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09/16/2011

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John D

I think the main premise of traditional economics is that growth is perpetual. This is of course illogical with a finite earth. If their most basic premise is illogical, how can one believe all their other sub-premises?

sharonsj

Every time an economic expert is "surprised" by a bubble, or says that unemployment unexpectedly rose, or says there is no inflation, I just laugh and turn off the TV. These people are so divorced from reality they cannot figure out anything.

All they have to do is get out of their offices and drive around the country. Talk to people. They would find out really quick that people can't find jobs, that businesses are closing up, that people can't pay their mortgages and their bills even if they have a job, and that they are buying their food at Dollar General.

We are sliding into a depression and the morons in Washington don't have a clue. My area of Pennsylvania was devastated by floods--people have lost everything--but the politicians are playing games as usual. We need to vote out 99% of them or perhaps put many on trial for treason. And I don't mean the president, I mean the Republicans who are blocking everything that might help the average American. They won't agree to take away tax credits for corporate jets, for outsourcing jobs, for parking profits in offshore accounts, and for generally screwing the taxpayer. I want dead or gone.

Doug Guillory

This is exactly what I have been thinking. Economists can't acknowledge the irrationality, conflicts of interest or criminality in the system, when they also benefit. It's honor among thieves.

Gail

The kids are fed up. I'm going to bring them cookies tomorrow, and my video camera:

http://wagingnonviolence.org/2011/09/for-occupywallstreet-dispersion-is-part-of-the-plan/

Everyone is welcome!

Brian M

"Give a Capitalist enough rope and he will hang himself with it."

Actually, it seems to me that recent experience shows that they will first try to hang everybody else with it so they can take their money. Such are sociopaths.

CHilke

A very important point. I’m always flabbergasted when people turn to their pet economic theory as a way to justify some outrage. Economics is a pseudoscience. Economists like Thoma et.al. flatter themselves to think they are dealing with any sort of true “science”.

It starts with a foregone conclusion – like the idea that so-called “free” markets, lack of regulations and globalization will make everyone better off - and then gathers evidence to support those conclusions. And isn’t it interesting how the forgone conclusions of economists always end up supporting the wealthy and powerful? In fact, its antecedent is medieval theology. References to sacred texts like The Bible and Aristotle were substituted for any type of empirical evidence, and anything that did not fit that world view (like a receeding glacier or a dinosaur fossil) was discarded or explained away by tortured logic.

Many observers have compared the economics profession to the Catholic Church of the Middle Ages. In fact, their role is precisely the same – to provide a philosophical justification for a clearly dysfunctional and unjust social order. Rather than kingship by divine right, it attempts to justify to the masses things that are clearly absurd – like Americans competing against workers all over the world will make all of us more prosperous. Or that supply creates its own demand (Say’s law). Or that infinite growth is possible on a finite planet. Of course the conclusions of economists always support those who wield the money and power. Coincidence? The sole purpose of economics as it is practiced today is to come up with justifications for the status quo. Think about it – the “father of classical economics,” Adam Smith, did not attempt to come up with some sort of ideal, rational system, he merely described what was already happening. Then later, these observations became a “science.”

The conceits of modern economics come out of Enlightenment attempts to make social governance as “rational” as Newtonian physics. Two critical ideas underlie this - that individuals were atoms whose interactions were as precisely quantifiable as the effects of gravity on physical objects, and that the “laws” of economics were as immutable as Newton’s laws, such as F=MA. Never mind that every “law” of economics has been proven false (even supply and demand – have you looked at college prices lately), and that the money system is an entirely artificial creation, subject only to whatever rules we wish to apply. This has gotten even worse as what used to be called institutional economics was replaced with abstract mathematical models promoted by game theorists and think-tanks. With institutional economics, the effects of policy were implicitly an object of study. When the idea of the market as a perfectly rational, all-knowing machine that correctly allocates all resources became gospel, any questions about social effects were tossed out the window. Economics finally realized their Enlightenment goal. Too bad their “Market” seems to be identical to the Medieval Catholic Church’s notions of God – all-knowing, all-powerful, capricious, and most of all, never to be questioned under any circumstances. That why economists can no more explain financial crises than medieval monks could explain famines or the Black Death to the suffering populace.

The truth is, markets have always been driven not by scietific principles, but by greed and fear. Is there a quantifiable unit that measures greed (may I propose the “Blankfein” as such a unit).

Like the Catholic Church, modern economics does not tolerate dissent. Remember Galileo? If you look up heterodox economics (type it into Wikipedia) you can see what happens to people and ideas that do not fit in the current economic free-market paradigm. Any apostates from this world view , no matter how intelligent and qualified, are dismissed entirely. In fact, the ultimate “heterodox” economist, Karl Marx, seems to have predicted exactly what is happening to capitalism, and a few more intelligent observers are starting to note that uncomfortable fact, to wit:

http://blogs.hbr.org/haque/2011/09/was_marx_right.html
http://seekingalpha.com/article/187119-the-fate-of-capitalism-was-marx-right
http://www.oftwominds.com/blogaug11/crisis-of-capitalism-8-11.html
http://www.bbc.co.uk/news/magazine-14764357

As Adam Curtis so aptly put it in a recent blog post, mainstream economists and think-tanks are designed not to come up with solutions, but rather to limit our ideas to those that benefit the already powerful and preserve the status quo. Here is an eloquent statement from his blog:

“The guiding idea at the heart of today's political system is freedom of choice. The belief that if you apply the ideals of the free market to all sorts of areas in society, people will be liberated from the dead hand of government. The wants and desires of individuals then become the primary motor of society.”

“But this has led to a very peculiar paradox. In politics today we have no choice at all. Quite simply There Is No Alternative.”

“That was fine when the system was working well. But since 2008 there has been a rolling economic crisis, and the system increasingly seems unable to rescue itself. You would expect that in response to such a crisis new, alternative ideas would emerge. But this hasn't happened.”

“Nobody - not just from the left, but from anywhere - has come forward and tried to grab the public imagination with a vision of a different way to organise and manage society.”

“It's a bit odd - and I thought I would tell a number of stories about why we find it impossible to imagine any alternative. Why we have become so possessed by the ideology of our age that we cannot think outside it.”

Dave Cohen

Gail --

Maybe I'll get in some hot water for saying this, but the more I read about this Wall Street protest, the more it looks like complete bullshit.

http://wagingnonviolence.org/2011/09/who-will-occupy-wall-street-on-september-17/

It is now 3 years after the financial meltdown, this country is going down the toilet, and all that's going to happen is that a few young people will camp out on Wall Street for a few hours? What a load of crap.

If the response of Americans to the fucking they are getting were APPROPRIATE, millions -- I mean MANY MILLIONS -- of Americans would embark on Washington in a well-organized, non-violent protest, basically just occupy the city in another failed but valiant attempt to take their country back.

I'm no activist, and I wouldn't even go, but if I WERE an activist, I would say it's high time somebody got fucking organized around here. Because the way things are going, the lack of social cohesion means that this could be your LAST CHANCE to try to do something about it, if you like going out in a blaze of glory.

Everything that happens in this country is half-assed.

-- Dave

John D

@CHilke- Come on, don't hold back. Tell us how you really feel about economists!
(nice post)

Dave Cohen

CHilke --

I agree of course with everything you said.

Our problems seem to revolve around "excess liquidity" -- too many "Blankfeins"

Re: "Why we have become so possessed by the ideology of our age that we cannot think outside it"

Yes, that's the proverbial "box" I like to talk about.

-- Dave

xraymike79

It helps if the high priests of finance own the economic profession:

Priceless: How The Federal Reserve Bought The Economics Profession

"The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found.

This dominance helps explain how, even after the Fed failed to foresee the greatest economic collapse since the Great Depression, the central bank has largely escaped criticism from academic economists. In the Fed's thrall, the economists missed it, too.

"The Fed has a lock on the economics world," says Joshua Rosner, a Wall Street analyst who correctly called the meltdown. "There is no room for other views, which I guess is why economists got it so wrong."

One critical way the Fed exerts control on academic economists is through its relationships with the field's gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll -- and the rest have been in the past.
...
Just how dominant is the Fed today?

The Federal Reserve's Board of Governors employs 220 PhD economists and a host of researchers and support staff, according to a Fed spokeswoman. The 12 regional banks employ scores more. (HuffPost placed calls to them but was unable to get exact numbers.) The Fed also doles out millions of dollars in contracts to economists for consulting assignments, papers, presentations, workshops, and that plum gig known as a "visiting scholarship." A Fed spokeswoman says that exact figures for the number of economists contracted with weren't available. But, she says, the Federal Reserve spent $389.2 million in 2008 on "monetary and economic policy," money spent on analysis, research, data gathering, and studies on market structure; $433 million is budgeted for 2009.

That's a lot of money for a relatively small number of economists.
...
Gatekeepers On The Payroll

The Fed keeps many of the influential editors of prominent academic journals on its payroll. It is common for a journal editor to review submissions dealing with Fed policy while also taking the bank's money. A HuffPost review of seven top journals found that 84 of the 190 editorial board members were affiliated with the Federal Reserve in one way or another.

"Try to publish an article critical of the Fed with an editor who works for the Fed," says Galbraith. And the journals, in turn, determine which economists get tenure and what ideas are considered respectable.

The pharmaceutical industry has similarly worked to control key medical journals, but that involves several companies. In the field of economics, it's just the Fed.

Being on the Fed payroll isn't just about the money, either. A relationship with the Fed carries prestige; invitations to Fed conferences and offers of visiting scholarships with the bank signal a rising star or an economist who has arrived.

Affiliations with the Fed have become the oxygen of academic life for monetary economists. "It's very important, if you are tenure track and don't have tenure, to show that you are valued by the Federal Reserve," says Jane D'Arista, a Fed critic and an economist with the Political Economy Research Institute at the University of Massachusetts, Amherst.
..."
http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html

Steve

"As Thoma implies, economists live in the dark, but the main reason they shun the light is that they have entirely mischaracterized the Human Element. Humans are not rational maximizers or whatever they're called...Is there a variable called "greed" in the macroeconomic models?"

Actually, there is - it just might not be what folks are looking for. It's a book called Human Action: http://mises.org/resources/3250

For a brief overview, look here: http://en.wikipedia.org/wiki/Human_Action

Dave Cohen

Steve --

I should note for the record that when I refer to "economists" I am talking about the Usual Suspects, not Austrians. And Human Action is just so much gibberish if that Wikipedia page is anything to go by. Human Nature continues to elude Mises and the rest.

-- Dave

Gail

I would be the first to say that Occupy Wall Street is a bit quaint. Since I appear to have been granted a "fly on the wall" status, I can confidently say that it is the most disorganized, idealistic, emotional, floundering, confused entity imaginable. I mean, there is not even a single demand, goal, or purpose other than protest! They have cute posters though.

But anyway hey, it's something. And who knows, maybe it will lead somewhere. At least these kids aren't completely apathetic - although it's not clear how much they want the system changed for ideological reasons and how much can be ascribed to (well-justified) fury that the rug is being yanked out from under them, and all the toys they were promised all their lives till recently are evaporating before their disbelieving eyes...I just don't know.

On the other hand having participated in the Tar Sands, it took VERY experienced activists with substantial financial backing from several prominent organizations to put together a protest that involved slightly over 1250 participants, who were only risking very genteel, pre-arranged, predictable "arrests" that were more like jaywalking tickets. They also received very little press, and then usually as an aside in a story mainly devoted to Obama, the State Dept., and the Keystone pipeline.

It remains to be seen what happens tomorrow and in the days that follow, but it certainly has the potential to have more impact than the demonstration in DC, at least with public awareness. Already 9 kids were arrested in a trial run a week ago, and these were much riskier for them.

Give them some credit for trying, Dave.

Dave Cohen

Re: Gail's "But anyway hey, it's something. And who knows, maybe it will lead somewhere."

Yeah, and there's a Tooth Fairy, and Santa Clause gives us gifts at Christmas, and Stephen Spielberg is a great film-maker.

-- Dave

Brett

You must have not seen ET. That thermometer-on-the-lamp-to-fake-a-fever trick is priceless.

Gail

Dave you are NOT implying that Santa isn't real, are you???

Jacob

Dave, I'm a relatively new reader. Your blog is such a breath of fresh air. We have been fed layer upon layer of fallacies and we will never find any solutions unless we start to reject these "untruths". Modern economics is certainly one of these lies. As you said, it is not science, and it cannot be experimental proven or justified. It is political thought obfuscated by mathematical complexity. Just leave mathematics out of it, and just state your political views! Mathematics by definition cannot explain the emotions, irrationality, or greed of human behavior. As you stated, there is no "variable" for that.

What blows me away is that if you compare your blog to some of the star economists' blogs you really see how blind they are. They are running around the underbrush claiming to put out fires when the whole forest is burning! The most obvious insights elude them.

Here is something recent from one of the star-con-o-mists:

"In my view, supply-side factors are the main reason why the employment-to-population ratio has been so dismal since 2000, demand-side factors are the main reason why so many bad things have happened since 2007-2009, and supply-side factors and mismatched expectations are the fundamental reason why demand-side factors went south in 2007-2009."

This guy's is like a blind man trying to describe what the fog looks like on a moon-less night. Let me translate for you in simple English, and then propose a non-coercive solution:

Some number of years ago, we as a country stopped making things. Even though wealth is generated from the production of goods and services (supply), we decided that this time, things were different. We did not stop consuming things (demand), we just stopped consuming our own things. The rest of the world stopped consuming most of our things as well. But they decided to loan us money so we would still consume their things. Now we are in a big mess. Until we decide, through our own free will, that it is necessary to consume more of our own goods, there will not be a "recovery", because there will be no reason to increase supply (production). Every time a consumer makes a purchase a decision is made. As long as the origin of those goods continues to mostly be from abroad and not from here, things will not change.

Dave, you have stated this in other blog entries about manufacturing and the middle class. If only some of the star-con-o-mists would read your blog. Then they would have a clue.

Dave, please keep up the good work. The truth shall set us free.


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