won't get into unless asked. I also do a lot of work on things like "imperfect" markets, market failures and behavioural economics. I also think that the Irish ODA budget should be removed from the reach of standard fiscal policy and put in the pile with judges' pay to ensure it cannot be cut; that carbon and property should be taxed; and that a much stronger focus needs to be put on early educational intervention as social policy. I would disagree with Milton Friedman on how money should be spent, but not what happens when it is spent, if you catch my drift. There's no definite disconnect between social democracy and (the vast majority of) neo-classical economics.

andrew

synd wrote: »

Word



In retrospect the term I should have used was efficiency - ie. capitalism is not efficient in its allocation of resources so far as production for profit is both wasteful and leaves human needs untended.

Reminds me of the Churchill quote regarding democracy and how it's the worst political system except for all the others which have been tried. Capitalism, so far, is the system which best allows people to satisfy their wants/needs (I don't think there's a difference between the two) because it allows people to satisfy their wants/needs on an individual basis; to choose what to buy. The alternative is that resources are allocated by some other means. Correct me if i'm wrong, but Marxism advocates a means of resource allocation according to what a person 'needs.' If so, how is someone else (a government, communist collective of some sort) better suited to determining my needs/wants? How is that more efficiant than a market? How are markets more wasteful than other methods, especially a method based on a there being such thing as objective definitions of what 'wants' and 'needs' are? Also, how can you say needs are different to wants when all needs are predicated on a value judgement - that African child 'needs' food, but only because he/she 'wants' to live.

If your going to define rationality as something so simplistic as (people act in what they perceive to be their own best interest - their own interest is defined by however they act) then your engaging in circular reasoning. If however you can read minds and tell us about psychological variables (admitting that a dichotomy exists between acting in ones interest and against), your not engaging in circular reasoning - but I do suggest you seek mental treatment. Given that its near impossible to know why people act as they do - calculations based on assumptions, models ''quantifying'' emotion ect. don't even merit the title pseudo science, its more like quasi mystical neo-liberal bull**** with numerical equations thrown in to give a veneer of credibility. Now excuse me, I need to go and take a piss on a book of rational egoism.

Sure models based on assumptions aren't perfect. However, they have been and continue to be used to describe real world situations with some accuracy, as The Economist pointed out. And so a lot of data begs to differ with your assertion that "its near impossible to know why people act as they do."

asdasd

For it is the application of neo-classical economics that appears to have worsened the state of the world (judged by global poverty) lately

If lately is the last year, yes. However even big global recessions take a few percentage points off GDP, if that, equal to one years growth in GDP. In fact he global economy was humming along at 4% a year prior to the recent recession, and I am not sure it is negative yet. Sales of Cars were up 48% this year in China, so far, although they may have monetary eased a bit too much. The claim that capitalism is creating more poverty is at odds with the ( more realistic) claim that classical economics ignores environment externalities. It is also at odds with what is happening in India and China. Where the Free Market is very popular indeed. ( 80% approval rating - higher than the US).

4% a year is much higher than Europe's growth rate from 1850-1950, and by the magic of compund interest it is enough to increase world growth by 5,000% in a century, which is admittedly not sustainable. Most of that is going to the developing world.

Marxists are always out of tune with reality. When I first started reading Marxism in the 90's the vogue was the deskilling of labour. In the actual real world I lived in the sons of Farmers and factory workers were gaining IT experience, and 50% of people were about to go to university.

Now that the developing world is racing ahead in growth, the chant is the increasing poverty in the developing world.

without it[social welfare] the overt polarization caused by market competition would lead to a revolutionary situation.

In a world without social welfare what would happen is a working class revolution ( and probably a democratic one) which would create a welfare state. And leave capitalism intact, otherwise. We've had that. But because the workers voted to not become serfs of the state, Marxists ignore the vote.

The Marxist idea that we want to work for the State ( lets ignore the embarrassing "science" of how the State is going to disappear later, however mysteriously) is merely an unfalsifiable construct. If we dont agree we are controlled by the Lizard Men false consciousness.

In fact, it is falsifiable. When the people of Europe left for America they left - generally - Serf or tenant farms. When they got to America they did not set up communes*, they did not organise States to own all the land. Yet, these people were not land-owners historically, so where did this bourgeois "consciousness" come from?

Only Marxist academics have convinced themselves, but no-one else, that we want the State to own everything.


* with the exception of some religious communities.

Ostrom

asdasd wrote: »

Only Marxist academics have convinced themselves, but no-one else, that we want the State to own everything

Academia is not immune to idiots - not all Marxists share this opinion.

asdasd wrote: »

Marxists are always out of tune with reality. When I first started reading Marxism in the 90's the vogue was the deskilling of labour. In the actual real world I lived in the sons of Farmers and factory workers were gaining IT experience, and 50% of people were about to go to university

Bravermans' Labour and Monopoloy Capital was published in the 1970's, and explained workers experience in industrial Britain. Extensively criticised throughout the 80's and revised, it wasn't the vogue by the 90's, not even in the late 80's.



This may be of interest, some of you may be followers?

DeLong's response to David Harvey's criticism of the US stimulus package (Harvey's first post, the critique is in the text of DeLongs' response). Harvey titled his response 'The Arrogance of Neoclassical Economists'. Whatever your position, it is interesting reading.

Delong

Harvey

Hasschu

After reading this I remember that a well respected economist once said "The main reason to become an economist is to protect yourself from other economists."
An early change of gov't would be good. We are so tied up with trying to get a few sods of turf dry for the winter here in Kerry that we do not have time to storm the Dail. It is all up to you Dubliners' now. Even Chomsky and Marx combined would be incapable of saving the Irish from ourselves.

Hasschu

The following is a cut from:

http://delong.typepad.com/sdj/2009/02/department-of-huh-in-praise-of-neoclassical-economics-department.html

And it is at this point that we draw on neoclassical economics to save us--specifically, John Hicks (1937), "Mr. Keynes and the Classics," the fons et origo of the neoclassical synthesis. Hicks's IS curve gives us a menu of combinations of levels of production and interest rates at which private investment spending and public deficit spending are financed out of the flow of savings. When the level of production is higher, private savings are higher--and thus the combination of private investent and deficit that can be financed is bigger. When the level of production is lower, private savings are lower--and thus the combination of private investment and deficit that can be financed is lower. Any level of deficit can be financed if the interest rate is such that the deficit plus the private investment spending equals the savings that come out of the incomes generated by the corresponding level of output.

Will neoclassical economics save us?

gerry87

Nobody can claim economics has all the answers, but it has some of them, and an educated guess at the rest. It's best not to get attached to any particular theory, since it is just that - a theory. Talking about any theory as if it's known to be right is stupid, a theory can't be known to be right.

It's all a work in progress, there are new areas coming into vogue trying to question things - Econophysics, Behavioural Economics, Neuroeconomics all trying to build on the theories, and the only way to do that is to attack old theories, it's the way it should be. Universal acceptance of a theory stagnates the discipline.

The thing about economic models is that they are tested and accepted to be a good fit - based on assumptions. Nobody says they're right in the real world, just in the assumed world. The next step is to relax assumptions and update the model, and keep repeating until it graduates from a theory to 'the way it is.' For a lot of things we're not there yet, and who knows if we ever will be.

The trouble is that theories get thrown into the real world before they're ready to be released from the incubation of academia.

The normal distribution in finance is a fine example, it seemed to fit so it got pulled out of academia coupled with a compelling theory (EMH) and then was used infallibly (Black-scholes), it got into the hands of people who didn't understand it and thats when the problem started.

emm so yea, in conclusion... all economics doing is trying to turn the unknown unknowns into known unknowns.

Anyway, i'm rambling... but sure thats not stopping anyone else :P

(oh and flamed divings right, arguing about specific theories/models is useful, arguing about generalisations 'Neoclassical Economicsts' is just jibber jabber)

Flamed Diving

Econophysics?

gerry87

Flamed Diving wrote: »

Econophysics?

Yup, it's like economics.... and physics!

Flamed Diving

gerry87 wrote: »

Yup, it's like economics.... and physics!

Any examples or overviews, I'm just curious.

Other than what comes up with a quick google, just wondering if u have something interesting that is hidden.