By Philip Pilkington, a journalist and writer living in Dublin, Ireland
What if all the world’s inside of your head
Just creations of your own?
Your devils and your gods
All the living and the dead
And you’re really all alone?
You can live in this illusion
You can choose to believe
You keep looking but you can’t find the woods
While you’re hiding in the trees
– Nine Inch Nails, Right Where it Belongs
Modern economics purports to be scientific. It is this that lends its practitioners ears all over the world; from the media, from policymakers and from the general public. Yet, at its very heart we find concepts that, having been carried over almost directly from the Christian tradition, are inherently theological. And these concepts have, in a sense, become congealed into an unquestionable dogma.
We’ve all heard it before of course: isn’t neoclassical economics a religion of sorts? I’ve argued here in the past that neoclassical economics is indeed a sort of moral system. But what if there are theological motifs right at the heart of contemporary economic theory? What does this say about its validity and what might this mean in relation to the social status of its practitioners?
Let us turn first to one of the most unusual and oft-cited pieces of contemporary economic doctrine: rational expectations theory.
Rational Expectations: Irrationality and an Encounter with the Godhead
Rational expectations is indeed an obscure doctrine. It essentially holds that people operating within a market generally act in line with the expectations of neoclassical theory. This tautology – for it is a tautology – can be traced back to Adam Smith’s ‘invisible hand’ which we explore in more detail later on.
But this goes beyond simple tautology. The neoclassical assumptions are themselves especially stringent and seem to be wholly counterfactual to any observer of human behaviour. Rational expectations theory expects people to act, well, rationally. More specifically it assumes that people always act in order to ‘maximise their utility’ and that such actions result in optimal behaviours that ensure that prices are always perfectly in keeping with what they ‘should be’ – that is, an equilibrium price that perfectly balances supply and demand. Prices then become a pristine and perfect measurement; they translate consumer desire perfectly and are beyond question.
Utility maximisation is a strange doctrine that goes right to the heart of rational expectations theory. It assumes that a fixed value can be placed on the satisfaction people derive from the things they buy. It also assumes – implicitly – that people are in some sense aware of this value and that they undertake their actions rationally in accordance with their perception of it.
At a glance this seems outlandish. Take consumption as the most glaring example. Anyone who has ever encountered any sort of marketing knows well that people don’t act in a perfectly rational manner. People often consume in line with what they perceive to be group expectations. Marketers and corporations take advantage of this and use it as leverage to jack up prices on certain goods. For example, are my brand name jeans really worth that much more in tangible terms than a non-brand names pair of jeans? I would say not.
Economists might counter this by arguing that consumers are still acting rationally insofar as their responding to marketers and brand names helps them further their social esteem: it gives them ‘social capital’ and it is this that the marketer is selling. To argue this is to fundamentally misunderstand the psychology of the consumer. The consumer may indeed identify with the group through the consumption of the product, however this is a deeply emotive act – not one in which the consumer cynically calculates that the product might enhance his or her ‘social capital’. It is not a rational response to the ‘social mores’ that the marketer is selling but rather an irrational response triggered by certain stimuli.
Marketers have understood this for nearly a century. Consider the case of a Lynx ad run a few years ago during the World Cup (here is the ad) – note also that Lynx have been running similar ads for years (which presumably means that this campaign has proved so effective that they have no need to fundamentally change it).
There is a certain amount of group identification present in this ad certainly (doesn’t every guy want to be the Don Juan who ‘scores’ all the chicks?), but there is definitely a deeper strata operating here. I don’t think I need to even point this out. The ad says it quite explicitly: ‘Spray more, get more’. This means that not only will you ‘get more’ women if you use Lynx, but also that if you literally spray on more Lynx you will literally get more women – a fantastic assertion.
Look again at the ad. Note how the guy is using an awful lot of Lynx. Indeed, it almost appears as if more women appear as he sprays on more of the deodorant (if one were to be terribly cynical one might read his end reaction in the ad as a sexual climax induced by his extremely liberal use of the deodorant). Anyone who has stood at a bar in a nightclub next to a guy smelling extremely heavily of Lynx will not doubt that this campaign has been at least somewhat effective.
The idea – a classic in marketing – is that not only to tie the consumer to the brand through group identification and the promise of sexual fulfilment, but to actually influence how the consumer uses the product itself. This ensures that the consumer will purchase more of the product because they will consume it faster. To claim that this behaviour is somehow rational is to pervert the English language itself. This behaviour is strongly irrational and those that attempt to manipulate it know this better than perhaps anyone else.
While we won’t go too far into the argument here, these observations can safely be transferred to most of the decisions that people make in all of the spheres dealt with by rational expectations theory. From direct investment to the purchase of stock to so-called inflation expectations, all have a strongly irrational aspect that is often manipulated by institutions for political and economic ends (the amount of institutions attempting to manipulate inflation expectations at the moment is quite incredible).
One example might be that of housing. During the boom years people invested money in housing not just because they might see a profitable return, but also because it became fashionable to own property – while the following clip is from a comedy show, the social observation is a sound one as far as Irish society during the property bubble is concerned. The boom rested not simply on the fact that it became ‘cool’ to own a house (this would be the social identification element as identified in the above clip), but also because being a homeowner has certain emotive overtones (having a family, being free from one’s parents etc.). These social expectations and emotive responses are key components not only in all speculative bubbles, but in all so-called market activity.
The fundamental point here is that people – be they consumers or producers, investors or forecasters – often act in an almost wholly irrational manner; one that is quite open to manipulation. And once we allow for this the very premise upon which rational expectations theory rests upon falls to pieces.
This is all very interesting, but it has nothing to do with theology, surely. Well, it is in the next key tenet of rational expectations theory that we truly encounter the Godhead.
Rational expectations theory assumes that people always operate on a complete amount of information. Economists call this ‘forecasting’ – although they might call it ‘crystal-ball gazing’. They do not assume that all consumers forecast perfectly at all time. However, they do assume that when any forecasting errors are made they are simply anomalies. This paper sums it up quite nicely:
The hypothesis of rational expectations means that economic agents forecast in such a way as to minimize forecast errors, subject to the information and decision—making constraints that confront them. It does not mean they make no forecast errors; it simply means that such errors have no serial correlation, no systematic component.
The idea here is that all economic actors have access to almost perfect knowledge of economic variables over time (prices, inflation etc.). True the above author qualifies that such forecasting is ‘subject to information and decision’** – which is more than many other economists allow – but this is a smokescreen. If we assume that market actors do not make mistakes in a given market then they must, by default, have access to almost perfect knowledge of that market; otherwise, to say that they don’t make mistakes is silly. If they were to have incomplete information then they would have to act, at least to some extent, on their gut instinct and so would, by definition, not be acting wholly rationally.
In rational expectations theory when market actors get market variables incorrect or act in an ‘incorrect’ manner on these variables this error is not taken to be indicative of some underlying uncertainty in their action, but simply an anomaly; an exception to the rule. Economic actors are assumed to have access to near perfect information, not just about the present but about the past and future as well.
Scratch a little deeper and you’ll find that this is an even more incredible assertion than it first appears. Rational expectations theory essentially assumes that consumers are omniscient beings – or at least, when they are acting ‘normally’ they are omniscient. This is where we encounter truly theological motifs in the edifice of neoclassical economics.
In many theologies, God is assumed to have perfect knowledge. And in order to gain access to this knowledge one needs only to try to build one’s relationship to God onto a higher plateau. In rational expectations it is assumed that individuals can indeed make mistakes – in theological terms: they can Sin – but these mistakes are never systemic – in theological terms: individuals are always on the way toward Salvation. As long as the individual keeps with the ‘tenets’ of the theory (which is presupposed), Sin is minimised and the individuals acts in line with the being possessing perfect knowledge.
The being of perfect knowledge is here not thought of as ‘God’ per se, but instead is given the name ‘The Market’. On a purely intellectual level the ideas seem almost identical. Both are overarching principles governing our lives, both are generally ‘followed’ unless perverse deviations (Sinners) crop up and both are perfect information processors.
We will return to this when we pick up Smith’s theory of the ‘invisible hand’ – a theory from which this all stems. For now let us turn to the true neoclassical Godhead: the efficient markets hypothesis.
The Efficient Markets Hypothesis: The Godhead Embodied
As we shall see shortly, ‘the Market’ is and always was a strongly theological idea. However, it is in the efficient markets hypothesis where the Godhead is truly to be located today.
Whereas the rational expectations model of the economic actor assumes that he or she is always in some sort of relationship with a being of perfect knowledge, the efficient markets hypothesis points the way to this divine being itself.
To really boil it down, the efficient markets hypothesis essentially states that all information is always already built into markets and hence they operate perfectly in line with how neoclassical theory would expect them to operate (i.e. with supply and demand in perfect equilibrium and prices reflecting this perfectly). In a way, the efficient markets hypothesis assumes that markets are made up of the actors we previously encountered in the rational expectations model. Since, as we have already seen, these actors always act in a predictable way, a conglomeration of them will process information perfectly.
The question to be asked is of the ‘chicken and egg’ variety: do these theories begin with the rational actor and then build upon this to form the efficient markets theory OR do these theories begin with the assumption of an overarching arena of rationality which is called ‘the market’ and then assume peoples’ actions based on this abstraction?
I would argue that the latter is the case. As we shall later see, if we trace these ideas right back to their roots we find that the theory of markets is far more primal than the theory of the rational individual – the latter is, in many ways, derived from the former.
So what status does this give the being that we call ‘the Market’? Well, if it is a being that is presupposed to exist while only being seen through its effects and is given the power to direct the behaviour of individuals, then it is surely of the theological variety. It is the Godhead embodied.
Many commentators – including this blog’s editor Yves Smith in her book ECONNED – have pointed out that the efficient markets hypothesis was used by policymakers to justify their cutting back on regulations and allowing ‘the Market’ to operate without constraint. These commentators have pointed out that it was this policy prescription that led to the current financial crisis.
It is also to be pointed out that these prescriptions were always undertaken with a kind of faith. Past experiences had cast into doubt that financial markets operated in line with the efficient markets hypothesis and yet those who pushed for deregulation were true believers in the hypothesis; they acted as if they were in a sort of irrational reverie, a suspension of historical remembrance wholly driven by their beliefs. It should not be surprising then that we find this idea to be a very close approximation of certain religious ideas and ideals.
The idea that there might be some overarching being – whether called ‘God’ or ‘the Market’ – that is directing all our activity and through whom we can be sure our actions are just and righteous, is a very attractive one. Like the religious ideas of yore it can both justify our actions when they are ethically questionable – we can assure people that such actions are in keeping with the Market’s Divine Will – and can assure us that the actions we undertake are reflected in and through some higher ideal – in this case a perfectly rational being we call ‘the Market’.
These ideals can also justify our actions after the fact when the God, so to speak, has failed. When this occurs – as has certainly happened today – devotees can assure the general public and their colleagues that it was simply a glitch, perhaps a testing of our faith and that we should never question the Market’s Will. Some of the more extreme devotees might even suggest that we have Sinned too greatly and that we have not followed the Market’s Will adequately enough. More deregulation is needed otherwise we might incur further punishment from the Divine Wrath.
Lying behind rational expectations theory and the efficient markets hypothesis is Adam Smith’s old notion of the ‘invisible hand’ and it is to this we now turn.
The Invisible Hand and Predestination
For by grace you have been saved through faith, and that not of yourselves; it is the gift of God, not of works, lest anyone should boast. For we are His workmanship, created in Christ Jesus for good works, which God prepared beforehand that we should walk in them – Ephesians 2:8-10
It was on this passage of the bible that the famous Protestant theologian Martin Luther based his idea that human beings had no free will. They were always subjects of God, bound up with Him and merely danced to whatever tune he played. This is the essence of the Protestant idea of Predestination. God has a plan for each and every one of us and we are just cogs in his great harmonious machine. It is His invisible hand that controls our actions and our destinies.
The importance of the invisible hand in the work of the first modern economist Adam Smith is hotly debated, since he used the metaphor only three times in his whole work and even then he used it only loosely. However, it is thought by many – and rightly, I think – as distilling the main thrust of his work in a single, useful phrase.
For Smith, the Market should be free to largely act autonomously. It ironed out its own inconsistencies and operated effectively and harmoniously. But what place did this leave for the individual?
Many today claim that Smith was the great prophet of human freedom. Yet if his theories are read as being wholly deterministic this surely cannot be the case. If the Market acts autonomously, unconsciously dictating all our actions then is there really space for liberty in classical or neoclassical economic theory? I would argue not.
The invisible hand permeates all aspects of neoclassicism. In a seminal paper entitled ‘Situational Determinism in Economics’ the philosopher of science Spiro Latsis shows that the whole neoclassical research program relies on an overarching determinism which he refers to as ‘situational determinism’. What he means by this is that, given a certain situation that a particular individual might find him or herself in, they will always necessarily choose one path – their behaviour will always follows a certain given direction.
This is, of course, the invisible hand at work. The person is directed or guided by an invisible force that leads them to undertake one action and avoid another. This should also be recognised as one of the fundamental aspects of rational expectations theory as outlined above: the individual is assumed to always act in a specific way and any other actions are thought to be ‘deviations’.
The invisible hand is truly the hidden thread tying together all sorts of neoclassical theories – from rational expectations to the efficient markets hypothesis. And in this it is simply a reiteration, in quote-unquote ‘secular’ form, of an age old Protestant theological assertion. What we get is a view of a world governed and controlled by a mystical and invisible force that sorts everything out for us. Everything operates without human governance, the world adheres to a set of laws handed down by an invisible agency; everything in its right place. This is Predestination pure and simple.
(It should be noticed that Austrian School ideologue Ludwig von Mises recognised that the invisible hand in Smith was in fact an image of God. He held, however, that secular reasoning led in this direction and did not see a problem with this. One can only assert that von Mises was more self-aware than other believers. See: note 3 on page 147 of Mises’ ‘Human Action’ – an ironic title given the thrust of our present discussion).
In modern neoclassical theory we find this structure operating mainly through the two theoretical postulates discussed in the first and second parts of this piece.
The efficient markets hypothesis postulates that there is an overarching and invisible force that cannot err. This is an image of a God controlling the world and ensuring that order emerges automatically out of chaos. All of us individuals are then conceptualised as living inside of this holy sphere. This leads to the assumptions of rational expectations theory.
In rational expectations theory, individuals are taken to act in the way assumed by neoclassical economics: that is, they rationally seek to maximise their gain in a particular way etc. The theory allows that they sometimes make mistakes, but these are thought of as ‘deviations’ and are never allowed be the norm. The Market, being infallible, omnipotent and unable to err, effectively ensures that individuals are not allowed to make mistakes in any systematic way. To cast this in theological language: God, being infallible, omnipotent and unable to err ensures that individuals are not able to Sin in any systematic way. While Sinning does take place, the overall thrust is for Man to follow the path that God has laid out for him.
The neoclassical paradigm offers its adherents a very attractive theology. It allows them to look at the world through a remarkably powerful set of rose-tinted glasses. It assures them that everything is okay – provided regulators and Sinners don’t get into positions of power – and that order and harmony will be established by an over-arching, quasi-external power. It gives its adherents a being that they can, in a very real sense, worship. It gives them a moral code that they can follow and that they can use to justify their actions, even when these appear to an external observer as being disgusting, idiotic and objectionable.
Dogmatism and Its Dangers
Perhaps this last point is the key one. The most dangerous personality trait of dogmatic religious devotees is their ability to insist that their extreme views are pure truth and that any action they undertake, no matter how destructive and stupid, are always already sanctioned by a higher power.
In his modernist classic ‘Ulysses’, there is a beautiful sentence in which James Joyce sums up the hypocrisy of religious dogmatists who use their fixed beliefs to justify actions that they might not be able to otherwise undertake in good conscience. Speaking of Oliver Cromwell’s brutal military campaign in Ireland in the mid-seventeenth century Joyce writes:
What about sanctimonious Cromwell and his ironsides that put the women and children of Drogheda to the sword with the bible text ‘God is love’ pasted round the mouth of his cannon?
What about him indeed? Such is the epitaph we might one day see on the tombstone of that strange secular religion that is neoclassical economics – although rather than the text ‘God is love’ pasted round the mouth of its collective cannon, there are instead written the words ‘the Market is always right’.
** As we will soon see, the meaning of the word ‘decision’ here is very shaky. How can a deterministic theory which claims to know how people will act allow them to have the power to make a decision? If they have the power to make a decision then, by default, this decision will be uncertain and no overarching theory will be able to capture it. By making reasonable qualifications to accompany an unreasonable theory the above author unwittingly destroys the theory itself.
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Thank you Philip[!] and yes we have a *godhead morality theater troop* that has been playing the same damn play since [?????].
By now you would think_any_living creature would have gotten a clue about its corrosive nature, hello repetitive boom bust cycles, Jesus is your distant blood relative (monarchy), tax free status yet into polotics, punishing the poor fixes everything, et al infini.
Skippy…MMT can only be trusted to the right people, its a people problem more than not in my book, thanks again, ripping post.
Philip,
I do have respect for your efforts. I think that MMT could be a good structure in a world where the invisible hand was not faith based and controlled by the inherited rich.
Where I lose it is in thinking of MMT existing in our world controlled by the inherited rich. How can you posit a monetary system that does not address the underlying private/public ownership and ongoing inherited wealth in control of public policy all over the world.
My perspective is that the inherited rich have consciously co-opted those with faith by creating a theory of commerce that is faith based and led by the invisible hand. By brain washing faith based folks to believe the invisible hand theory it deflects understanding of how the inherited rich control social policy without ever having fingers pointed at them….it is insidious and needs to be stopped if MMT is ever going to have a snowballs chance in hell of being implemented.
Just a point about Pilkington’s use of the Bible here.
As an Evangelical Protestant Calvinist (yes it’s a mouthful) I not only believe in salvation by grace but also a little something called “Total Depravity”.
It’s a sort of reverse concept to that spoken of by Pilkington. Total Depravity is the belief that mankind is sinful, and that sin affects everything we seek to do.
As a Calvinist and an econophile, I see Total Depravity hiding behind much of what passes as “market dogma”. The idea that a financial and economic system set up and run by self-serving sinners could not just be beneficial to the human race but bring it into some sort of market utopia is complete nonsense.
It’s not just the idea that sin leads people into making bad decisions, it’s also the idea that sin as a whole leads the whole into making bad decisions. So from this point of view the GFC and all economic crashes in the past have some basis in human sinfulness.
Nevertheless I have spent many years arguing (unsuccessfully) with many of my Christian brethren that the whole capitalist pro-market attitude is not necessarily taught in scripture. The idea seems to be that because humans are responsible for their actions (which is true) this means that Christians should be political and economic conservatives (not true).
Indeed, pro-market, pro-capitalist dogma is so strong amongst evangelical Christians that it could best be described as “false teaching”.
The idea seems to be that because humans are responsible for their actions (which is true) this means that Christians should be political and economic conservatives (not true).
Indeed, pro-market, pro-capitalist dogma is so strong amongst evangelical Christians that it could best be described as “false teaching”.
From a true Judeo-Christian point of view, isn’t belief in capitalism and representative government a sin? A violation of the Ten Commandments? Golden calves?
One thing’s for sure – it’s the antithesis of people taking responsibility for themselves. On the contrary, wanting to set up economic and political elites is clearly an abdication of responsibility, a flight from responsibility, a desire to remain infantile.
Mr attempter;
Here I go again, apologies. The ‘total self responsibility’ doctrine is fine at a local level. But the concept of ‘governing elites’ seems to be an artifact of the levels of complexity encountered in human relationships. The ‘true’ governing concept, I propose, would be the choosing of the ‘representational elites.’ That’s why ‘regulatory capture’ is such an important, if pernicious, concept. It embodies the primary flaw in the ‘necessary system’ of the mediating function.
Much as I like Bukharin and Buchanin, true Anarchy, like true Democracy, is a theoretical framework; a starting place, not the end product. The best analogy I can come up with ‘off the top of my head’ is Maos’ Cultural Revolution and Great Leap Forward. They tried applying Theoretical Semi Divine Marxism, and nearly wrecked a quarter of the World.
Nowadays, when pressed, supporters of capitalism are willing to throw the invisible hand overboard.
Since it’s impossible for even the most flat-earth market bigot to deny that capitalism failed at every single promise it made, they’re reduced to the lie that it mever made promises. I’ve had them say that to me here at this blog. “Invisible hand? Who ever said anything about an invisible hand?”
Another aspect of theology which the post omits is the fundamentalist faith in representative government, “good government”, “better elites”, and “better” technocratic monetary schemes. Like for example the sort of commentator who writes a hundred comments per thread advocating MMT as a real policy goal rather than as an educational tool only.
I want a representative government where the profits go to the Commons, the public owns EVEYTHING and limitations are put on inheritance that makes it so those family’s with some ongoing wealth cannot unduly influence public policy.
If the public owns everything (which it should, except for personal possessions), then how could families have “ongoing wealth”? Wealth is certainly something which can’t legitimately be owned. It’s a commons by its origin (from nature and cooperative work effort) and its existence (it can exist at all only if society acts to preserve it).
Republicans have been using MMT since Reagan. It’s only about showing the obvious, when the obvious is known, MMT can be used for public good, this is what MMT advocates.
Political and legal problems have to be solved politically and within the legal system (corruption of the elites). This does not mean the charade of stupid economics have to go on while the people is impoverished.
Yes, you may have some faith that there will be some sort of revolution if pressing the people to far, but:
1) This ain’t guaranteed, less in the short term (corrupted and oppressing regimes could go for years before collapse).
2) The ends don’t justify the means.
We don’t have a legal system distinct from the political struggle. So everything including that can have only a political solution.
As far as ends justifying means, where the end at stake is the absolute liberation and self-defense of all people against the worst criminals in all history, where what’s at stake is the future of humanity itself, I can’t imagine what means would be unjustified.
But it’s a moot point, since the level of violence in any resistance, rebellion, revolution, or any other context, is always 100% dictated by the reactionaries.
I believe in the “inefficient market fact”. Otherwise there wouldn’t be markets in the first place. Markets are born and thrive on the inefficiency and asymmetrical information distribution.
Gore Vidal said that in America it is not enough that one succeeds, others must fail.
It is through economic success or failure that God’s Will is revealed. The rich are the deserving, the Elect, and the poor are the undeserving, the Damned.
Rampant inequality, insufficient social nets, and corporate looting aren’t a bug, they’re a feature. Interfering with ‘the Market’ punishes the Elect, rewards the Damned, and obscures the working of God’s Will.
Moreover, because God is benevolent, if we refrain from interfering with the workings of his Will–and allow the Elect to do God’s work–then everyone, even the Damned, can obtain a measure of his Grace.
That’s the theology I see under the hood of American Capitalism.
Trickle down Grace. How sweet the sound.
:)
Moreover, because God is benevolent, if we refrain from interfering with the workings of his Will–and allow the Elect to do God’s work–then everyone, even the Damned, can obtain a measure of his Grace. Sauron
The fatal flaw in that argument is that the so-called “Elect” are either part of the government backed counterfeiting cartel, the banking system, or borrow from it.
Furthermore, the Bible is a champion for the poor and often castigates the rich.
People should just forget everything they think they know about God and actually read the Bible.
F. Beard:
reread Sauron’s comment.
clearly his post is showing the corrosive thought process of the so-called “elite”
obviously they are not “elite” or closer to God
clearly they are not doing God’s work.
however: unfortunately I think that Sauron’s comment is an excellent distillation of how our leaders think
It has been a long long time since most Christians have read the Bible. Why do that when you can listen to what Michelle Bachman, Rush Limbaugh, and John Edwards say about Christianity?
Do you think that Jesus would be for gutting Social Security? Would Jesus be for yet another war in the Middle East? Would Jesus be for the rampant worsening wealth inequality in our country and around the Globe? Would Jesus be for Torture prisons? Would Jesus be for almost anything that is put forward by the more “Christian” party in our country? (I’m assuming most agree with me that the Republicans are considered more “Christian”).
This may be the spot to express my feelings about the use of the word ‘elite’ to describe parasites with privileges.
I worked at Goldman, Sachs in 1959 when Gus Levy was partner in charge of trading.
Every morning after he finished shaking his finger in Bob Mnuchim’s face in front of the entire department, he proceeded from his glass enclosed office to his seat at the end of the trading desk with the same finger picking his nose.
That’s just one dose of what’s referred to currently as ‘elite.’ Other examples abound. I repeat what Alex Jones said so perfectly during the royal wedding, ‘the royals keep most of them hidden. They are mostly mentally ill and deformed. They only let out the ones who know how to talk.
Probably not true, but effectively a lot closer to the truth than ‘elite.’
Money doesn’t cut it. So use of the word ‘elite’ in any discussion about today’s kleptocrats begins with a spin; that the criminals and mass murderers and their minions in power are somehow superior.
‘Parasitic class’ and ‘parasites’ is more like it; and that doesn’t include retirees trying to live on their pensions, SS or otherwise. That’s what taxes are for. We as a nation decided we wanted to be taxed to pay for a safety net for all.
We never decided that the money should be used to bail out bankers, their friends, and furreners.
Would Jesus be for almost anything that is put forward by the more “Christian” party in our country? Yearning to Learn
No. But Jesus is not a socialist either. Furthermore, we would have very little need for socialism if the Biblical command against usury between fellow countrymen had been heeded.
LeeAnn,
I was at Goldman much later than you, after Gus was dead. I got the impression (although no one would every dare say any such thing) he was not liked, not missed, and regarded as a thug. By contrast, Mnuchin (who I only dealt with in passing) was seen as (and is) a cultured man who happened to trade as his day job.
And even investment bankers weren’t considered elite, except among New York City residents (and maybe post 1975 MBAs, but they were much less common then than now) who rubbed shoulders with them, and until the mid 1980s, when Wall Street pay started seriously widening out, they had the income and status of good (but not celebrity) heart surgeons.
And I don’t mean to seem dismissive, but traders were not seen as elite. Even the risk arb guys, they didn’t start getting glamorized until the big oil takeover battles of the early 1980s.
Maam;
“Glamourized,” what a wonderfully apt usage, that.
In many theologies, God is assumed to have perfect knowledge. Philip P
Then why would He ever change His mind? Yet, the Lord changed His mind about Saul.
And what about this:
“The heart is more deceitful than all else
And is desperately sick;
Who can understand it?”
“I, the LORD, search the heart,
I test the mind,
Even to give to each man according to his ways,
According to the results of his deeds.” Jeremiah 17:9-12 New American Standard Bible (NASB)
Why would the Lord need to search hearts and test minds if He is all-knowing?
People need to chuck Calvin, Martin Luther and especially the Roman Catholic Church and just read the Bible and draw their own conclusions.
And for those arguing against human economic freedom my question is: “Fine, who do you propose should rule over us then since we are all human?”
People should also cross-reference biblical history with ongoing forensic archeology, societal and environmental, and for all human history for that matter. Greek vs. Chinese for example on a parallel time line, learning never ends thingy…eh.
Sorry got to run, the US MSM Kabuki is just warning up and I would like to watch some heads spin, whilst their Kudlow Free Market implodes. Ahhh…the Helicon trader panel days of 06 and 07…sigh…we are gods[!!!], it will never end, git on the boat now, invest everything ya got…blah blah blah.
Skippy…one data point is a poor equation.
PS. god’ed out.
F Beard,
I think that is a false premise. Government management of the economy is like a manager in a theatre who stops a fire panic by using his announcer. It’s not a case of knowing or being better than anybody, just being in a unique position to stop collective faux pas.
I guess you didn’t notice, but it’s your government managers who are the loudest in shouting “Fire!”
But there is no fire except for the one they set.
Excellent read, Philip.
The thought structure of free-market religion is much the same as that of American evangelical Christianity which is why it appeals to them. And not having been taught to think, or even discovering the need for clear thinking, and therefore never having actually examined what Christ taught, they fall happily into the soothing familiarity…
and here we are.
Thanks so much!
Yes, familiarity. Our religious and political institutions are just reacting in a free market way to their audience. We have given up critical thinking. We are no longer interested in truth. We only listen to those who are telling us what we want to hear. We get the leaders we deserve. That is what we look like in the mirror. Jesus would not be impressed.
Mr. Pilkington, I wish I lived close enough to debate all this over a pint of Guinness.
Christianity sold its soul when it became the Official Religion of the Roman Empire. All attempts to wrest it back, such as the protestant reformation, have wound up being similarly compromised. Its role as the Official Religion of the Tea Party is merely the latest iteration.
The idea that the actions of a group of people each working in unenlightened self interest (thank you Yves) could net out to God’s work (thank you Lloyd) is laughable.
why would it be irrational to buy the Lynx after all that cinema verite?
who knows?
you need a kick in the butt when you’re standing there at the bar, just staring.
Sam Bowles recently tried give a formal response to the question of Smith’s invisible hand (published in PPA). While it isn’t clear to me why we should trust that the formalization is adequate, it’s a fairly interesting attempt nonetheless.
Edward Mueller in Redeeming Economics suggests that it is pagan Stoicism that underlies the “invisible hand”. Just to complicate things a bit.
You mean the roman gold bug guy.
Skippy…BTW can St. Augustine get his hand out of my back pocket please.
Oops forgot this link.
“First time I’ve seen anything by someone from Opus Dei on the science of economics. Seriously.” Rev. C. J. McCloskey III
http://cantate-domino.blogspot.com/2011/02/fr-mccloskey-reviews-redeeming.html
Skippy…down and down we go…eh.
Same thing occurred to me. Stoics taught that true happiness consisted of finding your place and living within the Logos–the rationally benign order of the Universe. One reason why early Christianity was able to make headway in the Greek or Hellenistic world was the ease with which one could make the transition from “Logos” to “God”. If “God” is replaced by “Market” then the transition to Capitalism-as-religious-faith is complete. The term Marx used was “mystification”–confusing the existing social order with “universal laws”.
BTW, historians of philosophy have long noted the relationship between the emergence of “feel good” schools of thought–such as Stoicism–in the ancient Greek world with the loss of political freedom in the Greek world. In the fourth and third centuries BC, oligarchies were replacing democracies within the city-states and the city-states themselves were losing their their independence to autocratic monarchies. But hey, as long as people were happy living within their Comfort Zone, er Logos, it was All Good.
Yves Smith:
I saw you interview at Real News Network about the debt crisis. Great call. Not that it makes any difference, but I agree with you 100%.
This sounds like one of Jimmy Swaggart’s old rants against Catholics.
You Theokeynsians are as bad if not worse in being closed minded – but government is your god and the gun is your gospel. For how else will you enforce your theories other than the way Stalin and Mao did? You issue toilet paper and call it wealth, but imprison and kill those who would demand gold or silver or something else which is not imaginary.
MMT in this form is to Avarice what the sexual revolution was to Lust. Ending up with a lot of people crippled or dead because the bacteria, viruses, and parasites didn’t get the message.
The Classical and Neoclassical economists are wrong, but you are wrong too. And no amount of either logic, empirical, or epidemiological evidence will ever convince you. You are as much if not more a true believer as those you claim to criticize.
So you think we left the gold standard because we are a bunch of fools? Why can’t we shift to the dog-standard, where money is backed by dogs. Its self-limiting due to the impracticality of breeding trillions of dogs, but at least its democratic in that we can all “print” a bit of money rather than holding it all in the hands of the wealthy who alone are able purchase mining equipment, miners, etc.
The foolishness of thinking that money is anything more than a lubricant that makes barter more efficient… if you want your money to have intrinsic value we should base it on one of the human needs — food, shelter, potable water. Maybe garbanzo beans? Because lord knows I have no use for a shiny, heavy, soft metal in my life… what would you use it for? Can’t eat it, can’t build with it, can’t drink it, doesn’t cure what ails you… I’m waiting…
“Dog standard” — *spews coffee*
@YankeeFrank,
Your response is so dang good that I’ll pass on adding my own to tz. Bravo!
I like this “dog standard”. I’m sending it on to the MMT types, I’m sure they’ll make use of it.
In the not so distant past, I used to hang around Brad Setser’s blog at the Council of Foreign Relations. For reasons I won’t go into, I felt it necessary to self-appoint myself the Ambassador to All Space Alien Nations.
There I reported on a space alien civilization – which I cannot name because they don’t use ascii keyboards, but they own the Sirius system – that uses sand dollars that their ancient explorers found on Earth. (a lot of people don’t know that cockle shells are from Sirius)
It was a brilliant concept. They were rare at first, but if you rub two together, in just a short period of time they multiply. They smell bad so no one wanted to hoard them and they got spent right away, as it should be.
But then Sirius economists found that they multiplied so quickly that the Sirius people needed a place to store them.
It was decided that all municipal swimming pools be converted to “banks”.
Then one day there was regime change. Emperor (no-ascii) declared Sirius a fractional banking planetary system. They then quickly absorbed Alpha Centauri, which still used antiquated Dog Certificates.
@tz: Yes, and what if the facts show that “we” are wrong? Well I hope “we” will all feel free, as Keynes said, to change our minds. What do you do, sir?
The dividing line between theology and science is the response to problem facts. EMH theologists say: “Well, if markets were truly free, then we would have better outcomes.” Social Democrats say: “Well, if society treated people better, then there would be no crime.” Religions say: “Well, if you all were truly pure in your love of God, then there would be no problems.”
It is all the same crock. We’re all human. We all live complex lives, and we all depend on each other to get through the day. That’s why we have money. The rest is about morality – how do we treat each other?
It always amazes me the lack of sophistication in protestant thinking. Give me Judaism and Social Justice/Jesuit Catholicism any day for true insight into the relationship between God, the human spirit and the material world.
And neoclassical economics, to someone outside the protestant notions described in this excellent commentary, seems like the most preposterous and ridiculous farce. The way the invisible hand and predestination are used to justify atrocity is so self-serving as to be laughable. It bears absolutely no resemblance to even a cursory glimpse of how the actual world works. It doesn’t pass the laugh test where I come from. I guess if one is raised to see the world in such a silly and self-serving way one can believe all sorts of tripe… I guess (though it seems to me one would need to redefine the word “belief” to realy make that work). But it seems so obvious to simply ask qui bono? Who benefits?
And then to pretend that there aren’t layers of indirection — where by distorting the godhead-declared mystical pixie dust PRICE, one can make out like even more of a bandit than actually predicting the “correct” or “just” or godhead-derived price (I laugh to even type such silliness); or where by selling a piece of AAA rated garbage to fools one can distort an entire market and collapse an economy, yet still benefit one’s own account; to pretend that such things cannot happen is the worst kind of know-nothing ahistorical mumbo-jumbo; and then to build an entire economic theory based on just that kind of claptrap… it boggles the mind, it truly does.
Beam me up Scotty, these people are crazy.
I’m sorry but this post is the work of someone who is not smart or someone with an axe to grind. He is making a straw men (plural) argument asserting the purported views of “neo-classical” economists. Like who exactly? He has only one link to an academic paper that is quite technical, but from my scan it appears to be grappling with arguments about exeptions and problems with the rational expectations model (ok it’s over my head).
In anycase, as an undergraduate Econ major among the very first concepts you are taught is the difference between descriptive and prescriptive economics. The basic models of the rational actor hypothesis where taught to me as simplified models that gave a basis for descriptive economics not prescriptive.
I have never heard the cartoonish views that the author is attributing to economists actually come from an economist. Bastardized versions of these ideas are sometimes used by idealogues to score cheap points (I.e. no-nothing right wing ranters)
The ideas reflected in Elizabeth Warrens consumer protection agency about better information for consumers on the details of loans illustrate that awareness of the limitations of imperfect information in markets is commonplace.
Yves, I don’t understand why you are posting this?
I clearly said that the article dealt with exceptions to rational action — but I pointed out that these don’t make sense given the overall thrust of the argument.
As for the theories. This is how they’re taught. And they were used as grounds for prescriptive policies: Greenspan claimed for years that financial markets were efficient and that they should be deregulated. Although he’s gone back on this in recent times (shock):
http://www.thirdage.com/news/alan-greenspan-deregulation-blamed-financial-crisis_1-27-2011
Yves dealt with some of this herself in her book, so I don’t see why you’re so shocked that she’d run it.
Are these theories taken seriously in the profession? In my experience they certainly are. They’re taken so seriously that Stiglitz won a Nobel Prize for calling it into question:
http://en.wikipedia.org/wiki/Joseph_Stiglitz#Information_asymmetry
“Before the advent of models of imperfect and asymmetric information, the traditional neoclassical economics literature had assumed that markets are efficient except for some limited and well defined market failures.”
Personally, I’d feel much more comfortable if I was attacking strawmen. But I don’t think I am. People believe markets are efficient. They’re not.
What makes your argumement strawman is the you are asserting that some groups believes that markets are always efficient and lead to correct outcomes. The one paper you linked to said nothing of the sort . To return to what is a basic part of an undergraduate Econ curriculum there all sorts of contrary cases introduced where “free markets” lead to sub optimal outcomes: in monopoly markets, in public goods (tragedy of the commons, free rider problem), in a speculative bubble (Dutch tulip mania), in cases where there is asymmetric information (the seller if a car knows it’s a lemon, buyer doesn’t).
Read Krugman’s wiki entry:
http://en.m.wikipedia.org/wiki/Paul_Krugman
Does that sound anything like what you are describing?
Greenspan is a weird case, I was shocked when he admitted he was wrong about the financial markets. But the man was an acolyte of ayn rand, so maybe he’s a bit of an outlier.
People do adopt this quasi religious belief in the rightness of free markets but I’ve only seen this as lip service by right wingers who just believe what they want to believe.
If you are going to attack irrational religiosity how about, you know, attacking religions. Our world is awash in irrationality. In my limited experience with economists as a student they are models of clear and critical thinking. The problems are very hard, they make careful, narrow claims that they try to back up with evidence.
Your piece is disturbing because you are adding to the lack of critical thinking that hurts our public discourse.
Wow, if this isn’t a textbook case of projection, I don’t know what is.
You’ve just demonstrated you know nothing about economics. And you are loud and proud of your abject ignorance.
Rational expectations is at the heart of the neoclassical model. A Robert Lucas paper (IIRC 1961) set forth the rational expectations notion but it wasn’t widely picked up for a decade. He got a Nobel prize for it.
Neoclassical economics is Chicago School of economics, Krugman is a Keynesian. That means he is a dissident, not an adherent.
And you can’t even be bothered to Google in order to get basic information.
http://chronicle.uchicago.edu/951012/lucas.shtml
Bob Lucas has been the central figure in macroeconomic theory for the past quarter of a century,” said President Sonnenschein. “His work has transformed thinking on economic policy and redirected virtually all research in this field. At the same time, he has chaired the department and taught our graduate and undergraduate students…
“No one since Milton Friedman has had so great an influence on the development of macroeconomics as Robert Lucas,” said Gary Becker, University Professor in Economics and Sociology and winner of the Nobel Memorial Prize in Economic Sciences in 1992.
I’ve seen Becker speak. First time I ever saw toads hop out of someone’s mouth.
Wow, excellent article. Suddenly, Blankfein’s insistence that he’s doing “God’s work” makes a lot more sense. He’s not a true believer in a religious sense, but rather a deus ex machina sort of way where the elite are the deus. Still, message remains, pay no attention to the man behind the curtain.
It would be hard to argue that medieval European ideas about damnation, etc didn’t play a role in justifying the divine right of kings, wealth, colonial conquest, and slavery– that is to say, in justifying the apparently natural order of things.
It would also be hard to argue that such ideas didn’t prep the sheep for things like Weber’s “protestant work ethic,” 19th century (and 21st century) “up by yer boostraps-ism” etc.
Nevertheless, I rather suspect it was called neo-CLASSICAL economics and not “neo-protestant” or “neo-calvinist” (let alone “neo-lutheran”) economics for a reason.
I’m no economist, but I doubt that Marx–who was very well read and surely had all these people in the original– called Ricardo, Smith, Mill etc “classical economists” because he thought they were closet Lutherans.
Given that “religion is the opiate of the masses,” if Marx thought they were really closet Lutherans, I suspect he would have just said so.
But, given that Smith said not much about his famous “invisible hand,” I suppose its left for the faithful to project onto it what they will.
Marx had some strongly religious biases himself. He believed in Hegelian teleology which is another takeover of the Protestant idea of Predestination. Marx thought that Communism was inevitable and that invisible forces were pulling history in this direction. So Marx may not be the best authority on this…
Marx had the teaditional classical education of a 19th century elite. You, I suspect, do not.
I trust his call on this.
Sigh. I really did mean “traditional classical education,” not “teaditional,”– although that is probably more where you’re coming from.
So, I suppose I submit to the fates of the Freudian slip and the bad fortunes of not having the ability to edit my comment.
I’m somewhat familiar with Marxist philosophy. Marx definitely believed that there were teleological forces guiding history. He believed that the ‘motor’ of history was class struggle and made a very specific prediction: that this would lead to Communism (a ‘Heaven on Earth’).
Marx’s theories were even more religious than those of Smith and Ricardo — which is why Marxists often come across as zealots. Did Marx realise this? I don’t know, but I suspect he didn’t. People in the 19th century thought in a very different way than we do today.
(Marx was also an adherent of Phrenology, so be careful about taking him as an ‘authority’ in matters of science. He used Phrenology to choose ‘able candidates’ for what appears to be a sort of cult that he built up around himself:
http://www.believeallthings.com/248/karl-marx-and-phrenology/
Dunno about you, but I wouldn’t buy a used car from the guy…).
Sorry Philip, but that’s not a correct rendering of Marx at all. Marx’s analysis as presented in vol1 is historical rather than teleological, so that his analysis of capitalism, as he emphasizes in multiple places, is contingent. (Yes, later marxists did not really appreciate this distinction, but no, class struggle was just the dominant force in history as he knew it, rather than a methodological necessity for marxist analysis.)
And while he was of course familiar with Hegelian dialectics, and made much of Hegel’s master/slave dialectic, his own dialectics are quite different from Hegel’s. So whereas Hegel’s thesis/anti/synth is quite teleological, Marx’s is far more relational in nature — think Leibniz, or A.N. Whitehead.
As for your suggestions about marx’s theories being ‘religious’: I’d appreciate it if you could substantiate these claims, because I haven’t the faintest what it is you’re trying to say here.
I don’t take much on authority, and I’m not a Marxist. My only point to you is that Marx had a classical education and actually read Adam Smith in the original, which not many people today do.
As a result, if Marx called it “classical economics” and you’re calling it “Lutheran economics,” I SUSPECT–which is the only claim I’ve made here–it’s much more likely that Marx is ultimately right and you’re probably way off on a personal teangent.
Yes, these are the debates among Marx scholars who seem to have a strangely pressing need to exculpate Marx on just about everything. Louis Althusser and the French Structuralist School, for example, claimed that History was ‘overdetermined’ and thus contingent upon proletarian organisation and all that.
Personally, I think that just shatters anything that Marxism had to offer.
So, the big question: did Marx believe in teleology? I think he did. I think he believed that History moved through different stages almost mechanistically and that all these stages were inevitable (primitive communism => Feudalism => Capitalism => Socialism => Communism).
This teleology is directly taken over from Hegel who posited that Mankind moves through different — but inevitable — stages of ‘Geist’ or ‘Spirit’. Hegel was originally a theologian of sorts and took this notion over from the Protestant tradition. So, Marx got this at second-hand.
I believe that this is the strongly religious element in Marx’s work. I also think its beyond doubt that Marx’s teachings have led to more cult-formation than perhaps anyone else’s on the planet. Even the Islamist political philosophers (who directly use religion) haven’t been as successful at cult-formation as the Marxists.
@ Faraday
I don’t think that anyone can possibly be completely ‘right’ on this. I’m just weaving a thread here — like Adam Curtis does in his work, or Philip Mirowski (nice one Paul below, for spotting the similarities; Mirowski is a major influence). I’m trying to find where certain ideas overlap and hypothesise where they’re taken from.
Its sort of like ‘Deconstruction’. Finding ideas that have a theological or metaphysical bent and comparing them to the old religious systems. Nothing more, nothing less. Neither me now Marx are ‘right’, we’re just following different threads.
(Note that I still think Marx was highly metaphysical/theological, so I don’t think he could have actually followed this thread).
“I’m trying to find where certain ideas overlap and hypothesise where they’re taken from.”
Sure. Except you’re wrong.
Huh? So in the case of Marx you are arguing that people aren’t allowed to point out that common interpretations of Marx are wrong? And that “defenders of marx feel the strange need to exculpate him”? It seems to me that you’re protesting a bit too much here.
So because Marx’s political project has, to a large extent, been interpreted incorrectly, his theoretical and methodological contributions are now “worthless”, because the fact that the former has been misunderstood “just shatters anything that Marxism had to offer”. Are you familiar with the expression “throwing out the baby with the bath water”? Because that’s what you’re doing here.
So I am quite sorry for you, but your “big question: did Marx believe in teleology?” is little more than a straw man. Again: if you want to understand Marx’s notion of dialectics, you will not understand it if you interpret it as being a variant of Hegelian dialectics. Marx wrote his dissertation on Epicurus, and I suspect he used his relational thinking about nature to ‘fix’ dialectics precisely because he was aware of the fact that Hegelian dialectics were teleological.
(You would do well to recognize the very ad hominem nature of the “arguments” you offer for why Marx was wrong, hegelian, and “too metaphysical to be able to follow my thoughts”. Arguing like that is not a strength.)
@ Faraday
No. You SUSPECT that I’m wrong because of… erm… something Marx didn’t say. Let’s just get that right.
@ Foppe
Everyone and their mother has a different interpretation of Marx. And everyone and their mother is convinced that their interpretation is ‘correct’.
Das Kapital is treated like a holy book. Read again and again to distill some overarching ‘truth’. It’s creepy.
Are my interpretations of Marx ‘correct’? What does ‘correct’ mean? Does it mean ‘exactly what Marx meant’? If so, then no, my interpretations aren’t ‘correct’, because I can’t read someone’s mind who died 150 years ago and all texts are open to infinite numbers of interpretations. Are your interpretations ‘correct’? By that standard, probably not. Unless you’re Marx reincarnated…
And now you’ve turned to precisely the same kind of sophistry that you lambasted DownSouth for earlier, while you’re at the same time refusing to admit that you might be wrong in stating “Marx read Hegel, so his theory must also be teleological” in nature. Too bad.
What is it about Marx that people are so afraid to even consider whether he had something useful to say?
I think Marx had a lot to offer. He formulated the theory of aggregate demand years before Keynes. His financial theory of crisis is great (all his writings on finance were great, its a pity he didn’t go further in this direction). His theory of history was revolutionary and many of its insights are used in contemporary historiography, even by conservatives. Steve Keen’s stuff on Marx is also really interesting and I want to get into it more in the future.
However, Marxism as a theoretical edifice is weird and creepy. And Marx himself opened the gates to this with his ‘stages of history’ and all that jazz.
As far as me being sophistical. I lambasted someone yesterday for making up their own definition of inflation and then saying that inflation was meaningless — that’s sophistry. Here I’m merely arguing that Marx can and is read in many different ways and that none of them are correct. They’re two entirely different things.
I’m sorry, but I’m not really the kind of person who goes for “all interpretations are equal” crap. Sure, you can read Marx in different ways, but, by reading him as you are doing (through the lens of Hegel) you’re misinterpreting him, and missing out on the most interesting of the theoretical points he made, because you’re just too busy shoehorning his arguments into your interpretations of those arguments, and then judging his arguments wanting. And that, dear Philip, is just a bit too close to straw-manning for comfort.
I didn’t say that ‘all interpretations are equal’. You see, you’re already ‘interpreting’ my stance to some extent. I never said this, I don’t think it and yet you’ve attributed it to me.
That’s how easy it is to ‘interpret’ other people’s ideas. So, you’ve sort of proved my point.
As I said, I’m more interested in the ‘concrete’ Marx of financial crisis and aggregate demand than the ‘theological’ Marx of ‘Marxism’.
To start with a few stylistic points: Spare me the sophomoric attempt at patiently explaining “interpretation” through extensive use of examples. To be perfectly autistic about it: It’s a fairly transparent rhetorical device that you employ in order to be able to feel that you’ve retaken your high ground, and, as far as intentions go, it’s quite rude. And as for “so, you’ve sort of proved my point”: seriously, go take an etiquette class. These kinds of barbs should be beneath you.
Now, on to the substantive point: Let us remember that you (one post earlier) stated this (I shall bold the relevant passage):
Now, while it is obviously true that truth as such is a fairly useless concept when it comes to interpretation — as, indeed, multiple readings can be valid — this is not to say that every reading is as fecund or fertile. So when you state that “none are correct” you are basically making a category mistake. Yet while I am quite sure you are fairly well aware of this way of using these concepts, you still invoke them in that meaningless fashion. So, given that you are using correct/incorrect in this way, you really are saying that ‘all interpretations are equal,’ as my point ever was that you’re doing Marx an injustice by reading him as though he is Hegel, and then drawing your conclusions about Marx on the basis of that reading.
You’re imputing things to my argument again. You’re ‘interpreting’ it. You can say I’m being juvenile if you want. The fact is that I’ve said one thing and you’ve taken another from it. That’s just that.
Saying that no interpretation is correct is not the same as saying that all interpretations are equal.
If you say that Marx’s theory can be interpreted teleologically and I say that it can be interpreted as predicting that lizards will take over the world, its beyond doubt that your interpretation is more valid. But that doesn’t make it ‘correct’.
You can twist my words all you want, but I know what I said — I don’t need it ‘interpreted’. I may not be able to give you a ‘correct’ interpretation of what Marx said, or Saint Paul, or Buddha, but I can damn well give you a correct interpretation of what I said.
“What is it about Marx that people are so afraid to even consider whether he had something useful to say?”
Well, I think it’s because Marx proposed the abolition of property and most people today, even good progressives and MMT-ers, are really Lockeans at heart. (Or, oh okay, “neo-protestants” in the Weberian sense, if Pilkington insists):
“Though the Earth, and all inferior Creatures be common to all Men, yet every Man has a Property in his own Person. This no Body had any Right to but himself. The Labour of his Body, and the Work of his Hands, we may say, are properly his. Whatsoever then he removes out of the State that Nature hath provided, and left it in, he hath mixed his Labour with, and joyned to it something that is his own, and thereby makes it his Property. It being by him removed from the common state Nature placed it in, it hath by this labour something annexed to it, that excludes the common right of other Men. For this Labour being the unquestionable Property of the Labourer, no Man but he can have a right to what that is once joyned to, at least where there is enough, and as good left in common for others.” — Locke, Second Treatise on Government
As humans continue to stare down unfree labor– not to mention neoliberal and neocolonial financializers and seizers of the Acropolis– the idea that anyone should want to alienate their private property rights does seem a little nuts.
Marx insisted that his theory of history was “scientific” because, unlike Hegel’s, it was based on material realities (“forces of production”, etc.). You decide. ;)
One issue that’s been bothering me in this whole exchange has been use of the word “predestination”. Are we all on the same page as to what the term means? I don’t think it’s synonymous with “determinism”, and the concept certainly isn’t something Protestants dreamed up. See St. Augustine (the 5th century Church Father, not the city in FL)!
I’m using it in the Lutheran sense. I’m sure it has a significant history (since its bound up with the notion of free will), but I’m taking it from Luther’s ‘On the Bondage of the Will’:
http://en.wikipedia.org/wiki/On_the_Bondage_of_the_Will
“Luther maintained that sin incapacitates human beings from working out their own salvation, that they are completely unable to bring themselves to God….. When God redeems a person, he redeems the entire person, including the will, which then is liberated to serve God.”
No protestants agreed on predestination (or a lot of other things), which is why the reformation eventually collapsed into liberalism, broadly understood.
For that matter, it is a critical point in Weber that the “protestant work ethic” evolved out of the inability of the faithful to intellectually rationalize or emotionally deal with the idea that they could not themselves, through their own faith and actions, earn their way into salvation. Anti-Roman Catholic Calvinist orthodoxy barely outlasted Calvin (and even the Institutes is internally contradictory).
Once success arrived as the product of discipline, however, they had an easier time justifying that success as sign of God’s favor. Who would not? Hubris, a classical Greek term, is universal.
Well, yes, everything you say is completely correct, and completely irrelevant.
“Neoclassical Economists” don’t believe in the power of the free market. They believe that if they say whatever their rich patrons pay them to say, that they will do very well.
Consider: we are told that me must allow multinational corporations to ship jobs overseas and import products made with slave- and child- labor because we need freedom of trade. And then without any embarrassment, we are told that we need to stop individuals from importing legal pharmaceuticals from Canada because this would interfere with the freedom of big corporations to restrict trade, without which money for drug research would dry up and we would all die of horrible diseases! I am not making this up.
While we score intellectual points showing how absurd their beliefs are, their masters are grinding us into paste. This is not about theology. It’s about power. If we do not find some way to organize and fight back, nothing we say will make any difference. The opposition are immune to all rational arguments, because it’s not about reason. It’s not even about theology. It’s about selling out.
It’s as if someone was beating you up in back alley, and you logically demonstrated how absurd this person’s religious beliefs were, and they continued beating you up. With respect, we are missing the main point.
And, moreover, consider the modern corporation, essentially an immortal person without the constraints of moral behavior placed on us mortal persons.
I remember the first week of my economics class: me, a naive Catholic girl, being told that the Corporation was Amoral. It’s only duty was to maximize the bottom line in order to enrich it’s shareholders, therefore, whatever it did in pursuit of that end was, well, not Good, because that would be a moral judgement, but Necessary and Acceptable.
It seemed to me then – and has been born out by years of experience – that the whole amorality rationalization was a convenient cover for the people running the corporations to commit rapine and pillage.
Like feudal lords, who argued that God gave them power over the lives of their subjects and therefore, whatever despicable acts they committed were Necessary and Acceptable and part of the natural order of the world.
So, live with it, you serfs!
Yes, if you look at corporations through the lens of Kohlberg’s stages of moral development (http://en.wikipedia.org/wiki/Lawrence_Kohlberg's_stages_of_moral_development):
Level 1 (Pre-Conventional)
1. Obedience and punishment orientation
(How can I avoid punishment?)
2. Self-interest orientation
(What’s in it for me?)
(Paying for a benefit)
Level 2 (Conventional)
3. Interpersonal accord and conformity
(Social norms)
(The good boy/good girl attitude)
4. Authority and social-order maintaining orientation
(Law and order morality)
Level 3 (Post-Conventional)
5. Social contract orientation
6. Universal ethical principles
(Principled conscience)
they stop at about a 2. Self-interest orientation, typical of children. Nations, governments, political parties, and religious organizations scarcely do better, and neither does the electorate in the polling booth.
I sense that most of us here are at least striving for 5 or 6, but we’re doing so in a society with the moral development of a kindergarten. See this week in DC for proof.
Perhaps all we can do is do our best to lead moral lives (as spiritual leaders such as Jesus and the Buddha exhort us to do) independent of those institutions and hope that others catch on in time.
Philip demonstrates that the complete annihilation of confidence that the public has in economics has passed beyond the point of point by point rebuttal of the discipline on its own terms, to final debunking by cultural analysis. So thoroughly exposed for a complete lack of theory and practice, that it can not even begin to describe much less explain what is going on in the world, that the only explanation of economics in its bankrupt intellectual state is to compare it to fantasy like dogma driving ritual.
The inability to explain why the markets fail. The inability to predict the failure of financial system due to subprime derivative trading and credit default swaps. The blind adherence to quips masquerading as hard won axioms of truth from empirical analysis and the dismissal of completely contrary examples of economies moving at history changing rates of growth, such as China and East Asia, are all the trappings of the received wisdom of a purely theological based priest hood that serves the power of rulers and helps them to maintain their legitimacy in the face of a hostile, disbelieving populace. Neo classical economics has revealed itself as little more than the scientology of academic disciplines.
For more bebunking, see “MORE HEAT THAN LIGHT: ECONOMICS AS SOCIAL PHYSICS, PHYSICS AS NATURE’S ECONOMICS”, BY PHILIP MIROWSKI. So complete in its take down of economics that even an Austrian can get the point.
Apparently Austrians don’t get the point:
http://mises.org/journals/rae/pdf/RAE5_1_7.pdf
Ah yes, the ‘mainstream’ neoclassical doctrine, that comes to almost exactly the same policy prescriptions as us…
Try reading your own article, yr reviewer agrees with the author and points out how different the Austrians are, hence, my comment, they ever GET THE POINT.
Philip,
Thanks for this post, very thought provoking.
An equivalency I see, as a member of the Body of Christ, is that “The Invisible Hand” is the same type of human concept as “Natural Selection”.
Those who have been given faith in Christ Jesus should flee from both of these relatively recent declared human concepts.
Resp,
Those of us that must take communion with the markets oftentimes chew our fingernails, so there are more parallels than you may be aware of.
*“The Invisible Hand” is the same type of human concept as “Natural Selection”.*
Well, I’d say if one looks for evidence that Natural Selection exists, much empirical evidence can be found in many places.
When I look for evidence of the existence of The Invisible Hand, I get essentially the same results as when I look for evidence of fairies and leprechauns.
Interesting to see that your faith has projected you on an orthogonal conclusion path from the theme of the article.
I like the authors two recent posts on this topic, except for the analogy with “religion.” He uses the generic term but it talking about Christianity. But the fact is, he’s not describing Christianity at all, but Stoicism – the classical Greek philosophy/religion.
In stoicism, the universe is considered to be a whole rational system, and thus in itself perfect. You just need to step back and you can justify it. (see, e.g., the spiritual exercises of Marcus Aurelius, as he puts terrible events in universal perspective). No Christian believer thinks we have access to God’s knowledge – many believe we have access to SOME of that knowledge, but not much. Stoicism, on the other hand, believed you could in fact see nature from God’s perspective.
In addition, he’s not talking about Predestination with the “invisible hand,” but rather Fate. Predestination does not mean everything is fated and I have no free will. Luther argued that we have no free will because of Sin, not because of God! Stoicism, on the other hand, definitely developed a notion of Fate that determined all else.
I only point this out because it would make his case much better. I completely agree with the his assessment of the “efficient market hypothesis” and the “rational actor theory.” From a Christianity theological position these are completely silly – after all, the distortion of our desire because of sin is so fundamental to Christian belief that I’m amazed that Christians are ever capitalists (insofar as capitalism requires our desires to be fulfilled, just about no matter what).
But I hate to see an interesting argument get sidetracked because the author is not fully aware of classical Christian, or Greek pagan, religion.
Got into this above.
Luther believed that people could not facilitate their own Salvation due to Sin, so they give up their Will to God:
http://en.wikipedia.org/wiki/On_the_Bondage_of_the_Will
“Luther maintained that sin incapacitates human beings from working out their own salvation, that they are completely unable to bring themselves to God….. When God redeems a person, he redeems the entire person, including the will, which then is liberated to serve God.”
Also, I say clearly in the article that Rational Expectations does allow that people don’t have direct access to perfect knowledge. However, their being ‘inside the Market’ indicates that their Wills are driven in a direction ‘as if’ they had access to perfect knowledge. Just like Luther assumes that if we live ‘in God’ we manifest activity that is perfectly in keeping with Him — even if we cannot occupy the position of Him.
In this its more similar to Lutheranism than it is to Stocism where it would be assumed that we could directly ‘see’ things from the perspective of the Market.
As I said above though, there are plenty of threads you could follow on this — mine is only one.
I’m not sure how much Luther you’re read, but he does not argue that we are in bondage to God’s will. His argument is that we are in bondage to Sin. We don’t have free will qua sin, not qua God. Once God has broken through (and he does indeed think we have no ability to effect that break), then we are “liberated” to serve God (the term you quote). That doesn’t mean we don’t have free will but that we DO have it! We FINALLY have it. And it doesn’t mean that all our actions are predetermined. It means that finally OUR actions are OUR actions, not Sin’s. That has nothing whatsoever to do with fate!
The point for Luther and Christianity in general is that there is no opposition between God’s sovereign control of the world and our free will. The opposition is between a will in bondage to Sin, and a will liberated for God.
You are arguing that “The Market” is an invisible force that guides all decisions, analogous to the way God guides all decisions (as alleged). My point is simply that this is not predestination but the Greek concept of Fate. I’m sorry if I’m being somewhat pedantic about it, but I think in the moral sphere Christian theology is actually one of the best bulwarks against neo-classical economics, precisely because it has such a radically different picture of humans. Humans are not ‘fated’ by anything except our own distorted desire, and the fact that capitalism depends on our distorted desire for its vital heartbeat should disturb any Christian.
The point, I guess, is to get the etiology of our sickness straight so we don’t simply repeat the same sickness in a new guise. That’s all.
I’m not getting into a theological debate — someone just tried to do the same thing with Marx above. Everyone has their own views on what Predestination is and isn’t and blablabla.
I’ll go, as I usually do, with the dictionary definition:
predestination (priːˌdɛstɪˈneɪʃən) [Click for IPA pronunciation guide]
— n
1. theol
a. the act of God foreordaining every event from eternity
b. the doctrine or belief, esp associated with Calvin, that the final salvation of some of mankind is foreordained from eternity by God
2. the act of predestining or the state of being predestined
Wikipedia is also a useful vehicle for building consensus on the use of terms:
“Predestination, in theology, is the doctrine that all events have been willed by God.”
Ok, you can do that, but it just makes your analogy rather weak, since saying “all events are pre-ordained by God” and “humans have free will” is not a contradiction in Christian theological terms. That’s Luther’s and my point.
But saying, “the person is directed or guided by an invisible force that leads them to undertake one action and avoid another” is not a statement Christians would except about the God of the Judeo-Christian Bibles.
But Stoics would. That is the concept of “Fate.” And I actually find that your analysis is spot on for what the rational actor theory and efficient market hypothesis bring out. But confusing this with Christian theological categories merely makes it look, to those who are familiar with it, you don’t know what you’re talking about when it comes to economics. And from some of the comments it seems that is already a problem.
I think you missed my key point.
A neoclassical would actually argue that when a market actor undertakes an action ‘guided’ by the Market, he/she is doing so by their own Will — even if this Will is technically not free. Hence, why I say in the title that economists hate FREE choice. They don’t hate CHOICE, but FREE choice.
A theologian might say the same thing. If my action is ‘guided’ by God then it might be argued that this occurs due to my own Will — even if this Will is guided and not free.
And just a few quotes from Luther to round this off:
“Free-will is a nonentity, a thing consisting of name alone”
– Martin Luther
“All the passages in the Holy Scriptures that mention assistance are they that do away with “free-will”, and these are countless … For grace is needed, and the help of grace is given, because “free-will” can do nothing.”
– Martin Luther
Any would-be historical argument that turns the uppity protestants into convenient whipping boys as the source of all that is evil in our day is bound to get waylaid by somebody at some point.
Thrashing Marx on the other hand, is of course, much more acceptable on this side of the pond. (Which also makes a lot of sense).
But that’s the point – it has to be a would-be historical argument.
Your definition of “rational expectations” is much weaker than the actual claim now used in papers. It was true that when Lucas first introduced it that it was just the claim that people don’t make systematic mistakes, but that only works for a linear model. For a nonlinear model, anything you don’t know is random, and you know the correct probability of every future event. For example, you know the correct probability in ten years of the Dow being up 150%, GDP being up 30%, and inflation being up 12%.
Since this is obviously unlikely, people will sometimes invoke the “no systematic errors” criterion, but it’s not what people use in actual theoretical papers, unless the model is linear.
If I were to write an afterword it would have gone something like:
“Economists will tinker with their theories. They’ll make qualifications and try to appear rational. This is pure rubbish. It’s like trying to make qualifications to the theory that the earth is flat as you sail its circumference. These theories were always outlandish and rotten. And to continue building on rotten foundations is a fool’s errand.”
Wasn’t the whole rationale that “blogs are better than newspapers” because people who write blogs actually had expertise on the subject matter?
And here we are…full circle…a “journalist” with no expertise on this subject matter (none, zip, zilch, nada)…writing on a blog, no less.
And the best part: Pilkington’s sole qualification for teaching us about modern economic theory is…that Pilkington didn’t have his mind poisoned by The Dogma.
In other words: Pilkington’s sole qualification for teaching us about modern economic theory is that he has no freaking idea what he’s talking about.
Yves, I’m looking forward to a continuation of this series on The Journalist’s Perspective:
Maybe you could get another journalist to teach us how silly it is to use The Reasonable Man standard in tort law.
A journalist to teach us about medical diagnostics?
And that whole schism between theoretical physicists and experimental physicists….you should recruit a journalist to teach us why both camps are stupid. [Is Gonzalo Lira available?]
Yes, you always struck me as a power-worshipper, ‘trust your mechanic’ type of guy. Most trolls are. They’re so suspicious of everyone that they need to see a badge before they’ll allow the mailman on their property.
I, on the other hand, think that knowledge should be democratic and that anyone can read or write anything as long as they are willing to accept reasoned criticism.
If you have any gripes with my summary of the theories, then by all means say so and point them out. Otherwise… well… I don’t know… I guess you could continue to rant bitterly… that’s always worked in the past…
The fact that you fail to include extensive scholarly apparatus every time you express an opinion basically disqualifies you as an expert on anything. What do you think this is, a blog??
:p
Hi Dan.
I think your point was that you don’t like Philip.
Was there something else I missed? Perhaps just lifting a leg to try to mark some territory?
A schism between theoretical and experimental physicists? I’m not a physicist but I did get my B.S. in it and from what I understand they are just doing different jobs. The theorists hypothesize new theories to bring resolution to gaps or seeming contradictions in the field and then the experimental types figure out clever ways to test these theories. They aren’t competing with each other for the mantle of true physics, just grant money. From what I remember they all ate the same faculty club.
Heavy. So what happened to the devil? The only way to make decisions is to follow Lucifer into the light. The light of science. Otherwise it is an eternal unresolvable dither vacillating between faith and free will. Neither of which exist, but nevermind all that. We need to achieve what we can achieve. Accounting principles should only consider the value of the expected achievement and then work backwards. Knowing what it will be worth, it can be valued at the onset without incurring any debt. Money can be printed and work can be done.
All I know for sure is we need a better Book of MMT.
Like maybe a First Testament for how MMT existed ever since the First Days of Fiat Currency.
Then a more Enlightened Second Testament MMT including the parables of Minsky and Bill Black.
Then the Second Coming of MMT when we know all the bugs are worked out of it.
A movie or two would help too. Kind of an epic, I would guess. The actors would have to learn the phrasings and accents, but that’s what actors get paid for.
It would be a good idea if MMTer disciples and acolytes would have to take a test and be certified as well. Then when constructing their Internet handles they should be required to incorporate their grade and who graded their test.
Like so:
Swell_MMT_Guy_D_Mosler
This would make things less confusing in blogland.
They do it with mirrors… MMT Observatory http://en.wikipedia.org/wiki/MMT_Observatory
A woman hears from her doctor that she has only half a year to live. The doctor advises her to marry an economist and to live in South Dakota. The woman asks: will this cure my illness? Answer of the doctor: No, but the half year will seem pretty long.
Egads! The MMT Observatory!
A Mission in the neighborhood already!
Thanks for the chuckle.
Mr. Pilkington is the crux of your article that EMH should not be used as policy prescription since it fails to conform to its own standard. I agree that this is the case, but with the caveat that this is explicating the least significant aspect of actually existing Capitalism.
Wrt rational expectations theory (RET) the fundamentally false assumption is that one would choose a paradigm of either/or as opposed to a model that would allow for a multiplicity of this and this and this…etc. If we take the either/or model as itself being rational then the problem of rationality between any limited number of choices becomes the ground upon which the debate must proceed, i.e. don’t cede the high ground under the premise of fair argumentation.
RET has reached its apex in wealth preservation via the process of financial engineering the paradigmatic manifestation of the either/or pathology consistent with neoliberal economics. Financial engineering flips the science of engineering on its head with is “metaphysical subtleties and theological niceties” it introduces risks into the system and in so doing claims to be handling them with much acume and dexterity.
Engineers build bridges that direct the flow of traffic but allow two way flows in simultaneity. Financial engineering is all one way, towards wealth accumulation. It creates a very distinct social divide, which is somewhat obscured during times of economic growth, however, during credit crises the veil is lifted and our hands are cuffed.
Or are they really. This gets to your point about the belief in markets. But markets are like Soylent Green they are made of people! In the absence of destroying wealth, i.e. haircuts and write-downs, we are destroying people.
Wealth as money is a fictive element and the market is one mode of its existence. Wealth as humans is its actual correlate and informs existence as such. Kill the body and the head will die.
Don’t attack Marx ad hominem, phrenology. I also don’t think it is fair to place so much stress on teleology wrt to Marx’s works considered in total; a Marxist may believe such to be the case but Marx himself was a little more ambiguous than you make him out to be on the topic.
Ok Philip – I see your point. I still think that’s wrong qua Christian theology – Christian theology has never argued that free will and God’s will are incompatible. God is not a sort of “thing” that takes up the same space as creatures, so that if God wills something that means he is in competition with our wills. Even though Luther talks like this he’s talking (especially if you’re drawing from the Bondage of the Will) about Erasmus’ understanding, which is “natural” free will prior to God’s grace. We are certainly free AFTER we’ve been redeemed, as it were.
But as a superficial example of “The Market” ideology, I agree absolutely 100%. I’ve really thought for a long time that there is no such thing as a “free market,” I’ve just never put it in the terms you have. I just don’t think that this is the etiology of “The Market.”
However, having said that, I should say I appreciate the post.
Thank you. And I appreciate the input. I’m sharper on economics than I am on theology, so its no harm to have to argue this stuff from time to time.
It’s amazing how ideologues chose to see the world. Once freedom and liberty (read capitalism) was allowed to flourish during the Industrial Revolution wealth has been amassed too previously unfathomable levels. Over the past several centuries we have seen the inevitable boom/bust cycle always as a result of some intererence of the marketplace (read government). Despite this we have calls for more government.
Look at today’s depression, a credit bubble and all of its manifestations (i.e. housing bubble) are a direct result of massive government interference in the economy–especially on the monetary side with its central banks. Despite this people blame capitalism?
The marketplace would never have allowed a financial system to develop like it has. The privatize gains/socialize losses that underpinned the casino mentality is only due to government interference (central banks, deposit insurance, etc). This goes for much more than banks.
Almost every industry is oligarchy in nature as large corporations use government regulation/legislation to actually protect their position (i.e. reduce competition). This is often done in the name of “protecting” the common man. Yet all of you fools call for more of the same. If you want a system that is fair for all and allows EVERYONE to prosper there is only one–true capitalism. Stop supporting big government which ALWAYS is the tool for the rich and politically connected (doesn’t matter whether you are in the US or Europe or the old Soviet Union). What we have today is fascism where big government and big business work hand in hand to further their agenda. Eliminate big government and power will reside where it should–with consumers. Moreover, small businesses will be able to compete with big business on a level playing field.
If you don’t believe me just look at the porn industry. It is the least regulated industry in the U.S. What does it look like? The consumer is king as producers work like slaves in order to compete to provide the best product at the cheapest price. There is something for everyone at all price points. Any producer who slacks is out of business in a jiffy. Consequently, competition is extremely high and the consumer wins. Porn actually has the higest customer satisfaction of any industry (no pun intended) as the consumer (i.e. little guy) always gets what he wants. The relationship is one-sided in favor of the consumer. All industries would look like this if we didn’t have the government creating an unlevel playing field.
Is this a parody? If it is it quite literally brilliant and I’ll shake your hand — and suggest that Yves sticky this as a site post.
If it’s not, then it’s the most idiotic, misogynistic drivel that I’ve ever read. A loud and proud porn aficionado AND an apologist of Big Finance? Ugh! I feel dirty just reading it…
This is the sort of thing you’d only encounter on the internet! Typed up in a browser with hardcore porn open in one tab and an Ayn Rand forum open in the other… No, I don’t even want to think about what you’re holding in your right hand… I really don’t.
In a nutshell there are many individuals around whom we might call Neo-Gullibles who believe the Invisible Hand is rarely Under Hand and therefore reveal themselves to be shallow thinkers in their assessment of the implications stemming from the knowledge that human nature can stretch from extreme sociopathy to life sacrificing altruism.
Just one more comment. This is my interpretation of the concept of individual actors in a market. The insight from economics is not that the behavior of the individual is guided to a predetermined outcome. Instead, it is that the outcome of the market is determined by the actions of the individual. The guiding force, if any, is contained within the individual, who act of their own free will. By making guesses, assumptions, observations about how those individuals the economist tries to understand the behavior of the market as a larger structure.
The problem of people perceiving larger forces at work incorrectly shows up in the ideas about biological evolution. It appears there is a sense of overall direction and purpose to evolution but it’s an illusion that arrises from humans observing emergent behavior in a complex system.
Spiro Latsis (student of the excellent Imre Lakatos) showed back in the early 1970s that neoclassical economics is a deterministic doctrine. It’s actually rather obvious if you look at it closely. Here’s the paper I cited in the piece — although you’ll have to either pay for it or break into your local university library to download it:
http://bjps.oxfordjournals.org/content/23/3/207.full.pdf
Also the ‘rational markets’ theory leaves out the reality that unintended consequences may be caused by those thinking they are acting in their own best interest, only to find out later that have screwed themselves and now have to think in a backwards manner to ‘undo’ the mistakes they have made.
This is anything but efficient, but is all too common.
We all seem to live in a world where despite our best efforts certainty about it appears to be indefinitely postponed.
It may be that religion is largely a matter of what we do and is in no way restricted to what we merely think or believe.
All of our beliefs, whether in Religion, History, Science, Psycholgy or Economics seem subject to endless questioning and revision–and none of these domains may be in an ontologically superior postion.
Through our speech we seem to continually unravel one distortion at the cost of introducing another.
Maybe our inability to proceed registers for us that we are where we want to be.
Maybe an irresovable silence is the best accompaniment to the human condition.
What is evil? You have looked on it often, so whatever happens, remind yourself that you have seen it all before. Up and down the stages of history – ancient, medieval, modern, in great cities and humble households, you will see the same scenes played out. None of them new. All fleeting; all familiar.
— Marcus Aurelius
There’s no problem with economic theories that make unrealistic assumptions on their own. We just have to recognise their (severe) limitations. Rational expectations might tell us one useful thing, which is fine, as long as we don’t try to force it onto every economic situation that comes up.
Krugman gets this. Read his ‘accidental theorist’ and you’ll see how seemingly ridiculous thought experiments can be used to tease out information.
What is this useful thing that rational expectations tells us? I don’t think it tells us anything useful, except maybe how vacuous the mainstream economics profession is.
As for Krugman, I want to like the guy but he always oversimplifies stuff. Anyone remember the oil speculation debate. Krugman said that there was no speculation and it was all about supply and demand.
How did he know this? Had he studied the oil market? No. Had he read the reports coming out of institutions that had? No. He just knew. Because he’s an economist. His evidence? This:
http://tutor2u.net/economics/gcse/images/demand_supply_excess_demand1.gif
I think I stopped reading his blog after that…
‘What is this useful thing that rational expectations tells us?’
I’d be hard pressed, maybe you should ask Sumner. But it was just an example – my broader point was that assumptions are fine if we recognise their limitations.
The oil speculation debate was indeed odd. Krugman is obviously somewhat trapped, like his colleagues, but he does have some useful, unrealistic analysis/thought experiments, like his hot dog manufacturing island/babysitting recession.
As David Orrell says in Economyths, we should move from the ‘neoclassical logic piano’ to a more jazzy style of economic theory.
Some assumptions are so ridiculous that they don’t even deserve to be considered. David Icke, the ex-footballer turned conspiracy theorist, assumes that there is an elite that controls the world that are actually lizards dressed as people. We could recognise the limitations of this — or we could just scrap it and start over. Given that I’m not too keen on being chased by a man with a big net, I’d favour scrapping it and starting over. Ditto with RET.
This ties into your other point: should we move to something a bit looser? I don’t think so. I agree with Joan Robinson who, at the end of her life said that pretty much the whole edifice of economics needs to be thrown in the bin and we need to start again.
Argh, the paucity of western recognition in regards to topography. Hello[!!!!]…there is the *whole* other part of the world, cultures, events…cough…history that preceded western civilization. If one cannot take in the hole of it, whats the point…eh…it called humanity for a reason…one species thingy.
Skippy…I know, I know, the more people that believe in something, especially if their *born into it*, the more reality its given…there by making it empirical by mass alone. Kinda like economics, religion, astrology, taro cards, dudes waving my thigh bone around thingy…shezzz…one billion to five hundred billion galaxies in the known universe and yet people still ponder original sin…dbl shezz…flat universe thingy.
Skippy,
Hey mate…..flat universe thingy….GRIN
You would think that perhaps some minds never made it past the Enlightenment….or is that to the point of enlightenment.
Maybe the Cosmos is square like we used to say in the 60’s about some people’s opinions.
Philip, this is an interesting post. It is clear that neoclassical economics (in the sense of the framework pushed by organizations like the Cato Institute and the AEI) is infused with an embedded moral orientation. It is furthermore clear that this framework relies upon imaginative metaphors that are sufficiently bizarre that even its own adherents will sometimes refer to them as fairy tales.
It follows that it is fair to criticize neoclassical economics on theological grounds. It is not, strictly speaking, fair to criticize the same discipline simply because there are some parallels between it and certain forms of religious thought. A criterion like that becomes a club with which you can beat nearly everyone. It seems unarguable that your own writing contains both moral values and also faith in the possibilities of certain kinds of human action. I think you are on stronger ground criticizing neoclassical economics for the TYPE of moral values and faith that it fosters, rather than for the existence of parallels at all.
Your post contains a great deal of material that is thought-provoking in this respect, particularly regarding the contradiction inherent in characterizing as “free” behavior that is simultaneously argued to be inevitably good (through the functioning of incentives). However, I found a little frustrating certain attempts to point out striking resemblances between neoclassical economics and a form of Christianity that you are assuming your readers will find unsympathetic.
The result is that instead of describing economic theology more accurately, you end up fitting much of historical Christianity into a bed of Procrustes. Statements like “individuals are always on the way toward Salvation” or that sinners are considered as “perverse deviations” from the norm DO fit the underlying ideology of economics rather well, but they fit nearly all forms of Christianity poorly.
Certainly there are historical relationships between the development of economic thought and post-Reformation Christianity, but they are more subtle than what has been proposed here. There is a direct line from Adam Smith through his teacher Francis Hutcheson to Mandeville back to the French Jansenists. The first statement of the Invisible Hand theory predates Smith by a century, and it occurs in the writings of Pierre Nicole (a friend of Pascal). In Nicole’s essay, “Sur la charité et l’amour-propre,” he tries to provoke humility in his readers by giving an explanation for national economic success in which there is no room for any human pride in the accomplishment. He paints a picture of selfish individuals all reaching for gain who hinder one another to such an extent that the system is stable, “as if in a prison.”
On a rather different subject, it would be nice if you could refrain from criticizing people who bring up Marx simply by using lapidary phrases that in many American contexts would produce a sort of mob mentality against the person criticized. If people are bringing up points with which you disagree, Marxist or otherwise, why not simply point out where you think they are mistaken?
Most of these are fair points.
As I said above, I’m only picking up one thread among others here.
Also, I did discuss Marx in detail above and pointed to his good points. But I maintain that Marxists tend to be cultists. I’ve met them personally, I’ve seen how rigid they are about a lot of things. I’ve engaged in arguments. They’re generally worse than neoclassicals.
Can I also say that I’m overjoyed that most of the criticisms of this piece have come from Christians and not neoclassicals! I’m really surprised about this (pleasantly so). Neoclassicism is fast becoming a bad word.
I’m not sure why you would assume that someone who casually remarks that “X didn’t say Y” or “P likely has little bearing on Q,” means the respective persons are members of your hypothesized X and P cults.
But, in that case, it’s nice to know we now have a Roman Catholic rationalist on board representing their little cult down in the ‘hood, LOL.
(That oughta fry Pilkington’s brains–I can see the wheels and the springs popping out already).
“Hmmmm… Phil appears to be criticising Protestantism… I think. And he’s from Ireland. Didn’t Ireland have trouble with religious sectarianism in the past. Aha! He must be a Roman Catholic and this whole article must simply be an attack on the Queen.”
Damnit! You caught me pulling the balaclava down over my head on this one, Faraday.
There they go! http://www.youtube.com/watch?v=rSWkReOydJo
Philip,
I appreciate that you are sincere in your motives here. But I just want make one more attempt to get to step away from your painting of contemporary economics with what I think is a ridiculously broad and inaccurate brush. Can you site one article, written by a reasonably credentialed economist in the last 20 years, published in a journal or magazine, arguing the point of view you are critiquing?
I confess to this crime. I was economist for many year toiled in library in western way of mathmatics and deterministic models of modelling. And then I had big moment of realization. Had fortune cookie say “Dumb Shit, you are wasting life and numbers”. I said “Whoa.” That dumb cookie make me think. I give up PhD and library and change life. Now I run hedge fund and say heck with theory. Better just make money no worry about theory. I realize all theory is just words and money is money. Now I sit and listen 9 inch nails and say Fuk Yoo, yeahh. Why took me so long I wonder?
Fuk Yoo, former PhD
Yoo Foo Capital Partners
Well I stand corrected, thanks Fuk Yoo!
Rational expectations theory of course simply argues that we behave AS IF we were perfectly rational, not that we actually are. For example, when a student takes an exam, they behave AS IF they know all the answers even if they don’t and end up with the same perfect score.
The author has only one brief reference to Austrian economics and that was in a parenthetical comment: “It should be noticed that Austrian School ideologue Ludwig von Mises…” This is odd considering that the sub-title of this essay is “How Economists Rationalise Their Hatred of Free Choice.” Austrian economists do not hate free choice; they acknowledge individual choice as the basis of economic existence. Austrian school analysis is based on praxeology, the deductive science of human behavior as conceived by Ludwig von Mises.
Why is von Mises called an “ideologue?” Are the proponents of other economic viewpoints ideologues?
Why isn’t an analysis of the issue given from the perspective of Austrian economics? Proponents of Austrian economics, e.g., Mish Shedlock, have made predictions over that past few years that have been proven correct; other economists and schools have floundered.
Why is the one school of economic thought that has correctly predicted the events that began in 2008 being ignored by the mass of journalists?
Austrians predict crashes in the same way a broken clock is right twice a day. I think you’ll also find that Minskyians generally predicted the crash, far more acutely and with far more accuracy than Austrians.
Praxeology is based on rationalism, a strange school of philosophy that basically claims there is no objective reality. It was discredited in the 18th century. Austrians were also discredited in the 1930s.
Mises was an ideologue, he stormed out of an MP meeting calling everyone there a socialist (Friedman, Hayek). He had preordained conclusions (government=bad) and used praxeology to justify these. Hayek rejected praxeology, btw.
Austrians consider themselves outside the mainstream, but they basically come to the same policy prescriptions as neoclassical, perhaps minus a central bank.
Austrians also seem to believe in a deterministic system where free choice is subordinated to the Divine Will of the Market. Sure, they SAY otherwise, but I think that this is just smokescreen. Von Mises basically admits this in the above cited passage.
They’re actually very hostile when people make choices (e.g. to regulate etc.) that aren’t in keeping with ‘market action’. And they’re theories presuppose that people believe in a very specific way.
They remind me of Ayn Rand. She said she was a fan of free choice but when push came to shove she used her theories to manipulate people. She was attracted to one of the members of her cult and claimed that the principles of Objectivism meant that he should cheat on his wife with her.
Beware of preachers who pontificate on ‘free choice’ — in my experience its generally just a mask to try and get you to do something they want you to do and then convince you that you wanted to do it in the first place.
“And they’re theories presuppose that people believe in a very specific way.”
That should read: And their theories presuppose that people behave in a very specific way.
Sorry, haven’t had my coffee yet.
There is no such thing a free choice. No one lives in a vacuum, and most of our action are in relation to something. Same goes with what is right or wrong, its all relative. Maybe what matters is what works at a point in time given our incomplete/not yet realized information. Hence a fact of today is a myth of tommorow (possible to turn fact again at sometime).
“As we will soon see, the meaning of the word ‘decision’ here is very shaky. How can a deterministic theory which claims to know how people will act allow them to have the power to make a decision? If they have the power to make a decision then, by default, this decision will be uncertain and no overarching theory will be able to capture it.”
Exactly so. The widely brandished claims that rational-choice theories are voluntaristic and emphasise agency are unadulterated, propagandistic nonsense. As are the equally hilarious claims that rational-choice theories, unlike their rivals, treat actors as “intelligent”. Has anyone ever noticed that since rational-choice theories by definition equate rationality with understanding the world as the theorist posits it to be, that this is simply a not-so-subtle way of saying that the theorist him/herself is intelligent (and omniscient, etc.)?
My only complaint, Philip, is that you make the standard mistake of ceding the word “rational” to the neoclassical (and other mainstream) economists. The point shouldn’t be that people are irrational all the time — thus implicitly conceding that when people are rational, the neoclassicals correctly model their actions and decisions — but that the conception of rationality set forth by the neoclassicals and their ilk is ludicrous and has absolutely nothing to do with what people do in their eminently rational (and irrational) daily actions.
“The fundamental point here is that people – be they consumers or producers, investors or forecasters – often act in an almost wholly irrational manner; one that is quite open to manipulation. And once we allow for this the very premise upon which rational expectations theory rests upon falls to pieces.”
On the contrary, it is at this point that the article falls to pieces. The first sentence is uncontroversial – people ARE often irrational. But mostly they make rational decisions, and more than sufficiently often for rationality to be the best basis for explaining and predicting human behaviour.
Pilkington makes the all-too-common error of assuming that the simplistic economic models he critiques are trying to describe reality, when they are instead ways of identifying dominant patterns. The assumptions of perfect rationality, or perfect competition, are just to make the patterns clearer to the eye and mind. Deviating from those assumptions doesn’t destroy those patterns, it just muddles them.
That’s why all actual economists, if laid end-to-end still wouldn’t reach a conclusion. That’s why one-handed economists don’t exist. Because they know that reality is muddled, and trying to make realistic models means provisos, compromise, doubt, and knowledge gaps – the very opposite of theological thinking.
No, I’m arguing that they’re not describing ‘dominant patterns’. They’re describing bullshit rationalistic nonsense that certain people cook up in their heads so they can think they get a grasp on others.
Here’s how it works:
(1) We place the subject in society.
(2) The subject assumes that he/she is more intelligent than other people.
(3) The subject concocts a theory in their own mind to describe general human modes of behavior.
(4) This gives the subject comfort as he/she tries to negotiate with the world.
(5) As the world looks increasingly complex the subject briefly questions the nonsense they’ve cooked up in their head to try and explain the actions of their peers.
(6) The subject finds neoclassical economic theory which explains that while the people around them may be unpredictable, the overall mass of people act in a predictable way.
(7) The subject likes this perspective because their earlier ‘theory’ has been shattered through encounters with the complexities of real life.
(8) The subject becomes a wholesale ‘believer’ in neoclassical economics and devotes their lives to its ethical principles.
Note that you can replace the subject in this experiment with any religious believer and you’ll get the same results.
What an absurd article.
Economists don’t hate free choice, they encourage governments not to limit it.
The idea that free market economists assume that people have perfect knowledge is a straw man to ridicule a highly logical inference: that individuals left to choose for themselves will more likely do what’s in their best interest then if someone else chooses for them.
We don’t have perfect knowledge, so we constantly seek information out, from experts. Now the question is, do we assign these experts through a majority vote, or we let each individual find their own?
The free market position is that making these decisions politically just encourages special interests to try exert control over others for their benefit through the political process, and the model that most often leads to individuals benefiting is when individuals are sovereign and can decide for themselves how to govern their lives.
‘that individuals left to choose for themselves will more likely do what’s in their best interest then if someone else chooses for them.’
This is *still* initially based on the homo economicus assumption. People are influenced by many things around them – advertising, social norms, how choices are framed. Maximum choice is not the ‘neutral’ position that doesn’t ‘interfere’ with anybody’s decisions.
I’d recommend reading Nudge if you want to get an idea of quite how much this blows apart the ‘free market’ (whatever that means) position.
Is it rational to work full-time making $200,000 per year instead of working a lesser amount of time at the same rate of earning?
http://pastebin.com/SrWHNFxS
Is it rational to give away billions of dollars, just because someone suggested you should?
http://givingpledge.org/
Rational behavior in a society depends on the results of interactions with other individuals. When a collective failure in the allocation of critical thinking leads to a lower rate of goal completion, one might say that the rational behavior would be to work toward improving the quality of decisionmaking and signalling in society.
The basis of the efficient market hypothesis is the assumption that the interaction of a large number of goals by different individuals will lead to cooperation with goal completion tending toward the efficient use of resources and the goals that individually important. This is a valid assumption, as long as the goals held by each individual relate to each other in the way that individual expects them to.
The US has built up a $14 trillion public debt because the majority of the public had the goal of short-term national economic growth, in the expectation that this would lead to a healthy economy in the future. The efficient market hypothesis in this respect held true as short-term growth was achieved through deficit spending; the fact that it has not resulted in an economy where the volume of consumer spending is no longer enough to keep everyone employed is only indicative of “irrationality” if it was irrational to trust experts in the field, i.e. economists, that the long-term goal would be accomplished.
On that note…
The economics profession needs to realize the obvious: economics is the distribution of scarce resources, and in the present world consumer demand for consumption of products is scarce, meaning that the work required of society is also scarce. Since in non-communist societies income is directly related to work done, economics has the responsibility of understanding the allocation of scarce amounts of work.A 9.2% unemployment rate and 5 unemployed for every job vacancy does not demonstrate an acceptable understanding of this basic concept. Either there must be a resolution that society should create larger amounts of “work” that do not increase the standard of living as defined by the choices of people who refrain from spending their money, or the economic profession should accept that the goals of people place an upper limit on the total amount of work society feels it is necessary to do, and should advice policymakers on ways to distribute this work fairly among the able population.Anyone who cares about the inevitable consequences that result from the unequal distribution of work, who feels that these consequences are “destructive” or indicative of “a true moral failure“, should consider which of these choices is superior instead of contemplating the future in a fruitless morass of indecision. (MMI)
[/end tangent, which accidentally included tags instead of line breaks due to copy&paste; comment continues]
Mr Adam Smith lived in a time when one thing was perfectly clear: ‘the Market’ is not always expressed through peaceful acts. The American revolution was one expression of ‘the market’, which today is expressed through things like politics. The concept of ownership of property, and the implications this has on production and an individual’s options, is one of the underlying bases of the market and not one whose form can be taken for granted—as seen in the existence of taxes.
So part of the ‘rational’ expression of the market is the lack of desire of people for riot, conflict or revolution or even more peaceful methods of political action… a limit which for many people was reached due to the perceived culpability of the financial sector for the recession and its lack of rebuke for same. The actions leading up to this situation have been rational in the same sense that it was rational for the previous president to have been reelected when most of his supporters still thought Iraq had been helping Al-qaeda: http://www.pipa.org/OnlineReports/Iraq/IraqRealities_Oct04/IraqRealities%20Oct04%20pr.pdf
The market for policy, and policy makers, is just as real as the market for consumer goods. If this is obvious, I will point out once again how to improve the accuracy and ‘rationality’ of both these markets:
http://pastebin.com/SrWHNFxS (see “detailed explanation”)
Or one can just follow the suggestion of George Soros and make a huge profit when the market is about to be wrong? The reason that it frequently happens that the majority of people are wrong is misplaced trust in signalling, as described in the above link.
If more deregulation turns out to be harmful, eventually people will learn. Reality is always out there for noses to bump into. For example, one possible result of ‘deregulation of military’ which lead to an adverse reaction by the affected nation:
http://en.wikipedia.org/wiki/Blackwater_Baghdad_shootings
For many people, this is a valid assumption. It stops being useful when unemployment is at 9.2% with 5 unemployed for every job seeker and no social safety net. Rational expectations theory would dictate that people would attempt to change this situation if this does not fit their conception of a well-designed system. It’s true that things would work more smoothly if people would anticipate unpleasant changes in their environment before those changes happened, so they could avoid them; the way to encourage people to do this is, again, described here:
http://pastebin.com/SrWHNFxS
If you are standing on the edge of a high building, is it rational to jump off if you want to live?
Maybe if you jump off the air molecules will conspire support your slow and peaceful descent to a safe landing on the ground, while if you remain standing a large meteorite will impact your exact location. Since you don’t know if either of these events will happen, is it really justified in saying that it’s rational for someone who wants to live to not jump?
**
anyway.
In the general sense, signalling is useful to society for almost all combinations of quality distributions with signals used to represent those quality distributions. However, signals that accurately represent the underlying factors will be more useful to society than ones that do not, and this includes using “efficient markets” as a signal for whatever people use it as a signal for being. If, for example, people take “efficient markets” to mean “it will lead to low unemployment”, the way to cause efficient markets to do this is, once again, described here:
http://pastebin.com/SrWHNFxS
The goals, and therefore decisions, of any individual will always be uncertain. However, the overall goals of society change slowly enough that it can easily be ascertained what they are, and the majority of personal goals will be in harmony with society’s goals if society is intelligent enough to arrange to avoid conflict in this area; therefore, planning can be done for society’s goals with the understanding that it also supports individual goals.
Of course, most people probably do not understand this well, and even for knowledge specialists (for example) approximately 0% of economists understand the importance of patterns of individual spending which determine the effectiveness of large-scale interventions such as fiscal stimulus on long-term economic trends; but that is the idea behind planning for rational behavior.
@ the guest author of this post
Another explanation of rational consumer behavior