pseudoscience economy

7/31/2019 Pseudoscience Economy

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The Pseudoscience of Economics

According to wikipedia,

"Pseudoscience is a claim, belief, or practice which is presented as scientific, but does not adhere to avalid scientific method, lacks supporting evidence or plausibility, cannot be reliably tested, or otherwise

lacks scientific status. Pseudoscience is often characterized by the use of vague, exaggerated or

unprovable claims, an over-reliance on confirmation rather than rigorous attempts at refutation, a lackof openness to evaluation by other experts, and a general absence of systematic processes to rationally

develop theories."

I think economics satisfies most of these criteria. For example, economists love presenting their work

as scientific (see Lazear) however, many of their theories cannot be reliable tested, because people's"utility" functions simply cannot be measured in any sense, so any conclusions derived from those

functions are totally bogus. Moreover, pseudoscience is characterised by "exaggerated or unprovable"

claims, which is true of economics as well. The impact of minimum wages on unemployment forexample is hugely exaggerated, even though reality shows the effects to be negligible if that. The same

with the so called "disincentive" effects of high rates of marginal taxation.

There's clearly an overreliance on confirmation rather than refutation, as Card and Kreuger found

evidence of publication bias with respect to minimum wage studies, with papers showing a statisticalsignificant effect of the minimum wage on unemployment more likely to be published than those

showing no effect.

There is clearly "a lack of openness to evaluation by other experts,", since whenever scholars from

other disciplines try to debunk economic theories, they're called left wing idiots. When other heterodoxeconomists like Steve Keen criticise economics, they're called cranks, without any attempt to rationally

debate their arguments.

Modern economics is obsessed with modelling. An overwhelming majority of academic papers on

the subject work like so: they take data, and use data to construct formal mathematical models of

economic processes. Models mostly describe a situation, and describe how that situation would be

changed by a given set of events; a very simple example is that as the supply of a good diminishes,

its price will increase.Another is that deficit spending increases the national income. Amathematical model is a predictive tool created to demonstrate the outcome of events in a

massively simplified alternate universe.

As someone who rather enjoys voyages of the imagination, the use of mathematical models in

economics is intriguing. The pretension that through using formal mathematical techniques and

process we can not only accurately understand, but accurately predict the result of changes in

the economy is highly seductive. After all, we can accurately predict the future, right?

Wrong. The wonderful and terrible and confounding thing about our world is that it is a deeply
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unpredictable place, at least in the economic sphere where each number (for instance aggregate

demand or aggregate supply) in an equation may loosely refer to millions of huge, complex

and dynamic events. When youre using huge simplifications to describe reality, those

simplifications may miss the important details, and your projections may go askew.

Not all modelling is equal. Newtons model of gravitation (since superseded by Einsteins

relativity) makes relatively accurate predictions about how gravitation works, and what would

happen to an object dropped 500 metres above the Earth. NASA used Newtons equations to flyto the Moon. Of course, even in physics there are occasionally divergences and oddities (which is

why there are quite often unrepeatable or anomalous experimental results, for instance the recent

experiment that seemed to show neutrinos travelling faster than the speed of light). So economics

with its fixation on creating models of situations, and using these models to attempt to predict

the future, mimics physics, chemistry and biology, where data is collected, and used to produce

theories of physical processes which allow a modestly accurate representation of the future.

The key qualitative difference, though, is that mathematical economic theories dont accurately

predict the future.Ben Bernanke the chairman of the Federal Reserve, and one of the most-

cited academic economists in the world told the world that subprime housing was contained. That is

the economic equivalent of Stephen Hawking telling the world that a meteorite is going to miss the

Earth, when it is really going to hit. Physicists can very accurately model the trajectories of rocks

in space. But economists cannot accurately model the trajectories of prices, employment and

interest rates down on the rocky ground.

The thing that I believe modern economists are most useful for is pointing outthe glaring flaws in

everyone elses theories. Steve Keen has made a public name for himself by publishing a book

entitled debunking economics, in which he explains the glaring and various flaws in modern

economic modelling (DSGE, New Classical, etc).

Economics is a complex and multi-faceted subjects. Economists must be in some measure,

philosophers, historians, linguists, mathematicians, statisticians, political scientists, sociologists

and psychologists, and many other things. The trouble is that at some stage in the last century the

multi-faceted multi-dimensional economics (like that Xenophon) was hijacked by mathematicianswho tried to turn this huge and delicate subject into an equation. Yet economics and economic

decisions, from the macro to the micro level is a human subject. It is subtle and psychological

and sporadic. A human subject requires human language, human emotion, human intuition.

The grand theoretical-mathematical approach to economics is fundamentally flawed. Trying to

smudge the human reality of economics and politics into cold mathematical shackles is

degenerative.

So what to do if you want to understand the economy?

Follow the data,consider the history (similarities and differences between the past and the

present) and explain your conclusions simply, as you would to a child. Consider philosophical

definitions: what is money? What is demand? What is supply? What is value? How does demand

affect supply? What are the global patterns of trade? Why have they emerged this way and not

an alternative way? Consider possibilities. Admit the limitations of your knowledge and explore

the boundaries. Stop forcing the construction of absolutes, grand frameworks, grand theories. No

theory will ever be robust to everything nature will throw at it, but simple microeconomic

heuristics (opportunity cost, cost-benefit analysis) combined with data-focussed historical

analysis may be more robust than cold, dead mathematics.

As Heraclitus noted:No man ever steps in the same river twice
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No two situations are identical. And in this universe even tiny differences can have huge effects on

the outcome of a situation. This is the butterfly effect, a term coined by Edward Lorenz,

and derived from the theoretical example of a hurricanes formation being contingent on whether

or not a distant butterfly had flapped its wings several weeks before.

The pseudo-scientific school of mathematical economics hungers and craves for a perfect world,

where each river is the same, where there is no butterfly effect, where human preferences are

expressed in equation form, where there is no subtlety or ambiguity or uncertainty.

It is a dreamworld constructed by and for people with Aspergers Syndrome.

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The subject area covered by economics can be divided into three broad categories: "Economic"

behavior, human material interactions, and the theory of value. In all three areas, economic

theory fails to accurately describe, model, or predict the real world, and is in conflict with the

best understanding provided by noneconomic disciplines.

First, as a behavioral science, economics assumes that people are fairly rational, well-informed

agents working in their own self-interest, with little or no concern for the effects of their actionson others or on society as a whole. Many economists would put this even more strongly, claiming

that people are highly rational, and fully (and equally) informed. Not only is this view very

culturally narrow, being applicable primarily to western societies of the last 200 or so years, it

isn't even accurate within its cultural limits. Numerous studies (not to mention empirical

observation) demonstrate that people are not very rational, are often not well-informed, and are

certainly not equally informed. Consider a counter-example to the economic viewpoint:

advertising. If the economic view of human behavior were correct, advertisements would do

nothing more than provide accurate, useful information in order to convince consumers that it

makes sense to buy the product being advertised. There would be no place for such irrational

factors as emotional appeals, brand loyalty, sex, and so on. Clearly, this does not describe most

mass media advertising. What's going on? Either emotional, non-rational advertising works --which can only be true if consumer behavior is not rational -- or else such advertising doesn't

work -- in which case producers are behaving irrationally by continuing to employ ineffective

sales methods. Even in very simplified situations, such as experimental studies of economic

behavior, people seldom behave in a fully rational manner.

Economics as the study of human material interactions hardly exists at all. All

economic transactions involve the transportation or transformation of matter and

energy (even if only to alter the information content). The laws of physics and

biology, most especially the limit laws (such as the laws of thermodynamics), must

apply to any such interactions. Yet most economists are oblivious to such matters.

The few who are aware either argue that the limit laws do not apply to economics

(the most notorious proponent of this viewpoint is Julian Simon), or just get it

wrong. (e.g., by asserting that any economic activity will increase the entropy of the

earth. Since the earth is not a thermodynamically closed system, activity will not

necessarily increase the earth's entropy, although it must increase the entropy of

the universe as a whole.)

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Economics as Pseudoscience

Daniel Johnson Salem-News.com

Modern economics is based almost entirely on myths first pronounced by the 18th century moral

philosopher, Adam Smith.

(CALGARY, Alberta) - Ive been collecting quotes about, and insights into, economics since the

1970s. In fact, one of the first articles I ever published was "Superstition in Economics", in

Humanist in Canada in 1974. Here is an outline of what Ive accumulated so far.

If any field of study is a pseudoscience, it's economics. As Leonard Silk, late economics columnist

for the New York Times (an economist himself) once wrote:

"Economists try to do what all scientists doobserve certain aspects of the natural or social

world, gather data to measure those aspects, construct theories to explain the data, and test the

theories against reality to validate or invalidate them. On the whole, however, economists do a

weak job at all this. They commonly spend vast amounts of time observing each other's articles

rather than reality. Their data are poor, and they devote little time to improving them. Their

theories are rigid and mechanistic. And they rarely discard them unless some academic or

government position is at stake." (Economics in Plain English)

Or the late Harvard economist John Kenneth Galbraith:

Economists, on the whole, think well of what they do themselves and much less well of what

their professional colleagues do. If a scholar probes deeply into a small section of the subject, he

is fairly certain to mistrust, as superficial, the man who ranges more widely. The latter, in turn,

will think the specialist lacking in vision or what is called reach. By knowing ever more about

ever less, he will seem to risk becoming quite ignorant. Those who are mathematically inclined

see others in retreat from rigor. The others think those who manipulate symbols impractical. Thestatisticians believe those who prove points deductively to be dangerously intuitive. But, by their

colleagues, those who are controlled by numbers are often thought unduly cautious or even dull.

It is exceedingly fortunate for the psychic health of the profession that inadequacy lies so

uniformly with others. The situation in the other social sciences is said to be equally satisfactory.

(The New Industrial State)

What Invisible Hand?


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Modern economics is based almost entirely on myths first pronounced by the 18th century moral

philosopher, Adam Smith. His most famous myth is that the market is ruled by an Invisible

Hand. In The Wealth of Nations (1776) he wrote that an individual

generally, indeed, neither intends to promote the public interest, nor knows how much he ispromoting it. By preferring the support of domestic to that of foreign industry he intends only his

own security; and by directing that industry in such a manner as its produce may be of the

greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an

invisible hand to promote an end which was no part of his intention.By pursuing his own

interest he frequently promotes that of the society more effectually than when he really intends to

promote it. I have never known much good done by those who affected to trade for the public

good.

Philosopher Thomas Hobbes

But, says philosopher Joseph Heath, seventeenth century philosopher Thomas Hobbes

noticedas many of us havethat when left to their own devices, people have a tendency to

make a mess of things. His genius lay in the discovery that we do not necessarily make these

messes because we set out to harm one another. Often the mess occurs simply because our

attempts to secure our own self-interest are collectively self-defeating. So if our natural

inclination is to mind our own business and look after our own interests, then life in a state of

nature would be unbearable.

Smith was writing during a mercantilist period, even before the Industrial Revolution had begun.

His ideas on economics are completely taken out of context and do not, can not, apply in the 21st

century. This does not negate his importance as a moral philosopher, as shown in his otherwise

neglected Theory of Moral Sentiments.

Unpredictability in economics

Economics historian Stephen Mihm gives us an initial perspective:

Recessions are signal events in any modern economy. And yet remarkably, the profession of

economics is quite bad at predicting them. A recent study looked at consensus forecasts (the

predictions of large groups of economists) that were made in advance of 60 different national

recessions that hit around the world in the 90s: in 97 percent of the cases, the study found, the

economists failed to predict the coming contraction a year in advance. On those rare occasions


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when economists did successfully predict recessions, they significantly underestimated the

severity of the downturns. Worse, many of the economists failed to anticipate recessions that

occurred as soon as two months later.

John Kenneth Galbraith

In the same vein, Galbraith calls the Federal Reserve System the

"most prestigious form of fraud, our most elegant escape from realityit has had a record

against inflation and notably against recession of deep and unrelieved inconsequence.The belief

that anything as complex, as diverse and by its nature personally so important as money can be

guided by well-discussed but painless decisions emanating from a pleasant, unobtrusive building

in the nation's capital belongs not to the real world but to that of hope and imagination. Here our

most implausible and most cherished escape from reality. No one should deny those participating

their innocently acquired prestige, their sense of personal competence, their largely innocent

enjoyment of what in economic effect is a well-established fraud. Perhaps we should let theirineffective role be accepted and forgiven." (Economics of Innocent Fraud)

Going on to say that

Those employed or self-employed who tell of the future financial performance of an industry or

firm, given the unpredictable but controlling influence of the larger economy, do not know and

normally do not know that they do not know. Predictions from a financial firm, Wall Street

economist or financial advisor as the economic prospect for a corporationrecession, scheduled

recovery or a continuing economic boomare thought to reflect economic and financial

expertise. And there is no easy denial of an experts foresight. Past accidental success and an

ample display of charts, equations and self-confidence affirm depth of perception. Thus the

fraud. Correction awaits.

Recall that the current recession was predicted by no economists at all. If any did, their voices

were not heard.

What is economics?

In The Unnatural Nature of Science, Lewis Wolpert wrote: The Nobel laureate [in economics]

James Meade would like his tombstone to bear this epitaph: He tried to understand economics

all his life, but common sense kept getting in the way.

Joseph Heath:

Markets really are efficient, vastly more efficient than any other form of economic organization.

The pursuit of profit, under proper conditions, does generate collective benefitswin-winoutcomes. Markets are quite amazing. But because this sounds so unlikely, the fans of global

capitalism have had a marked tendency to overstate their case. After all, it is hard to imagine that

haggling, price-gouging, profit-seeking, personal enrichment, usury, or any of the other rough-

and-tumble practices of the marketplace have beneficial social consequences. Self-interest is

usually bad. Why should this be any exception? As a result, proponents of the marketplace have

been very reticent to admit that the market pattern of organization has any flaws or limitations.

When combined with the utopian streak of many right-wing economists, this has given the debate

over markets unnecessarily ideological and often quasi-religious overtones.


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In a properly structured market, firms should be indifferent to environmental regulation. The

problem is that markets are often not properly structured. As long as oil companies were making

leaded fuel, they were not paying the true cost that the manufacture of their product imposed

upon society. This is because of the negative externalitythe airborne lead emissions. As a result,

society was consuming too much gas. Eliminating the externality should therefore reduce total

demand for gasoline and increase the demand for other fuel sources. This is why the oilcompanies and refiners were opposed. They were profiting from the public bad. Thus opposition

from business to regulation is often a sign that the regulation is a good idea and is likely to

improve the overall efficiency of the economy.

Milton Friedman:

The major lesson of the Great Depression that has affected our lives is the wrong lesson, a

misinterpretation of the Great Depression. There is no doubt that the major lesson [was] you

could not count on the private enterprise system to maintain prosperity and that you had to rely

heavily on government to play a major role. If you take the period before 1929, so far as public

opinion in general is concerned, government was regarded as a necessary evil. I think here waswidespread support for the kind of views that Jefferson had expressed a century and a half

earlier on the virtues of small government and of limiting the role of government. The Great

Depression changed that because the lesson that the public at large learned from the Great

Depression was that it was the result of a failure of business, a failure of capitalism,and that in

order to be safe in the future they would have to rely much more heavily on government. That

was the lesson that was in fact learned from the Depression.[I]n my opinion, the lesson that

should have been learned, the right lesson, was that government let them down. That it was

mismanagement of the money system that produced it and not a failure of the market system.

Some things never change

In 1960, Vance Packard wrote in The Waste Makers:

A survey by insurance companies revealed that the average American family was about three

months from bankruptcy. That was its cushion against disaster after two decades of unparalleled

prosperity. For millions of familiesespecially for many living in suburban subdivisionsthe

brink of disaster was much closer. They were so pressed in meeting their host of monthly

instalment charges that they were stopping smoking temporarily or putting their wives to work

or seeking debt-consolidation loans, or all three.

Overall, the situation is worse today for almost everyone.

Vision in economics

In the 1950s Senator Joseph S. Clark of Pennsylvania said:


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The goal of our economy is not the production of more consumer goods at all. The goal of our

economy is to provide an environment in which every American family can have a good house for

living and shelter, a good school to which to sent the children, good transportation facilities and

good opportunities for cultural and spiritual advancement.

But just the opposite situation has evolved. Galbraith:

The economy is geared to the least urgent set of human values. It would be far more secure if it

were based on the whole range of need.

The income men derive from producing things of slight consequence is of great consequence to

them. The production reflects the high total utility of a livelihood to a person. For this reason,

although there is conventional wisdom to deny it, income and employment rather than goods

have become our basic economic concern.

This, he says, is because

The individual serves the industrial system not by supplying it with savings and the resulting

capital; he serves it by consuming its products. On no other activity, religious, political or moral,

is he so elaborately and skilfully and expensively instructed.

Charles (Charlie) Brower

As BBDO president Charles H. Brower said in the 1950s: The house of advertising is a mighty

fortress in our economy.Pull down advertising, and a frightening number of things will fall

with it.

In our society it has become difficult, well nigh impossible, to step away from the system and live

even a partial non-capitalist life. As Galbraith went on to say:

As does the voter, the buyer has the right to exercise independent choice, to opt out. This some

do; they resort to a lifestyle outside the system that is thought eccentric, even slightly insane. The

existence and exercise of such choice does not lessen the force of market persuasion. Economicsas taught and believed lags well behind the reality in all but the business schools.

Charity leads to the exploitation of the moral by the immoral

Here are three observations by philosopher Joseph Heath from his 2001 book The Efficient

Society:


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The fact that we are forced to pay taxes rubs some people the wrong way. But this is inevitable

whenever it is necessary to do something as a group. In the case of the condominium association,

people have no choice but to pay for the security guard at the front desk. In the case of the state,

people have no choice but to pay for the [police]. In both cases, the freedom that is being

restricted is nothing other than the freedom to free-ride. And thats a freedom were all better off

not having.

Stranger than fiction Order Now

The material prosperity of Americans is due to the relatively unrestricted operations of the

market economy in their society. It can cost a lot of money to make buildings beautiful. Once they

are built, their beauty can be enjoyed for free by anyone who happens to pass by. Thus the

enjoyment we all get from beautiful surroundings is largely a positive externality. As we have

seen, market economies systematically underproduce goods with positive externalities. And so

beauty suffers.

When I was living in Chicago, I once passed a homeless man on my way to school. It was the

middle of winter, and he had no shoes. It made me feel ill. In some people, this feeling is strong

enough that they are willing to donate some of their own money to charity in order to help relieve

such suffering. Unfortunately, the fact that this preference is felt so strongly in some quarters

gives others an opportunity to free-ride. People who dont care much about other people can get

away with not donating anything to charity. They still get all the benefits that poor relief

generatesin terms of improved environment and securityyet pay none of the costs. Thus

charity leads to the exploitation of the moral by the immoral.

Economics as ideology

Joseph Heaths first impression of economics was that it was a crude right-wing ideology. He

says that as he learned more about economics, a number of studies have since shown that

studying economics can actually make you a bad person. He added in a footnote that in

fairness, I should point out that these studies do not show that studying economics makes you a

bad person. It may just be that bad people are more likely to be attracted to the study of

economics. Anyhow, the truth probably lies somewhere in between.

Milton Friedman: The state might come back. The only reason free markets have a ghost of a

chance is that they are so much more efficient than any other form of organization. When you

argue for free markets, you are arguing against the trend. When something goes wrong, the

natural tendency is to say, by God, we need to pass a law and do something.

The idea that free markets are so much more efficient is an unsubstantiated, never proven

assumption. As British writer Frances Wheen points out in Idiot Proof):


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there is no evidence for the contention that simple laissez-faireis the prerequisite for trade and

prosperity. The IMF may say so, but its own figures tell a different story. Its report on The

World Economy in the Twentieth Century, published in May 2000, includes a graphprinted

very small, perhaps in the hope that no one would noticewhich shows that the period between

1950 and 1973 was by far the most successful of the twentieth century. This was an era

characterized by capital controls, fixed exchange rates, strong trade unions, a large public sector,and a general acceptance of governments role in demand management. The average annual

growth in per capita real GDP through the world was 2.9 percentprecisely twice as high as

the average rate since then.

In fact, writes Heath,

There is a tendency in our society to overestimate how easy it is to put together a market. We

are sometimes told that markets will spring up naturally whenever people are left free to trade.

Nothing could be further from the truth. Markets are extremely sophisticated legal constructions.Furthermore, getting them to work properly requires people to think about their society in a very

counter-intuitive way. As a result, markets represent a very unobvious and improbable

institutional development (If they werent so unobvious people would have thought of them long

ago.) The central virtue of markets is that they allow individuals to organize productive activities

using far less information than any other type of economic institution. They allow us, in a sense,

to solve the basic problems of our economy without actually working out a solution. Precisely

how they do this is the question that has fascinated economists for the last two hundred years.

In his book Capitalism and Freedom, conservative Nobel economist Milton Friedman argued

that a central element in the development of collectivist sentimenthas been a belief in equality

as a social goal and a willingness to use the arm of the state to promote it. What is the

justification for state intervention? he asked. The ethical principle that would directly justify the

distribution of income in a free market is, To each according to what he and the instruments he

owns produces. The operation of even this principle implicitly depends on state action. Property

rights are matters of law and social convention. As we have seen, their definition and enforcement

is one of the primary functions of the state. The final distribution of income and wealth under the

full operation of this principle may well depend markedly on the rules of property adopted.

Simon-Henri Linguet, a lawyer in pre-Revolutionary France, was disbarred from practice

because he was critical of both the law and property. He said:

Jacques Necker

Laws are destined above all to safeguard property. Now as one can take away much more from

the man who has than from the man who has not, they are obviously a guarantee accorded the

rich against the poor. It is difficult to believe, and yet it is clearly demonstrable, that the laws are

in some respects a conspiracy against the majority of the human race.


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Jacques Necker, controller of finances, was fired on the eve of the French Revolution: Almost all

civil institutions have been made by property owners. One might say that a small number of men,

having divided the earth among themselves, made laws as a union and guarantee against the

multitude.

In Emile, the French philosopher Jean-Jacques Rousseau wrote: The universal spirit of laws in

all countries is to favour the stronger against the weaker, and those who have against those who

have nothing; this disadvantage is inevitable and without exception.

This is echoed today by no less a personage than Col. Muammar el-Qaddafi (Libyan dictator as

of this writing) who said in his Green Book: This is genuine democracy, but in reality the strong

always rule.

In The Social Contract Rousseau said that the 17th century thinkers, Hugo Grotius (jurist) andThomas Hobbes (philosopher) show us the human race divided into herds of cattle, each with a

master who preserves it only in order to devour its members.

Economics of a Christian nation

Joseph Heath wrote:

St. Matthew had a number of good lines. My favourite is his somewhat infamous principle of

justice: To everyone who has will be given, and he will have abundance, but from him who hasnot, even that he has will be taken away. Throw out the unprofitable servant into the outer

darkness, where there will be weeping and gnashing of teeth. This passage occurs in the so-called

parable of the talents, in which Jesus appears to endorse a number of very dubious moral

principles.

Conclusion: The original affluent society

In the 1960s, anthropologist Marshall Sahlins argued that our society had erected a shrine to the

Unattainable: Infinite Needs, submitting to capitalist discipline and competition to earn moneyso we can chase those infinite needs by buying things we dont really want. We could learn

something, Sahlins suggested, from the pre-agricultural, hunter-gatherers of ten thousand years

ago. The worlds most primitive people, he wrote, have few possessions but they are not poor.

This only sounds like a paradox, for Sahlins went on to point out that foragers typically worked

twenty-one to thirty-five hours per week. Hunter-gatherers did not have cars or TVs, but they did

not know they were supposed to want them. Their means were few but their needs were fewer,

making them, in Sahlins view the original affluent society.


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This is a somewhat simplistic observation but it contains the kernel of a profound truth. Their

lives, by our standards, were short and in many ways uncomfortable (understatement?). If they

had had medicines and medical techniques that would have rid them of curable diseases and let

them live longer and more comfortably, there still would have been no need for them to pursue

useless material goods. Excess consumption is an artificial situation promoted by the capitalist

system, i.e., by property owners whose only goal is to increase their property and maintain their

dominance over their workers.

As Galbraith wrote:

To be guided by the belief that everyone should work a standard week and yearis to make

the needs of the industrial system, not the opportunity of the individual to fashion his own

existence, the ruling social concern. Men who speak of liberty should allow and even encourage

it.

Daniel Johnson was born near the midpoint of the twentieth century in Calgary, Alberta. In histeens he knew he was going to be a writer, which is why he was one of only a handful of boys in

his high school typing class a skill he knew was going to be necessary. He defines himself as a

social reformer, not a left winger, the latter being an ideological label which, he says, is why he is

not an ideologue. From 1975 to 1981 he was reporter, photographer, then editor of the weekly

Airdrie Echo. For more than ten years after that he worked with Peter C. Newman, Canadas top

business writer (notably on a series of books, The Canadian Establishment). Through this period

Daniel also did some national radio and TV broadcasting. He gave up journalism in the early

1980s because he had no interest in being a hack writer for the mainstream media and became a

software developer and programmer. He retired from computers last year and is now back to

doing what he loves writing and trying to make the world a better place

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Economic theory claims to describe how economies maximize, or fail to maximize,

value. Yet philosophers have demonstrated (as most economists will readily admit)

that economists don't really know what they are talking about when the talk about

value. Economic theory has been reformulated in various ways to try to circumvent

this problem. But most such fixes are nothing more than circumlocutions,

substitutions of other words or phrases for "value".

There are also other, more technical, issues (e.g., economic theory is oriented

toward static equilibrium models while the real world involves dynamic, ongoing

processes; "proofs" of economic theories often rely on fixed-point theorems which

require the absurd assumption that all economic quantities are continuous; and so

on.)

All the above criticism would be, if not negated, at least blunted, if economic theory

were actually useful, if it could predict or help us to understand events in the real-

world economy. This is where it becomes most obvious that economics is a

pseudoscience. In science, theories and models are tested against reality. If they are

contradicted by confirmed events, theories are either modified or rejected. In the

long run there is a winnowing out process which selects one or a few theories as

being most probably correct. In a pseudoscience, no such winnowing out occurs:

when confronted with strong evidence against a pseudoscientific theory, either the

evidence is dismissed or reinterpreted to conform to theory, or the theory is

reinterpreted to make it consistent with the data. Abandonment of the theory is

never even an option. There has been no winnowing out of economic theories.

When an "impossible" event occurs (e.g., "stagflation"), data or theory is simplyreinterpreted to conform to the new situation.

Economics has all the earmarks of a pseudoscience. I believe it is leading us astray

and should be abandoned, and that we should try to develop a true science of

economy.

http://www.god-and-country.info/EconIntro.html

http://www.econjobrumors.com/topic/economists-is-a-pseudoscience

Corporate crime: basic economics

Unlearning Economics says that capitalism gives us "institutionalized law-breaking":

Corporations have long history of force, fraud and theft...In a system based on private

accumulation, they will use their profits to corrupt the legal system, hijack public funds, getthe best lawyers, and make their operations as opaque as possible to avoid prosecution, no

matter the charge. None of this is a bug of capitalism; it is a feature.
http://www.god-and-country.info/EconIntro.htmlhttp://www.econjobrumors.com/topic/economists-is-a-pseudosciencehttp://unlearningeconomics.wordpress.com/2012/07/29/a-couple-of-criticisms-of-libertarianism/http://www.god-and-country.info/EconIntro.htmlhttp://www.econjobrumors.com/topic/economists-is-a-pseudosciencehttp://unlearningeconomics.wordpress.com/2012/07/29/a-couple-of-criticisms-of-libertarianism/


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If this sounds like a lefty rant, it shouldn't. It's just elementary economics.

This tells us that firms supply things up to the point at which the marginal benefit equals the marginal

cost. But this doesn't merely apply to the supply of goods and services. As Gary Becker showed (pdf) it

also applies to crime. Companies (like individuals) will commit crime up to the point at which thebenefit of doing so - higher profits - exceeds the cost. In the amoral world of econ 101, the cost is the

penalty for being caught (criminal punishment plus loss of business from irate customers), multiplied

by the probability of being caught*.

We should, then, expect there to be a positive level of corporate crime and bad behaviour: fraud,money-laundering, breach of health and safety laws, thesilencing of critics and so on.

However, it's not just companies for whom the optimum level of crime is positive. The same is true for

society as a whole, because the cost of detecting and prosecuting some crimes might exceed the social

cost of their commission; there is a reason why the government doesn't employ the whole population aspolicemen. As David Friedman wrote:

Theft is inefficientbut spending a hundred dollars to prevent a ten-dollar theft is still

more inefficient. Reducing theft to zero would almost certainly cost more than it would be

worth. What we want, from the standpoint of economic efficiency, is the optimal level of

theft. We want to increase our expenditures on law enforcement only as long as one moredollar spent catching and punishing thieves reduces the net cost of theft by more than a

dollar. Beyond that point, additional reductions in theft cost more than they are worth.

But here's the thing. The relative cost of investigating corporate crime is very often high; 90 officers are

employed by Operation Weeting, for example.If Stephen Green didn't know about HSBC's dealings

with money launderers, what chance would the average plod have of finding out?

Given these costs**, we'd expect scarce policing resources to be directed towards lower cost activities

such as arresting cyclists.

We would therefore expect companies to commit crime and the state to tolerate this, up to a point. You

don't have to be a leftist to see this. You just need to know very basic economics.

* In a world where morality matters, we can add to the cost term a "psychic cost" of the sense of shameand guilt of doing bad things. But there's no reason, a priori, to assume that this psychic cost is so high

as to prevent all crime.

** One caveat here is that public outrage about corporate crime might increase the benefits to the state

of devoting more resource to its detection. But efficiency requires that such resources be sufficient toplacate public anger, not that they be sufficient to prevent all crime.

PS

I hate the way economists model issues like crime using their overly simplistic "cost-benefit"marginalist framework. As a sociologist we understand that crime doesn't just occur in a

vacuum, but is influenced and moulded by deep seated socioeconomic and cultural factors that

interact with the existing structure of society. Economists treat criminals as making a "choice" to

commit crime, which fits well with the neoliberal ideology of taking personal responsibility for

your actions (which they use to bash the "underclass").

Where in the economic model of crime is the influences of class, power relations, social conditioning

and propaganda (benefit claimants are criminals, but corporate tax avoiders are not)? This is why the

rest of the social scientists despise economics as a discipline. It strips away all relevant aspects of a
http://en.wikipedia.org/wiki/Marginal_cost%20http://faculty.winthrop.edu/stonebrakerr/book/MC.htmhttp://www.ww.uni-magdeburg.de/bizecon/material/becker.1968.pdfhttp://www.daviddfriedman.com/Academic/Becker_Chapter/Becker_Chapter.htmlhttp://www.guardian.co.uk/commentisfree/2012/jul/29/nick-cohen-construction-workers-blacklisthttp://www.guardian.co.uk/commentisfree/2012/jul/29/nick-cohen-construction-workers-blacklisthttp://www.econlib.org/library/Enc/Crime.htmlhttp://en.wikipedia.org/wiki/Operation_Weetinghttp://www.guardian.co.uk/business/2012/jul/23/lords-backs-stephen-green-hsbchttp://www.guardian.co.uk/business/2012/jul/23/lords-backs-stephen-green-hsbchttp://www.independent.co.uk/news/uk/crime/scotland-yard-defends-arrests-of-critical-mass-cyclists-7985727.htmlhttp://en.wikipedia.org/wiki/Marginal_cost%20http://faculty.winthrop.edu/stonebrakerr/book/MC.htmhttp://www.ww.uni-magdeburg.de/bizecon/material/becker.1968.pdfhttp://www.daviddfriedman.com/Academic/Becker_Chapter/Becker_Chapter.htmlhttp://www.guardian.co.uk/commentisfree/2012/jul/29/nick-cohen-construction-workers-blacklisthttp://www.econlib.org/library/Enc/Crime.htmlhttp://en.wikipedia.org/wiki/Operation_Weetinghttp://www.guardian.co.uk/business/2012/jul/23/lords-backs-stephen-green-hsbchttp://www.independent.co.uk/news/uk/crime/scotland-yard-defends-arrests-of-critical-mass-cyclists-7985727.html


15/24

particular topic, and what remains is a ridiculous conception of human motivations, and based on the

behavioural assumptions imposed on homo economicus, you model his actions based on simple

heuristics that bare no relation to the real world.

And UnlearningEcon's point about socialism not being as good as capitalism in terms of capitalistobjectives is spot on, and is something the neoliberal economics profession choose not to get. This is

why we get bogus criticisms about socialism that complain that it doesn't achieve allocative or

productive efficiency, or that it doesn't offer consumer choice, that trade is restricted, that economicgrowth is disappointing etc.

Well, that is not the purpose of socialism. Only economists believe in infinite exponential growth in a

world of finite natural resources. Socialists don't care about economic growth, the point of socialism is

to help man achieve his true potential, unhindered by class divisions or social disadvantages. This selfrealisation of man is not dependent on consumer choice or economic growth, or efficient market

production.

A socialist system is based on the mantra of "From each according to his ability, to each according to

his need". The aim is not acccumulation and exploitation, two goals that capitalism is undoubtedly the

market leader in.

Could be incorporated into the model, but it's the same way economists incorporate altruism into

models of utility maximisation. It makes the concept of utility maximisation pointless, because you can

simply justify anything in terms of utility maximisation or (in terms of crime) include all sorts offactors into the marginalist cost-benefit computation. But this is not how real people behave, and it

individualises concepts like class, culture, stigma when in reality they are interconnected.

"I hate the way economists model issues like crime using their overly simplistic "cost-benefit"

marginalist framework."

I hate the way people make gigantic generalisations against millions of people, despite not actually

knowing what they're talking about.

"As a sociologist we understand that crime doesn't just occur in a vacuum, but is influenced andmoulded by deep seated socioeconomic and cultural factors that interact with the existing structure of

society."

I would say that I hate the way sociologists love to point out the obvious and obfuscate with obnoxious

and fundamentally uninteresting rhetoric, but I'm not as unbearably smug as you as to make such agigantic generalisation.

"(which they use to bash the "underclass")."

More insane, unsourced, unjustified hyperbole.

"Where in the economic model of crime is the influences of class, power relations, social conditioning

and propaganda (benefit claimants are criminals, but corporate tax avoiders are not)?"

Which economic model? I don't see any reason why any of these can't be included in an economicmodel. You seem to be attacking Chris for explaining how corporations might commit a crime because

it is in their interests to. The fact that he didn't mention class or propaganda seems like an unbelievably

mundane and trivial critique, he did nothing to actively exclude these factors as being a potential


16/24

explanation, just offered a motivation for their crime.

"This is why the rest of the social scientists despise economics as a discipline."

I would say that almost everyone despises sociologists for their unbearable intellectual masturbation

consisting of mostly non rigorous verbiage, but again.. generalisations and all.

" you model his actions based on simple heuristics that bare no relation to the real world."

Really? I don't think it's unrealistic to think of firms looking at the risks and rewards to crime, andchoosing to commit crime based on these factors. I actually know people who have committed white

collar crime (tax fraud); they obsessed about the risks in a meticulous fashion, Chris' approach seems to

appropriately fit in here, whereas propaganda or class does not seem to offer an insightful explanations

for his action in this case.

Of course this is just an anecdote, it can't match your... oh wait, you used literally nothing; not a single

shred of evidence to support any of your claims, just rhetoric. You must be the worst ambassador for

your discipline I have ever seen. Keep it up.

I wasn't attacking Chris at all, but the way economists model complex socioeconomic problems likecrime in such a reductionist, atomistic manner which completely ignores the social context in which

such phenomena is observed. If we followed the economists' way of modelling crime, it appears to

occur in a vacuum, which is totally divorced from reality.

You mention sociologists point out the obvious, and yet economists don't seem to take into account thetheories that sociologists have produced on topics that both disciplines study. If our insights are obvious

and yet economists ignore them, what does that say about economics?

You claim that my line about bashing the underclass is unjustified hyperbole. I simply ask you to read

any of the main newspapers and its frequent attacks against the "underclass" or "chav" population ofthe country. They may use coarser language, but the underlying philosophy is based on this idea that

individuals make a concious choice to commit crime (promoted by economics), and therefore deserve

all the opprobrium heaped on them by the right wing media. They, like economists like Becker, fail topoint out that the so called "criminal underclass" are actually subject to many social and cultural

pressures and have suffered immensely due to an unjust economic system, so in some ways are also

victims.

The fact that you criticise sociology for intellectual masturbation is hilarious, given that same criticismis much more relevant for economics. Your discipline comes out with paper after paper using obscure,

arcane mathematics to "prove" to yourselves that your theorems are actually correct if you assume

about 100 different things. At least sociologists study topics that are relevant to people in the real

world.

You mention "non rigorous verbiage". Well, perhaps our way of studying social phenomena is not

rigorous, but neither are economists' mathematical models. The economist Yanis Varoufakis says this inhis introduction to his blog,

"Quite clearly economics was only interested in putting together simplistic mathematical models.Worse still, the mathematics utilised were third rate and, consequently, the economic thinking that

emanated from it was atrocious."

My final retort to your post is related to your belief that the concepts I mention (class, power relations

etc) can be included into economic models. Let's ignore for the time being the fact that the way theseconcepts are included make the models unfalsifiable and therefore unscientific. A more fundamental


17/24

point would be why, in the economics of crime literature, are these concepts not included if they are so

easy to incorporate? IMO, it's probably because economists are simply in the pay of neoliberal

corporate interests and therefore decide to self censor themselves so as not to upset their paymasters.

Mainstream Economics is a CultPosted on June 30, 2012 byWashingtonsBlog

Neoclassical Economics Is Based on Myth

Neoclassical economics is a cult which ignores reality in favor of shared myths.

Economics professor Michael Hudson writes:

[One Nobel prize winning economist stated,] In pointing out the consequences of a set of

abstract assumptions, one need not be committed unduly as to the relation betweenreality and these assumptions.

This attitude did not deter him from drawing policy conclusions affecting the materialworld in which real people live.

Typical of this now widespread attitude is the textbook Microeconomics by WilliamVickery, winner of the 1997 Nobel Economics Prize:

Economic theory proper, indeed, is nothing more than a system of logical

relations between certain sets of assumptions and the conclusions derived from

them The validity of a theory proper does not depend on thecorrespondence or lack of it between the assumptions of the theory or its

conclusions and observations in the real world. A theory as an internallyconsistent system is valid if the conclusions follow logically from its premises,

and the fact that neither the premises nor the conclusions correspond to reality

may show that the theory is not very useful, but does not invalidate it. In any

pure theory, all propositions are essentially tautological, in the sense that theresults are implicit in the assumptions made.

Such disdain for empirical verification is not found in the physical sciences.

Our models show there is no chance of waterNeoclassical economists created the mega-banks, thinking that bigger was better. They pretend that its

better to help the big banks than the people,debt doesnt exist, high levels of leverage are good,artificially low interest rates are fine, bubbles are great, fraud should be covered up, and insolvent

institutions propped up.

Indeed, even after a brief period of questioning their myths after the 2008 economic crisis proved

their core assumptions wrong they have quickly regressed into their old ways.
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Economics professor Steve Keen notes:

Neoclassical economics has become a religion. Because it has a mathematical veneer,

and I emphasize the word veneer, they actually believe its true. Once you believe

something is true, youre locked into its way of thinking unless theres something that canbreak in from the outside and destroy that confidence.

Paul Heyne said:

The arguments of economists legitimate social and economic arrangements by providingthese arrangements with quasi-religious justification. Economists are thus doing theologywhile for the most part unaware of that fact.

Economics professor Bill Blacktold me:

The amount of fraud that drove the Wall Street bubble and its collapse and caused the GreatDepression is contested [keep reading to see what Black means]. The Pecora investigation

found widespread manipulation of earnings, conflicts of interest, and insider abuse by the

nations most elite financial leaders. John Kenneth Galbraiths work documented these

abuses. Theoclassical economic accounts, however, ignore or excuse these abuses.

Blackexplains:

[Neoclassical economists believed that] fraud is impossible because securities markets areefficient and act as if they were guided by an invisible hand. Markets cannot be

efficient if there is accounting control fraud, so we know (on the basis of circular

reasoning) that securities fraud cannot exist. Indeed, when [mainstream economists] try toexplain why the securities markets automatically exclude frauds theirfaith-based logicbecomes even more humorous.

Alex Andrews notes in the Guardian:

Greenspans confession [that his assumption that fraud is not a big problem for theeconomy was totally wrong] was seen by many for precisely what it was: a crisis of faith,

the faith that unrestricted free markets would always act benevolently. [Note: As we show

below, neoclassical economists do not really believe in free markets. As such, they areblind cultists, rather than thinking people of faith.] It revealed what a few had been arguing

for some time, that the character ofneoliberal economics is essentially religious. This is

counter-intuitive. Surely the policy of Greenspan and others is based on an understandingof the science of economics, particularly in the mainstream neoclassical form that is most

often taught in universities around the world? It is certainly the case that neoclassical

economics appears scientific. This is because it deploys huge quantities of complex

mathematics, giving it the veneer of being what it has long hoped to be, a kind of socialphysics.

***

Equations prove free markets work, but only in a sterile world of mathematical abstraction

that relies on ridiculous assumptions such as perfectly competitive markets. It is little

surprise then that Jean-Philippe Bouchaud, writing in the journal Nature, calls for ascientific revolution in economics.
http://deborahcampbell.org/writing/politics/post-autistic-economics/http://www.psupress.org/books/titles/0-271-02095-4.htmlhttp://www.washingtonsblog.com/2010/10/fraud-caused-great-depression-and-this.htmlhttp://www.washingtonsblog.com/2010/10/fraud-caused-great-depression-and-this.htmlhttp://www.washingtonsblog.com/2010/09/a-free-market-is-not-possible-without-strong-laws-against-fraud.htmlhttp://www.guardian.co.uk/commentisfree/belief/2009/jul/11/economics-greenspan-neoclassicalhttp://www.washingtonsblog.com/2010/11/even-greenspan-admits-that-moral-hazard-and-fraud-are-the-main-problems.htmlhttp://deborahcampbell.org/writing/politics/post-autistic-economics/http://www.psupress.org/books/titles/0-271-02095-4.htmlhttp://www.washingtonsblog.com/2010/10/fraud-caused-great-depression-and-this.htmlhttp://www.washingtonsblog.com/2010/10/fraud-caused-great-depression-and-this.htmlhttp://www.washingtonsblog.com/2010/09/a-free-market-is-not-possible-without-strong-laws-against-fraud.htmlhttp://www.guardian.co.uk/commentisfree/belief/2009/jul/11/economics-greenspan-neoclassicalhttp://www.washingtonsblog.com/2010/11/even-greenspan-admits-that-moral-hazard-and-fraud-are-the-main-problems.html


19/24

Once economics loses its status as science, its religious aspects become more obvious.

Robert H Nelson has spent his career trying to show that economics is religious in

character. Through the gospel of efficiency after the second world war, Nelson argues

that economists promised progress, a removal of sin, heaven on earth. Economists play therole of priests, defining good and bad behaviours that make this salvation possible.

***

It is clear that this is a market theodicy, justifying the ways of the market to men. When

neoliberal politicians warn against governments interfering in the market, lest the irrational

and temporary will of the electorate interfere with the spontaneous order of markets, thisnow seems like a dire warning that we must not play God and attempt to control the

mysteries of the market that in our finitude, our bounded rationality, we cannot properly

fathom.

Harpers noted in 2005 that neoclassical economics underneath its veneer of math and science is

actually a twisted form of Protestant religion in disguise:

Economics, as channeled by its popular avatars in media and politics, is the cosmology andthe theodicy of our contemporary culture. More than religion itself, more than literature,

more than cable television, it is economics that offers the dominant creation narrative of our

society, depicting the relation of each of us to the universe we inhabit, the relation of humanbeings to God. And the story it tells is a marvelous one. In it an enormous multitude of

strangers, all individuals, all striving alone, are nevertheless all bound together in a

beautiful and natural pattern of existence: the market. This understanding of marketsnotas artifacts of human civilization but as phenomena of naturenow serves as the

unquestioned foundation of nearly all political and social debate.

***

Economics departments around the world are overwhelmingly populated by economists of

one particular stripe. Within the field they are called neoclassical economists, and theirapproach to the discipline was developed over the course of the nineteenth century.

***

Neoclassical economics tends to downplay the importance of human institutions, seeing

instead a system of flows and exchanges that are governed by an inherent equilibrium.

Predicated on the belief that markets operate in a scientifically knowable fashion, it sees

them as self-regulating mathematical miracles, as delicate ecosystems best left alone.

If there is a whiff of creationism around this idea, it is no accident. By the time the term

economics first emerged, in the 1870s, it was evangelical Christianity that had done

the most to spur the field on toward its present scientific self-certainty.

When evangelical Christianity first grew into a powerful movement, between 1800 and

1850, studies of wealth and trade were called political economy. The two books at thecenter of this new learning were Adam Smiths Wealth of Nations (1776) and David

RicardosPrinciples of Political Economy and Taxation (1817).
http://harpers.org/archive/2005/05/0080538http://harpers.org/archive/2005/05/0080538


20/24

***

Ricardo concluded that the interests of different groups within an economyowners,investors, renters, laborerswould always be in conflict with one another. Ricardos

credibility with the capitalists was unquestionable: he was not a philosopher like Adam

Smith but a successful stockbroker who had retired young on his earnings. But his view of

capitalism made it seem that a harmonious society was a thing of the past: class conflictwas part of the modern world, and the gentle old England of squire and farmer was over.

The group that bridled most against these pessimistic elements of Smith and Ricardo

was the evangelicals. These were middle-class reformers who wanted to reshape Protestantdoctrine. For them it was unthinkable that capitalism led to class conflict, for that would

mean that God had created a world at war with itself. The evangelicals believed in a

providential God, one who built a logical and orderly universe, and they saw the newindustrial economy as a fulfillment of Gods plan. The free market, they believed, was a

perfectly designed instrument to reward good Christian behavior and to punish and

humiliate the unrepentant.

At the center of this early evangelical doctrine was the idea of original sin: we were all born

stained by corruption and fleshly desire, and the true purpose of earthly life was to redeemthis. The trials of economic lifethe sweat of hard labor, the fear of poverty, the self-denial

involved in savingwere earthly tests of sinfulness and virtue. While evangelicals believed

salvation was ultimately possible only through conversion and faith, they saw the pain of

earthly life as means of atonement for original sin.

***

The extreme among them urged mortification of the flesh and would scold anyone who

took pleasure in food, drink, or good company. Moreover, they regarded poverty as part ofa divine program. Evangelicals interpreted the mental anguish of poverty and debt, and the

physical agony of hunger or cold, as natural spurs to prick the conscience of sinners. They

believed that the suffering of the poor would provoke remorse, reflection, and

ultimately the conversion that would change their fate. In other words, poor people

were poor for a reason, and helping them out of poverty would endanger their mortal

souls. It was the evangelicals who began to see the business mogul as an heroic figure,

his wealth a triumph of righteous will. The stockbroker, who to Adam Smith had been a

suspicious and somewhat twisted character, was for nineteenth-century evangelicals aspiritual victor.

By the 1820s evangelicals were a dominant force in British economic policy.

***

Victorian evangelicals took a similar approach to the crisis in Ireland between 1845

and 1850 the potato famine.

***


21/24

The phrase political economy itself began to connote a cruel disregard for human

suffering. And so a generation later, when the next phase of capitalist boosterism emerged,

the term political economy was simply junked. The new field was called economics.

What had got the political economists into trouble a generation before was the perception,from a public dominated by Dickens readers, that political economy was mostly about

politicsabout imposing a zealous ideology of the market. Economics was devised,

instead, as a science, a field of objective knowledge with iron mathematical laws.Remodeling economics along the lines of physics insulated the new discipline from any

charges filed on moral or sentimental grounds. William Stanley Jevons made this case in

1871, comparing the Theory of Economy to the science of Statical Mechanics (i.e.,physics) and arguing that the Laws of Exchange in the marketplace resemble the Laws

of Equilibrium.

***

Today we often think of science and religion as standing in opposition, but the scientific

turn made by Jevons and his fellows only served to enshrine the faith of their evangelical

predecessors. The evangelicals believed that the market was a divine system, guided byspiritual laws. The scientific economists saw the market as a natural system, a principle

of equilibrium produced in the balance of individual souls.

***

U.S. policy debate, both in Congress and in the press, proceeds today as if the

neoclassical theory of the free market were incontrovertible, endorsed by science and

ordained by God. But markets are not spontaneous features of nature; they are creations of

human civilization, like, for example, skating rinks.

***

The claim that markets are products of higher-order law, products of nature or of divinewill, simply lends legitimacy to one particularly extreme view of politics and society.

Similarly, Philip Pilkington writes:

Taken at a very base level, the notion that there is an invisible hand that irons outinconsistencies and increases the efficiency of the production and circulation of goods is

basically the same claim that Hegel made about history being moved by a force called

Reason. (Indeed, Adam Smith was one ofHegels references, perhaps even one of his key

references). This claim, when made by either Smith or Hegel, can be traced back in turn

to the Protestant tradition ofpredestination. The reasoning here is absolutelymetaphysical and like the metaphysicians of yore it carries with it a moral lesson to be

passed on to disciples.

***

Economists make huge generalisations about the people they study. They assume, forexample, a single consumer that consumes the same goods and then projects this onto all

consumers.
http://www.nakedcapitalism.com/2011/06/philip-pilkington-economics-as-metaphysics-and-morals.htmlhttp://www.marxists.org/archive/lukacs/works/youngheg/lukacs25.htmhttp://www.marxists.org/archive/lukacs/works/youngheg/lukacs25.htmhttp://en.wikipedia.org/wiki/Predestinationhttp://en.wikipedia.org/wiki/Predestinationhttp://www.nakedcapitalism.com/2011/06/philip-pilkington-economics-as-metaphysics-and-morals.htmlhttp://www.marxists.org/archive/lukacs/works/youngheg/lukacs25.htmhttp://en.wikipedia.org/wiki/Predestination


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This is pure metaphysical reasoning. The economists concoct an idea in their heads which

they then use to construct a theoretical edifice which falls apart when the original idea is

shown to be false. They then derive a sort of moral code from this construct which tells

people how they should behave. In this case, students are told that this is how people shouldbehave if they are to produce efficiently and effectively.

How is this different from the shaman who makes up a myth about the origins of thetribe and then derives moral lessons from this myth that he then teaches to the tribes-

people? Its not.

***

Economic ideas such as the myth of the single consumer serve the function of

limiting principles for the way people in our contemporary society are allowed to thinkabout the world. To think outside these symbolic boundaries is not to be taken seriously.

And yet, these boundaries are simply metaphysical constructs built up by economists

and then disseminated to the population at large as a type of moral system.

Economics, then, is the totem its simple moral lessons, the taboos. And this is how we in

the modern world organise our thoughts and actions.

***

Adam Smiths hidden hand is the direct descendent of Protestant predestination.

***

Economics has become, once again, a metaphysical doctrine boiled down to a few crass

moralisms that are spoon-fed to the educated public.

***

It is really a subtle way of telling people what to do and assuring them that such authority is

founded on some sort of Natural or Divine Law.

***

In policy circles today economists play the role of the court-priest. They deploy their

esoteric and impenetrable knowledge to tell policymakers what they should and should

not do. To constrain economists to simply explain how the system works is to give them arole closer to that of the lawyer. The policymaker consults a lawyer to figure out what he or

she can or cannot do and then makes a decision from there. Similarly, he or she might

consult the economist, if the latter was seen as an operational role rather than as that of aseer.

This would, of course, threaten the role of the economist in society today. One can imaginethat it is rather nice to be thought of as a divine, laying down metaphysical principles about

the inner workings of the world and deriving from these timeless truths and moral


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certainties that we mere mortals can then submit to. So, one can also imagine that these

preachers and their flocks will respond to such a challenge with moral outrage. It is the

outrage of a priest who has been told that his God is an invention, concocted in his mind to

be used as leverage over his fellow men.

Neoclassical Economists Do NOT Believe in a Free MarketWhile many of the above quotes claim that neoclassical economists worship the free market, this is not

actually true.

As Ive previously noted:

When Mahatma Gandhi was asked what he thought about Western civilization, heanswered:

I think it would be a good idea.

I feel the same way about free market capitalism.

It would be a good idea, but it is not what we have now. Instead, we haveeither socialism,

fascism or a type of looting.

If people want to criticize capitalism and propose an alternative, that is fine . . . but only if

they understand what free market capitalism is and acknowledge that America has notpracticed free market capitalism for some time.

***

People pointing to the Western economies and saying that capitalism doesnt work is as

incorrect as pointing to Stalins murder of millions of innocent people and blaming it onsocialism. Without the governments creation of the too big to failbanks, Feds interventionin interest rates and the markets, government-created moral hazardemboldening casino-

style speculation, corruption of government officials, creation of a system of government-

sponsored rating agencies which had at its core a model ofbribery, and other government-induced distortions of the free market, things wouldnt have gotten nearly as bad.

***

Being against capitalism because of the mess weve gotten in would be like Gandhi saying

that he is against Western civilization because of the way the British behaved towards India.

And in the same way that the village shaman was often enlisted to promote and justify the chiefspower as being divinely-ordained and unquestionable, many of todays neoclassical economists justify

the acts of the ruling political class as being economically sound, even when such acts are antithetical

to free market economics.

Postscript 1: Of course, for free market economics to become a real science, it will have to take intoaccount realities such as imperfect information, externalities,the ability of powerful criminals to warp

markets, peoples behavioral idiosyncrasies and other real world factors.
http://www.washingtonsblog.com/2009/11/dont-blame-capitalism-for-wall-streets-corruption-and-lawlessness.htmlhttp://www.quotationspage.com/quote/1038.htmlhttp://www.washingtonsblog.com/2009/10/capitalism-socialism-or-fascism.htmlhttp://www.washingtonsblog.com/2009/10/capitalism-socialism-or-fascism.htmlhttp://www.washingtonsblog.com/2009/10/capitalism-socialism-or-fascism.htmlhttp://www.washingtonsblog.com/2009/10/debunking-the-too-big-to-fail-myth.htmlhttp://www.washingtonsblog.com/2009/10/debunking-the-too-big-to-fail-myth.htmlhttp://www.washingtonsblog.com/2009/09/how-well-has-the-federal-reserve-performed-for-america.htmlhttp://www.examiner.com/examiner/x-8198-Economic-Policy-Examiner~y2009m5d4-Nobel-prizewinning-economist-described-the-root-of-the-financial-crisis-in-1993http://www.examiner.com/examiner/x-8198-Economic-Policy-Examiner~y2009m5d4-Nobel-prizewinning-economist-described-the-root-of-the-financial-crisis-in-1993http://www.washingtonsblog.com/2009/08/companies-auditors-rating-agencies-and.htmlhttp://www.washingtonsblog.com/2009/09/credit-rating-agencies-took-bribes-for.htmlhttp://www.washingtonsblog.com/2009/09/credit-rating-agencies-took-bribes-for.htmlhttp://en.wikipedia.org/wiki/Perfect_competitionhttp://www.washingtonsblog.com/2011/11/real-free-market-capitalists-demand-that-financial-fraud-be-prosecuted.htmlhttp://www.washingtonsblog.com/2011/11/real-free-market-capitalists-demand-that-financial-fraud-be-prosecuted.htmlhttp://www.washingtonsblog.com/2011/11/real-free-market-capitalists-demand-that-financial-fraud-be-prosecuted.htmlhttp://en.wikipedia.org/wiki/Behavioral_economicshttp://www.washingtonsblog.com/2009/11/dont-blame-capitalism-for-wall-streets-corruption-and-lawlessness.htmlhttp://www.quotationspage.com/quote/1038.htmlhttp://www.washingtonsblog.com/2009/10/capitalism-socialism-or-fascism.htmlhttp://www.washingtonsblog.com/2009/10/capitalism-socialism-or-fascism.htmlhttp://www.washingtonsblog.com/2009/10/debunking-the-too-big-to-fail-myth.htmlhttp://www.washingtonsblog.com/2009/09/how-well-has-the-federal-reserve-performed-for-america.htmlhttp://www.examiner.com/examiner/x-8198-Economic-Policy-Examiner~y2009m5d4-Nobel-prizewinning-economist-described-the-root-of-the-financial-crisis-in-1993http://www.washingtonsblog.com/2009/08/companies-auditors-rating-agencies-and.htmlhttp://www.washingtonsblog.com/2009/09/credit-rating-agencies-took-bribes-for.htmlhttp://en.wikipedia.org/wiki/Perfect_competitionhttp://www.washingtonsblog.com/2011/11/real-free-market-capitalists-demand-that-financial-fraud-be-prosecuted.htmlhttp://www.washingtonsblog.com/2011/11/real-free-market-capitalists-demand-that-financial-fraud-be-prosecuted.htmlhttp://en.wikipedia.org/wiki/Behavioral_economics


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Postscript 2: Just as it is unfair to blame the behavior of a crazy cult leader on religion as a whole, it is

improper to blame our broken economic system on free market capitalism. It is the neoclassical

economists who have broken our system.

http://www.washingtonsblog.com/2012/06/mainstream-economics-is-a-cult.html
http://www.washingtonsblog.com/2011/07/bill-oreilly-is-right-its-unfair-to-call-the-norwegian-mass-murderer-a-christian-and-its-also-unfair-to-call-arab-terrorists-muslims.htmlhttp://www.washingtonsblog.com/2012/06/mainstream-economics-is-a-cult.htmlhttp://www.washingtonsblog.com/2011/07/bill-oreilly-is-right-its-unfair-to-call-the-norwegian-mass-murderer-a-christian-and-its-also-unfair-to-call-arab-terrorists-muslims.htmlhttp://www.washingtonsblog.com/2012/06/mainstream-economics-is-a-cult.html

pseudoscience economy

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