Arturo Cifuentes, who is an adjunct professor at Columbia University, finance and economics division, in New York, had a good article in the FT yesterday in which he surveyed the wreckage ten years after Lehman. One of his commentaries was aimed at economists on which issue he said:
Finally, the lack of mea culpa from the economics profession. Granted, many economists – Paul Krugman and Paul Romer are two notable examples – have acknowledged the shortcomings of most pre-crisis economics models. To be clear, nobody expects economic models to predict crises, future prices and recessions with total accuracy. But at least they should be able to explain the basic functioning of the economy.
The admission by Olivier Blanchard, in 2016, that incorporating the financial sector to macro models would be a good idea is revealing. (In essence, Mr Blanchard's statement was akin to that of a structural engineer who realises that not incorporating gravity to its models might render them useless.) In any event, despite many exceptions, most tenured economics professors keep teaching the same simplistic, faith-based, empirically challenged models, combined with the belief that almost anything can be explained with a linear regression.
Spot on, I say.
And there's not a lot to add.
Except, maybe, that the alternative understanding does now exist, but that the economists of the world are refusing to accept it.
Wasn’t there a group of economics students at, I think, Manchester, in 2011, who openly challenged the content and were joined by students across the world (although few in the USA)?
Yes
And they’re still taught crap
And that means crap in this case
Has the FT cried “mea culpa”? Even the FT editor, Lionel Barber had an article in Saturday’s paper saying we needed more public spending on infrastructure. After years of being the cheerleader for the small state, private good, public bad, austerity, slashing government spending – I wasn’t sure I hadn’t gone through a wormhole into a parallel universe.
G Hewitt
Luke 15:7
Just so, I tell you, there will be more joy in heaven over one sinner who repents than over ninety-nine righteous persons who need no repentance.
Perhaps Mr Barber has been on a road to the Syrian capital?
Yes, I think the Genoa bridge tragedy has certainly woken up the slumbering neoliberal economics professors and financial journalists to the impossibility of continuing austerity and public service cuts from pot holes to Grenfell Tower, if warning bells are not attended to now, when will they ever?
I’ve been on holiday this week in the Black Hills of South Dakota a circular area of hills and mountains mysteriously formed in the middle of the Great Plains of the United States. The hills are called “black” by the way not because of the colour of the rock but the dark green leaves of the coniferous trees that grow abundantly on those hills. Anyway like most tourists I duly visited the two big mountain sculptures of the area Mount Rushmore and Crazy Horse. I also visited numerous museums in the area many devoted to the history of the area, the Sioux Indians and the white settlers. What struck me was the significance between the two monuments, one representing government with former US presidents and the other the spirit of wanting to be free from the oppression of the white man’s way of life. What was that oppression based on at root? It seems reasonable to say a “money” based way of life. The Sioux way of life was essentially Stone Age. What better metaphor can one have than to say the majority of the planet’s population still live in a Stone Age because they fail to understand the true caregiving purpose of money, its creation and its regulation. They don’t live in a “Money-Age” because of this lack of understanding and as such fail to see how they are “money-bullied”! Even the very rich who do most of the “bullying” (due to inadequate child rearing that prevents them understanding the need to balance self and other caregiving) inhabit a mindless world between the two ages, a sort of “underworld age” that leaks out trouble and evil. Of course, they are aided and abetted in this creation by mainstream “Stone Age” economists!
“It is difficult to get a man to understand something, when his salary depends upon his not understanding it!” – Upton Sinclair
The only bit I would disagree with:
“To be clear, nobody expects economic models to predict future crisis, future prices and recessions with total accuracy”
Obviously, noting the caveat “total” in learned circles that may be the case, not in the wider public, although I’d agree scepticism is gradually on the rise.
There’s almost religious adherence to sermons from mainstream economists, especially when it’s coming as the voice of any of the established institutions whether business or academic. Which is so unfortunate and I finds destroys any chance of reasonable discourse, as many simply cannot accept that where they keep getting these predictions so fundamentally wrong it destroys credibility.
The best example is Brexit no matter what happens in Southern Europe, how high the unemployment and resultant exodus of young people to the north becomes, or how multinationals and high net worth individuals are able to abuse FOM of capital do the detriment of the labour class. Outside of MMT there’s no credible discussion on why the EU has been so destructive in it’s neoliberal approach and what the solutions are.
On seeing last weeks escapades with the Macdonell camp and how they even double down on defunct ideologies I really despair. People grasp that household idea and as long as that is rooted in everyone’s psyche they’ll go on believing that the clever people can predict just like they can with their income and expenditures at home.
If 2008 wasn’t enough to demand an accurate model and a true explanation of failures and what measures will prevent the next one, then I’m not sure what will.
Seems to me we will need to hit rock-bottom with another crisis before we demand serious change. ere’s hoping it goes down the MMT route.
A classic text I used to give economics and business students is “Lies My Teacher Told Me” by James Loewen – gist on youtube. The problem of textbook teaching is across the board in education. Martin Parker is probably the best current proponent from the inside on ‘bulldozing’ the world’s 13,000 business schools. Guardian gist here: https://www.theguardian.com/news/2018/apr/27/bulldoze-the-business-school
It’s 35 years since I had to earn corn in them and the advice they should be avoided like steaming turd was around then (Peter Antony’s “The Foundation of Management” was a summary in 1986).
You can now “earn” a degree by submitting 30 2,500-word essays and a slightly larger dissertation. Standards, despite all the kwality, are dire. Economics, accounting and finance actually do involve “sums”, though generally on closed-world cases that use “data” in which exclusions have made sensible argument impossible. One major exclusion Minsky and Steve Keen point to is private debt as ‘nothing to be seen here, move on’. The problem with textbook teaching is you can set what look like quite clever questions (usually copied) only they can (incorrectly) answer. Try this one in your head from organisational behaviour.
“Critically evaluate content and process theories of motivation at work”. In fact, this is such and old chestnut (I could turn out 100 similar in economics in an hour) the internet will give you viable answers in you just type the question in. Answering this question will tell you little on work motivation, other than 100 textbooks have the same copy of the answer. One can do the same on, say, opportunity costs asking for a routine formula to be found and applied to numbers in your question. One doesn’t mention only a quarter of already qualified economists remember how to do opportunity costing.
You are likely to arrive to teach in a university department already teaching this easy and fundamentally wrong dross from textbooks with a teacher copy with the questions and answers. To overturn this is practically very difficult, including kwality rules and your students’ insistence on spoon-feeding. The path of least resistance is very obvious and teaching of neo-feudal management and economics without even major criticisms is rife. “Excellence” is taught without letting students in on such facts it was shown self-contradictory within 6 months in killing critique. Worse, there are staff who don’t know and punish students who find out and silence very good students who already know it is carp. One of my better students broke into laughter reading O’Shaughnessy’s avowedly benign critique of Michael Porter as he realised one might as well burn Porter, who was creaming a couple of million off the UK government at the time.
My guess is our education system is broken across the board. Economics is clearly a religion and most can’t even see this despite and probably because of years of schooling. In backroom talk we teachers despair that our educational goals have been reduced to getting students able to read broadsheet business and economics pages. There is plenty of other material to teach, though one needs to guard against making this the new religion. I can set as many questions as rubbish as the motivation one from Critical Theory, Minsky and the rest (or on Enid Blyton). There has to be more than regurgitation that leaves a Harvard graduate less capable in reasoning than a street-kid (Labov 1966). I meant to stop here, but will just add there is a moral dilemma for the teacher in not disequipping students for incomes by teaching heresy.
There has been a series of very good, significant posts, made by our Blogger recently. There has also been some fantastic contributions, as the thread above illustrates, that leave me feeling that I (we) could just hang on to citizenship in this democracy. Just a quick note in response, after reading all the posts in the thread above from my (non academic/no skin in the game) perspective.
As it happens I ‘randomly’ use the ‘Labov’ example too. I give it as the counter in an argument/ model where a right wing, Tory Education minister attempts to ‘sell’ Berntstein’s ‘restricted’ ideas as a Government policy. It is a striking, easily understood example to develop the discussion of MacIntyre’s engagement with the Social Sciences in ‘After Virtue’. His point here is that theories in these disciplines always have to live with well known, counter examples (all having some empirical support within their domain, etc, AM gives an example from Criminology/Urban Geography).
My view, expressed to those folks unlikey enough to be sitting next to me on the train, is that I am concerned that if you look through say the Sociology 101 text book, MacIntyre’s ideal type holds. In the begrudging langangue of Economists, Sociology is ‘Heterodox’ through and through. However, going through the Economic 101 text books, you certainly have disputed problems etc, but the engagement/clash, between Theories (Political Economy, Methods, Data) is missing. Economics texts seems different. This is why the argument that Economists are in fact ‘theological’ ‘actors in modernity’ seems a very serious matter to me.
That the Social Sciences are not like Natural Science is common place of course, but it is this ‘managerial act’ that the Economics ‘text book’ itself is a ‘Natural Science Paradigm’ that is the central problem. It might be conjectured that after 1970 a core of Economists sat down with Kuhn’s ‘Structure of Scientific Revolutions’ and sought, not in good faith, to understand their practice. Rather they sat down with a ‘tick box’ mangerial ‘grid’ and went through the text: ah,ah – ‘trained practioners’, Yes-tick, ‘practioners decide ultimate problems’, Yes-tick, and so on through Kuhn’s book. But instead of seeing the limitations of what they were doing, concluded instead, yes on his ‘definition’, we are special, very nearly Physics too!
So I agree with the sentiment expressed above, if Economists in the Academy cannot change their ways over Econ 101, and who it is actually for in a Democracy, then (with the support of the scientists and engineers) the History, Geography, Sociology, Psychology and Theology departments need to reabsorb the rump of ‘Mainstream’ economists back to where their came from. This ‘reabsorbing’ would put an end to fake economic progress and the Jesuit order built around it. Ministers and citizens would also have to do some hard thinking, of course, and account for the economic perspectives they adopt. Most of all, anybody chanting economic TINA (because the textbook says so) could then be certain that the will be told to go F**k themselves by the citizens
ps
I know, I know, sending them back down from where they came, has a certain theological tone too 🙂
You realise most decent economists do not, already, work in economics departments, I presume?
Once you understand that the introduction of money was a double-edged sword promoting great efficiency benefits as well as money-bullying it becomes possible to understand that the search for balancing methods has to be a priority for the human race, not least because if we don’t we’ll render our planet uninhabitable and no amount of wealth or poverty matters any longer.
I think you’re running up against the generational thing. New theories have to wait for the previous generation, who are in positions of power, to die off before they’re accepted.