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THE CHALLENGE OF THE CURRENT GLOBAL SYSTEMIC CRISIS:

EPISTEMOLOGICAL ISSUES ON ECONOMICS

ICABE 2011 University of Piraeus, 29-30/9 &

1/10/11, Hellas (Greece)

Ass. Prof. Theodoros V. STAMATOPOULOS ( http://users.teicrete.gr/stamth/ )

T.E.I. of Crete and University of Piraeus, Hellas. D.E.F.I., Mediterranean University of Aix-Marseille-II, France.

http://users.teicrete.gr/stamth/

1. Problem Statement 1.1 Why was research needed (Motivation)?

The explanation (causes, consequences, legacies) we accept from famous economists (Cartapanis, 2010; Benassy-Quere, 2009; Reinhart and Rogoff, 2009; Krugman, 2009;

Stiglitz, 2010; …) for the enormous global crisis we live on, since 2007, seems to suggest it should be a “systemic one”.

So, the neoclassical (Walrasian) model we use to analyze “market economy”, I think that it does not suffer only from the “lack of efficiency”.

Our paradigm in this context calls us to face, also, epistemological issues in Economics.

T.V.Stamatopoulos, ICABE-2011, University of Piraeus, Hellas (Greece).

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1. Problem Statement 1.2 What was the context of the work?

I studied Yannaras (1989), a surprising and influential philosophical text, titled “The real and the imaginative in Political Economy”.

I focused on epistemological gaps he noticed, which I discuss briefly in this paper.

Needless to say, that as economist, I have faced too many difficulties in “understanding” a philosopher… Professor.


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1. Problem Statement 1.3 Introducing the problem.

Main reasoning of Yannaras (1989):

1. Ontological exclusion from Economics,

The neoclassical model seems to exclude any ontological consideration in explaining the economic reality, out of its useful version.

This is not only the basic principles of the Enlightenment (usefulness, hedonic philosophy, rationalism,

etc), but also Marxism, that they exclude any overcoming phenomenological (observatory) explanation of the economic reality.


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2. Personal Relations,

This exclusion of ontological (the essence of things and

beings) considerations is in fact impossible.

Every use of real materials is logical for human beings.

Logical, means a “personal relation”, that is, self-knowledge for the subject and attribution of a meaning to the useful object.

We always give a meaning to both terms of this personal relation, i.e., to our substance as well as to the objective reality.


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3. Metaphysics,

Consciously or not we all determine our relations on the basis of the appreciation we adopt for our subjective being and the world (=Jewell, κόσμος =

κόσμημα) too, i.e., we condition the economics on metaphysics (general principles for the being) we believe.

So, we can not exclude economic or even more political behavior from anthropological appreciations, or from the art, or even from moral principles, of each era.


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4. Mechanical -Newtonian- version of Eco. Reality,

The cosmogonic developments in current physics and epistemology, which we (economists) did not take into account, reflect our difficulty in understanding the different (from these developments), meaning from a “new” (?) reality.


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4. Mechanical -Newtonian- version of Eco. Reality,

We see the way Eco. works, as mainly mechanical (in the spirit of T.Aquinas and I.Newton), e.g., we use holistic view in macro. (aggregates), unification of personal differences, autonomous normative logic of “natural laws” or “social contracts”, while we give the first priority on the useful exploitation of resources, not at all on the personal relations in the production process.


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5. Changing our view of the reality through different sort of human needs,

In order to change our attitude against eco.reality (real

or imaginary content of meaning we give it), so as to explain it better, it seems that the conclusions of Eco. Science, or moral principles or even ideologies, are not enough.

This is true because our relations to reality are not, either theoretical, or moral or ideological. These reflect just human needs.


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5. Changing our view …,

So, a potential change in the priority of human needs, i.e., giving a different meaning of the human being and act, beyond the only useful version of the world (as a

consumers), might change these relations.

If Political Economy (see Economics) faces today many theoretical and empirical impasses, we ought, at least to consider if only “rational improvement” of our paradigm (neclassical model) is it enough to attain robust-sustainable solutions.

Are we confused in the meaning of our human being and act which reflect the impasses of Economics?


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2. Approach 2.1 What have I done and how I will go on about

making progress on the problem.

I hypothesize that Yannaras (1989) is right (i.e., we

see an imaginative view of the eco.reality), not only because historically (Reinhart and Rogoff, 2009) we do not forecast and prevent, at least, this huge current global systemic crisis, but also because the useful version of the reality is only a part of it.

Thus, if we could correct “market failures” (Stiglitz,

2010), we would have achieved the real view only for the useful part the economic reality.

Rational improvement only on this context it is Stiglitz-Sen-Fitoussi (2009) work on “…the measurement of eco. Performance and social progress”.


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2. Approach 2.2 Describing the method of research applied

Alternatively, a different way of research, we, as economists, might take lessons through Physics, and consider the possibility of epistemological gaps in Economics, which would explain our impasses in understanding the eco.reality.

As Krugman (2009) has mentioned on his work “The return of depression economics”, “the true scarcity in Keynes’s world -and ours- was therefore not of resources, or even virtue, but of understanding”.


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3. “Results” 3.1 What results did I get?

It is has already been proved (see references below) that “market economy failures” always command intervention policies, fiscal or monetary, so as to approach the “best solution” of general equilibrium.

Recently, Stiglitz (2010) have presented in details the explaining power of the reality that the basic economic model (Neoclassical or Walrasian, a Newtonian-

mechanical- equilibrium in Physics) offers.


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Starting from Smith (1776) “the pursuit of self-interest would lead to the general well-being of society”,

they were Arrow (1951) and Debreu (1954; 1959) who explained what was required for Smith’s insight to be correct in the sense of achieving a Pareto (1906) optimality.

However, markets have to be more than just competitive. Thus the main “market failures” (there is not a full set of insurance markets; financial markets are not perfect, EMH failed;


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there are externalities and public goods; there is no perfect information and no uniform kind of commodities or goods; Arrow and Debreu did not take into account the presence of innovation in their model) requires policy intervention so as to attain the optimum of general equilibrium.

In addition, Greenwald and Stiglitz (1986) showed that Arrow and Debreu have established the unique set of conditions under which markets were efficient. Their results still stand!


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However, even in the ideal case where intervention policies might correct “market failures”, our conclusions based on the neoclassical model are not enough to forecast economic reality.

The reason stands on epistemological gaps or inconsistencies on Economics.

A recent promising work in the direction of better representation of the reality has provided by Stiglitz-Sen-Fitoussi (2009). They discuss not only statistical concepts and procedures of measurement, but mainly they have proposed reforms on these, particularly important in the era of the current crisis.


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3. “Results” 3.2 What I have found and how it is related to the problem.

Epistemological gaps in Economics noticed by Yannaras (1989)

1. The main gap

2. Subtractions

3. Defined interest

4. The unreachable “objectiveness” of value

5. The target of production

6. The freedom as ability of choices

7. Imaginative correlations


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3. “Results” 3.2 Epistemological gaps in Economics

1. The main epistemological gap

The (epistemological) revolution of 20th century could be summarized as a “different version of the function of references”.

In other way, it’s about “the consistent understanding of the difference between researched and researching to”, or that

we do not deny substituting heterogeneous, unique or even undetermined human behaviour with the “objectiveness” of our models with dummy entities similarly understanding from all of us.


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As economists, it seems that we balance between positivism, mainly through econometrics (based on

observation), and uncertainty of dynamics of human behaviour, such as its motives, criteria or causes which form it.

We pay much more attention to causal relationships, so as to know economic act “as it is”, and less attention on ontological considerations, “as it deserves” (Karassis, 2010).


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We know nowadays that every notion significative of its nature is understanding in a relative way, and often undisciplined to our representative ability.

In Physics, for instance, electron is understanding (apprehensible) either as a body or as a wave, depending on what we would like to declare, location or speed, respectively. But either location or speed there are NOT themselves. They are composed by observation, which “configures” the researching object.


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As economists I think we “overcome” (?) this problem of “relativity of economics we observe”, through the Hypo. of “rational behavior”.

However, I do not know any universally accepted definition of “rational research methods” or “globally valid criteria of rationalism”.


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2. Subtractions or aggregates

Our analysis, as economists, is mainly based on reductive version of eco.reality. We aim on parsimonious econometric models, for instance.

Thus, we convert (subtract) “empirical data” into conceivable “constants”.

Starting point of such kind of reductions is “human subject and its behavior” as a constitutive unit of holistic considerations or aggregates.


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This homogenous or neutral version of “human unit” is not present only in economic theory but also in policy or business.

Many examples could be referred:

Biased “averages”: “per capita income or output”, “averg.

product of any resource”, “averg. purchasing power”, “averg. taxable capacity”, “averg. consumer preference”…

macro.agreggates: “labor force”, “GDP”, “consumption”,

“investment”, “saving”, …


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We (economists) aggregate data or aspects of human economic behavior without any no-reducible character. This is epistemological inconsistency or gap which we ought to be recognized.

I think that the economic reality could better fit to complementarities instead of subtractions.

Perhaps, we should not hesitate to accept complementarities on “subjectivity – objectivity”, “part – entirely”, “qualitative – quantitative”.

In this sense, e.g., it should be accepted an “EMU with respect on different identities of country-members”…


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3. Defined interest

I do not know a field in Economics where the constant of “interest”, is not used as basic assumption of our analysis.

We found our theories on the basic argument of A.Smith (1776) “the aim of individual interest conducts to social well-being”, which stands on the antipode of ancient Hellenic philosophy.

The function of the market, the goods’ or resources’ price determination, the concept of “value”, the implications of taxes, and so on, are all these notions approached under the unique principle of interest.


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3. Defined interest

However, the definition or the aim of interest as a necessary condition in any economic behavior depicts an uncertainty, even though there are differentiated prepositions.

For instance, “the quantitative and objective benefit” (J.S.Mill), “the price of the desiring satisfaction” (A.Marshall), “minimization of non-benefit” (A.Smith) etc.


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3. Defined interest Especially in Macro. many notions are understand only on

the basis of the “constant” of interest, e.g., national income, the sum of subjective benefits; employment-labor, identified with non-benefit or troubles which bring out any attempt; the value, the price paid for the satisfaction of desire, and so on.

However, there are also many economic acts which do not take into account the aforementioned interest, e.g., the satisfaction of personal creation, of social recognition, the dedication to a supreme goal, etc.

It seems to be a persistence to found an economic activity on interest, that’s why we see here one more epistemological gap in Economics.


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It is not only that “markets failure”, but mainly the aforementioned epistemological gaps (such as for

instance, the “defined self-interest”, or “the neutral human unit”)

which can explain why a functional analysis of relations of prices or that of demand and supply, can not be based on objectificated theories of value.


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Starting point of Economics as a positive science was the ambition of economic theory to constitute a normative explanation of the value and by extension of the procedure of prices determination.

The relevant literature is enormous or a bit less than the total economic one. I refer on a sample of main ideas so as to give examples of the mainstream logic of this channel of theories.


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The theory seek an objective measure of the values.

Quantity of labor required for the production of commodity (Smith, Ricardo, Marx).

Exchange and use (Smith) or real (Ricardo) values

Labor market defines the measure of the value, not the labor itself (Marx).

Marginal utility product (neoclassics)

Consumers’ preferences or psychological explication of the causes of supply, demand and prices, etc.


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3. “Results” 3.2 What I have found and how it is related to the problem.

Epistemological gaps in Economics noticed by Yannaras (1989)

1. The target of production

2. The freedom as ability of choices

3. Imaginative correlations

In a future research …


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3. “Results” 3.3 The ideal possible benchmark

The ideal possible benchmark might be the “Golden Age of Athens Democracy”.

1. Aristotle about usefulness

“It does not suit to free and great soul people to seek everywhere the usefulness, in order to value everything, criticizing the priority of how useful it is”.

2. First forward leap of Hellenes in the history

Across Aegean sea Hellenic people born the priority of the truth against the usefulness. Then the critical spirit was born .


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This section draws from Yannaras (2009)


2. First forward leap of Hellenes in the history

It should be clear that the priority of the truth it was not a moral demand or an ideological one, but it was their common need as a “social experience”.

This Hellenic common need was adopted by Western philosophy but in a different form, of efficiency, which is a kind of usefulness.

The truth for Hellenes was the supreme good, while, the critical searching of the truth (both as a knowledge and as a being), was serving their common need in the determination of the “real being”, which lives without any limit, loss or death

Platon says “there is need to maintain it always alive”.


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3. Second forward leap of Hellenes in the hist.

It was the transition from the “society of the need” to the “society of the truth”. With other words they chose the priority of the “political society” against the “natural one”.

4. Polis, Demos (not just a city, town)

Hellenes named “polis” not just a city as a place or as an aggregation of people (this have sense only in the

case of “natural society), but as another way of gathering institutionally and functionally homologous to the truth.


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4. Polis, Demos (not just a city, town)

The Polis (political society) aims to effectuate logical relations, which form and format beings as eternal and thus transform the globe to world (=κόσμος=κόσμημα, jewel).

This effectuation is not a matter of “social contract”, but conversely, of a common and continuous “agonistic event of freedom”.

5. Politis (… citizen) and Politiki (… politics)

In the Hellenic civilization “politis” named everyone who freely accepts the honor, in order to take part in the “agonistic event of the truth”.


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5. Politis (… citizen) and Politiki (… politics)

This “agonistic event of the truth” is the definition of “politiki” (politics) for Hellenes.

6. Kratos, Exoussia (State, authorities)

The “polites” (citizens) were responsible for the respect of the terms of the event of the truth; this is, the “Kratos” (state) is in charged of “Polis” (city).

7. Politeuma, Demo-kratia (regime, democracy)

The “politeuma” (regime) that the “polis” (city) functions is named Democracy, this is, the “kratos” (state) is in charged of Demos-Polis (city or polites –citizens-).


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4. Conclusions-Recommendations

4.1 What are the implications of this study?

Given the limitations of the existent epistemological gaps, it is quite possible to have an imaginative picture of the economic reality.

Hence, we fail to forecast or prevent so huge crisis as the current global systemic one.


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4.2 State the relevance, implications, or significance of the results or conclusions, to the business.

Given “market failures”, epistemological inconsistencies, and non-will of policymakers, there is a wide field for speculation and “abnormal” profits.


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4.3 Significance of work is often implied by the recommendations or implications for future work.

Future research is absolutely needed in each epistemological gap so as to found it with empirical evidences.


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Epistemological gaps on Economics

Thank you for your PATIENCE …


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