The Trouble with Principles: Or, How to Not Lose Friends and Alienate People When Learning Economics (#OccupyWallStreet, #OWS)

By Jake Romero, an economics student at Portland State University. You can reach him at jvc613 (at)

Economics has always been something of a battleground, but in November a group of about seventy Harvard students opened a new front in the ongoing hostilities: its introductory pedagogy. In solidarity with the Occupy movement, the students staged a walkout of their principles course to protest what they called its “inherent bias.”

In his rebuttal in the New York Times, Greg Mankiw countered that his teaching is careful to avoid policy conclusions and that its subject matter falls squarely within the current mainstream of the discipline. Narrowly correct, he nonetheless profoundly missed the broader points that his students, to be fair, seemed unable to articulate fully.

Firstly, one needn’t make explicit policy prescriptions to reproduce, in generation after generation of students, the fetishization of “free markets” that has been eroding civil society worldwide. If not quite a wink and a nod, then an omission here and oversimplification there will do just fine. That’s precisely the tack Mankiw takes in his introductory textbook, Principles of Economics. His approach is surely only in the name of student accessibility, but we all have good intentions, don’t we?

Secondly, it is precisely the mainstream of economics that is complicit in the ongoing economic upheaval and ensuing social unrest we’re witnessing worldwide. Mankiw is correct in pointing out that his textbook is hardly unique, but, to tweak the aphorism, one man’s modus tollens is another’s modus ponens. That Mankiw’s style of teaching basic economics is common is less exculpatory of this style than it is damning of his discipline for almost universally adopting it. If Mankiw wants to quote Paul Samuelson, he should also heed his lament shortly before his passing: “Alas, many textbooks have strayed too far toward over-complacent libertarianism.”

The great irony and tragedy of “intro econ” is that it is at its introductory level that economic theory is both most broadly consumed and most malignantly simplistic. In a recent study, economists at the University of Washington found there to be an “indoctrination effect” for non-majors who take an economics course: on average, they behave more selfishly and hold less regard for others after taking such a course.

Generations of the world’s business people and public policy makers have been nursed on such courses. To gain some insight into why our economies and institutions are crumbling beneath us, then, imagine an engineer equipped with a rudimentary understanding of physics that omits gravity, and a certain above-average disregard for human life not his own. Now imagine him building all the major bridges in the world.

From personal experience, I can attest that a good principles course, taught by someone with a sense of responsibility for her students, can be a mind-expanding experience. Taught by someone else, it can be a profoundly narrowing one. Surely Professor Mankiw would have no trouble agreeing that not all teachers of introductory economics are of his caliber. But, on the one hand, if even someone of his stature can mislead some (most?) students, imagine what’s going on out in the provinces. On the other, the children of the elite have an outsized influence on our culture and institutions. Perhaps some arrive to Ec 10 precociously predisposed to “over-complacent libertarianism,” but, given their likely future influence, isn’t that all the more reason to challenge their biases?

The typical introductory economics course, taught carelessly, corrupts even as it enlightens. With a rhetorical sloppiness that turns mathematical idealization into socially destructive ideology, it compels the naive reader to think like a “rational actor,” without offering any caveat about how doing so undermines community, stifles creativity, enervates leadership, and licenses greed.

Like Occupiers more generally, the students of “Occupy Economics” may not have been able to make the best case for their action, but they were smart enough to recognize a good intuition when they sensed it. By providing an occasion for reflection, they’ve succeeded in reminding us that the manner in which economics is taught can make it easier or harder to abuse economic theory in ways that perpetuate the greed and underwrite the shamelessness of the one percent.

We’re now reaping the bitter harvest of generations of this kind of corruption—gross inequality, debased values, a corroded civil society. It now falls on a new generation to resist, combat, and ultimately root out such insidiously pervasive abuses of the language and logic of the market.

As illustration, let’s spend some time in the interstices between economic theory and economic reality to point out a few things to keep in mind if you’re an economics student who wishes to retain his conscience, or just someone who values intellectual responsibility:

Ten Principles of Responsible Economics

1) In theory, rational people think at the margin. In reality, these people are a fiction that exist only in mathematical models

You are not a “rational” actor—not in the economic sense of the term. The newcomer to economics, well-intentioned as she is, surely wants to be rational in the everyday sense. Having learned from her textbook that, without qualification, to be rational is to be a self-interested utility-maximizer, she learns to emulate such behavior. So begins the process of learning to deprecate non-market values—which are “irrational,” after all—and rely exclusively on self-interest to justify and understand action. This naive economism’s implicit justification for selfishness is that acting in one’s self-interest at the margin is “only rational.” Inside the fictional world of an economic model, this is tautologically true. Outside of it, we still call that sociopathic greed.

2) In theory, there is no difference between self-interest and greed. In reality, economists aren’t typically trained in moral philosophy

Spend enough time studying economics, and you might eventually feel greed become empty of meaning. You’ve learned that acting in your own self-interest is not only rational but virtuous—it creates better outcomes for everyone—and surmised that greed is perhaps merely an expression of envy or an atavism from a benighted age of religious taboo. You would be wrong. In the real world, greed exists. As a crude approximation: acting in your own self-interest just means “not shooting yourself in the foot.” You can think of greed as shooting the other guy in the foot so you can get away with his wallet.

3) In theory, voluntary trade can make everyone better off. In reality, it’s often not so voluntary, makes some people better off while making others worse off, and empowers the beneficiaries to make sure they get to keep their gains

“Free market” reforms generally improve aggregate outcomes while increasing inequality, so that poverty increases even as overall wealth does. Basic economic analysis treats distribution as a secondary concern—it assumes that once the market maximizes benefits in the aggregate, the political system can ensure that they’ll be redistributed in an equitable way. But as we’ve been learning all too well, with greater wealth comes greater control over the political system.

4) In theory, markets are usually a good way to organize economic activity. In reality, “markets in everything” has a way of sliding into “everything into markets”

There’s a difference between thinking about a real-world interaction as if it were a market—market analysis—and transforming that real interaction into an actual market—marketization. The latter is a natural seduction once you’ve gained some facility with the former, and some people seem to reflexively think organizing any activity as an actual market would be an improvement over the status quo. We can think of these people as blowtorch-wielding pyromaniac children playing in a barn, but they are not, of course, actually blowtorch-wielding pyromaniac children playing in a barn.

5) In theory, market models assume that the existing distribution of wealth is just. In reality, poor people exist

Hiding in plain sight in many marketization proposals is something of a dirty little secret: When you apply an idealized market model to the messiness of reality, some people, those without enough purchasing power to enter the market in the first place, will have to go without in the name of efficiency. Famine, thirst, and lack of access to education can be effective market solutions.

6) In theory, people respond to incentives. In reality, different people respond differently to different incentives, and not always the way you hoped for

“Pay for performance” is sold as “more money for better results” but typically results in “gaming the metrics to get that cash money now.” The people who respond best to monetary incentives are the people who value money the most, not necessarily the people who value education or innovation or whatever you’d like them to value the most. Such incentive schemes also tend to result in sacrificing long-term or substantive success in favor of superficial short-term gain.

7) In theory, governments can sometimes improve market outcomes. In reality, sometimes sometimes means often

Real markets are always imperfect and intrinsically tend toward monopoly, a market failure. Introductory textbooks make note of such market failures, but typically only in a way that makes them seem like outliers. They are in fact the norm.

8) In theory, there’s a distinction between “positive” and “normative” economics. In reality, the positive is at once fictional and normative in effect

Ostensibly, “positive” economics refers to the description of economic reality—the “is” questions–while normative economics deals with policy prescriptions—the “ought” questions. But in the context of neoclassical economics, the only reality we have access to is a set of rather crude idealizations—in a sense, we study the reality of a fiction—and since studying positive economics clearly has an effect on people’s behavioral patterns, it is de facto normative.

9) In theory, models are just aids to reasoning—the map is not the territory. In reality, it’s just so easy to reify

Many lesser economists have a habit of justifying the strong modeling assumptions of economics by claiming they’re “generally true” or excusing them with a wave of the hand and a “well, there are always exceptions, right?” This is a telltale marker of someone who takes his models too literally. Properly understood, the toy models of economics are tools for organizing thought, testing intuition, and generating sets of hypotheses to be tested against data—not objective descriptions of reality.

10) In theory, economics is a science. In reality, economics is a science the way Ayn Rand is a literary luminary

To casually label economics a science is at best aspirational, at worst manipulative, at a minimum misleading. At the introductory level, the issue at stake is less one of methodology than of how deferential the layperson or novice should be to the authority of expert or policy entrepreneur appeal to economic theory. Skepticism is always a virtue. When evaluating claims based on simple economic models, it’s self-defense.

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    1. mock turtle

      i can distill the 10 points down to one

      1. there is no such thing as a, lasting, free market of significant scale… period..”free market” is a lie

      eventually, so called free markets are distorted, rigged, monopolized, influenced and or limited as to participation by major market players seeking to disadvantage others

      “free market” is a bs illusion, lie, promulgated by bullies who want the teachers off the playground so that they can beat up on the smaller kids

      1. JamesW

        Good comments, mock turtle. An online bud sent the following to me, and I agree with him that it should be standard teaching at ALL colleges (even Harvard where career criminal Marty Feldstein, and the rest, indoctrinate at).

        1913: In that year, the year know as Rockefeller’s Year, four pieces of fraud legislation were passed.

        (1) The Aldrich Act, latter to be renamed the Federal Reserve Act (Sen. Aldrich had married into the Rockefeller family and was John D. Rockefeller’s son-in-law) which set up 12 credit monopolies, the Federal Reserve System — who created the money, then lent it to the US Treasury, thusly putting the American government and people in debt to the private banksters. The private banks which own the Fed receive a guaranteed 6% dividend.***

        (2) The 16th Amendment, creating the federal income tax, which was created to pay the Federal Reserve the interest owed on the money they lent the US government. (Originally, the federal income tax went directly to the Federal Reserve Bank.)

        (3) The oil depletion allowance, which subsidized the oil companies, chiefly Rockefeller’s Standard Oil. (But also Morgan, Harriman and Mellon’s businesses.)

        (4) Tax exemptions for foundations and churches. Foundations, although probably used somewhat for this reason previously, were highly structured through this legislation to be the principal source to hide both wealth and ownership, while avoiding taxation, of the senior plutocrats (supposed to have been structured by Rockefeller’s law firm which originally created the holding company structure).

        ***Thusly, the banksters were subsidized, their oil companies were subsidized, they avoided taxation while hiding the true amount of their wealth and vast holdings. William Jennings Bryan, who was against such a move, was fooled into believing the government would print the money (which it does and pays for, via the US Bureau of Engraving and Printing) without being shown the entire legislation. Robert Owens, the coauthor of this legislation, was connected to the plutocrats as his father was president of the Virginia and Tennessee Railroad.

        1. Erick Muller

          Crimes againts humanity are all of this, especially the Federal Reserve Act. Though the goverment was the biggest benneficiary of this act. What i dont undestand in the end of your commentary is how it would be different or better if the goverment directly got control of the money supply than it now uses an intermediary.

          In reality, the US Federal goverment has the control of the money supply and the creation of money, this so call “private” naming of the FED is just an round-about operation to make it look as if the banks where the ones that have the ultimate control of the FED, but in reallity is the US Govt. that always has the last word, the banks get a monopoly for sure, but the govt. gets to have a printing press without getting theire hands dirty, they can always scapegoat the banks and the private sector for theire own mischief and blunders.

          1. JamesW

            You had a great deal of difficulty with arithmetic when you were in school, right?

            My comments, historically quite accurate, were relatively straight forward — that legislation passed most absolutely benefitted the bank cartel, then and now.

            Controlling the debt, is the manner which they exert control, and monopolizing credit seals the deal.

            Sheltering and hiding (non-taxed) wealth and ownership further seals the deal and power. Why is that difficult for you to comprehend?

  1. Hugh

    Well and wittily written. That economists fail to address wealth inequality or accord it the centrality it deserves or that they use models that in no way correspond to reality built upon easily falsifiable assumptions are features, not bugs. Distraction is the primary weapon of class war. Models that tell us not to believe our lying eyes and not to look over there where the rich are getting more and more obscenely rich are tools, just as those academic economists who promulgate and promote them are, of the kleptocrats. We are way past the point of thinking that these are innocent or simple errors of fact or method. They can not be the best and the brightest and at the same time make the same elementary mistakes they have been making for the last 35 years. That is a circle that just can not be squared. They knowingly and willingly participate in the crimes against us, the long term and systematic looting of us, because they gain from it, their careers and positions, recognition and prestige, and, of course, financial security.

  2. F. Beard

    the fetishization of “free markets” that has been eroding civil society worldwide.

    Give me a break! What is “free market” about government enforced/backed counterfeiting cartels?!

    If the present system fails (as it must unless God is mocked) it will not be the failure of “free markets” but the failure of fascism.

    1. Rex

      “(as it must unless God is mocked)”

      Your fetishization of what God has told you gets a bit tiresome to this reader. God speaks to many, but either he is telling them different things or quite a few are missing the point. (God just whispered to me that I should be skeptical of your rigid points of view.)

      1. F. Beard

        God speaks to many, but either he is telling them different things Rex

        Really? “Thou shalt not steal” is controversial?

        or quite a few are missing the point. Rex

        I suspect they are because they will not stoop to something so obvious as reading the Bible.

        1. Blunt


          I was read the Bible every night for my first fifteen or so years. My daddy would read to my brother, sister and me a chapter (or more in the case of the shorter ones) prior to bedtime. Plus, we were in a very Bible-based church every time the doors were open, which was often.

          The moral lessons so taught appear to have varying effectiveness. I’m a socialist, my sister is a capitalist with a heart, and our brother believes that both she and I are morons because everyone knows that the material well-being is the most important thing.

          The Bible makes a useful distraction tool as well(see Hugh, above.)

          I’m happy it works for you. I think that for many folks it could be an effective tool for the teaching of moral philosophy. But I’d suggest to you that other people derive morality that works to the good of others from many sources other than the Bible.

          Although as Jake points out so well, Intro to Econ classes for non-majors and majors alike do not see to be one such source. Not surprising that fact, but rather disappointing.

        2. ebear

          >>Really? “Thou shalt not steal” is controversial?<<

          Perhaps not, but "turn the other cheek" comes off a bit lame.

          I prefer:

          When all else fails, it is righteous to take up the sword. –Guru Gobind Singh.

          1. PL_2

            Your citation ‘turn the other cheek’ means more than one thing. Or maybe not what you think it does.

            One thing it means is ‘do something besides what is automatic.’

            In that meaning it may not contradict your other suggestion.

      2. Dan_in_KC

        This reader also finds it tiresome…(and can speak as one who has ‘stooped’ to reading the bible through several times)

        1. ebear

          >>This reader also finds it tiresome…(and can speak as one who has ‘stooped’ to reading the bible through several times)<<

          The basic assumption of People of Faith is that if we only read Their Book we'd arrive at the same conclusion as themselves. It never occurs to them that the receiver of their admonitions may have already covered that ground. The search for Truth begins as a study of existing doctrines, and anyone on that path can be expected to have read a few of the various Books of Truth on offer.

          A reasonable assumption would be that most people here are already on that path, thus no need to invoke knee-jerk reactionism to expain the irritation. This is more the kind of annoyance caused by young children who insist on repeating transparent lies.


          1. nonclassical


            ..or, perhaps one needs reject all organized “doctrine” as
            organized “despair”…

            models pertaining to god can only be adjudicated by the reality none of us are…

      3. Frank Speaking

        unfortunately the “God” reference hit some in their knee-jerk reactionary bone causing them to miss F. Beards point that “…it will not be the failure of “free markets” but the failure of fascism.”

        I believe he is pointing us to the fact that there has not been a capitalist—free market or any other kind—economy in the world in at least one and perhaps two centuries.

        The dominant economic model for at least a century has been—and is today— fascism.

        I refer you to Bertram Gross’s “Friendly Fascism”.

        1. McKillop

          “unfortunately the “God” reference hit some in their knee-jerk reactionary bone causing them to miss F. Beards point . . . .” wrote Frank Speaking.
          At first appearance, the (as it must unless God is mocked) comment might be considered less literally than figuratively. Knowlefge of F.Beard’s history of referring many comments to his own belief in the Judaeo/Christian deity,and associated dogma (a point specifically made), would refutate the claim that the responses were either knee-jerk or reactionary.
          I find that much of what F. Beard says is interesting and helpful to me as I struggle to learn.
          I also find that the gratuitous references to the Judaeo/Christian beliefs of F. Beard, by F. Beard, are distractingly tiresome. Or tiresomely distracting.
          Balance is all, as someone said.

          1. Frank Speaking

            but this is a site allegedly dealing with economics and I would think his cogent remark—we have a world order based on fascism not capitalism—would have been the focus if a discussion of economics was the order of the day.

            but apparently, not so much.

          2. Attitude_Check

            So having an integrated belief and value system and openly revealing it isn’t “tolerated” then by many on this board?


          3. McKillop

            @Frank Speaking and Attitude_Check
            Yes, “. . . his cogent remark—we have a world order based on fascism not capitalism. . . “, may be as cogent as you say. The use of “free markets” not free markets – and the use of “fetishization” – may have prompted F. Beard’s comment.
            Other conclusions, without the religious trimming but dealing with the actual article could have been voiced.
            People objected to frequent religious references. I objected to your “knee-jerk reactionary” description of those people. And _gratuitous_ religious references.
            The ‘proof of the pudding being in the eating’ is a fine term to describe what followed: no discussion of values was forbidden. REALLY.
            (And, good heavens, if I go on any longer about the issue I shall have to refer to my commentary as tiresome!)

        2. ebear

          >>unfortunately the “God” reference hit some in their knee-jerk reactionary bone causing them to miss F. Beards point that “…it will not be the failure of “free markets” but the failure of fascism.”<>I believe he is pointing us to the fact that there has not been a capitalist—free market or any other kind—economy in the world in at least one and perhaps two centuries.<>The dominant economic model for at least a century has been—and is today— fascism.<<

          …… one could argue that the definition of "fascism" should extend to the merger of Church and State, since in bygone times The Church was the principle ally of the State. When examined closely, the doctrines are identical. Both demand obedience to a Supreme Authority, both inflict severe penalties for defying that Authority. Nowhere is the search for Truth maintained as an open question. All answers are to be found in The Book, whatever the current iteration happens to be.

          Ironic that an appeal to faith should be the prescription for solving the crisis Jake points to: a crisis rooted in faith in ungrounded principles.


          1. Lidia

            Due to the social requisites of passing the holidays with my husband’s family, I found myself in a Catholic church in Rome on Christmas. The homily kept harping on “the Word”. “In the beginning, there was The Word”.. Christ is “The Word” made flesh, etc.

            I took this as fascinating and revealing on a psychological level, in that it unwittingly emphasized the origins of this particular religion (if not all of them) as being one invented by humans blabbing and fantasizing and ranting and hectoring: bla, bla, bla, bla, bla. Someone talked this religion into existence.

            Fundamentalists might be excused in thinking that the universe is only a few thousand years old because written human history as we know it -“The Book” and its analogs- is only that old. We need, apparently, to write modern beliefs into existence. Neither Christianity nor Scientology could exist, one imagines, without the written word.

            The superiority of “People of The Book” is, strangely to me, assumed, whereas whatever human schemes existing prior to that are simply denied out of existence.

            An interesting revelation by my 84 y.o. Franciscan tertiary MIL: she never believed that children had feelings, thoughts or opinions until the age of 7 or 8 — this despite raising three of them. Quote: “I knew I had to keep them warm and that I had to feed them, that’s about it… that’s as far as it went”. She also was amazed to learn at the age of 80 that animals (in this case our dog) yawn, burp, and fart (these being activities reserved for humans as far as she is concerned).

            My born-again sister rejects the idea of composting. To her, paying someone to vacuum her leaves and take them away, and then paying someone to apply chemicals to her lawn equals “civilization”, a state which she prizes highly.

            There is an unhealthy connection between religion and the idea of human CONTROL. In the Bible, man was given DOMINION over the earth and most Bible-believers are eager to wield that power, however unwisely and ineptly.

            I have found religionists to be wildly narcissistic and utterly impermeable to reality. In fact, wholesale rejection of the real world is its feature, rather than a bug.

          2. Lidia

            And rather than being a off-topic digression, I think this issue of religion has a great deal to do with our ECONOMIC assumptions as well.

            There’s the same lack of desire to examine underlying real-world facts and conditions, giving way to an immoderate reliance on gurus, magic formulas, and dominionism, even if these things are generally couched in secular terms. We’ve seen constructed a very unhealthy and unreasonable anthropocentric “make it so” fantasy land, based largely on Protestant religious values even if these are not made explicit.

          3. Frank Speaking

            okay we get it…can’t reference god except when you think it useful to explains your understanding of the economic pickle we are in…isn’t that how F. Beard got you all riled up in the first place?

            but what about the dominant economic reality being fascism and not capitalism?

            you all are okay with fascism?

          4. nonclassical

            ..can we logic this out…?? One needs a correct “tool” for the correct “job”..

            one cannot use the tool of life to describe death, or dominions thereof…

            directing time-energy towards events (even economics) regarding life, taking care of said events, deathly dominion is not pertininent. Nor is any god attempting to divine such…

          5. ginnie nyc

            Wow. I was raised R. Catholic, was a dedicated atheist for over 40 years (now a non-aligned heterogenous something-or-other), and I can’t believe the sore spot F. Beard hit with some readers. I’m not of his ilk, but I respect his contributions and accept his reliance on religion as part of his schtick, so to speak.

            The Bible, like it or not, has been an essential part of Western culture for centuries, and everyone should be familiar with it in order to understand that culture.

            I’d bet most if not all the protestors are under 50.

          6. PL_2

            Didn’t see how to reply to Lidia directly, so this reply probably won’t be directly under her comments.

            About ‘The Word:’ it is the logos.

            What is the logos? Not an easy question. That’s my point, not an easy question.

            Most of Lidia’s comments have this same failing. Taking the teachings out of context, and failing to see that they may be _symbols_.

            So, funny, the comments opposing the ancient teachings make exactly the same error over and over that fundamentalists in general make — taking everything literally. The criticize the literal interpretation by taking the teaching literally, and out of context.

            If things were simple, we could understand. Unfortunately, they are not simple.

          7. groo


            What is the logos? Not an easy question.

            Read Genesis, and you have a glimpse on that.

            The ‘Logos’ is the word of ‘God’.

            “In the beginning was the Word, and the word was by God, and God was the Word.”

            So now the question is, what this all means, right?

            I tell You:
            It says, that the primacy of all that is a Godly Norm, which postulates an identity of God and his expression, which is the world.

            This is an ancient, eventually primitive expression of a belief, which constitutes alle there is.

            It is a NORM, and identical to Gods will.
            So there is nothing to think about.
            Take the laws, then obey.

            The difficult question, which then arises …I spare You.

            Desert Religion is a twisted form of duality.
            Interchange ‘God’, ‘Nothing’, ‘Economy (in its neoclassical form)’, and You see what the problem is.

            To come back to the problem, as stated here:
            Neoclassical economics is a strange form of domination of the Normative over the Factual, directly derived from this sort of thinking, emanating from twisted forms of desert religion.

            A basically endless world, designed for domination by Gods children, somehow magically placed upon the Shining Hill.
            How silly is that?
            Obiously perfectly believable for the twisted American mind.

            Fill in the blanks and further this strange story.
            Strange it is indeed.

            AND remember: Time is running out!
            My tiny self is getting nervous, about what is before us.

            Strange enough that I write this on an economics blog, which is not my primary interest.

            But maybe it tells, how pressing the issue is.

          8. Lidia

            @groo: “the domination of the Normative over the Factual”
            Exactly so!

            @PL_2 My problem is with the symbols AND what they stand for: subjugation, not just to authority but to an absurd and psychopathic authority and a made-up one, to boot.

        3. ebear

          >>but this is a site allegedly dealing with economics and I would think his cogent remark—we have a world order based on fascism not capitalism—would have been the focus if a discussion of economics was the order of the day.<<

          Fair enough, if the majority of Beard's comments weren't couched in religious terms. The article in question was, I believe, about "principles?" What principle could be more basic than whether or not you believe in the Supernatural? This speaks directly to credibility in my books.


          1. Lidia

            It’s a harsh point but perhaps a valid one: does belief in the supernatural effectively disqualify one from being taken seriously when opining about reality?

            My RC and evangelist family members procreate because the Bible supposedly tells them to. They’re not the least bit connected to the reality of our global predicament. They think “God” will magically provide, and if “He” doesn’t, well then either a.) those who suffer are seething sacks of sin who deserve it (evangelicals) or b.) suffering is a gift, the forbearance of which one offers back to God (RC). Either way, using their brains to avoid calamity and suffering is not in their cosmic plans, even if their brains were in working order. Cousin M’s spina bifida was a challenge sent to their family specifically by God himself, rather than being the unfortunate result of his mother’s completely avoidable malnutrition. Their cosmic plans entirely depend, in fact, on calamity and suffering as well as on the world revolving around them personally.

            Christian worldviews in particular depend on there being winners and losers. Neither a win/win nor a lose/lose scenario is compatible with their mentality.

          2. Lidia

            The synthesis of all my blather is that both religion and economics depend on denying the reality of the world at large: not just willfully miscomprehending the human condition, but denying the laws of nature, those of thermodynamics first among them.

            Both enterprises require prophets, rank-and-file priests, and mystifyingly elaborate high-toned jargon and apologetics to keep the public befuddled as to what is going on behind the curtain.

            Talking with a rich couple from Milan, I had the occasion to remark that —when you thought about it— it was rather odd that you could give someone a house, and get nothing in exchange for it but a piece of paper. The wife said “That’s a very Sicilian attitude.” (!!) I’m still not sure if her comment was meant to be dismissive or merely playful, but it was clearly meant to communicate the backwardness of this position.

            At any rate, the Milanese couple will go on with the secular equivalent of selling indulgences (they are patent lawyers) until that racket (like that of the Vatican) no longer works for them.

    2. don

      Free markets ideally mean markets that are self-regulating, absent any state intervention. Of course, no such ideal “free market” has never existed in advanced capitalist societies. There has always been some level of state intervention, some degree of state regulation, state subsidies for corporations (for the agriculture and coal industries, for example), etc. So free market is really an ideology, existing not in practice but in some idealized form.

      Advocates of free markets say that the mega banks should not have been bailed out but should have instead been allowed to fail, thus allowing the free markets to work. What is missed from this perspective (aside from the fact that free markets really never existed in the first place, other than as a ideological construct) is that the decision to bail out the mega banks was a political choice which could have been otherwise. The state (or government if you prefer – though there is difference in meaning), could have allowed the banks to fail, while at the same time stepping in to break up the banks and minimize the consequences for society. That is a form of state intervention.

      So lets once and for all dispense with this notion of “free” markets and instead recognize that real existing free markets are not free but are imposed upon us as ideology, pure and simple. That is a main thrust of this article.

      As for Mankiw’s economic teachings: he conceals his advocacy as some form of objective truth, and thus science-based, ideologically free, which it is not.

      Good for the student who disagrees but takes the class anyway to understand the position that represents the norm, and to then take other economic classes that offer an opposing stance, one that is perhaps socialist. The problem is that few economics professors are of the later position. To get that perspective on may have to go outside the economic discipline to find it.

      1. LucyLulu

        Well said!

        There are those who will always claim the lack of free market as the reason for the failure of our economy, never realizing a free market is only theoretically possible, just as a purely communist society (of any size) has never existed and never can. I think economies are easier to think of as a spectrum with black at one end and white at the other, and with every economy falling at some shade of grey (even if putting the two at polar ends is being far too simplistic, and possibly inaccurate, it seems to be a good imaging tool for the uneducated like myself).

      2. H. Alexander Ivey


        About “free markets”, they cannot exist, ever. If one attempts to exchange items by either bartering (a two party system) or by using money (a three party system), there must be pre-existing rules, ie, government, so there is an exchange. Even for exchange of non-business items, like a birthday gift, the giver and the receiver, operate within “rules” of what is proper to give and not give.

        And as for taking another class in economics to get a second opinlon, good luck. There are not that many economists who hold a different oplnion, only a vew few are teaching (Keen in Australia comes to mind), and none at Harvard. And even with a second opinion, the majority rule. Second opinions are ignored by MSM and most politicians.

  3. nocarrier

    Thanks for the writeup, Mr. Romero, this is a fantastic read. I’m wrapping up the tail-end of an undergrad degree this spring, and I’m taking an intro econ course to satisfy the last of the liberal-arts-fluff portion of said degree. I’ll definitely be keeping articles such as this in mind throughout. Should make for some interesting class discussions :)

    1. MACH1513

      Thank you.
      Of course corporations want unemployment – just as they always have. The great growth spurt of the 1870s-2000 was accompanied by a constant stream of potential new hires. Kept wages and inflation down, profits up.

  4. RanDomino

    on point 3- not only does wealth give political power, it gives unfair and coercive leverage power at the very point of the trade. For example, if a corporation is bargaining with a worker over a libertarian-esque contract under which that worker will sell their labor, the corporation is able to threaten the individual worker by pointing out that there are many others who could take that worker’s place; it’s far more difficult for a worker to make the same threat to a corporation, if acting as an individual. A corporation can go ahead and not fill a position for several months until they find someone desperate enough to take the job for much less than it’s worth; a person who needs work needs to pay the bills NOW, not next year. Businesses actually want high unemployment! Show me an econ textbook that says that.

    1. Lidia

      RanDomino, I am doing all I can to put the lie to that assertion: that the average person cannot do without the Corporate Masters of the Universe. Bit by bit I am trying to get out from under every corporate dependency.

      In the coming years, all our needs are going to be called into question, so we might as well get a jump on things by paring away our reliances on “Babylon”.

      [I get the “Babylon” metaphor from a wonderful blog, now defunct but available via the Wayback Machine:

      1. JamesW

        “..both religion and economics depend on denying the reality of the world at large.”

        Perfectly articulated, Madam Lydia, perfectly articulated.

        One must have idiotic blind faith in the father figures, be they religious in nature, or those authoritarian types proclaiming that all those hundreds of trillions of dollars of worthless, securitized debt they sold is just as insubstantial.

    2. Procopius

      I’ve seen a number of mentions (in addition to ECONned) that neoclassical economics does not address the question of power relations in markets. The example you give is excellent. I have a generally excellent intro textbook (Hidden Order, by David Friedman) which comes to the conclusion that monopoly is very difficult to achieve because underselling the smaller competition means losing money and all they have to do is wait until you have used up all your capital. He either ignores, or is unaware of, the exonomic use of dynamite.

      1. Procopius

        Whoops! exonomic = economic. We really need an edit function.

        Further thought: ten or twelve years ago I ran across a quote I really liked (probably from the fortune program) “All personal relation problems can be solved with the proper application of high explosives.”

        1. Ransome

          Economic dynamite = debt. What he overlooked was the use of capital, maximizing ROI, is different when you are in other phases of a business cycle, defending market share. During the Great Depression, the great corporations tried to regulate the lesser competition out of business. Unions have their own strong arm tactics to prevent competition.

  5. kokching

    economics assumes that material gratification is welfare enough for humanity’s happiness. this is its biggest flaw.

      1. ex-PFC Chuck

        I wish that when I was a atudentany time during the past half century since I was a student, I had possessed the ability to set out my thoughts so clearly and so well. This is a great piece of analysis and writing.

    1. Fiver

      This statement re Japan:

      “The Japanese government issues the Yen and can never run out of it. It might not be able to purchase an adequate supply of goods and services in Yen at some future date to guarantee an adequate standard of living for its ageing citizens (as dependency ratios rise).

      But that is a real problem rather than a “financial” problem…”

      makes no sense whatever. The author claims devaluing the Yen (by increasing “supply” through printing to keep on borrowing – by whatever mechanism) might some day fail to purchase what is required to sustain the population, and at the very same time says it is not a “financial” problem. When Rome, or any other entity, debased its currency to inflate away debt, was that a “real” problem, or a “financial” problem? Or did all peoples prior to MMT suffer from mass hallucinations as to

      Japan is nowhere without a substantial surplus year-in and year-out. It has missed only once since 1980. MMT’ers are all over Germany for running export surpluses, and lay the bulk of the blame for Europe’s woes on that State. But when it comes to the core fact of Japan’s economy, i.e., its total dependence on the export sector, it gets ZERO attention. End that surplus and see how far Japan gets with its presumed infinite “savings” courtesy of the BoJ. We may find out sooner rather than later, as Japan for the last 20 years has been feeding off US and Chinese bubbles. Japan has virtually no resources (like Germany – and China for the most part). That is the real problem that is NOT being addressed by Japanese financial policy, which as noted, is predicated on perpetual export surplus that simply cannot be assured, and certainly not assumed.

      1. psychohistorian

        The added problem for Japan is the ongoing radiation coming from the Fukushima site as well as the nuclear material that is no longer in containment.

        The situation in Japan is only going to get worse. To have inflicted another nuclear holocaust on Japan by greed and short sighted planning and management……the ” gold plated” military type are not important enough for all those future generations that will be affected by this ongoing and unreported local, regional and global nuclear radiation pollution event.

  6. Steven Allen

    I think this is useful and good. What I would want to see as a critique in this context is whether Economics as a discipline can survive intact within the discussion of Transmodernity. I think that the rich and powerful may have a vested interest in ensuring that it does. Nobody has mentioned ‘political economy’ as opposed to just ‘economics’.

    It’s also important to see how economics as a discipline serves as kind of religious cultural artefact especially in a United States of America where God is invoked in such matters.

  7. rotter

    Your statement describing Mankiws response, that he is “sqaurely in the mainstream” goes right to the ‘ mainstreaming of reactionary,”freemarket” dogma. The center has been defined so far to the right that any questioning of it from the left is wild eyed radicalism, meanwhile one would have to start building concentration camps and incinerators to wind up a standard deviation to the right, outside the mainstream.

    1. YankeeFrank

      oh, you mean the ones that gave us the mid-20th century in the west, where the greatest expansion of living standards in humanity’s entire history occurred, only to be whittled away by plutocrat-loving Freidmanites and union-busting thugs like Reagan at the end? Yes, let’s talk about those left failures.

      You really should move on from your commie v. capitalist polarities as its clear to 99% of the world that either system, taken to its natural extreme is a disaster for 99% of the populace. What we are discussing at least 90% of the time on this website and around the web when our political and economic systems are the subject is how to re-equalize economic power so that we don’t completely descend into fascism. A move back towards the left is the only thing that’s gonna save us from a dark age of debt-slavery and neo-feudal misery for the 99%.

      When we move too far to the left, perhaps after there are jobs for all, healthcare for all, excellent education, food and housing for all, and some of the problems seen in Sweden, as one example, begin to arise, then it will be time to critique left economic policy failures. Until then you don’t have a point (and by the by, give me those Swedish left economic failures any day over the mess we are living through now due to oligarchy and police state fascism where roughly two-thirds of the populace live in terrible poverty and lack decent education, food, healthcare and shelter).

    2. Jack E. Lope

      Why do you call for all the left-wing failures – to balance the top 10 right-wing failures?

      If you are calling for balance, why is your post so one-sided?

  8. craazyman

    You’re a precocious lad Jake. Hopefully you won’t end up as a Wall Street economist and forget your roots. :<) ( I don't know what that emoticon face is supposed to be.)

    Your list is excellent. I'll add one more of my own.

    In theory, the more market liquidity the better. In reality, there's a point when the more you drink, the less you think.

    1. JTFaraday

      :<) "( I don't know what that emoticon face is supposed to be.)"

      When I tilt my head all the way to the left, it starts to look a little like a pig.

      When I tilt it to the right, it doesn't look like anything.

      1. craazyman

        you’re right! it is a pig.

        the other way it looks like a shopping cart with an invisible little man carrying an umbrella.

        This is like economics. You see something different whichever way you turn it. I’m trying to read George Soros’ Alchemy of Finance this week and I’m not sure why. But it’s interesting because his theory of reflexivity shows why I saw the pig and why economics is like a shopping cart pushed by an invisible man with an umbrella. Whatever they say is in that cart, you just have to use that as a point of traction and see it for yourself and use the umbrella if it starts to rain. Now I know why I’m reading his book. There’s always a reason if you think about it. :-)

        1. JTFaraday

          Oh, now I get it. See, I guess I keep wanting the nanny state to come out and put some lipstick on the pig and make the sun come out for me, whereas what I really need to do is just grab an umbrella and go shopping!

          I knew if I hung around here long enough, someone or other would reveal to me the meaning of life, the universe and everything…


  9. Brian

    I think you miss some of the most important points why economics is wrong: rational choice theory.

    You could basically sum it up like this: people know what is in their best interest and choose accordingly.

    In reality, of course, this is far from the case. There are countless and countless of experiments (especially Kahnemann Tversky) done demonstrating this and advertising/marketing to a large part is based on ‘tricking’ people or triggering certain reactions so that they act against their interest.

    1. scraping_by

      You’ve hit a subpoint on item #1; the limits of human knowledge, irrespective of the techniques of human logic. That’s another idea/real thing, but one worth pointing our it its own right.

      It’s also the easier deficit to work on. While facts will get rejected in the interest of keeping the theory, you can indeed batter down the ideal with the real. Just takes being too stubborn to quit.

      1. Procopius

        I’m wondering: is “the limits of human knowledge” the same as “information assymetry?” For example, Heisenberg showed that we can never know both the position and the velocity of an electron at the same moment in time. In information science there is no general way to determine whether a program will stop or not. On the other hand, at least when I’m thinking of “information assymetry” I’m thinking of situations like I can’t find out beforehand how much I’m going to have to spend to have my appendix removed. In fact that could, at least theoretically, be determined, but hospitals purposely do not collect cost data in a way that could be used for that purpose, so that they have more leverage in bargaining rates of payment.

        1. Lidia

          Procopius, I get what you are saying, but I’m not sure how “informative” price reports are in the given scenario. If you are suffering from an acute appendicitis episode, surely you are not going to hop a plane to India where an appendectomy is cheaper, nor even travel several hours to another city in your region, one imagines.

    2. JCC

      The Rational Choice Theory has always amazed me, and the older I get, the more it amazes. On the life continuum, I was far more convinced when I was younger that this, of course, made sense. The older I get, the more I realize it makes no sense at all.

      For example, as someone who grew up with Sears and Montgomery Wards, et. al., catalogs the size of The Unabridged Oxford English Dictionary in 10 pt. type arriving in the mailbox every month, and free (so big the local garbage men would be thoroughly pissed off if you threw away a years worth in one can – if you could fit ’em all in there), I was amazed at the opportunity to make “rational choices” on purchases; full descriptions and prices, etc.

      Today, I type on an Apple MacBook capable of reading every digital format there is and playing every digital format of music available, not to mention write and print entire books if so inclined, and I constantly find myself spending many, many minutes reviewing what I should buy… a kindle or a nook! Eventually I decide they are just light-weight Sears Catalogs costing $250.00 smacks instead of free, so the rational choice is: Do not buy what you already own, especially when what you already own does the exact same thing plus much, much more, and I’m not locked into “Sears” or “Montgomery Wards” for choices.

      I’m older now, I make the “rational choice” and do not buy either.

      I expect that within a week or so, I will find myself, again, double-checking Amazon and Barnes & Noble on technical specifications and read another review or two, in order to “rationally” decide whether I should get a kindle or nook.

      Of course I’m doing all this while listening to Internet radio through a Dell/Linux desktop system plugged into my stereo listening to music.

      Maybe I’ll just bag the nook and kindle “irrational, spend-money-on-a-Sears-catalog” decision and buy another intel-based laptop instead.

      I’m so glad I know how to make rational decisions.

      (Whoops, Gotta go, there’s a call coming in on my $125.00/mnth, internet-capable, e-reading/mp3 playing smartphone – mmmmmmm maybe I can upgrade that to one that will have an app that makes a logical and rational decision for me)

      1. McKillop

        Perhaps the term should be “Rationalization Theory” -but it is shortened as a matter of ‘economy’. Like lol. Or other terms.
        I’ve come to the conclusion that our heads are filled with nonsense when we are little kids, and helpless. Even when we know better, we don’t.

  10. Mike the Mad Biologist

    Re. #10, then what is economics? If it’s sociology, it’s very poor sociology. Not being snarky; I’m genuinely curious as to what type of discipline economics is.

    The snarky response would be theology.

    1. Foppe

      For part of the answer to that, read David Graeber’s book Debt. For another part, read Bruno Latour and Vincent Lepinay’s book The Science of Passionate Interests. The latter is a slightly more technical read, but it gives a nice answer to the question how we could understand economics vis-a-vis the other social sciences.

  11. MACH1513

    Theology indeed – since it relies on a priori “principles” that are nothing more than articles of faith, hence, theology.

    The word economy should be scrapped entirely and replaced by political economy – with a decided emphasis on the political aspect.

  12. James Cole

    For what it’s worth, a roommate of mine in the late eighties at Harvard told his TA for Economics 10, who happened to be Larry Lindsey (remember him?) that he (my roommate) did not like the libertarian/conservative bias in the textbook and examples (“rent control is inefficient”, etc)–Mr. Lindsey’s response: “That’s a crock of shit”!!

    1. Frank Speaking

      speaking of crocks of shit and the trouble with principles…

      “Liberals, like conservatives, recognize the need for constraints, but believe they must come from principles that transcend particular societies and customs. Principles are the only legitimate constraints on our freedom.

      “The quarrel between liberals and conservatives is essentially a quarrel over the nature of human beings and their relation to society. The quarrel between revolutionaries and reactionaries, on the other hand, has little to do with nature. It is a quarrel over history.”

    2. tech98

      The passage of time has shown that Lindsey was a crock of shit, intellectual whore and moral coward.

      Lawrence B. Lindsey was director of the National Economic Council (2001–2002), and the assistant to the president on economic policy for the U.S. President George W. Bush. He played a leading role in formulating President Bush’s $1.35 trillion tax cut plan

  13. James

    First of all, great article!

    Second, regarding #7, “Real markets are always imperfect and intrinsically tend toward monopoly, a market failure. ” How can monopoly be considered a “market failure” when “they are in fact the norm?” Seems to me that, theoretically at least, monopoly/oligopoly is a feature of mainstream economics. As in, the current and ongoing concentration of wealth and power should surprise no one at all. It’s literally baked into the economic cake from the very start.

    1. Ransome

      Because people make money on failing markets. Markets are revenue streams, what is produced or offered is unimportant. How it is produced is unimportant, it is about the capture of money during the money cycle. A failing company can be passed around among hedge funds and PE and drained dry, including the investors and to some extent, lenders.

  14. Roget Lockard

    Interesting, stimulating and intelligent essay; and as well the comments, for the most part. Two things largely missing for me, though, are (sorry about this archaic language, but): simple imperialism, and human longing. So much of America’s wealth has had to do with the fact that “we” (White Europeans, in the main) arrived on a vast, unexploited continent just a few hundred years ago, and then commenced to take what was not readily at hand from others around the world, by virtue (sic) of military might, and with the slimmest of rationalizations, if, indeed, any at all. This factors massively into the putative “success story” of capitalism.

    As regards human longing — it is indeed noted above, in the original essay and by other commentators, that the myth of rational motivation is, indeed, unfounded. This is not to say, however, that there are no coherent patterns that inform human choice. One of the principle of these, and most neglected and poorly-understood, is addiction. Here, from the “Overview” on my website, is a sketch of the emergence and proliferation of addiction, which I view as an honest mistake; a likely outcome of the intersection of human nature and technology.

    “1. We humans have, compared to other living creatures, a highly developed sense of “self.”

    2. We are full of longings.

    3. Our strivings to fulfill these longings profoundly shape our experience of self.

    4. We are, like any reasonable creature, inclined to take shortcuts when we can find them.

    5. We are singularly adept at devising shortcuts.

    The equation for the onset of addiction looks something like this, then: A technology — some control methodology, chemical or otherwise — serves as a shortcut to the experience of transformative fulfillment; of existential enhancement. Addiction then devolves (“progresses”) over time — the shortcut(s) become less effective, and the integrity of life becomes compromised and diminished. This process plays out not merely in individual human lives, but throughout our contemporary global culture.

    We tend to be mesmerized by one particular category of technologies: the handful of chemical addictions — the “drug” addictions. These dominate the headlines, and absorb uncountable trillions of dollars spent worldwide by those trying to produce, market and acquire the drugs, those caught up in the “war on drugs,” and those trying to clean up the mess. While they make a very big mess, the chemical addictions are merely the tip of a much larger iceberg of addiction that permeates and shapes our society.

    And, contrary to the fate of real icebergs rapidly melting in the waters of our warming planet, the iceberg of addiction is growing, at an astonishing rate. Indeed, speaking of global warming, I see addiction as being principally implicated in the environmental crises we face today — and other major social, cultural, political and economic crises and degradations as well.”

    Elsewhere in the website, under “Other Writings,” is an essay titled “Sobering America,” originally published in abridged form in the New England Watershed, April-May, ’06. There I offer suggestions on what “systemic sobriety” might look like, and how we might strive to bring that about in our society. As I wrote in a poem some thirty-plus years ago —

    the simply terrifying question
    is: will we get better
    enough, before we get
    too worse?

    1. Lidia

      “So much of America’s wealth has had to do with the fact that “we” (White Europeans, in the main) arrived on a vast, unexploited continent just a few hundred years ago, and then commenced to take what was not readily at hand from others around the world, by virtue (sic) of military might, and with the slimmest of rationalizations, if, indeed, any at all. This factors massively into the putative “success story” of capitalism.”

      And not only… for the “success story” of capitalism is the success story of all imperial enterprises (until it ceases to be so): the British with their East India Company, the Spanish and their forays into South America…

      Capitalism and lending money at interest only work when the interest/profit can be acquired from without the system, making it fraudulent from the get-go. When the world was big and “empty”, and there were plenty of fossil fuels to bring into the system for free, this sleight-of-hand worked; it doesn’t work any more.

    2. Geoff

      Your post eloquently described something I’ve been thinking about for a while: that our American consumer capitalist system has given way to an addiction-based economy. We are caught in a self-destructive behavioral loop. Both individuals and groups succumb to a reinforcement trap where behaviors that yield short term benefits (that may also yield negative outcomes in the long term) are frequently chosen over behaviors that yield long term benefits (but may yield short term negative outcomes). I know that McDonalds is bad for my health (and digestion)and bad for the environment in the long term, but when I’m feeling bummed out and lazy (the short-term negative) the immediate gratification of eating a Big Mac is too great to resist. Likewise, our systems of laws and regulations encourages corporations to choose short term profits (at the risk of long term instability) over long term stability (at the risk of earning less-immediate profits).

      I’m being taught how we break this cycle with individual clients: a robust intervention might involve altering the system of behavioral incentives for the individual (12-step chips/token economy rewarding abstinence, increased legal repercussions in the form of parole violation and loss of child custody and even job loss), changing the way the individual actually thinks (cognitive behavioral therapy), and providing a strong social support system (like Alcoholic’s Anonymous).

      So my enlightened fellow readers, if corporations are like people, what would the analogous intervention for a gambling-addicted corporation be?

  15. Frank Speaking

    “The great irony and tragedy of “intro econ” is that it is at its introductory level that economic theory is both most broadly consumed and most malignantly simplistic.”

    a greater irony is that 99 percent of comments on this site are authored by those whose knowledge of economics is grounded in econ 101—if that.

    the other 1 percent are wannabe oligarchs looking for an angle and failed oligarchs looking for payback.

      1. McKillop

        know nothings (or nearly “sos”)+wannabe oligarchs looking for an angle+failed oligarchs looking for payback.
        Wannabe economists and failed and wannabe oligarchs and failed.
        I don’t mean to add to your di-stress, craazyman, but seek solice in sharing mine.

    1. scraping_by

      a greater irony is that 99 percent of comments on this site are authored by those whose knowledge of economics is grounded in econ 101—if that

      Were this true, the 99 percent would be howling against the contradiction to their deeply cherished beliefs. You know, reaction against cognitive dissonance and all that?

      Instead, these seem to be comments of people who bring better than average perception about real world issues and applications of econ. Not to mention the political economy and history of the last, say, thirty years.

      If you’re saying knowledge of economics is solely knowing what’s inside the limits of the sandbox, well, not too many come round here. If it’s the real world of getting and spending, work and business, it’s a good place.

    2. scraping_by

      a greater irony is that 99 percent of comments on this site are authored by those whose knowledge of economics is grounded in econ 101—if that

      Were this true, the 99 percent would be howling against the contradiction to their deeply cherished beliefs. You know, reaction against cognitive dissonance and all that?

      Instead, these seem to be comments of people who bring better than average perception about real world issues and applications of econ. Not to mention the political economy and history of the last, say, thirty years.

      If you’re saying knowledge of economics is solely knowing what’s inside the limits of the sandbox, well, not too many come round here. If it’s the real world of getting and spending, work and business, it’s a good place.

      Damn tags.

    3. diptherio

      Actually, I took a BA in economics and all of the critiques presented in this article are at just as true of the more advanced levels of economic thought. The (implicit) denial of feedback processes between economics and politics is, to my mind, one of the discipline’s greatest oversights.

      One might also critique economic’s use of language; namely using words like “efficiency” and “demand” in ways that are counter to the common understanding of them. According to the economist, taking one hundred dollars from Bill Gates and giving it to a starving Ethiopian to buy a month’s worth of food is “inefficient,” since while the Ethiopian is better off, Bill is worse-off, and besides, that starving Ethiopian has no demand for food, since economics equates demand with “ability to pay.”

      One might also take issue with economic theory’s refusal to allow for inter-personal comparisons of utility (i.e. is an additional dollar worth more to a millionaire or our Ethiopian friend above?), or to allow for diminishing marginal returns to income and wealth to be factored in to any economic analysis. Common sense tells us that a dollar is obviously more valuable to a poor person than a rich one, though economics denies the possibility of such a conclusion, and psychology and common sense both argue that wealth and income are as susceptible to diminishing returns just like anything else, economic “logic” notwithstanding.

  16. Moneta

    In university I majored in math and economics. I loved the economics segment but compared to math, I could not help but notice how simplistic the theory was. I was even more surprised by how much trouble my non-math majoring peers seem to have grasping the concepts. All they did was learn how to apply the principles by heart.

    It was obvious that to render economics scientific, mathematical corners were being cut. The focus on a few variables to explain a complex system was mind boggling. And the focus on one single variable, the interest rate, for the last three decades has been my biggest pet peeve.

    However, this was probably only obvious to people who understood math. Since most of the population is innumerate and does not realize it suffers from heuristics, today’s state of affairs is really not surprising.

    We’ve created a world where specialization is key but it can not work unless there is trust, a rare occurrence in a me, myself and I society.

    1. Frank Speaking

      ‘We’ve created a world where specialization is key…

      specialization if for insects

      “A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects.”

      -Robert A. Heinlein

      1. Fiver

        So we see maybe 1 proto-Human per century if we’re lucky. When do you suppose we’ll produce the first real Human?

  17. Dan Duncan

    Because I realize that Progressives are the most tolerant and intelligent people on the planet, I just know you’re going to love my 1200 part series on thought distortions and fallacies.

    It’s called “My 1200 Part Series on Thought Distortions and Fallacies”.

    In this series I’ll dole out just a wee bit of constructive criticism on an otherwise outstanding post written by a capable and intelligent author.

    It’s my hope that we can all learn something new.

    Additionally, by focusing on “My 1200 Part Series…”, I will be more apt to abide by the unbelievably stupid commitment that I made to Yves not to mock or ridicule the earnest opinions of others…until 2013.

    Today’s Entry, courtesy of Jake Romero: Glittering Generality

    From Wikipedia: Glittering generalities are emotionally appealing words so closely associated with highly-valued concepts and beliefs that they carry conviction without supporting information or reason. Such highly-valued concepts attract general approval and acclaim. Their appeal is to emotions such as love of country and home, and desire for peace, freedom, glory, and honor. They ask for approval without examination of the reason. They are typically used by politicians and propagandists.

    A glittering generality has two qualities:

    1. It is vague.
    2. It has positive connotations.

    Jake sets the tone of Thought Termination with this glowing, compounded generality as an Intro to his Principles…(which is funny, because the title to his essay is “The Problem with Principles…):

    “…if you’re an economics student who wishes to retain his conscience or just someone who values intellectual responsibility.”

    Then, without a moment of hesitation, Jake hits us with Ten Principles of Responsible Economics.

    Each one, a shiny example of a Glittering Generality.

    So what’s the problem?

    Glittering Generalities are intellectual dogshit cloaked beneath the veneer of some “feel good” chocolate topping.

    Glittering Generalities allow the “propagandaist”/ideological pundit to ossify dissent and operate within the vacuous realm of Flag Drapers and vapid Debate Squelchers…

    You’re not against American Freedom, intellectual responsibility or responsible economics, are you?

    And there you have it. Today’s Distortion, courtesy of Jake Romero: Glittering Generality.

    1. Frank Speaking

      sometime you just have to call out co-option when you see it…I believe co-option is what this site is really about.

      1. Fiver

        It is not at all clear where you are coming from in your comments on this piece. Please be more specific, i.e., co-option of whom, by whom, toward what end?

    2. LucyLulu

      Dan Duncan wrote: And there you have it. Today’s Distortion, courtesy of Jake Romero: Glittering Generality.

      And your post compares to Jake Romero’s how?
      Where is your supporting information and reason? Rumor among the kettles has it the pot is looking mighty black.

    3. JTFaraday

      You’re trolling the wrong post, Dan. The new 1200 part series is over on the Public Money thread.

      Although, I must confess the one thought I had as I was reading this is that the ONE thing I really want to see economists doing is putting their generalizations into context. Take the following pertinent but likely Highly Controversial generalization from #3:

      ““Free market” reforms generally improve aggregate outcomes while increasing inequality, so that poverty increases even as overall wealth does.”

      Here is a generalization from today’s critical economists or critics of economists. We seem to take this as axiomatic. But is it really true that liberalization always and everywhere increases inequality and in all political economies? If so, in what way? Is it true regardless of *how* economic liberalization takes place? If “liberalization” takes place as it did in Moscow under the tutelage of Harvard Business, is it still “liberalization”? After all, the eXiled seems to think these people functioned, quite literally, like a mob, (and they’re not the only ones). etc.

      Seriously, as a non-economist who is (reputedly, or technically) an enfranchised citizen, I can’t evaluate the truth content of such broad generalizations, regardless of which “side” they come from.

      1. JTFaraday

        Okay, and just so I don’t sound like I’m being dismissive, which I’m not, being forced to get specific should reveal the inadequacies of mainstream economic postulates if they really are inadequate.

        It is possible to reform academic disciplines from the margins. Just about every other social science/ humanities discipline has done so over the past 40 years, albeit not always purely for the better, (fer sure).

        I myself am pretty peeved at the way that left economic perspectives got pushed out of history, political science, and left critical theory in favor of the culture wars.

        I am, for example, a huge fan of Charles Beard. Bring back the progressive economic historians!

    4. Jake

      Thanks for sharing your thoughts, Dan. I do think it’s wise to be wary of manipulative language, so let me address the charge of resorting to glittering generality.

      Regarding “generality”: I think the mistake you’ve made here is concluding that a term is _of itself_ meaningless based on its lack of meaning _to you_. The notion of ‘intellectual responsibility’, for instance, may seem vague to you, but it’s a well-defined concept for me, and I use it with the assumption that readers either already have some similar understanding of the term or will have acquired one from the context. Since I’m outlining ways in which rhetorical sloppiness allows/encourages one to reach false conclusions about the real world based on arguments that appeal in a manipulative way to economic theory, “intellectual responsibility” roughly just means being careful not to do that (i.e., not reach conclusions fallaciously).

      Regarding “glittering”: That “responsibility” has a positive connotation is largely incidental to my choosing it. Any responsible choice of language will firstly be based on its precision and accuracy, with connotation perhaps a second-order concern. But I’ll grant that connotation is indeed a concern. To whatever extent the positive overtones of a term like “responsible” appeal to emotion, you’re absolutely correct that in doing so it in a sense makes an implicit normative claim. I’ll totally cop to that. But norms are inescapable and always under negotiation. My making such a claim is my bid to assert and reinforce a norm I think is valuable, and I think, given what we’re all living through lately, most people would agree.

    5. scraping_by

      You post has a Limbaugh-like quality, menacing and outraged sounding statements that, on reflection, mean nothing.

      Young Mr. Romero’s statements are exactly at the same level as the statements of the economic texts he’s critiquing. These are actual principles, statements, you can find in an econ 101 text, if you’re looking for it. And the professor will test you and you will be required to parrot it back word for word or fail the test. The statements are accurately portrayed.

      If the broad statements of the texts are about the world, then referring to the world allows you to say if they’re right or wrong, true or false, accurate or right wing. Mr. Romero reflects and tests those theories and, not surprisingly, finds they stink worse than a week old cod fish. Let just say he finds they fail.

      If the grand theories of a social science are not so much derived as piled high and deep, it’s legitimate to speak on the same level of generality. If you’re saying the theories implied in speaking against those theories are somehow untrue, man up and speak out. If you’re saying young Mr. Romero’s too big for his britches, then I’d have to say too big is a good thing.

    6. Ransome

      Economics is a system of beliefs, a religion, much like Scientology is system of science fictional beliefs and also a religion. Propaganda is a system of persuasion. There are no rules, there are no truths. Jake can have his 10 Commandments, mount the speaker’s box and have his 15 minutes.

      Consider Hayek, his understanding of capitalism borders on science fiction, “idealize fruit”, but he has many believers and torch bearers. The Road is really about the impact of propaganda on society and not about economic or political systems. You could do a word replace of “planning” with “propaganda” and the book would make more sense. Planning is what every successful corporation does. Why should it fail government? Planning is visionary, a long term worldview. Bernays wrote the book on propaganda (customer relations, consumer education) which is the bible of capitalism, and the bible of Goebbels and the bible of Stalin and the bible of the Neoliberals and Neocons. Propaganda is totalitarian and is why the disorganized liberals never grasp it as a tool because they don’t think like totalitarians, that is what makes them liberal or progressive.

    7. YankeeFrank

      danny danny danny… you spent way too much time on that “response” to Romero’s post. you’re not half as clever as you think you are. If you didn’t like the post say so, and please be concrete as the vague diatribe you spewed was useless as a critique… though it did have a lot of words.

      now try again, this time with on-point critique that we can understand without having to get past all your sarcastic smarmy “meta-thought”.

      all Romero is doing here is pointing out the false bases of mainstream economic teachings. He does so quite well in my opinion, in that he keeps it simple while very clearly pointing out problems with the general indoctrination that is mainstream econ 101.

      all you’ve done is yell, a la Lindsey, “its a crock of shit”, using many more words and much more snark. if you want to reach people with your writing, try again…

  18. LucyLulu

    A request for Jake or anyone else more enlightened…..

    Could you please explain #4? I don’t understand what is being said.

    Otherwise, thank you, Jake. Excellent and well written. I really enjoyed this piece, it seems to summarize well what intuitively makes common sense (and consider that comes from somebody who, while well-educated otherwise, has not been warped or biased by any formal economics schooling/classes).

    1. Hugh

      It’s a riff on when all you have is a hammer every problem looks like a nail. Take healthcare for example. References are often made to the healthcare market. But viewing healthcare as a market is erroneous. Almost no users of healthcare really have sufficient knowledge to make rational decisions about their care options. And if you are having a coronary, the idea that you are going to shop around for the best cardiologist is farcical. Healthcare can not be commoditized or marketized, at least not efficiently. When you try to, you come up with the Frankenstein system we have.

      1. Lidia

        I appreciate all your comments, Hugh, yes indeed. And I think that can be expanded to other realms which are currently under privatization stresses: schools, jails, public libraries.

        How can one conceive of a jail or a public library run as a for-profit enterprise? It’s clearly psychopathic thinking and yet we countenance it under the current “economic” schema.

        1. McKillop

          Thank you,lidia.
          Here in my home town in Canada, Sudbury, (The Sudbury, a small claque of ‘privatize’ types are beginning their attack against Pioneer Manor, a Long Term Care Institution, owned and operated by the municipality-paid for by the province, the municipality, and its residents.
          The “issue”, as they wish to define it, is about a highly paid union -not the workers, never the workers- and ONLY financial.

  19. steelhead23

    Jake, this essay speaks well for PSU. In college I began to question nifty marginal utility maximixing systems when the calculus told us that the way to maximize profits from timber land was to harvest trees at the maximum of the annual increment – that is harvest trees when they are growing fastest. The result of such management is soil productivity loss, wildlife habitat loss, water quality impairment, etc., such that, were such a ravenous program followed, the future would be poorer. We are slowly unlearning rational economics.

  20. Ray Phenicie

    Add to the list that of fallacies by omission-not talking about something is as much an error as an outright misrepresentation or over-simplification.
    Money-as presented by the teachings of Wynne Godley-is totally absent from Econ 101. What it is, where it comes from, how it is brought into the flow of stocks, and how fiscal spending works-all of these are missing or at best misrepresented. For example, Mankiw explains the existence of money with a description of the fractional reserve system-all of this is totally wrong. Much like an astronomy text book that would give us a detailed description of the Ptolemaic orbits within orbits and epicycles to explain the observed movements of the planets against the far distant stars, Mankiw clings to an outmoded description of money.

  21. Waking Up

    I truly hope that Jake Romero has a long and
    distinguished future in the field of
    Economics. We need clear headed “thinkers”
    in that field.

  22. Knut

    Very nicely done. As a long-time teacher of university economics, I ended my career by teaching one last course in econ 1, just out of curiosity to see how it (and I) had changed over 40 years. I was stunned by the ideological make-up of the textbook (a standard one), and by the amount of mindless rote learning it deployed. No one could learn economics from reading a standard textbook today. It really has become almost pure ideology.

    I threw it out and taught the course from the blackboard. The reason we call it Principles of Economics is that there are principles of reasoning that help you sort through information; but they are sorting, not censoring principles. Somehow over the years they got turned into a censoring device.

    1. scraping_by

      It doesn’t stop with nineteen year olds. The business books for managers and executives covering current topics and new developments all have pro-market, anti-labor, pro-bonus, anti-government, etc. bias. Management has an intellectual echo chamber.

      Even later in life, the mainstream bias is protected and nurtured.

  23. EricJ

    Very well written article.

    Lot’s of comments, sorry if someone already covered this ground: It seems to me that the definition of “rational actor” is deliberately worded to obscure the point that the best outcome in a trade is a fair exchange of value.

    It’s true that a fair exchange can be brought about by two actors competing with each other in their own self-interest. But that’s not the only way. They can also cooperate with each other in their own mutual interest. Which way is more likely to lead to a fair exchange?

    In a holistic sense, a “rational” person will avoid overreach because in the long run it’s in the person’s best interest as a member of society. I don’t think it has anything to do with morals; it’s just that the principle (e.g. golden rule) has traditionally been instilled as moral.

    There were still many business people and politicians who acted this way when I was born lo these many years ago; sadly, they seem to have dwindled to a tiny minority.

    1. scraping_by

      Fellow old guy:

      The folks we remember acting rationally were, more often than not, acting out of religion, morality, or social conscience rather than to maximize marginal utility. That is, their thinking, even in economics, was not economic thinking.

      Social conscience. I just realized I’ve haven’t used nor heard that phrase in a long, long time.

      Much of young Mr. Romero’s points go to the heart of the failure of modern economist’s basic failure: the fallacy that everything can be measured in money. That’s another expression of his point #4. Not everything is for sale, and certainly should not be for sale.

      That may be the lesson not passed to the young fellows. If so, it’s time to start.

      1. EricJ

        Okay, I’m not TOO old.

        Just because the wealthy can suffer a bad economy doesn’t mean they don’t suffer a bad economy. In a way, it’s unfortunate that our social memory is wrapped up in the supernatural or the nebulous; I think it’s just common sense.

        Incidentally, I don’t think money is a valid measure of value at all. The essential indicators of the value of a product are time, work (i.e. calories or BTUs), and materials. There are also non-discretionary spectra of quality such as durability, usefulness, etc. Careful with discretionary quality: The Emperor’s New Clothes were of the highest quality but the lowest value.

        Of course, it would take billions of people practically forever to ascribe value to products on those principals. Thus have I solved unemployment.

        It’s always a blast to weigh in on subjects I know nothing about. To all a good night.

    2. Sundog

      EricJ, I’d encourage you to think about investment banking in the old days, when the firms were partnerships rather than publicly owned corporations.

      The firms were relatively small and the partners were accountable (today the major firms are large and enjoy impunity). These small firms cooperated with others, often across borders, in risking their partners’ capital to raise funds for an IPO or a bond issue.

      There was an ecosystem of smallish firms cooperating and competing with one another. Pay was good enough to afford a coop in Manhattan by middle age (today’s global elite wasn’t around to drive up prices to astronomical levels) and one could aspire to a comfortable living with a summer home, but always with an eye cocked to assess one’s personal risk as a partner.

      Rather than loss of morality, I posit loss of accountability for poor decisions made in recent years.

      Inevitably, with immunization from market accountability and impunity regarding the rule of law (search this blog for Banana), there will be actors who recognize no such thing as “society.”

      It’s appealing to conflate moral outrage with moral failing but better we apply our outrage to devising systems in which moral failings are checked by naked self-interest.

      This may well require we adhere to Eisenhower’s prescript: “Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.”

      Happy Holidays & thx Jake & EricJ & Yves & NC!

      1. Ransome

        The mindset is simple, the last $5 on the table is as important as the first $5 billion. Impose capital controls and the last $5 on the table will be as important as the first $5 million. Being a partnership is a capital control.

  24. tropical hot dog night

    If at some point you manage to write something cohesive from start to finish, let the grown ups know. Many of your paired theories and realities have tenuous (if not bizarre) relationships, and the comments that complement your principles sometimes make even less sense than the principles themselves (hello? #4 & #7?).

    Perhaps you should start with definitions, since you seem to shift in your definitions of ‘economics’ and ‘free markets’ from point to point. Pick one consistent definition and work from there. Responsible thinking before responsible economics, makes sense doesn’t it?

    If you were trying to make a point to people who actually understand economics, you have failed miserably, and if you have your college education to thank for that then God help you. The only Occupying you will be doing is a half paragraph in the annals of history along with the Tea Party.

    1. JTFaraday

      (hello? #4 & #7?)

      Yeah, like where is F Beard to weigh in on the “government backed counterfeiting cartel” when you really need him?

      I’ve said it before and I’ll say it again. Americans, especially American liberals, whose idea of “the government” is the (Earl) Warren Court and the New Deal, don’t know what really *bad* governance is.

      Now might be a good time to start thinking about it.

    2. Jack E. Lope

      I had no trouble understanding his article. My econ classes, 1969 to 1973, are mostly forgotten, but I see that the teaching has generally deteriorated into ideology disguised as fact.

      Are you a grown-up? Do you think responsibly? Do you actually understand economics? If the answer to any of those is “Yes”, the childish taunts in your post are unbecoming.

      If you deign to respond, please provide your definitions of “grown-up”, “responsible thinking” and “people who actually understand economics”, so that your writing might be understandable.

    3. Fiver

      When I re-read all the comments on this piece and came across yours, I was reminded of a philosophy Prof I once had – an ancient gnarled thing that couldn’t think his way around the block – a real shithead.

  25. GregT

    A thoroughly delightful piece. My only complaint is that I could never be as educational, entertaining, and witty. As someone who devours any and all economic literature, this was one of the freshest drinks on the subject that I’ve had in some time

    I’m the son of a Harvard-trained economics Ph.D and spent my boyhood going from one USAID assignment to another as my dad worked to make the developing world safe for American economic hegemony, or at least to make sure the Soviets didn’t get a toe hold. I learned all about total factor productivity, maximization of capacity utilization, etc.

    What I really liked about your article was its focus on institutions. Economics back then it seemed was focused on the political task of creating, strengthening, and expanding our institutions — whether they be government, corporations, finance, whatever. The goal was to serve the political process in its charge to build institutions so as to add a few more layers of veneer to the thin slice of civilization.

    But that was all post-WW II / Bretton Woods thinking. And while there may have been objectionable things to have found in any of the dominant post-War institutions (like the Ford Foundation that paid my dad’s salary), the underlying goal was to build and husband those institutions so as to create a better and more resilient society.

    Today it seems that economics has lost its sense of duty to institutions. Instead, the discipline sees its role as providing the theoretical justifications for why the liquidation of our institutions, including higher education, into the bank accounts of what Disraeli called “the few, and the fewer.”

    It is the most insidious form of mind control that, with a few Sigmas here and Beta calculations there, legitimates as eminently natural a highly artificial and unstable order promulgated by a priesthood of academics.

    1. Ransome

      Economics and business are now the study of revenue streams, monetarism. It is a useful tool, not a global worldview of political economy. It excludes important aspects, like history and social context (behavior, social outcomes) and national economic impact.

      It produces innovations such as high frequency trading, essentially an electronic form of coin shaving. We put edges on coins to prevent it but not HFT. When you cheat the government it is one thing, cheating investors is another.

      “Coin clipping was usually considered by the law to be of a similar magnitude to counterfeiting, and was occasionally punished by death”

  26. kms

    PSU is my alma mater for my bio undergrad as well as B-school, class of 2011, and I am super proud to have come from the same school as someone who writes like you did today. Though I was never in the Econ dept, I learned my love of economics at PSU- oddly, from an engineering professor and a former SEC regulator. I hope you have considered teaching when you finish your education. I found your post enlightening without being obscure, yet it still pushes the reader to do his own research and reach his own conclusions. Hell, maybe you should consider public policy. Not many officials can hold such a nuanced position without losing the crowd. And seriously, anyone who responds to his undergraduates in the New York Times is begging to be taken down a peg.

  27. Dick Burkhart

    I would take Yves critique of mainstream economics much further. Namely, real-world economics must be rooted in resources and environment, especially energy, and aim at sustainable well-being. A second fundamental principle is that, other things being equal, egalitarian economies (like Japan and Sweden) work better than less equal economies (like the US, Britain, etc.). In other words, economic theory needs to be rebuilt from the ground up, based on how real-world economies actually operate over the centuries – how the material activities of human societies interact with other aspects of these societies and with the natural world. From this point of view, markets are secondary.

    Thus if we look at today’s global energy resources, especially oil, we conclude that global economic growth is coming to an end, unless an exotic technology like nuclear fusion miraculously appears to postpone the day of reckoning. As de-growth takes over later this decade, the economic meltdown will make 2008 look like child’s play. There will be no way to pay back all the public and private debt without harsh reductions in the standard of living of much of the 99% in order to keep the debt holders – concentrated in the 1% – living high. Therefore some combination of major default and inflation is very likely. Default would be far better for the economy, just like society writes off the debts of bankrupt people and companies in order to rejuvenate the economy rather than chain people to debt slavery. Right now some big defaults in Europe would yield some hardship in the short run but would be very productive and liberating in the long run – just look at how well Argentina has recovered from its default.

    1. Fiver

      Agree with the general thrust re resources, the beginnings already of “de-growth” and scarcity, etc.

      However, I would suggest that rather than being headed in a more egalitarian direction, it’s precisely elite policymakers’ knowledge of those things that propels a great deal of events already – in exactly the wrong direction. Japan and Germany (along with the rest of non-Russian Europe) are about to be screwed if they don’t immediately transform away from consumption-based economies. China is being encircled, and its many efforts to obtain long-term, secure oil supplies systematically blocked. The Persian Gulf is all but locked down – Iran’s fate is sealed. India is in far worse shape than China. Africa is being carved up as we speak in an enormous neo-colonial resource grab. Climate change and environmental degradation in general is now assumed in “strategic” thinking (ever “rational”, of course).

      Agree we must obliterate unpayable debt in its multi-trillions (sorry 1% – you can keep 1%), re-think and re-build based on what the future really holds, not what utterly fantastic fairy tales “markets” pound into us every minute of every day.

  28. Walk Out Student

    This was an excellent article, with many excellent points about the dangers of the predominance of narrow-minded (neoclassical) economic thinking. Just one note – I don’t think that the students who walked out of the introductory economics class in question (myself included) were incapable of making a good case for our actions. In this article,, two of the walkout leaders described some of their specific issues with Ec10, and how these issues relate to broader concerns – in terms of poverty, inequality, and political and economic decision-making.
    But kudos to Jake Romero!!

  29. ebear

    Jake, the situation you outline is not unique to Economics, it’s just more noticeable there due to its effects. Read Thomas Kuhn’s “Structure of Scientific Revolutions” and see if his concept of Paradigm Shift as a response to Fundamental Crisis helps you at all in your analysis. I believe it will.


  30. Fiver

    I fear we vastly underestimate how plastic we humans are, no less so in our “reasoning” than elsewhere.

    I would place far more importance on #8) “In theory, there’s a distinction between “positive” and “normative” economics. In reality, the positive is at once fictional and normative in effect.” Then finishing with “…and since studying positive economics clearly has an effect on people’s behavioral patterns, it is de facto normative.” Then consider Knut’s experience related above, as to how 40 years of incremental degradation had worked its magic within the discipline itself.

    Forty years. When I first encountered the rational, self-interested economic agent decades ago, I dismissed it as absurd on its face in the same way as I did Hobbes’ man in a “state of nature” or Dawkin’s “Selfish Gene” or even the so-called “realist” school of history (nations act in their “interests”). These sorts of notions seemed to that young man to neither fit nor appeal to any but a tiny smattering of the people or group of any age I’d ever encountered, and nobody in print whose overarching aim wasn’t to produce an apologetic for one or another form of dominion. And not just people – governments, corporations, universities, charities, sports, entertainment, whatever – it simply was not possible to flog this sort of crap or myriad variants at all levels and expect to gain unquestioned approval (witness Vietnam, for instance).

    Now, across the board, the situation is reversed. What happened? Massification? Commercialization? Computerization? Moral/ethical collapse in a world now subsumed to technology? All those and more?

    Whatever the mechanisms, the overall change has taken place out in the open, right in front of us, over less than 1 adult life-span. And we let it happen. A great many people now believe and behave as if these “crazy” notions were true. Skip the grandparents – we are very rapidly becoming not even our parents’ humans. Which would all be just another page in the human story if we had infinite time on an infinite planet. We have neither, in spades.

  31. Lafayette

    Firstly, one needn’t make explicit policy prescriptions to reproduce, in generation after generation of students, the fetishization of “free markets” that has been eroding civil society worldwide

    Error of interpretation, Mr. Romero. The above has not been happening “world-wide”.

    We in the US started postwar upon our hellbent rush to “market consolidation” that – by means of buyouts or fusions – has led to market integration that brought about indirect, but nonetheless, effective oligopolistic price fixing (aka “sticky pricing”) upon markets due to their lack of intrinsic competition.

    The desire of companies to rush down the learning curve to lower and lower prices has not meant less product cost but more profit generation. Any cursory look at the profit-levels of our largest corporations over the past 40 years will prove that point.

    (Mind you, there is nothing wrong with profits. There is something wrong however in the means by which they are distributed, meaning clearly for the benefit of the “One Percenters”.)

    This phenomenon is particularly obvious in telecoms (and specifically local-loop DSL offerings into homes). It will happen again in mobile computing (3G/4G).

    It is almost certainly obvious in one of our most important “markets”, that of Health Care as regards competition amongst health insurers. Just have a look at this Competition Map. Need more be said about the lack of real competition amongst HC-insurers?

    In Europe, there is made a fundamental difference between what should be, rightfully, Public Services and Free Markets. The criteria of the former is the nature of Supply & Demand. In Health Care, there is far too much Demand chasing too little Supply of professional services – which means, in a private HC mechanism, the professionals have great sway over pricing.

    (Note also that in Europe pricing is mandated by the National Health Systems, which is why Total HC Costs are about half that of the US. But, of course, we cannot have a Public Option – National Health System – because that is Creeping Socialism and forbidden by the bible.)

    Note also that “free markets” are also a legalistic concept in America. When Microsoft was found guilty of “abuse of a dominant market position”, the ruling that it should be broken up was overturned and Bill Gates got away with a slap on the wrist. Regardless of what law may be in place, its interpretation depends upon the political outlook of the presiding judges.

    So, our fetish for Free Markets is less a problem of “education” and more one of “political outlook”, meaning it will take generations to change. And, therefore, it is better that we get started now – preferably by adopting a Progressive Agenda for National Reform.

  32. Lafayette

    Romero: Having learned from her textbook that, without qualification, to be rational is to be a self-interested utility-maximizer, she learns to emulate such behavior.

    Macro- and Micro-economics are two different worlds and never the twain shall meet. Which is why they are separate courses at universities.

    Because you and I have consumer preferences that are defined often irrationally by social pressures (aka “herding”) is not a fault. It is a societal phenomenon that is typical of all human collectives, from the most basic to the most developed.

    “Utility” is a philosophical attribute to any economy. It is expressed mostly in generalized terms of maximizing benefit to all members of a nation. Unfortunately, it remains philosophical – and in the US pragmatism has taken the upper hand over philosophy, particularly in matters of political economy.

    Because we purchase a product does not mean necessarily it is of any “utility” other than to satisfy our conscious (and often unconscious) need to possess that product – as prompted by society itself. I recommend Thorstein Veblen’s Theory of the Leisure Class, first published in 1899.

    The work remains today a poignant critique of “consumerism”, given that we have managed to expand, in the interim period since its publication, very largely the dimensions of the Leisure Class – particularly in numbers.

  33. Lafayette

    Romero: In theory, market models assume that the existing distribution of wealth is just. In reality, poor people exist

    Hiding in plain sight in many marketization proposals is something of a dirty little secret: When you apply an idealized market model to the messiness of reality, some people, those without enough purchasing power to enter the market in the first place, will have to go without in the name of efficiency

    Another naive error.

    It is not the so much the Market Model that is at fault, but the manner in which industrial/commercial profits are distributed.

    The work by Pickety & Saez as regards wealth accumulation goes back as far as the relevant data, that is to the first income tax declarations necessitated by the advent of a National Income Tax in the very early part of the 20th century. The concentration of income at the higher levels was already observable.

    Which gives rise to the presumption that it had existed since the inception of our nation – and was likely exacerbated by transitioning from the Agricultural to the Industrial Age that began in the latter half of the 19th century.

    My point:
    * The market-model is at fault due to reasons given in a post above. But the problem (and therefore challenge of correcting the problem) lies with the idiotic manner in which the Reagan Administration lowered precipitously Income and Capital Gains taxation in the 1980s.
    * Had marginal taxation been kept at 70/90%, there would be today far less concentration of wealth in the 20% of our population (that possess about 93% of it).

    Post Scriptum: And since we are now transiting to the (Asymmetric ;^) Information Age, had Capital Gains rates risen to 60% also – since most industrial profits of our economy are being made in only one sector. Only one guess which sector that might be …

  34. Jeff V

    I would add rule zero of economics: In theory, PhD economists are experts on the economy. In reality, the average PhD economists doesn’t have a clue how the economy works, nor does he care to learn. His job is to create complex math models based on laughably unrealistic assumptions, and pretend that the real world conforms to his fantasy model world.

  35. DiSc

    Ah, I wish I had had a professor explaining me the 10 principles like that – maybe I would be more at peace with Economics as a subject.

    Instead, I had some guy trying to outmankiw Mankiw. He made me hate my university course from hour 1, day 1.

    1. Lafayette

      The reality of “economics” is seen very clearly in the Supply&Demand model that was amongst the first elements you learned in EC101. That model can be seen empirically each and every day at any local supermarket. We are all an integral, functioning part of that model by means of our propensity to spend.

      Unfortunately, neither have I ever seen a S&D curve for any given good or service. It remains just an empirical notion.

      But there is no escape (to my mind) from this evident fact: The Consumer is the alpha and the omega of all economic activity. And I do me ALL ECONOMIC ACTIVITY.

      C then I then G => GDP – stating backwards our national accounting formula.

      In the riddle of “the chicken and the egg, who came first?”, first comes the Consumer who purchases goods and services. Which prompts business to hire labor to produce said goods and services, which provides income to purchase … goods and services.

      The Investments necessary by business is unsubstantiated unless there is a demand for goods and services, so there is none without the consumer’s propensity to spend justifying investment.

      As for Government, it’s sole revenue is from taxation of both income and the sale (of goods and services). Unfortunately, our guileless leaders thought up another way of obtaining government revenues, called borrowing.

      Which has led us to the present predicament. We have clearly been spending beyond our means – and long before this present administration came to office. (Besides, Uncle Sam has not been the only country to have lost its way by profligate spending beyond its means.)

      We are presently undergoing a correction to that ill-advised borrowing. And, as with all remedies, it is not entirely painless.

  36. groo

    enjoyed this lively discussion

    two points to add:
    “Do Economists Make Bad Citizens?”
    (google that and You get the proper hits plus references to related papers.)

    answer: Yes, in a sense

    Question: Of what societal use is a profession exactly, which produces such outcomes?
    And why?
    Are those outcomes discussed in economics 101?

    Re F.Beards references to the bible just a bonmot:

    “With or without religion, you would have good people doing good things and evil people doing evil things. But for good people to do evil things, that takes religion.”
    – Steven Weinberg

    or economics, for that matter.

    1. groo

      No wonder, that the selfproclaimed ‘king of the social sciences’ is somewhat reluctant to let the other social sciences inspect, what actually is under his pompous kilt (no offense to the Scots, though, but I sometimes wonder whether Adam Smith wore one).

      Some stinking dirty little secrets up there.

      1. scraping_by

        I prefer to think materialism is the religion and economics its theology.

        Certainly the worshipful attitudes toward otherwise unnoticeable people is hard to work into a psuedo-science.

        1. Lidia

          “Materialism”, however, either in the philosophical or the economic sense needs to acknowledge physical limits. Modern economics does not, nor does religion, the ‘natural’ opponent to economic materialism.

          1. scraping_by

            Probably not materialism in the philosophical, positivist sense then. More materialism as the root of all evil worship of wealth measure all things in dollars sense.

            If you worship money, the richest person in the world is God. Sobering when that was was Pablo Escobar.

      2. Lafayette

        Economic = religion

        Nonsense. No more than Divine Intervention rules the universe.

        It is breathtaking the way the American bent to reduce everything to its ultimate (sound-bite) simplicity can breed such mindlessness.

        All the attributes of living on earth are enormously complex. No one model or philosophy or line of thought can provide all the answers we seek.

        We live in interesting times. Take note of them.

    2. F. Beard

      “…But for good people to do evil things, that takes religion.” – Steven Weinberg

      I don’t defend religion since it often ignores or distorts the Bible but as for the Bible itself there is little even in the Old Testament that should offend people. And the New Testament is even less potentially offensive.

      He has told you, O man, what is good; And what does the LORD require of you but to do justice, to love kindness, and to walk humbly with your God? Micah 6:8

      Cue skippy :)

      1. groo

        Dear mister F.Beard,
        i surely recognize Your good intentions, as probably goog Mr Newton did, who read the bible every day.
        Just to maybe settle this one.

        The Old Testament is a diverse collection of stories over several hundreds of years, who sometimes touch on ‘reality’, but mostly do NOT.

        The bible to me is juyt that. a collection of stories, just like the fairy-tales of the Brothers Grimm, which reveal some deep insights into the soul.

        But nothing more.

        Newton, despite his insights into the nature of reality, lost his fortune when speculating on the markets.

        Neither his mathematical/physical insights into the nature of reality, nor his readings of the bible helped him on that.
        ( this presupposes, that material gain would somehow be an indication of his chosen-ness, which again is the belief of the various Protestants, who believe that earthly success is indicative of ones position in some otherwordly heaven.)

        And remember: One Man’s gain is another man’s loss.
        How to resolve that?
        No Win/Win, no Loose/Loose, ONLY Win/Loose.
        Which is the Law of the Universe, as it is thrown upon us by a furious God.

        So what was missing?
        Newton made a dual bet, akin to Pascals wager, and he lost.

        So what was going on here?

        1. groo

          sorry for the spelling-errors.

          (I miss that. Yves, do You hear me?)

          But You get the message, dear Mr Beard.
          We are all human, and even error in spelling.

        2. F. Beard

          And remember: One Man’s gain is another man’s loss. groo

          Actually, not always. Two in a bed are warmer than each in his/her own bed. They each “gain” warmth.

          The bankers have set it up so their gain is our loss but life need not be like that and very often isn’t.

          1. Lafayette


            No, it isn’t. But the logic that economics is a zero-sum game has probably a foundation.

            Any collective that is called an “economy” naturally produces a fixed value of goods and services that translates inevitably into personal income, which means wealth.

            That income, when apportioned unfairly, means wealth is also distributed within society inequitably.

            And that, indeed, is the key challenge to America today. All the rest is child’s play in a society where the focus becomes one of personal aggrandizement and not collective well-being. Why?

            Because for the inequity of personal amassment (of wealth) to occur, only unfair taxation at high levels of income can produce that effect. Taxation of personal income, which is a relatively new policy in our modern world (having begun in the early part of the 20th century in America), is the only means to assure that the distribution of wealth, whilst not equal (nor should it be), must be at least “equitable”.

            I.e., no One-Percenters possessing a disproportion amount of wealth within a nation, and certainly not the Twenty-Percenters who have (in our economy) as much as 93% of it all. (See here.)

  37. kharris

    “With a rhetorical sloppiness that turns mathematical idealization into socially destructive ideology,…”

    “In theory, models are just aids to reasoning—the map is not the territory. In reality, it’s just so easy to reify.”

    I have to say, this idea is so important to what has gone wrong with economics that the author is well justified in saying it two different ways. You’d think that once the expression “simplifying assumption” had been repeated a few times, the implication would sink in. Instead, some of the foremost minds (sic?) in economics have taken simplifying assumptions as a close enough approximation of reality. Let me be clear – for once, I do not mean to be facetious.

    “In theory, market models assume that the existing distribution of wealth is just.”

    I’m not sure this is true at all. Models do ignore justice, radically so. Justice is aggressively and assertively kept outside the model. That’s how the modeller justifies a purely “positive” economics (see below).

    “In reality, the positive is at once fictional and normative in effect.”

    This is not, I think, as important as the first point about adopting as near reality what was meant to be a simplification to make the math tractable, but it is sad, none the less. One of the really important points taught to economics students is the value of positive analysis. Most of the time they miss it, because the fun of holding moral positions overwhelms any appear that intellectual honesty may have. The regular Jo(e) needs to understand that nomative views tend to be little more than excuses for one’s own biases, and that unintended consequences are most likely to bit you in the butt when you don’t know how to think through the consequences. If something is impossible (ending alcohol consumption in the US, for instance), then taking a normative stand is truly a bad idea. Youngsters need to understand that. The problem you identify has to do with non-younsters – cynical oldsters who are bought and paid for and clever enough to twist their “positive” analysis to normative purposes. That’s where Mankiw comes in.

    1. Jake

      Thanks, kharris.

      Re: “Models do ignore justice, radically so.”
      See: Willingness to pay. (But, yes–I of course agree that markets are amoral.)

      Re: “One of the really important points taught to economics students is the value of positive analysis.”
      You’ve just restated the positive/normative distinction here. This distinction is clear as daylight…in the hard/actual sciences.

      Re: “nomative views tend to be little more than excuses for one’s own biases”
      Perhaps I’m misreading you, but this resembles a common (and callow) refrain among some economists I’ve encountered. It’s various forms of “Who’s to say what’s fair?”, for example. The thinking seems to be that because normative principles are not written in the firmament or not all derivable from some universally agreed-upon axiom, normative views are thus all created equal (in that they are all equally vacuous). This kind of argument is unworthy of an undergraduate, let alone a grown adult.

      Who’s to say what’s fair? People. People say what’s fair. And what’s right, and what’s wrong. And they attempt to justify their beliefs. And other people may disagree, so *they* attempt to justify *their* beliefs. And this, in a manner of speaking, is how norms are negotiated in a free society.

      1. skippy


        Just back from Noosa for the holidays and on a x-mas eve BBQ I encountered an individual whom I gave Yves book to last year, as a pressie ( executive Sydney sider). Well after gently inquiring of his thoughts, I revived a… I didn’t like it. Thing is last year having done the middle page eyeball thingy, he pronounced “hay it has J.M. Keynes in it, I’ll read that”. How many pages do you think he read [???]… TWO….

        Long story short, his last utterance was profit comes before people… full stop.

        Skippy… that is when 6 to 8 people walled me off… Physically. Whom was the bigger threat to humanity et al… LOL.

  38. Aquifer

    Once again, Whitehead’s Fallacy of Misplaced Concreteness seems to be a relevant descriptor of our “science” of Economics …

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