Recent Items

Philip Mirowski: The Seekers, or How Mainstream Economists Have Defended Their Discipline Since 2008 – Part II

Posted on by

By Philip Mirowski, Carl Koch Professor of Economics and the History and Philosophy of Science University of Notre Dame. Professor Mirowski has written numerous books including More Heat than Light, Machine Dreams and, most recently Science-Mart

Edited and with an introduction by Philip Pilkington, a journalist and writer living in Dublin, Ireland

The previous part of the series can be found here, while a bibliography can be found here

What follows is Mirowski’s account of the behaviourist defence of neoclassicism after the crisis. While behaviourism does not occupy a central position within the discipline it stabalises it in a different way, in that it allows certain neoclassicals who have a nagging feeling that the whole edifice of the research program is based on shaky and unrealistic foundations to think that they have found some new and exciting way of doing research. They then conclude that if they can only get their colleagues to see the light all will be well and the neoclassical research program can continue. In addition to this it allows them to take a sleeping pill with regards to the recent crash; after all, surely it was the result of some sort of irrational behaviour and not due to inherent structural imbalances within a capitalist economy, right?

As Mirowski points out, the behaviourist research program is largely a sideshow – one might be tempted to say: a sideshow for left-wing economists making excuses. It is a sideshow precisely because it continues to deploy the neoclassical methodology. What happens is that these well-meaning but misled economists try to take into account varying degrees of ‘irrational’ human behaviour, but in doing them they sterilise them by forcing them into their rationalising frameworks. Mirowski sums this up as such: “Wasn’t ‘irrationality’ in the neoclassical lexicon an oxymoron, since the moment one formalized it in the utility function, didn’t it effectively get subsumed under some perverse version of meta-rationality?”

And so the paradigm is defended once more, this time from within; as those who began to suspect that the neoclassical program is wrong to strip individuals of their psychologies sought for a safe alternative – but in doing so their neoclassical models always get the better of them and sap any purported ‘irrationality’ or individuality out of their research subjects. “What ‘behavioral economics’ fostered was the warm glow of feeling that you had changed your economic stripes without having to change your mind, or your models. Like the Seekers.”

– Philip Pilkington

===================================

Part II: Behavioural Economics – Rationalising Irrationality

It has been fairly common in the annals of economic history to observe that in the wake of serious financial crises, observers tended to bewail a weakness in human cognition, attributing pecuniary disaster to a ‘madness of crowds’. Eventually, eschewing structural explanations, all serious problems would conventionally tend to be traced back through intermediate ‘bad choices’ to moral or character flaws in particular individuals. Thus, it was no surprise that a pervasive and immediate response to 2008 was to blame the entire mess on a rabid outbreak of ‘irrational exuberance’.

Unfortunately, madness often lodged in the eye of the beholder. When it came to orthodox economics, the term ‘rationality’ bore a very narrow and curious interpretation as the maximization of a utility function subject to constraints by an otherwise cognitively thin and emotionally deprived ‘agent’. This unsatisfactory version of rationality had been the perennial subject of complaint and criticism from within and without economics since the 1870s; numerous defenses had been developed over the decades supposedly to neutralize those concerns. Hence, in economics, repudiation of ‘rationality’ meant in practice tinkering with the utility function and/or its maximization. The latest attempt at accommodation dated from the 1990s, introducing some amendments from narrow subsets of psychology (mostly decision theory) while keeping the basic maximization of utility framework intact: this had come to be called ‘behavioral economics’. This purported enrichment of simpler concepts of rationality had even established a beachhead in the study of finance well before the crisis; its most prominent advocate in the prelapsarian era was Lawrence Summers, which might begin to signal that its revolutionary potential may not have been all that transformative. Mostly, in finance it produced models predicated upon the posited existence of a complement of stupid people, somewhat more charitably known as ‘noise traders’, who performed certain functions in financial markets (liquidity, smoothing of reactions to shocks) so that the neoclassically ‘rational’ agents could more readily find the ‘true’ or ‘fundamental’ values dictated by the prior orthodox theory. Nothing here substantially impugned the basic orthodox model.

Once the crisis hit, journalists predictably turned to accusing Wall Street of behaving irrationally (in the vernacular meaning), and economists of investing too much credence in the rationality of their agents. Two bestselling books were especially effective in broadcasting this line: John Cassidy’s How Markets Fail (2009) and Justin Fox’s Myth of the Rational Market (2009). Some economists who had been strong advocates of behavioral approaches prior to the crash, George Akerlof and Robert Shiller (2009) and Robert Frank (2009), leapt in with op-eds essentially blaming the entire crisis on cognitive weaknesses of market participants. This line became entrenched with the appearance of George Akerlof and Robert Shiller’s Animal Spirits (2009a): displaying an utter contempt for the history of economic thought, they ‘reduced’ the message of Keynes’s General Theory to the proposition that people get a little irrational from time to time, and thus push the system away from full neoclassical general equilibrium. [11] They wrote:

The idea that economic crises, like the current financial and housing crisis, are mainly caused by changing thought patterns goes against standard economic thinking. But current crisis bears witness to the role of such changes in thinking. It was caused precisely by our changing confidence, temptations, envy, resentment, and illusions . . . (2009a, p. 4)

The timing was propitious, since at that juncture all sorts of people were casting about for something different in the way of economic analysis of the crisis. Nevertheless, when a few journalists read the book, the first thing they noticed was that it said very little substantive about the current crisis, for much of it had been written well before 2008. Brought up short, they began to doubt its pertinence. The second thing they noticed was it was full of overweening claims, but contained very little in the way of causal mechanisms. ‘Animal spirits’ boiled down to such timeworn neo- classical expedients as changing the utility function over time and calling it ‘confidence’ (while Chicago called it ‘time-varying rates of discount’), appealing to sticky wages and prices while attributing them to ‘money illusion’ and concerns over fairness (which the neoliberals modelled as ‘envy’), and suggestions that corruption would grow over the course of a long expansion (Chicago theorist Gary Becker theorized this the ‘rational choice approach to crime’). Far from some brave venturesome foray into the unexplored thickets of real psychology by open-minded economists unencumbered by entrenched dogmas, this was just more of the same old trick of tinkering with the ‘normal’ utility function to get out the results you had wanted beforehand – something falling well short of the trumpeted dramatic divergence from standard economic theory.

This raised an objection that had long been a subject of discussion in the methodology literature: wasn’t ‘irrationality’ in the neoclassical lexicon an oxymoron, since the moment one formalized it in the utility function, didn’t it effectively get subsumed under some perverse version of meta-rationality? Richard Posner (2009b), an especially perceptive critic from the Right, pushed this point home in a review of Animal Spirits. The Akerlof–Shiller reply, deficient in philosophical sophistication, proved unable to confront this debility:

When Posner asserts that it is not always easy to rule out that people are acting rationally – even if they seem not to be – he is of course right, for this is what most academic economists have thought. It is hard to disprove such a theory that people are completely economically rational because the theory is somewhat slippery: It doesn’t specify what objectives people have or what their information really is. (Karloff and Shiller, 2009b)

The problem with behavioral economists going gaga over ‘irrationality’ was that they conflated that incredibly complex and tortured phenomenon with minor divergences from their own overly rigid construct of pure deterministic maximization of an independent invariant ‘well-behaved’ utility function. Akerlof and Shiller could only condone an incongruously rationalist framing of their irrational exuberance. One can therefore appreciate misgivings that this core theory was so ‘slippery’ that it is not at all evident what the enthusiasm over ‘behavioral economics’ really amounted to. Two decades of behavioral research certainly has not resulted in any consensus systematic revisions of microeconomics, much less macroeconomics. Beyond wishful thinking, why should one even think that the appropriate way to approach a macroeconomic crisis was through some arbitrary set of folk psychological mental categories? Again, they had to admit that Posner had caught them putting the rabbit into the hat:

Posner makes the interesting point that most behavioral economists – who study the application of psychology to economics – did not predict the economic crisis either. We would put this somewhat differently: There were very few behavioral economists who made forceful public statements that a crisis may be imminent. That is because there are very few behavioral economists who even specialized in macroeconomics, and so virtually none was willing to take the risk of making any definitive forecast. (Akerlof and Shiller, 2009b)

The plea that in the eventuality that behavioral economics had had more adherents, it would have done more of the things Akerlof promised, is hardly a compelling reason to get enthused about a line of research. Akerlof and Shiller were loathing admitting that they had not proffered any good conceptual reasons to believe that behavioral economics was even particularly relevant to the crisis. What this literature had to do with the genesis of credit default swaps, the rise of the shadow banking sector and the collapse of the manufacturing sector was entirely opaque. And however much Akerlof and Shiller protested that their politics was diametrically opposed to neoliberals like Reagan and Bush, what was their version of ‘animal spirits’ but tantamount to simply blaming the victims for the macroeconomic contraction? Shiller’s previous books did indeed identify the housing bubble as a problem, but his ‘solutions’ always involved even more baroque securitizations of the assets in question (Shiller, 2006). In this, he rivalled the most avid neoliberal in his belief in the superior power of The Market to fix any problem.

The unbearable lightness of Akerlof’s behavioral theory is nicely exemplified by the one paper that was repeatedly cited by bloggers and journalists during the crisis, his ‘Looting: The Economic Underworld of Bankruptcy for Profit’ (Akerlof and Romer, 1993). From reading the title, one would suspect it might deal with the phenomenon of running a financial institution into the ground given the temptations of short-term trading profits; like, say, Bear Stearns or Lehman Brothers. Few of its enthusiasts actually bothered go so far as to read the model, however. In the MIT tradition, it was a purely deterministic little ‘toy’ model of a single firm over three periods, where assets are not bought or sold after the first period, and a little maximization exercise which argues that if the owners of the firm could pay themselves more than the firm is worth and then declare bankruptcy in period three, then they will do so. Accounting manipulation and regulatory forbearance (which were not described in any level of detail) are asserted to make this outcome more likely. Deposit insurance permits owners to offload costs of auto-destruction onto the government. This was then asserted to ‘explain’ the savings and loan crisis of the 1980s.

This displays all the hallmarks of the behavioral program touted by Akerlof and Shiller. First, a reputedly irrational behaviour (looting banks by their owners) is rendered ‘rational’ through minor amendment of a simple orthodox maximization exercise by tinkering with the utility function of bank owners. Insights from professional psychology are absent. Macroeconomic phenomena are reduced to isolated individual choice in a manner far less sophisticated than in the reductionist rational expectations movement. Predictably, the model adds nothing to what simple intuition would suggest, given that the problem has been artificially restricted to a rudimentary cost–benefit exercise beforehand. Indeed, the model does not particularly illuminate the situation that nominally inspired it, since it does not encompass any of the specific institutional detail pertinent to the phenomenon; that is, it bypasses what precipitated the crisis at that particular juncture. It ignores the breakdown of Depression-era walls between depository and investment institutions, and neglects the spread of baroque securitization at the behest of finance economists, and the watershed of the ‘originate and unload’ business model for retail loans. But more to the point, their supposedly left-wing approach ends up backhandedly reproducing the conventional neoliberal story, as was pointed out by Gregory Mankiw in his published commentary:

Although the two authors from Berkeley did not intend this paper to be a defense of Ronald Reagan and his view of government, one can easily interpret it in this way. The paper shows that the savings and loan crisis was not the result of unregulated markets, but of overregulated ones . . . The policy that led to the savings and loan crisis is, according to these authors, deposit insurance. (Akerlof and Romer, 1993, p. 65)

Hence, when some economists speculated that the orthodoxy would give way to a ‘more realistic’ behavioral economics in reaction to the crisis, it was primarily a symptom of the general unwillingness to entertain any serious departure from conventional arguments. [12] If anyone had bothered actually to read any of the leaders of the behavioral ‘movement’, they would have quickly realized that those economists went out of their way to renounce any ambitions to displace the orthodoxy. In one spectacularly badly timed compromise, Andrew Lo had sought to reconcile the findings of behavioral finance with the efficient-markets hypothesis (Lo, 2005). And behavioral economists could care less about the layered complexity of the human soul. Indeed, one need not look far to encounter their contempt for the academic psychology profession:

I think we strive for parsimonious, rigorous theoretical explanations; this distinguishes us from the psychologists . . . Economists want a theory that provides a unifying explanation of these results whereas psychologists are much more willing to accept two different theories to explain these ‘contradictory’ results. . . I don’t like the argument that everything is context dependent. That view lacks any grounding. In this regard, I really like the strong theoretical emphasis of economics and our desire for unifying explanations. It distinguishes us a lot from biologists and psychologists, and provides us with a normative anchor. (Fehr in Rosser et al., 2010, pp. 72–73)

If you asked behavioralists what all this tinkering with conventional neoclassical utility functions (which dated back to the very inception of the program in the 1880s) was supposed to portend, they would tell you in no uncertain terms that so-called behavioral economics ‘is based not on a proposed paradigm shift in the basic approach of our field, but rather is a natural broadening of the field of economics . . . [it is] built on the premise that not only mainstream methods are great, but so too are mainstream economic assumptions’ (Rabin, 2002, p. 659). [13]

So wherever did the vast bulk of commentators get the unfounded impression that behavioral economics was poised to deliver us from the previous errors of orthodoxy when it came to the economic crisis? Partly, it was the fault of a few high-profile economists like Shiller, Akerlof and Krugman, whose own ‘behavioral’ credentials within the community were, shall we say, a bit shaky. But it also emanated from the vast scrum of journalists, primed to believe that when economists would just abjure ‘rational choice theories’, then all would become revealed. It got so bad that two bona fide behavioralists felt impelled to pen an op-ed for the New York Times absolving them of any responsibility to explain the crisis:

It seems that every week a new book or major newspaper article appears showing that irrational decision-making helped cause the housing bubble… It’s becoming clear that behavioral economics is being asked to solve problems it wasn’t meant to address … Behavioral economics should complement, not substitute for, more substantive economic interventions [of] traditional economics. (Loewenstein and Ubel, 2010)

Ultimately, the more perceptive journalists acknowledged this: ‘While behaviorists and other critics poked a lot of holes in the edifice of rational market finance, they haven’t been willing to abandon that edifice’ (Fox, 2009, p. 301). It is not even clear that they have been all that willing to bring themselves to look out the window. What ‘behavioral economics’ fostered was the warm glow of feeling that you had changed your economic stripes without having to change your mind, or your models. Like the Seekers.

=================================

11. Although calling themselves ‘Keynesians’, their understanding of what Keynes wrote was so tenuous that they were called to account in this regard by Posner (2009b) and at http://dmarionuti-blogspot.com/2009/09/akerlof-shiller-animal-spirits-misnomer.html.

12. ‘What’s probably going to happen now – in fact, it’s already happening – is that flaws- and-frictions economics will move from the periphery of economic analysis to its center. There’s a fairly well developed example of the kind of economics I have in mind: the school of thought known as behavioral finance’ (Krugman, 2009).

13. Yet even this divergence went too far for the Old Guard of the orthodoxy (Arrow in Clarke, 2009).

Print Friendly
Twitter10DiggReddit0StumbleUpon0Facebook0LinkedIn0Google+1bufferEmail

66 comments

  1. Jane Doe

    I first saw this here, but I think it needs to be repeated:

    http://en.wikipedia.org/wiki/Inverted_totalitarianism

    I prefer to call this Sophie’s Political Choice.

    What is Sophie’s Political Choice?

    Its the fake Socialism versus far right wing policies of Europe, or, Democrats versus Republicans in the U.S., or Neoclassical Economics versus Behavior Economics. Its the sense that one has choices, but in fact, there is only one choice because both choices stem from the same bad choice.

    Sophie had one bad choice- which one of her two children should be killed by the Nazi?

    The magnitude of her one bad choice only serves to underscore our present problem. How severe does an underlying bad choice have to be before human psychology will recognize there are no good choices being offered?

    I think this is a real problem for modern democracy: Where the powerful have become so powerful that they can offer the illusion of choice without giving us any real choice.

    1. Ray Phenicie

      Thanks for posting this link; it gives a much needed emphasis on what our so called democracy is actually all about-the feeding of the ruling elite housed in the larger temples of the financial and commercial enterprises. Notice I deliberately left out the industrial side because they are really just legions of lesser knights and pawns in the game being orchestrated from the inner realms of the financial houses. We all really need to come to an understanding of the true nature of the leeches, the lampreys, the life sucking, no vertebrae, structures that hang around our necks and along our thorax and pluck them off and stomp them into the ground.

    2. ein Volk ein Führer

      Here’s a pretty good review of Sheldon Wolin’s “Inverted Totalitarianism: A New Way of Understanding How the U.S. is Controlled”, including an excerpt from the review:

      http://dialogic.blogspot.com/2011/05/chalmers-johnson-sheldon-wolins.html

      “The genius of our inverted totalitarian system “lies in wielding total power without appearing to, without establishing concentration camps, or enforcing ideological uniformity, or forcibly suppressing dissident elements so long as they remain ineffectual. A demotion in the status and stature of the ‘sovereign people’ to patient subjects is symptomatic of systemic change, from democracy as a method of ‘popularizing’ power to democracy as a brand name for a product marketable at home and marketable abroad. The new system, inverted totalitarianism, is one that professes the opposite of what, in fact, it is. The United States has become the showcase of how democracy can be managed without appearing to be suppressed.”

  2. psychohistorian

    When economists start talking about inheritance and private ownership of property as core socio-economic principles then we might start having a useful discussion.

    To me, ‘irrationality’ exists because the facets of the ongoing class system are never included in polite discussion of economic thought.

    Building and maintaining a facade of respectability to the class system we have is and has been the primary motivator for stand alone economic theory…see Yves discussion in ECONned about combined political economic theory. The secondary motive is to obfuscate the American repressive tendrils of empire throughout the world…..what should be the real cost of delivered oil taking into account the military protection the public pays for?

    When the collapse comes are we going to address the class structure we live under or continue to be further controlled by it?

    1. jake chase

      If economics ceased to be the religion of capitalism it would cease to offer cushy academic sinecures and government propaganda posts. Can anyone imagine a university chair in Marxist economics, or even in Veblenite economics? The simple truth is that mainstream economics is a long winded justification of Balzac’s timeless aphorism ‘money has no stink’. Organized religion has long sustained its usefulness on similar grounds. Apart from zoning laws, our democratic republic has never begun to tackle the problems presented by irresponsible private property. Instead, we have put our trust in bureaucratic sloth, commercial knavery, financial slight of hand and corporate citizenship. The consequences have been monopoly, usury, war, imperialism and debt servitude, although a thin middle class has continued to prosper in spite of everything since the end of WWII. Now, even that middle class is in jeopardy. Why bother to continue reading all this stale rubbish? One might as well study astrology.

  3. Middle Seaman

    I have the strong feeling that Mirowski confuses public discourse about economics, e.g. books written by economists, with the formal model or data driven scientific work that is typically published in scientific journals.

    People such as Stiglitz and Krugman speak widely about the application of Keynesian models to recover from the great recession, but these pronouncement are not their scientific work.

    When Krugman criticizes other non-Keynesian economists he typically refers to their misleading statement, wrong predictions and only part of the time to their scientific work.

    1. YankeeFrank

      The idea that the scientific language of economics is so distinct from the economics essays written by these same “scientists” such that they bear no real resemblance is absurd.

    2. Foppe

      I have watched Stiglitz’s talks from quite a few INET and similar conferences. Not all that groundbreaking there, either.

    3. Philip Pilkington

      To some extent yes — and it is very important what economists tell the public. But he also criticises the methodology behind the models. In this case trying to squeeze ‘irrationality’ into utility models geared toward so-called ‘rational’ behavior.

  4. Kukulkan

    First, a reputedly irrational behaviour (looting banks by their owners) is rendered ‘rational’ through minor amendment of a simple orthodox maximization exercise by tinkering with the utility function of bank owners.

    Given the economic definition of rationality — utility maximisation — an owner looting a bank is not irrational. The owner wants to maximise their buying power so as to satisfy a range of other wants, the money’s sitting there, they take it and — bang! — they’ve msximised their buying power.

    The question should be: why don’t all owners of businesses loot them?

    The answer, as far as I can tell, isn’t that owners have additional goals other than just maximising their buying power and those other goals are weighted more heavily than the buying power maximisation one, so not-looting their business generally wins out.

    However, if circumstances change – say, an army has invaded the city and word is spreading that they are rounding up business owners and shooting them — then the weighting on those other goals may well evaporate and the owner can decide, quite rationally, to loot the business and flee with as much as they can carry. We all recognise that people do that sort of thing all the time; businessmen loot their own businesses to pay off gambling debts or blackmailers or because they’re going to run off with their lover or are going to lose control of the business to someone else and just don’t care what happens to it in the future. We may consider those who refrain from doing things like that as morally upright and praiseworthy, but by the same token we recognise that when the crunch comes, many people will not act in such a praiseworthy manner.

    The interesting thing is that economists have long recognised that individuals rationally maximising their personal utility functions can have broader negative effects. The tragedy of the commons. Businesses driving down wages to increase profits and destroying their markets in the process.

    I think the entire Global Financial Crisis can be explained by individuals rationally maximising their individual utility functions producing an overall negative effect. Taking out a loan to invest in property so as to make a profit when you flip it is not irrational. Giving a loan to such an individual if you’re essentially paid a commission per loan made is not irrational. Bundling loans into financial instruments so as to remove the risk from your own books is not irrational. Buying those financial instruments because they’re a AAA investment is not irrational. Rating such as instruments AAA because that gets your firm more business from the issuer is not irrational. Taking out Credit Default Swaps on those instruments just in case the rating is wrong is not irrational. Leveraging a company’s reserves so as to make large profits is not irrational. Acting in ways that will give you the biggest end-of-year bonus is not irrational.

    It was all perfectly rational — in the economic sense — it’s just that the results were catastrophic.

    The problem wasn’t that some (or many) actors were irrational, it was the assumption that markets automatically produce optimal results. Or, perhaps assuming that optimal results are necessarily the ones good for most people.

    1. Philip Pilkington

      Exactly. Part of the crisis was due to structural issues and wealth distribution effects. That’s a far better way of looking at it than in line with so-called ‘rational’ or ‘irrational’ behaviour.

      Those terms are misleading and, I think, ultimately meaningless. One of the articles Mirowski cites in the notes is very interesting in this regard:

      http://dmarionuti.blogspot.com/2009/09/akerlof-shiller-animal-spirits-misnomer.html

      “There is method in human action, no matter how mad humans are: even the actions of masochists are ultimately directed towards the pursuit of their happiness.”

      Basically, it’s largely impossible to separate out so-called ‘rational’ and ‘irrational’ behaviour in the economy. It’s also stupid to believe that you can quantify or theorise such behaviour. It’s all just a smokescreen to distract from the real issues — which are structural and which we certainly can study (like wealth and power imbalances; or the innate fragility of the financial architecture in a capitalist economy).

      1. Rcoutme

        In your examples there were, in fact, some irrational choices:
        1) Paying loan officers (brokers, etc) by the size of the loan
        2) Paying bonuses immediately for income expected in the future
        3) Rating AAA is, in fact, irrational in a rational world (your future is destroyed if no one believes you anymore)
        4) Purchasing bundled loans (particularly if you can’t understand the equations in the contracts) without having determined, for yourself (or have someone who looks after your interests, instead of the packager’s)

        1. Philip Pilkington

          Depends how you define ‘irrational’. I don’t think it’s a useful term. As the above poster points out, if you own a bank and you loot it it may indeed be a ‘rational’ action from your perspective — but to call it ‘rational’ in any wider sense seems a bit much.

          The words are, I think, largely meaningless when applied to economic analysis. They always raise questions such as: “rational for whom?” “Rational in what sense” etc etc

          1. Procopius

            I don’t think very many owners of banks loot them, although I suppose some do. Usually it’s hired management. They mostly aren’t going to have a very long tenure. A few years ago the average tenure for the CEO of a large company was what, two years? Eighten months? It seems like the current situation, with the managers of the mega-banks staying in their positions for a long time is an anomaly. So for the hired managers it was even more rational to loot the company they were put in control of. Get it while you can IBH, YBG. For the owner it would probably be more rational to keep the company going, maximize the cash stream over many more years. For the managers it didn’t matter if the company was destroyed; they weren’t going to get a cash stream from it for many years.

        2. Kukulkan

          In your examples there were, in fact, some irrational choices:

          There are a couple of problems here.

          First is the time element. Some of your examples are irrational because you’re adopting a future-oriented perspective. That is, the choices are irrational because they will lead to bad things happening in the future. However, from a present-oriented perspective, all the choices are rational; they all bring about the desired result in the present.

          According to sociologists, the middle class tend to be future-oriented, while the poor tend to be present-oriented. This difference is often dressed up in moralistic tones with talk of delayed gratification and work ethic and fables about ants and grasshoppers, but viewed dispassionately, both can be viewed as different survival strategies, each with their advantages and drawbacks.

          Simply put, a future-orientation is good strategy in a stable environment in which future conditions can be predicted with a high degree of confidence and there is sufficient surplus that some can be put aside without endangering immediate survival. Denied those two elements, it actually becomes a rather poor strategy, since it involves taking on liabilities that may not pay off (thus endangering future survival) or endangering immediate survival, in which case what happens in the future is moot.

          To take one example, taking on debt to fund a college education is a good strategy if one is confident that a college education will lead to a better-paying job which will provide sufficient funds to not only pay off the debt, but also to enjoy a higher standard of living. If the environment changes so such jobs are no longer available, then all one has done is taken on a huge debt which future earnings will have to service, possible reducing them to a level below what’s required for survival.

          Another example would be the common complaint about business and politics: that businesspeople are just concerned with the next quarterly earnings report or the next annual report and that politicians are just concerned with the next election and, as a consequence, neither is willing to engage in long term projects that will benefit the company or country. However, both businesspeople and politicians behave that way because they recognise that the report/election determines their ongoing survival and, if they don’t survive, then whatever plans they made will benefit someone else.

          Given an unpredictable environment with low or uncertain income, a present-oriented strategy works out much better in securing on-going survival.

          The difficulty is that economics doesn’t even recognise any of these variables. It seems to assume a completely stable environment and doesn’t acknowledge that different circumstances may well lead to different optimal strategies and perspectives. After all, despite the fable, both ants and grasshoppers are successful species.

          The second problem is that you say some choices are irrational because the incentives are wrong. That is, you say paying loan officers by the size of the loan is irrational. Possibly, but the loan officers are not the ones who set that policy. For them, since their remuneration depends on the number and size of loans made, the rational choice is to make as many loans as possible and to make each one as big as possible. This can be seen as one of the structural problems that Pilkington refers to.

          My point was that everyone was acting rationally within the structures they worked in. If you think that the structures were encouraging the wrong sort of behaviour, then the problem is with the structures, not with the rationality.

          The odd thing is that economists are notorious for the attitude that any sort of behaviour can be brought about with the right set of inducements and penalties. That is, people will rationally respond to rewards and penalties and adjust their actions accordingly. Yet that belief seems to have completely deserted them when talking about the Global Financial Crisis. Instead, they go groping for other explanations.

          Maybe everyone involved was behaving rationally, it’s just that the incentives were encouraging actions that led to a poor overall result.

  5. Merijn Knibbe

    Outside the realm of the ‘Washington Consensus’ there is a wide array of alternative economic theories, lime ‘consumer studies’. These studies try to actually ‘sell nylons’ and readily use anything they can use to do this: neurology, anthropology, sociology, whatever. They do, however, not use indifference curves – as these do-not-work-when-you-try-to-sell-something-to-real-people, who are clearly not the atomicons of neo-classical economics. Forget about Washington Consensus economics, even though these economists receive the Noble Prices, and start to read these real life economists (and beware: the ‘consumer science’ textbooks are not really liberal treatises on the evils of the market – to the contrary. But they do analyse how real markets work and how, for instance, companies in the USA have to cope with increasing inequality).

    Why does ‘utility analysis’ not work when put to the test? Easy: utility and indifference curves do not exist. My idea is that the very idea of ‘utility’ is flawed but even if something like this existed it would at best have a nominal scale, instead of the more opr less ordinal scale assumed (!) by Samuelson. Our preferences originate in different parts of the brain, are therefore not consistent and therewith prone to the ‘Arrow paradox’ – as the part of the brain which is preponderant shifts with the circumstances (including, for instance, level of hormones). One could consult a book like ‘De vrije wil bestaat niet’ (There is no such thing as a free choice), written by experimental neurologist Victor Lamme (not yet translated, to my knowledge, one might consult one of his scientific articles).

    One of his most ironic findings: we constantly delude ourselves that our actions are purposeful, rational and consistent, even if they aren’t (for instance when they are triggered by neurologists who are manipulating your brain with electrodes, or when information is patently false and inconsistent). There even is an area in the pre-frontal neo cortex which is specialized in making up the stories which have to convince us of our rationality and consistency… Guess which part of the brain of the Mengers and Hobbes and Samuelson and Becker types invented the neo-classical atomicon! That having been said it still is rather surprising how much anglo-saxon culture seems to be intertwined with the idea of rational choice (consult, for instance, ‘Pride and Prejudice’ or the rather simpleminded ideas about this of very smart guys like Stiglitz or Sen (yes, he’s anglo-saxon)).

    1. René

      “There even is an area in the pre-frontal neo cortex which is specialized in making up the stories which have to convince us of our rationality and consistency…”

      This reminds me of the time I went to Berlin to visit an Irish friend of mine who was studying there. It was summer so in the evening we often went out to the Biergartens to drink some Weissenbier. During our Biergarten tours we were accompanied by two of his friends from the halls of residence. An American guy and an Iranian guy. The Iranian was finishing his Ph.D. thesis, the American graduated from Stanford and was involved with some sort of exchange program before embarking on a Ph.D. in Patent Law at the University of Vienna.

      You can imagine that we had a lot of different topics to talk about, especially so when taking into account our fields of study and countries of origin. During our conversations one thing was becoming clear to me, whenever the American guy was proven wrong or received some sort of criticism on his viewpoints he tended to counter it with some “academic papers” which would back up his claims. So at first, I thought o.k. this guy knows his stuff. But every evening he would come out with three or more “academic papers” which proofed that his views were correct. So the third evening, I asked my friend in private, “… is it me or is this guy just making up this research just for the sake of winning the argument?” He said, “yes, he does that, he doesn’t like to lose“ …and we laughed loudly…

  6. Paul Tioxon

    The enlightenment model of human nature, individualism guided by reason, is the basis for economic theory. There is no measure of social relations set by money, instead of the unquantified emotions which bring humanity to action, we are individually aggregated, never acting together as a society or a culture, but lost in the fog of calculations for profit and loss. And some how, we all add up to one big action writ large from our single life. Of course, we all know better, we know the earliest history tells of a face that launched a thousand ships. The Greeks went to war over Helen, not gold. Maybe the IMF should realize how old the culture is before indebting it and expecting blind obedience to profit and loss calculations.

  7. craazyman

    There is a risk, of course, that in the course of our journeys to liberate the people of Spain — revealing to them their true nature, so that they may stand uprightly, as men stand when accomplishing great works, and unmask the deceit and ostentation by which the Inquisitor oppresses them and takes from them their natural possessions, endowed by God upon them — that we may be brought before the agents of the Inquisitor who will naturally examine us for our adherence to his doctrine of rationality.

    As we will be transporting ourselves by mule and without any apparent shelter, or supplies or for our sustenance, it is not inconceivable that the Inquisitor will find fault with us in this matter.

    We must, of course, aver to his agents that we are entirely rational, and that our mode of transportation and our lack of concern for nourishment and protection is a carefully plotted strategy by which we will most easily acquaint ourselves with the local wines and women of the territory of La Mancha.

    It is to be expected that the imaginations of his agents will be so entranced by our tales of adventure and conquest that they will join us in search of romance and joyful inebriation, and in this we may perceive our first victory over the Inquisitor himself, whose feeblemindedness will not allow him to perceive our strategy until he is at a point of defeat.

    We will trust in the true God and repose our hopes in His many Benedictions, hoping only that our journey will allow us sufficient time to acquaint ourselves with the bounty of the territory before our ultimate victory.

  8. Foppe

    Apropos of nothing, our good friend Hans-Hermann Hoppe has supplied a chapter for The Elgar Companion to the Economics of Property Rights (Elgar Original Reference), on “The ethics and economics of private property”.

  9. Dan Duncan

    Now it’s just getting obscene.

    Another Multi-Part Straw Man Series?

    Once again, instead of direct engagement with “the other side”, we’re served with the author’s account of engagement with “the other side”.

    It’s all so predictable; so trite….

    The author quote-mines “the other side” and then sets up a fictional character a la Dittmer, or a fictional engagement a la the Pfucking Phils.

    And in the course of the post, the author–through his intellectual prowess– proceeds to utterly dominate “the other side”.

    This isn’t commentary. It’s masturbation.

    And I’m not exaggerating, either….These guys aren’t engaging with straw men, they’re engaging with blow-up dolls. It’s pathetic.

    Here’s Jim Carey, as the perfect depiction of the new breed of Naked Cap Correspondent delivering another one of these “Paradigm-Changing-Posts”:

    http://www.liveleak.com/view?i=391_1249655598

    1. proximity1

      RE:

      ‘ Once again, instead of direct engagement with “the other side”, we’re served with the author’s account of engagement with “the other side”. ‘

      “Direct engagement”? I hear allusions to this sort of thing but I can’t recall a single instance of it in real life. When, where, how, do we actually see this “direct engagement” going on? Do we see it in Michael Porter’s Harvard courses where he discusses with his graduate seminar students? How about direct engagement with Ben Bernanke or Timothy Geithner? Anyone here ever witnessed that involving a genuine regular guy or gal rather than a member of the self-supporting, self-aggrandizing corporate-media elite?

      There’s a very useful word which has for a long time fallen out of common use; we could now find this word very useful in common parlance–I refer to “scholasticism” and my favorite account of its rich heritage comes from Bertrand Russell’s A History of Western Philosophy.

      The world of contemporary academics now has a very great resemblance to much that was worst about scholasticism. This malady can infect any field of intellectual work whether a classic science or some field in the arts and humanities.

      We’re not afforded anything other than the most superficial and symbolic “direct engagement” with the current scholastic in business, finance, mass-media communications, or in any of the graduate departments of the fields which sustain and support these orders with their priests, bishops, cardinals and popes.

      For the past eleven solid years throughout the halls of power and influence even Nobel-laureate Paul Krugman gets nothing but semi-polite indifference from those he rightly disparages as “Very Serious People.” So, I ask: You’ve seen real meaningful direct engagement between the elect and the plebeian world (which I inhabit)? Where? When? Valid examples, please.

    2. Philip Pilkington

      Am I the only one that’s beginning to enjoy these? I used to think they were annoying, but then as they got ever more pathetic, angry and vague I’ve sort of changed my mind.

      There’s a certain charm about these posts — like watching a drunk taking his frustrations out on a wheelie bin. Why is he so angry? Who knows. Why is he attacking the wheelie bin? Does it matter? So many questions…

      1. JTFaraday

        Still more projection on your part, which is why you attract it in the first place, given your apparent incapacity to engage in any form of self reflection.

        The angriest religiously afflicted crack addict around here is you.

        1. Yves Smith Post author

          Ahem, you are the one who is projecting, at least in this comment. Pilkington is NOT angry here. And Duncan makes all sorts of assertions re what he claims is wrong with Mirowski which appear made up. I don’t see them relating at all to this chapter. And his direct engagement charge is pure straw man. Mainstream economists, including mainstream economists of a leftist tinge, ignore heterodox economists. They might rouse themselves once in a great while ti sat something, but their stance is well known. For instance, there is an explicit hierarchy among academic journals in economics, and if you don’t toe the line from a doctrinal standpoint, you are relegated to minor journals. Jamie Galbraith, among others, has discussed this. His papers get rejected from top journals all the time, with the excuse being that he hasn’t mathed up his argument correctly/adequately, when Jamie is accomplished mathematically and there is nothing wrong with the math either in sophistication or in the role it plays in the argument (I’ve had mathematicians who’ve read a lot of econ papers confirm). It’s the stance he’s taking.

          1. Dan Duncan

            Gimme a break Yves. Mirowski begins with this assertion:

            “Thus, it was no surprise that a pervasive and immediate response to 2008 was to blame the entire mess on a rabid outbreak of ‘irrational exuberance’.”

            Who, exactly, distilled the complexity of the entire Financial Crisis of 2008 into “This is simply and exclusively a rabid outbreak of “Irrational Exuberance”?

            Some may have claimed “irrational exuberance” played a disproportionate role. OK, fine. But it was not “pervasive” that this entire crisis came exclusively, from “irrational exuberance”.

            It didn’t happen.

            And when Mirowski went from there to quote mine and work-over is neoclassical blow up doll…

            I didn’t take it seriously. And for that, I apologize.

            And now, please allow me to give it the gravitas it deserves:

            “Nuh uh. Economists didn’t simply blame the entire mess on a rabid outbreak of ‘irrational exuberance’.”

            As for Pilkington…what can I say? I can’t take him seriously. I’ll write this one last bit and I promise to never comment on his posts any more.

            He lies…uhr…merely exaggerates about his journalistic career. He has pretensions of being a “Paradigm-Changer”, yet he spends entire days cat fighting with readers of your blog…How do you expect us to take him seriously?

            All the while he hits us diarrhea prose straight from the anus of an unsuspecting chump who ate the buffet at the wrong Mexican Restaurant.

            Here’s today’s gem…wherein Phil is letting all of us know that he edited the underlying post

            And so the paradigm is defended once more, this time from within; as those who began to suspect that the neoclassical program is wrong to strip individuals of their psychologies sought for a safe alternative – but in doing so their neoclassical models always get the better of them and sap any purported ‘irrationality’ or individuality out of their research subjects.

            Are you kidding me?

            This, from the “big-time heavy-weight intellectual”, who had one measly, achingly trivial job today of 3 paragraphs. And he still couldn’t get it right.

            And I’m not being unfair to Phil. He’s a pissy little pundit who regularly insults loyal readers of your blog. [It's fine, obviously, if he tells me to bugger off. I deserve it. But many of the others don't.] The guy’s a space-filling joke. After reading him, I yearn for Washington’s Blog as guest-writer.

            But this is where I am guilty as well. I give the other writers shit…and it has left you with this nitwit.

            Never again. I can hardly complain about Phil when I am part of the problem. So from here on out…I’ll behave. [Well, for 2012, I'll behave.]

            But trust me on this one, Yves: This Pilkington fraud is not doing your blog any good. You might think he is, cause he fills space and his posts always have many comments —until you look under the hood and see that half of the comments to his posts are his own!

            C’mon…You’re Yves Smith. This is Naked Freaking Capitalism…one of the best, most influential blogs on the net…and I mean that (you know I mean that).

            You had the Big Fundraiser and in return, you’re giving people…a daily dose of Phil Pilkington?!

          2. Philip Pilkington

            “But this is where I am guilty as well. I give the other writers shit…and it has left you with this nitwit.”

            Add ‘grandiose sense of self-importance’ to the list.

            Stick around though, dude. We really need your editorial advice. Seriously — tell us more about ‘anuses’. Without Dan Duncan’s scatological editorial control this whole thing would fall apart.

          3. craazyman

            Who does make any sense about economics?

            Nobody. Except for Professer Delerious Tremens, GED and other lunatics who understand cultural psychoanalysis and comparative religious critical theory.

            Phil does as good as anyone. At least he has a sense of humor. Keep them coming Phil, Dan will get it out of his system and get with the program. :)

          4. JTFaraday

            I entirely get that the academic economics profession censors dissenting paradigms. And, I would say upwards of 2/3rds of this blog is completely, entirely sympathetic to Pilkington’s whole spin on the hegemony of their “toy models” etc that don’t really explain what they purport to explain, etc.

            Although, I must say that in this case, with regard to the “toy models,” I *personally* don’t know what anyone is supposed to even expect from a model since it’s only ever going to be some approximation–even in the very best case–but, okay, fine. Pilkie’s discovered that models are only toys. Bravo. (Kids do like to be congratulated when they find the potty).

            But given that most readers of this blog are sympathetic to The Cause and the campaign against truly bad elite (mis)representations of reality, I find his tendency to b*tch-slap into submission ANY kind of pushback of any sort that he gets entirely consistent with the intellectually de-limiting tendency to assert that there can ONLY BE one legitimate paradigm. Policing and censoring is how we arrive here in the first place.

            What really gets me–because I’m obviously not an economist and I only come here to learn– is that he replicates this behavior with regard to an assortment of academic fields, as on yesterday’s thread where he pontificated *with finality* on the heights of theoretical sophistication in at least 3 additional fields in the US.

            So, once again, this imposition of one single paradigm deemed to be height of theoretical sophistication–before which he caves like a house of cards–with all apparently lesser views discredited in their entirety. Thus, I find Pilkington’s own behavior to be entirely indicative of the root problem with the discipline he purports to criticize.

            With regard to that, for the most part, Pilkington’s contribution to these discussions of critical perspectives on neoclassical economics does consist almost entirely of spin, and personally I find that some of this spin renders already obfuscatory disciplinary verbiage practically inscrutable.

            Likening “Neocla” to a “religious cult” really tells me absolutely nothing other than that the journalist is REALLY REALLY eager to discredit something.

            Well, we know that because half of us have been b*tch slapped already.

            And, to be fair, when I did like something he did, I did say so–albeit with some misgivings because I hate to encourage the delusions of grandeur– but I did think the Graeber interview was great. (I guess he let him talk or something).

          5. Yves Smith Post author

            Dan,

            A colleague of mine was in a lunch that Harvard economics professor Ken Rogoff was having with some graduate students. Rogoff is one of the reviewers (if that is the term of art) for articles submitted to the American Economics Review. This was shortly after the crisis took place.

            Quite a few of the articles discussed why there could not be a crisis (paens to the Great Moderation). The AER contacted the authors and asked if they were interested in revising their submissions in light of what had happened.

            No one took the AER up on its offer.

            JTFaraday,

            Your “toy model” discussion is completely disingenuous. Tell me about the DSGE and its role in central bank policy decisions. Or the use of the Taylor Rule. Or the Guassian cupola model which led banks to rely on CDS as measures of credit risk in MBS. Oh, or Krugman et al insisting there was no bubble in oil prices in early 2008 (and their argument, as Krugman made explicit, was based on a simple supply/demand model and assumptions of how inventories worked in oil markets).

            These economist-endorsed models all played a role in policy. Central banks, regulators, legislators all took action (or not) based on the sort of models you try to claim are understood to be simple minded by calling them “toy models”. Even Krugman calls some of his models “toy models” and he still relies on them.

        2. Philip Pilkington

          I’m beginning to like these too. They’re beginning — slowly — to turn into a psychological evaluation of me. Which is always fun…

          1. Binky the perspicacious bear

            Rationally speaking, that’s worth 160-200 USD/hour, although one must question the value of free talk therapy when discussing rationality in economics.

    3. ScottS

      The author quote-mines “the other side” and then …

      Wait, what? Is it invalid to use someone else’s words in context to refute them? Calling it “quote-mining” isn’t quite the indictment it’s implied to be.

      I am reminded of the Libertarian refutation (Code Name Cain) series — in that Libertarians like Duncan prefer abstract solipsistic moralizing to factual observations and refutations.

  10. UnBeliever

    As a quantum mechanic who’s wound up doing counterparty risk at a European bank, the thing I find most puzzling is the disconnect between the daily reality of the markets (eg today’s Spanish bond auction) and the discourse around the ongoing crisis (eg ECB bond buying).

    We spend our days pricing portfolios of derivatives under different scenarios, in an self-conciously self-interested, “economically rational” if you will, attempt to maximise our financial rewards. But even at the level of a single trading desk in one top 20 bank, we are at any one time trying to balance half a dozen competeing requirements. And we’re acting in a world of very imperfect knowledge, not to mention near total uncertainty about what the politicians will do next (Cameron’s veto was not priced in).

    Then there are the massive non-linearities in the system, witness MF Global’s spectacular demise by downgrade, and of course lags due to various actors in various markets operating on different time frames. So there is not a snowball’s chance in hell that we are in any kind of equilibrium.

    Occassionally you see diagrams about fund flows in the shadow banking system, but surely someone in think tank or central bank has built an explicit macro-model of the world’s financial system? If I can speak English into my phone in Italy and have it speak the Italian words that let me pay for my petrol then I think we have the tools to model the economy.

    1. craazyman

      The Model

      “Cautiously, cautiously—that’s my principle. We must be cautious yet. The district is closed to us for a time. Deplorable! Upon the whole, the trade will suffer. I don’t deny there is a remarkable quantity of ivory—mostly fossil. We must save it, at all events—but look how precarious the position is—and why? Because the method is unsound.”
      “Do you,” said I, looking at the shore, “call it ‘unsound method’?”
      “Without doubt,” he exclaimed hotly. “Don’t you?”. . .
      “No method at all,” I murmured after a while.
      “Exactly,” he exulted. “I anticipated this. Shows a complete want of judgment. It is my duty to point it out in the proper quarter.”

      -Joseph Conrad, Heart of Darkness, Part III

      The proper quarter. Hmmm. I wonder where that might be?

  11. Justicia

    What Mirowski points to, but doesn’t discuss, is the underlying fallacy of neoclassical economics with its behavioral overlay.

    When the intellectual progenitors of neoclassical theory took Newtonian mechanics as the paradigm for their musings, they glossed over the fact that utility — unlike energy exists only in the minds of the beholders. Utility — that thing that “rational” actors supposedly seek to maximmize — is inherently subjective and psychological. It cannot be measured in any meaningful way because it depends on individual perception, context and time. What may be “rational” behavior for the 1% is irrational for a low-income household.

    1. Deus-DJ

      haha, so funny. You would be so red right now, red in embarrassment, if you knew the stuff Mirowski has written on exactly that. Go read Against Mechanism or More Heat than Light, among other books. He’s THE expert(not just one of the experts, THE expert) on this matter

      1. Justicia

        Thank you, I will. It’s good to know that he does address this issue.

        (And I’m not at all embarrassed to admit I haven’t read Mirowski’s work. I read NC so that I can learn from smarties like you.)

  12. Susan the other

    I’m still haunted by yesterday’s article on the new book Vietnam Ambush. Vietnam still staggers me after all these years. But here is the connection to this discussion: War is irrational and it happens after politics fail. It is the most obscene of human sacrifices and we do nothing to understand it. Nor do we do anything to understand “economics.” Interesting similarity.

    Where is Milan Kundera when we need him? I would say he would say that politics is the art of forgetting. Sometimes instantaneously. But sometimes stubbornly over a long timespan. Where each GI that fought in Vietnam knows in his bones the awful irrationality of it, the politics still surrounding it is suffering from amnesia. There is a disconnect between what an individual knows and what a group of indivuals know which is not overcome with accurate language. So with economics when it goes critical mass.

    If economics is political we’re going to have to do some abrupt evolving.

    Economics seems to have clear practical shortcomings that are addressed with evermore “baroque securitizations.” Interesting adjective.

  13. Frank Speaking

    all this sturm und drang over capitalism’s innate boom and bust cycle

    the explanation is as simple (or complex) as the tale of the scorpion and the frog—as with the scorpion it is capitalism’s nature, always has been always will be on the micro and macro level.

    and this is not to say it is behavioral rather that it is in capitalism’s DNA

  14. Jim

    The intensity of the debate between Pilkington, Faraday and Duncan can possibly be analyzed in terms of the potential beginnings of a paradigm shift(a la Kuhn) in economic theorizing.

    The various arbitrary theoretical totalizing efforts of neo-classical economics are becoming more and more visible.

    This dynamic is exemplified in Mirowski’s comment above that “… wasn’t “irrationality” in the neoclassical lexicon an oxymoroan since the moment one formalized it in the utility function, didn’t it effectively get subsumed under some preverse version of meta-rationality.”)

    Such arbitrary choices about, in this case, “rationality” on the part of prominent neo-classical theorizers leads to more an more anomolies which in turn creates a crisis atmosphere.

    What Pilkington (and MMT, for example) tend to ignore or dramatically downplay is their own will to truth and their own arbitrary choices in pursuit of their own colossal assertion of power in their own theorizing about the economy.

    Hence, perhaps, the reason for the nashing of teeth by Duncan and Faraday.

    Both Pilkington and the MMT theorizes as well as the neo-classical theorizers must engender the illusion that all the returns are in.

    Neither school seems satisfied is viewing theorizing as largely negative–of exposing limitations–rather than in clinching positive points.

    1. Deus-DJ

      There are many MMT’ers that know this, such as myself. Note I’m actually a PhD student at UMKC, so I have always found a little personally troubling that the same school that eschews positive economics has a popular branch within it has a branch that seemingly espouses it. Then again that isn’t really true, but it does have that perception. The only aspect of MMT that needs espousing is explaining what the system is, rather than what it should be. I guess this is what I was trying to explain to Pilkington earlier (and I guess this was Lavoie’s argument in the article pilkington chose to argue against).

      it is for this reason that MMT can never be what some of its supporters want it to be. Philip, the sooner you realize this the sooner you’ll stop wasting your time ( to some extent). I’m not saying that I don’t support what you’re doing, but your espousal of MMT is a bit over the top only to the extent that you argue to others that it is a branch of economics that can is the end all and be all. Heterodox economists and academic MMT’ers hence don’t have the zeal that you do for this reason. It pains me to say this because you will never find someone who appreciates and advocates for praxis as much as myself…and in this sense you’re a gem…but it needs to be moderated.

      1. JTFaraday

        What’s always bothered me is that they purport to merely describe how the monetary system works under neoliberals, but then we’re all supposed to clamber aboard like this can only be a good thing.

        In the light of everything that has happened in the US, and given what we’re seeing in Europe and around the world prior to that, NOT being skeptical about clambering aboard seems to me to be only really stupid (or pernicious) position one can take.

        Enter Pilkington.

        I can only imagine what Downsouth, who frequently posted academic articles here detailing what IMF did in Latin America, saw coming of the bowels of *that* Trojan Horse.

        Yes, I know that unlike most of those cases, the US is monetarily sovereign and hyperprinting didn’t lead to hyperinflation, etc etc etc. But it’s also true that in the case of the crisis, “printing money” to bail out the banks has only enabled this organized crime ring to evade its real market fate, and justice, and continue to abuse the public.

        Everything about “MMT” enables something almost all of us find abhorrent, and which has by no means stopped escalating. (On top of Dick “Deficits Don’t Matter” Cheney’s endless wars).

        So, skepticism about a dodgy policy position is different from turning into a deficit hawk in a depression and morphing into a austerian central planner, (with or without minimum wage work farm).

        Does no one do nuance around here?

        Actually some of the discussion dynamics around this issue are starting to remind me of arguments I’ve seen involving fanboyz of the New Atheists, where no matter WHAT anyone says to them they immediately accuse the person of being a card carrying member of the Flying Spaghetti Monsta Cult.

        At about that level of discourse too. With venom. Things degenerate real quick from there. It doesn’t have to actually involve religion either. I have seen people hurl this now at *any* criticism of science, as if any critic of science can only be a religious fundamentalist. No one else could possibly have any objections.

        Bizarre. Now *that’s* a cult.

  15. Hugh

    Mirowski illustrates with nice examples what many of us have been saying around here for an age. As proximity1 says, modern economics has much in common with the sterile, technical theological analyses of the medieval scholastics. But I think Mirowski is wrong to describe behavioral economists as well meaning. Modern economics is not about elucidating what is going on in the economy but obfuscating what is. The purpose of modern economics is simply to give cover to elite looting. That is all. Period.

    The massive wealth inequality we have in this country did not come about through elite incompetence or their being well-meaning but mistaken. Elites tell us they merit their wealth, prestige, and positions because they understand the world so much better than we do in the 99%. So how is it then they missed the three great issues of our times: wealth inequality, kleptocracy, and the class war of the 1% against the 99% –and did so for 35 years. Assuming good faith on their part produces all kinds of insurmountable contradictions. But credit them with bad faith and the contradictions disappear.

    This is not to say that academic economists and our elites in general stand around twirling their moustaches thinking how to screw us over. Rather they have substituted their good, an elite good, for the general good. In their view, what is good for them is good for the country. And this is true in the sense that they now own so much of the country that it is essentially their country. We the 99% have become an inconvenient, uneconomic burden to them. But it is also why disasters like long, pointless wars, bubbles, and meltdowns have so little effect on elite thinking. You see while they may have engineered them, they don’t have to suffer their consequences. In brief, they are disasters for us, but not for them.

    A final point: I have a certain amount of unease with these Mirowski articles because for me they represent a kind of elite validation, which I reject. The truth is we don’t need Mirowski to tell us what we already know or validate our opinions. It is all well and fine that he is saying what he is, but like virtually all modern economists, including liberal ones, he simply has not come to grips with wealth inequality, kleptocracy, and class war. These are not maybe, sort of, kind of mentioned here and there things but central concepts without which no economics of the 99% can exist. Such an economics is not about utility and other bogus claptrap but about providing the basics for a full and meaningful life to each of us.

    1. Deus-DJ

      Since many of you have hinted at something I’m already aware of, I’ll fill you all in: yes, Mirowski is a conceited fellow. Many professors know this, and some have privately told me this every time I have mentioned his name. HOWEVER…his works in the late 80s, including “against mechanism” and “more heat than light”, among others, are the best works illuminating how neoclassical walrasian general equilibrium economics came to be. He really is THE expert on the subject, so even if he is one of the most conceited men around, it’s harmless and it shouldn’t detract from his message. But more the point, Hugh, his focus has always been on completely discrediting neoclassical economics, not on actual economic conditions per say. Each man has his own interests, let Mirowski bask in his…and you can use his arguments for whatever cause that you may support.

      1. Hugh

        Mirowski’s conceit is irrelevant. There is just something wrongheaded about rejecting elites and then turning around and citing them as authorities when they happen to agree with us on some issues.

    2. René

      “Assuming good faith on their part produces all kinds of insurmountable contradictions. But credit them with bad faith and the contradictions disappear.”

      Insurmountable.

    3. proximity1

      In most respects, your comment speaks for me, as well. However, while I agree that the supposed “good faith” or “honest mistakes” on the part of the great majority of the class of the world’s Movers-And-Shakers is wildly overestimated, the damnable fact remains that there is surely a certain degree, albeit relatively tiny, degree, of good faith on the parts of some of these same. The problem is that these tiny few pale into insignificance as far as their real effects go on the workings of the economy; at the same time, they lend a silly degree of covering plausibility–that is, as long as someone can imagine one actor who isn’t entirely corrupt, others have an example to which they can point and assert, “See?! There! The whole thing isn’t rotten.”

      True. It’s “merely” 99.999999999999999999999% rotten.

      BTW, if the critiques of dominant neo-classical economic theory are correct, then we are obliged to suppose that exploding them will produce only an intellectual flight into a further hide-saving rationalization in which apologists for institutionalized injustice seek temporary cover from withering fire.

  16. craazyman

    This is pathetic.

    Only 39 comments in response to a thoughtful and articulate survey of economic pothole of illogic so deep in could break your axle — and which in turn reveals and illuminates the deep fissures naturally inherent in the psyche, explored in depth by the ancient Greeks in their tragic poetry and political philosophy, and which lays open the door for much contemplation and expansion of methodological approaches to what is euphemistically referred to as “economic thought”.

    I guess it takes a shallow and tedious recitation of some cheap morality-burlesque can-can dance with numbers and expenditures cited from the IMF or World Bank to get the brains working — to the extent they can.

    I guess this is what finance does to the mind. It just mows it down like a lawn and throws round up on it to kill anything that might suggest nature in a wilder state than its insipidly manicured monotony.

    Phil, dude, you deserve better than 39 comments (4 of which are mine, to my shame. 3 is enough for any one thread. I should have more discipline but I’ve had a touch of bronchitis and nothing else I felt like doing. haha).

    1. Deus-DJ

      nah, the only people that would bother to post are those that are actually interested in methodological issues, otherwise I don’t see why anyone would bother. 40-50 comments sounds about right.

    2. psychohistorian

      I agree with your observation about the paucity of commentary about what should be the conversation of the next decade.

      I guess it it like me shaking my head in bewilderment at the part of the local Occupy movement that looks to address the homeless issue. Their goal is beyond honorable but they are just learning which government bodies hold control over which parts of existing funding and they know little about the history of cuts since the Regean era……sigh.

      Its like the black youth being asked about supporting the local Occupy movement and asking in return why he should go down and get all beat up protest with folks that just figured out that things ain’t right.

      Its like wanting to talk about inheritance and private ownership of property as definitional aspects of an economy and not even getting Dan Duncan to take on your thoughts.

      Maybe this is our room 101, craazyman.

  17. Foppe

    Mirowski also points towards something that had bothered me about Black’s posts from early this year or sometime last year: the way in which he was using Akerloff/Romer as authorities in order to support an argument that really had no place inside mainstream economic theory. Now, I presume that he was doing this for reasons having to do with brand recognition — Akerloff got a “nobel” prize after all — but it also made it fairly hard for me to get through the articles, since I found it sort of hard to convince myself that the definitive proof that looting could occur (!) would be given in that paper. Open question: Was that the only reason he was citing Akerloff/Romer?

    1. Deus-DJ

      Remember here that Mirowski is criticizing the article not because it was WRONG per say, but that it doesn’t completely abandon neoclassical economics…and for Mirowski and other general equilibrium model or methodological individualism criticizers, any paper or theory or whatever that gets too much credit to some aspect of neoclassical economics is heresy. Black doesn’t like neoclassical economics either, but he’s more focused on the law side of things. He found their paper to elucidate and magnify well a certain aspect of the crisis that he specializes in: fraud. Black does not attempt to explain to us the ultimate foundations of this crisis, but just one portion of it that should have been prevented. Remember, a law guy first and heterodox economist second.

      1. Foppe

        As I understood it, he was rejecting it because of the assumptions going into it by way of the formalization. I have to confess that I’m not familiar enough with Mirowski or the heterodox economics literature to know whether he is overstating his case or not (or did you mean something else?). Reading this is nice, as it places into context a number of frustrations I have with the discipline, but when it comes to understanding ‘economics’ I’ll stick with David Harvey and friends, whose descriptions I find far more helpful for gaining an appreciation of what goes on in an economy than models-first–understanding&reference-second discussions.

  18. Je est un autre

    “People have different professions, different points of view. They are like observers looking at the world through the narrow windows of an otherwise closed structure. Occasionally they assemble at the center and discuss what they have seen; then one observer will talk about a beautiful landscape with red trees, a red sky, and a red lake in the middle; the next one about an infinite blue plane without articulation; and the third about an impressive, five-floor-high building; they will quarrel. The observer on top of the structure (me) can only laugh at their quarrels – but for them the quarrels will be real and he (the observer on top) will be an unworldly dreamer. Real life… is exactly like that. Every person has his own well-defined opinions, which color the section of the world he perceives. And when people come together, when they try to discover the nature of the whole to which they belong, they are bound to talk past each other; they will understand neither themselves nor their companions.” -

    Paul Feyerabend, “Killing Time”, pg 48

    1. Pat Dubonnet

      Je est un autre,

      I have a question. It’s off topic, but considering the discussion has moved on to Part III, I hope it’s okay to ask this here without getting myself into trouble.

      I have an unusual name as well, and I often get teased, as spoken phonetically, with the French pronunciation of Du Bonnet, in English my name comes out to “Pat da bunny”, har har har

      (“pat the bunny” is slang for female masturbation)

      Anyway, back to my question: The formula, “je est un autre” (“I is another”) obviously comes from Rimbaud, and is paradoxical, as it seems to identify the subject, the ego, that is, the pole of identity, with its’ opposite, another, a stranger…..

      Please allow me to switch to French for a moment, in order to formulate my thought: “Mais si “je est un autre”, s’il n’y a pas en réalité de pôle d’identité stable, d’où vient l’illusion qui nous pousse à le croire et comment alors penser nos relations aux autres?

      (Roughly translated as): “But if “I is another”, if there is in fact no stable identity, then where does the illusion come from that makes us believe this, and how are we then to think, or rethink our relationship with others?”

      Pat Dubonnet

Comments are closed.