During a day when I spent rather more time in bed and even asleep, feeling ill, than I did paying much attention to anything to do with economics, I much enjoyed this quote in the latest edition of Stephanie Kelton's Substack column, called 'The Lens', where she was addressing the folly of seeking inflation at a fixed percentage rate:
Meanwhile, Fed officials are searching for the elusive—and I'd say ridiculous—r*, which is supposed to be the long-run “neutral” rate of interest. The notion that there is an invisible and unknowable interest rate that neither juices nor dampens economic activity is the kind of thing that only passes the laugh test in the world of theoclassical economics (a wonderful term coined by my former colleague, William K. Black). Yet mainstream economists embrace concepts like this with religious fervor.
Two things stood out.
First is how right Stephanie is to make this observation: there is, glaringly obviously, no such thing as r*, the existence of which is only known in a neoclassical economics textbook.
The second was the use of the term 'theoclassical', which so accurately describes the fervent belief of the neoclassical economist and their enslaved political acolytes in something that does also not exist.
I suspect I have already related here the story of a former member of the Anglican clergy who I knew well for a while, who had done a PhD on the theological dimensions of the privatisation of the electricity and gas companies, much of which drew on Papal teachings on social justice, as I recall. His observation to me was that when he first began to study neoclassical economics, he felt an enormous sense of relief. For years, he had been asked to defend things that many people thought utterly unbelievable, like the virgin birth. Now, he had discovered a group in society who commanded respect but who nonetheless believed in things vastly more difficult to justify. Theoclassical belief explains that.
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Yes, economics as a belief system.
How does the joke go, an economist is part of a group of stranded people. They have food but it is in tins and they dont have a tin opener.
No problem says the economist, just imagine a tin opener………….
The old ones are the best….
Or the economist saying ‘thats fine in practice, but it would never work in theory’
Why does this continue? People no longer believe in a flat earth, evolution is no longer challenged, plate tectonics is readily accepted. When will we see the moment that the conventional wisdom in economics is debunked?
I wish I knew.
It suits the purposes of powerful people
Yup, it (economics) exists because “suits the purposes of powerful people” – which makes our protest-ant economists all the more exalted and enlightened to some.
The neoliberal article of faith, “There Is No Alternative” is wonderfully deconstructed/re-engineered every day here by Richard to show the lies, omissions and inconsistencies that the elites’ hegemony is built on.
Congratulations Professor Murphy, and well done Sheffield University. May your truth become clearer and brighter to more people every day!
Thanks
Pretty obvious, after decades of propaganda most voters have have swallowed the Kool Aid of the bankers and the rich.
https://grammarist.com/usage/drink-the-kool-aid/
I would go further and say that most people don’t even understand consciousness in the sense that they don’t have the freedom not to choose other than committing suicide. In other words all life is cybernetic and must steer its way and that entails constantly balancing between collective and individual decision making. Messaging in various forms is used by organisms to do this balancing. Human beings use money as one form of messaging. We don’t have a word for this need for balancing or to describe if it’s taking place or not happening.
https://www.youtube.com/watch?v=yJpi8SnFXHs
https://www.bbc.co.uk/sounds/play/p02042rf
http://ankara.lti.cs.cmu.edu/11780/sites/default/files/BacterialLinguisticsandSocialIntelligence.pdf
The Democratic establishment has been unveiled to us as the delusional cult of money it always has been—a conclave of mad prophets exhorting us to seek no further for the kingdom of God than the steps of any stock exchange in the world.
Meanwhile, the Labour Party, Tories and Lib Dems have all been unmasked as ferocious neoliberal death cults of the same, willing to burn countless hecatombs of poor and elderly people in blood rites to satiate their pecuniary wicker man.
Whatever happened to the “Mile End” economists crusade you got all excited about? You Steve Keen, Danny Blanchflower and special guests were going to opinionate in halls up and down the country. It seems to have gone very quiet?
I always said nothing would happen this year
And, in fairness, it turned out Steve and I – much as we agree with each other on fundamentals – had different ideas on what such meetings should be about.
Let’s see what 2025 brings though.
How about theoelectricity dogma, led by the Labour and Conservative priesthood? The regulator is now peddling a specious piece of humbug that fiddling with the method of applying electricity standing charges is of significant help to hard pressed consumers; pretending it is helping people out. It isn’t. It is minor shuffling of timing, when what we need is fundamental reform of the energy market by a spineless government – and with a new regulator, with responsibility first to the consumer (the point of regulation is to ensure the energy provider obeys the rules – it isn’t there to bail out bad management). The Labour government keeps talking about change, but is so tied to changing nothing, it is not even attempting to reform the Byzantine anachronism of the domestic electricity pricing mechanisms. It is a rip-off that allows monopoly network providers to make big profits by exploiting consumers; supported by the Government’s religious belief in the culture of the rip-off.
This has to change.
Agreed
Mr Warren, I gave a presentation to a group of people in a village near Hull the other night. The standing charge of 68pence/day (national ave 60 pence) was of great interest to them since it accounted for perhaps one third of their elec bill.
Earlier this year i was speaking to a former Ofgem chief economist – we +/- agreed that elec market reform requires a market split renewable+nukes+hydro in one segment (fixed elec price and priority dispatch), fossil mob in marginal marketr . Sadly this is unlikely to happen given the influence of market traders (volatility makes money) and elec market economists who when meeting always recite together the Eleccy Market Creed: “Our market which art in heaven etc”
Mr Parr, we need you to be speaking directly to the Secretary of State for Energy Security and Net Zero, Ed Milliband MP: in public, on camera and eye-to-eye. He is too weak a vessel actually to do anything, but it would worry the professional energy chancers, and hopefully make the public angry at the systematic hypocrisy in the market, and the inertia of government and regulator; as they should be – very, very angry. The domestic energy market arrangements are simply unacceptable.
I feel a little better merely thinking about it.
That would be fun
I do wonder whether the ‘Net Zero’ in the job title is supposed to refer to what the incumbent is expected to achieve; a word to the wise, if you will.
A PS to my comment: talking to the owenr of a hotel/pub in the Hull area (network operator Northern Power – owner – Warren Buffet). Apparently the rule is: loss of power for more than 4 hours – compo. The owner of the establishment noted that, almost inevitably, power pops back on just as the 4 hour point is approached. UK DNO = profit maximising monopolies that are out of control & mostly owned by foreign interests. I have said it once & I will say it again – the control and data collection function in all the DNOs, could be re-nationalised for peanuts – which would move decision making back to the gov.
Thanks
No more nukes in Scotland please
One of the things I try and avoid in my work is what I call “The Risks of Forecasting.” As creatures, we use ‘futurity’ all the time. This describes basing what we think might happen next on what has happened in the past. This is pointless. Some of the worst ‘advice’ I see from new enquirers is based on “cash flow modelling” or “stochastic modelling” software programmes that chuck out loads of pretty graphs and charts. I meet IFA’s who use these things with a near-religious belief. When I point out that it’s all boll***s, they get rather cross with me! They can never defend their whizzy programmes properly though.
As a simple example, £billions are ‘wasted’ in fees by being held in “actively managed” investment funds, where we delegate forecasting to someone else. On average each year, around 70% of actively managed funds fail to meet their own benchmark and around 30% ‘outperform’. The problem is, we don’t know which funds will be in the 30% next week, let alone in 5 year’s time.
It’s much cheaper just to admit defeat and buy the benchmark. A FTSE All-World Index Fund can cost as little as 0.07% a year in fees, compared to 1% or more for an actively managed global equity fund.
I like the old ‘rule of thumb’ – which seems intuitively about right to me – of taking the number 100 and then deduct your current age to work out, roughly your ‘equity/bond’ asset allocation. So, someone aged 60, for instance, would be well-served with about 40% of their long-term, roller-coaster, ‘investment account’ in equities and 60% in bonds. This is not advice and everyone is different, but it’s a good starting point!
Spot on
Exactly right
“stochastic modelling” – that is an oxymoron.
Monte Carlo simulation?
Dr. Tim Morgan is always worth reading. His latest piece, published this morning, is excellent (and likely quite right in my view). https://surplusenergyeconomics.wordpress.com/2024/12/12/295-beans-on-tech/
Hearty congratulations, (Emeritus) Professor Murphy!
Thanks. It’s a weird feeling, having what feels like a job for life.
When I took early retirement and got shuffled into the Professor Emeritus category, I told my friends it was really a Life Research Fellowship on a slightly lower salary. 🙂
🙂
I volunteered to go, after retirement age.
Since then Sheffield has started a voluntary redundancy programme. I was offered the chance to mauve a claim, and declined it, having already made clear I wanted to move on.
r* is a platonic interest rate. It is an abstract object that does not exist.
When I work in a shop and see a price on the shelf, the number concretely reflects the price of the good next to it. The price on the shelf tells me nothing of the future.
Theoclassical economics is a good name for what is in reality a cult which provides “intellectual” cover for neo-liberalism. And it’s clear that even now no UK political party (certainly not Labour) is questioning that malign orthodoxy which has ruled the roost for almost 50 years. However, the growing revolt against free-trade dogma gives me hope.
This week Von Der Leyen has enraged the French and other EU members by signing the Mercusor trade agreement with several South American countries. This is good news for German manufacturers but very bad news for EU farmers. It needs to be ratified by QMV and there will be a major battle over this in 2025. If it fails to get ratified it will be the first major setback for neoliberal dogma in the EU. Here’s hoping.
Congratulations on the appointment, Richard. Your energy, integrity and knowledge bring so many good minds to contribute to these columns.
Thanks, Roger