I posted this video on YouTube this morning:
This is the transcript:
I've been reading a quite interesting book. This is it - The Trading Game - by Gary Stevenson. Gary produces a YouTube channel of his own called Gary's economics. He's quite well known for that. And this book is about his life as a trader in the City of London, which made him a multimillionaire at a very young age.
There's some discussions in the book, which I think really quite important I just want to read one of those insights to you. What he says is “The key takeaway here is that economists nowadays are ultimately mathematicians, not great thinkers or game players.”
And that's absolutely and completely true. That is what they are. The whole of modern economics is all about doing maths. And I often tell young people this when they're thinking of going to university to study economics. So I say, do you want to to spend three years doing, well, not just maths, but some pretty lousy maths that doesn't answer any known question that society has ever asked of, well, anyone, let alone an economist.
Because what economists do is actually presume that there is a perfect world: we all know everything. Obviously, we don't, of course, but I don't kid you, that's what they assume.
They also assume that there is free competition between companies on the basis of this perfect knowledge, which also means they assume that we all have equal access to capital. In other words, basically, we can all get hold of the same amount of money so that we can start trading.
Obviously, that's true, isn't it, based upon your own experience? There's no inequality in the world, and they assume that anyone can enter any market at any time, and it goes on and on and on, a whole series of assumptions, as a result of which they can produce maths that says markets are the ultimate answer to every question that they pose.
Markets are always the answer. And it's all because they want to prove that mathematically that they make all these absurd assumptions.
Now, I know they do some twists on their model, which then try to allow for the fact that not all these assumptions are true, but what they call those are ‘imperfections'.
In other words, they still think there is a perfect world that they're aiming for.
And the serious part of all this that I want to explain is that actually, deep down, they really believe that there should be a perfect world where their maths works. And they translate that into their policy recommendations.
And so, when they look at the NHS, they say ‘privatise it, bring in more competition'.
Hence all the trusts that we have.
Hence Wes Streeting saying that we must bring in private competitors within the NHS to undertake operations and everything else.
Hence why they say education must be run on the basis of trusts and there must be some form of competition.
Hence the fact that they tell every politician to offer choice and freedom to decide what you want when it comes to things like education, education, and so much else.
Hence all the time why they tell politicians “you don't know the answers, because government is inefficient compared to markets because our maths says so”.
Their maths doesn't say that. Their maths does says nothing like that at all. It just says that because they've rigged their maths to make sure that is the answer that they get.
The truth is they assume that you are what, jokingly, many of us non-mathematical economists call Homo Economicus - a wholly rational person who only deals in maths to make the decisions that you are faced with in life.
Is that true of you? No, of course, it isn't.
Is that true of anybody else? No, of course, it isn't. Unless you pretend you're an economist, that is, and they don't follow their own prescriptions. I promise you.
So the reality is, we get a totally distorted view of the world from economists, and totally distorted policy recommendations based upon their assumption that markets work best and not because they've ever proved that is the case.
And all of that is because they're desperate to be mathematicians, not very good mathematicians, but mathematicians nonetheless. And that has utterly messed up our society, our economy, and the way we look at the world. Which is why we end up with things like climate change, which they could never build into their models.
It's time to move on. This form of economics is a threat to us all.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
This does sound to me like an argument for limited government. Beyond core functions, how could government possibly work out if their interventions are good for us, people are complicated and cannot be treated like curves on graphs. You only have to look at the varied claims about higher taxes on non-doms, or minimum unit pricing or banning part-time train drivers. How could anyone work out if these things are helpful. But we’ve got to try something they say.
There is one thing genuine economists are united on: rent controls. And you don’t need much mathematics for that, you can just look at the places it has been tried.
Interesting guy that Gary Stevenson, thank you for sharing
I really don’t see your problem.
I can work out that caring makes life better without needing a formula to prove it. Can’t you?
And don’t believe anyone uses data to make a decision. They use data to justify their decision.
Well here’s one influential environmentalist who explains that “caring” whether for self, others, or both is embedded in life itself:-
https://api.mountainscholar.org/server/api/core/bitstreams/c08c4ee8-632e-4735-8239-4ac0c73d270b/content
Go figure Leif Davis!
That’s it, in a nutshell.
“how could government possibly work out if their interventions are good for us, people are complicated and cannot be treated like curves on graphs.”
By the same token, how can the Austrians and Chicago Boys, those economists asserting laissez faire, and the utopian primacy of supply and demand curves, be so certain that government is bad for us ?
“argument for limited government”
Reductio ad absurdum: or an argument for total government, totalitarianism.
My take on Homo Econimus is that the model can only work when everyone has the means to purchase any needed good in the marketplace. “Freedom to sell” has to be balanced with the “freedom to purchase”.
Inequality of income and wealth restricts the freedom of the would-be purchaser to actually buy. When the good sought is a necessity to living *and thriving* in the consumer’s society, then the government is the only entity capable of affording its purchase and its distribution equitably.
[I take note of the Joseph Rowntree Foundation’s research on relative poverty. A smartphone, a computing device, access to transport, sports facilities, public libraries, green space… are not *vital*, but the lack of them prohibits full participation in society.]
I very much agree with your last para
I think a smartphone is now required by people – befaise access to the givernment is denied without it
You’re right to include smartphone and internet connection in necessities for decent (even basic) life: I assist with Foodbank collections ; but friends on the other side, serving clients, report cases of people being sanctioned and losing benefits due to failing to turn up for some meeting or not responding to some message… because their smartphone has died or they’ve simply run out of credit on the SIM. Another case of the odious and cruel ‘hostile environment’ – on our own people.
Agreed
Richard, As the Americans say, you and Gary are in my wheelhouse…..but we know from comparative academic research performance, they are also among the most incapable users of statistics.
Apparently, Gary is not an adherent of MMT.
He might be worth interviewing.
I agree…
Neo-Liberal economics and the world it justifies has much in common with the story of the Emperor’s new clothes.
Unlike the Disneyfied Danny Kaye version that some of us will know from childhood, the story does not end with the satisfying triumph of reason triggered by the little boy laughing at the Emperor’s nakedness.
Instead, it tells us what the rich and the powerful really do in such circumstances.
They pretend nothing has happened and carry on as usual.
Surely part of the problem is that most economists work for banks and financial institutions, and these organisations pay well to perpetuate the wonderful nature of banks and financial institutions. Other economists work for the so called think tanks paid for by the rich to recommend actions that keep those rich sponsors, rich or will make them richer. A few economists see the bigger picture and have a proper world view.
With respect to the mathematical nature of economics I remember a definition of an economist as someone who see something working in practice and asks “but does it work in theory?”
Gary Stevenson is very good on this; he points out that, whatever you think of economists (and he, too, slates the absurd dependence on formula & maths) the best ones work for banks and are contractually forbidden from talking about their work. See his recent discussion with James O’Brien of LBC on YouTube for (much) more detail.
The founders of the LSE realised that economics was the study of humanity, something that to their disgtrace modern economists have forgotten.
They rather remind me of an answer I got from an IT professional about Regans ‘Star Wars’ plan that it was designed by someone who didnt understand people, and that in my view is where modern economics is at.
One thinker who did influence things through having the ‘right’ followers was Hayek.
The Right wing -following Hayek with his book the Road to Serfdom-make a big deal about ‘freedom’.
It was written shortly after world war two and, not unreasonably, was about an alternative to Fascism and Communism.
Mrs Thatcher told her civil servants, I am told, to read the book as Reagan was following Friedman across the Atlantic.
Hayek was on friendly terms with Keynes but their analysis was different. Hayek’s approach is now the orthodoxy.
But taking off many of the regulations allowed power to concentrate in fewer and richer hands and has effectively reduced the power of the many for the sake of the few. They make decisions which benefit them (ignoring climate change perhaps?) and don’t make the decisions that need to be made e.g. allowing wages to rise or providing affordable housing.
Economics cannot exist as a technical operation alone. It needs to be part of a wider philosophy.
As Judt noted in Ill fares the Land, Hayek in “the Road to Smurfdom” committed a category error by basing his theory (less gov control reduces the chance of fasicism) on events in Austria in the 1930s – he assumed the events could be extended/reproduced in the Uk etc. This is garbage of a very high order. Hayek and Keynes had various newspaper exchanges – & Smurfdom was partly a response to the Beveridge report – who was a Liberal in the classic mould (= less government) but even he could see that stuff needed to be done. Hayek counldn’t or wouldn’t see, probably the latter cos seeing would have stuffed his daft theories.
The stake in the heart of the neo-liberalism pushed by Hayek and his fellow travellers is “Late Soviet Britain” (Innes). If Judt showed that Hayek made a basic error, Innes turns the edifice built on that error to a small pile of rubble.
The whole rabble of neo-lib economists have no useful ideas, live in a fantasy land with no connection to reality and have caused vast amounts of suffering to countries with governments stupid enough (Tory and LINO I & possibly II) to implement what these imbeciles came out with. They are, without exception, despicable people.
Thanks
I really must finish that book…
OK Mike I will have to get that book.
PS I sometimes say (probably done on this blog too) to people who berate Labour for not being ‘socialist’ enough , that Beveridge and Keynes were both Liberals and made a great contribution to post war society.
I am not convinced by this argument (Innes). I suspect it has conflated the fact that Neoliberalism and Leninism are bad ideas, with the idea that they are basically the same idea (in mirror image). Neat, but contingently doubtful.
Hayek’s ”The Road to Serfdom’ is frankly just a rank bad book. Ironically it tries to do something quite similar. It takes Fascism and Communism, and tries to argue that Fascism is Communism. It was Fascism that drove Hayek out of Vienna. The personal effect on him and his family was appalling; but the understandable trauma I can only suppose, seems to have led his writing far astray. He was originally a very acute intellectual historian, but became a thoroughly bad economic thinker.
Replying to Mr Warren.
The key point made by Innes is that both SovU and the NeoLibs had utopian visions wrt society – which could never be realised. Innes admits that she formed a hypothesis – & did not expect it to work out the way it did. I do not lack for books on economics, this is by far one of the best in terms of “why did it all go wrong”. It is a good read & I recommend it. The only slight omission is, after reducing the neo-lib “project” to rubble, it needs to outline a bit more what then follows. Some of it is obvious stuff (gov ownership & operation of obvisou monopolies) – but the UK needs something a la Beverdige – perhaps more wide ranging? that provides a way forward.
“In other words, basically, we can all get hold of the same amount of money so that we can start trading.”
It would appear this argument doesn’t hold for these economists because although as individuals, partnerships and limited liability companies all can get hold of money collectively we can’t get hold of money as a government to purchase the assets and resources we need. This is monstrous perverted idiocy!
Making Sense of Chaos: A Better Economics for a better World
J Doyne Farmer
Recently published.
Reviewed in New Scientist a few weeks ago. An interesting read.
I will look it out…
Strong recommendation for Doyne Farmer, Brian Arthur and the work of the Santa Fe Institute on complexity and economics. If economists are mathematicians, they are not very good ones and their maths is way out of date! See also Eric Beinhocker and his Origins of Wealth.
Steve Keen comments that these dynamic multi-agent models are huge and complex taking months to write and alter. By contrast by using relevant simplified assumptions and working from basic macro definitions and double entry accounting his system dynamics modeling tool Minsky can give similar indications with much less effort.
Minsky open source free download
https://sourceforge.net/projects/minsky/
Economists go wrong when they expect the world to be like their models (with all of the unrealistic simplifying assumptions that they make) rather then wanting their models to reflect the real world. As the saying goes, all models are wrong, but some are useful.
Many people accept the limitations of the orthodox (neo)classical (neo)liberal economic consensus. The likes of Ha-Joon Chang, Kate Raworth, Stephanie Kelton, Mariana Mazzucato, are having a significant influence on the next generation. The old ideas will wither away and die out with their adherents.
I seem to remember from the Economics that I was taught many years ago that there was always a proviso in the analysis that -‘all other things being equal’….
Great stuff Richard. I agree completely that today’s economics courses are too focused on maths (and a limited range of mathematical techniques at that). One of the good things about the Oxford PPE course back in my day (early 1990s) was that it wasn’t really like that. I think it’s got more mathematical in recent decades.
Gary Stevenson seems like a really interesting guy – I’d love to meet him.
We are in touch…
Is Gary Stevenson a “friend”, like Larry Elliott. Anne Pettifor and Caroline Lucas. Do you go down the pub with your “friends”?.
No Gary is not a friend
I never said he was
Do I see the others? Yes, regularly
And now, politely – stop asking stupid questions
‘Ceteris’ has never been ‘paribus’ in the history of Europe, probably the human race. The only equality has been built on cooperation, the curbing of the desire for advantage in face of the need for common survival.
That is very much Kropotkin’s argument of survival requiring co-operation and mutuality, as against the social Darwinists whose ‘red in tooth and claw’ thinking dominates the ‘greed is good’ mindset.
If we work together there is enough to go round.
If we don’t then climate change will prove to be a very harsh mistress.
Interestingly, and it is beyond me as to quite why this disagreement arises, Chantal Mouffe, in arguing for co-operative, collaborative and collective approaches, challenges Rawls’ liberalism as being exclusively individualist, hence apparently refuting the collective having a greater claim on human society. Yes, he rejects utilitarianism as being unjust, but I don’t read Rawls like that at all, but then I am not a Professor of Politics.
To me, this is a little bit too much ‘I say tomato, but you say tomato’
I do not read Rawls like that
A greek squiggle is a great way to hide an unrealistic or absurd assumption.
Yanis Varoufakis (originally a mathematician) spent years exposing what nonsense the “maths” in most economics papers are. He later said it was a complete waste of time – these guys don’t give a Σ.
Completely agree
Back in 1973/4 when I was a young child at boarding school I argued well into the night with a fellow dormer about just this. She was the child of a City trader with a stay at home mom from a settled wealthy leafy London suburb. He had had all of his children’s IQs tested by Mensa by age 12 and so she often boasted of her and her siblings all being technical geniuses. I was from a multiply fractured/remarried family with no fixed country or address. My various parents dysfunctionally threw money at rather than took time out from personal dramas to raise me. The gist of our disagreement was that I believed that society was created and sustained through the messy intents and actions of human beings. She would not budge from her belief that all societies were built purely by and for money-making. It ended with me in tears of frustration. As adults her and all her siblings, placed by her father, went on to successful careers and all became a very, very wealthy, save one. He committed suicide age 14 and I often wonder how much of his suffering came from his being the ‘artistic’ one, a more commonly used term now is ‘on the spectrum’. Individuals who are deemed neuro-divergent because they simply cannot conform to our present societies many brutal inhumane conventions.
I am still waiting for the unfolding disaster of her inherited ideology upon our earth and everyone’s lives upon it to be realised and acted against politically.
Don’t blame the maths Richard (I know you aren’t really – but it sometimes sounds that you are) – blame the neoclassicals for elevating one kind of ‘maths’ into an ‘economics’.
As many of the contributors here suggest, there are useful tools for formally representing how an economy works – as a complex networked interacting system with feedbacks, changes of state etc., evolving – but not ‘converging’ towards some idealised equilibrium.
These tools may well include some behavioural relationships which can be represented as ‘smooth’ equations – exponential growth rates etc.
There are ways of modelling and analysing internal contradictions in the system , such as the 2008 financial crash , and the growing dominance of global corporates in digital communications, AI, social networks global production and distribution of food and consumer goods etc.
The disasterous feedbacks of the austerity strategy since 2010 where cutting public services to boost the wider economy has had precisely the opposite effect – on the economy and on public services themselves. This can be modelled formally and analytically – as Richard has shown verbally and in flowcharts.
I
Maths has a role. I will never deny it. But it has to be used in a real world context.
http://ughitshim.blogspot.com/2011/08/neo-liberal-economics-new-astrology.html. Some years ago , reading a couple of chapters of an economics publication that had been linked in a Tax Research blog, I had the epiphany that mainstream modern economics is just like astrology, making carefully precise calculations according to arcane formulae that have no true link to the real world and thus no valid descriptive or predictive power. The link is my thoughts on the realisation at the time.
A senior clergyman I knew reckoned believing in neoclassical economics made believing in the virgin birth look easy