The Guardian has an article this morning, hidden deep within its website, about an economic study on thinking.
The amusing thing about this study is that it noted this:
“So much of what it means to be human is about what's going on in our head,” said Dr Joshua Tasoff, a senior author on the study. “The fact that we haven't really looked at that as economists is really quite extraordinary.”
In a couple of sentences, an explanation is offered as to why economics gets so much wrong. It has never bothered to look at real people and what they do or think. In a social science, that is quite an admission, and quite an omission.
And what did the study then do? It was mundane. It simply asked people to record what they were thinking about. Not why, or with what aim, just what. From that survey, it concluded there are four types of thinkers, reaching conclusions that I recall the likes of Cosmopoliatm discussing when I was quite young with girlfriends who read that august journal.
The reality is that economics has not thought about this, but philosophy has been doing so for thousands of years. However, because economists never think, let alone think outside their own silo, most have not noticed.
The word philosophy comes from the Ancient Greek word philosophia, meaning "love of wisdom," formed by combining philein (to love) and sophia (wisdom). It is, then, all about thinking, and almost all philosophers would agree there are three branches to that subject. They are:
- Ontology, which asks: What exists?
- Epistemology, which asks: How can we know what exists?
- Ethics, which asks: Given what exists and what we know, how should we act?
They might add:
- Logic, which asks: How should we reason from what we know?
Now, I know I am basing my opinion of this new economics study on a newspaper report, but I suspect that it went nowhere near these topics, and I am equally sure that there is good reason for that.
Most economists and politicians do not want to see the world through this framing. Why? They are frightened of what ontological thinking might do to them.
For example, if they asked what the money system really is, or, in other words, asked how money exists, they would realise that the economic system that we have is based on an ontological falsehood about what money is. But they will not do that.
Their whole identity is wrapped up in the falsehood they have spent their lives promoting. They are totally invested in the household analogy, the belief that money is an exogenous variable within the economy, and not an endogenous one that governments can control, and if they accepted the truth, the whole of their reality - as they perceive it - would collapse. They cannot change, because all their authority would fall apart if they did.
This is the reality that we face. We cannot win an argument with these people. They might even know they are wrong, but they are not going to admit it. The price of doing so is too high. Our only hope then is to work around them. How to do that is the question.
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Economics has something in common with theology. There are true believers and heretics who are a threat to the established order. And a priesthood to proclaim the ‘truth’. It has basic assumptions which are not testable to any extent. But it has elaborate abstract theories which take time to learn and can distance the professionals from the laity. There are beliefs which are defended emotionally and dissenters who are disparaged rather than debated.
There seem to be fewer opportunities for dressing up with economics, though.
I had a friend who was a senior cleric. He did a PhD on the theology of the privatisation of electricity and gas. He reckoned believing in the virgin birth much easier than believing neoclassical economics.
Any chance of getting hold of the PhD? It would be useful, given my comments on elec.
I have not tracked it. I’d search the named author….
Richard, Ian Stevenson, thank you very much it made me laugh about “the virgin birth much easier than believing neoclassical economics” and I don’t do that very much.
I do not think that a lot of people think about things. People make comments about something and you can see that they have not thought about or know enough about the subject to justify their view. Far too many people never seem to realise that they do not actually know about a subject so should refrain from making a comment! Very often “I don’t know” is the right answer!
We all of us ever know enough. But we can know enough to comment, as long as we allow for the possibility of changing our mind. That is epistemic humility. It is in short supply.
I read the Guardian piece, and tried reading the paper itself. After a few pages, I decided to go outside, and rip some pallets instead, for a rough carpentry project. Everyone in the cartoons seemed to be spilling something.
🙂
I read it too, and was tempted to leave a sarcastic comment, but decided to come here instead. Much better value!
I am not sure if I have not just crossed a low bar.
History is full of examples of how these people ‘who cannot be argued with’ have been dealt with. Sometimes it is bloody and other times it seems that the time was right and change took place. I prefer the latter option but it may take a while……………..
How? Well solving urgent problem xyz through xyz funding? How much faster could NHS waiting lists go down if X amount was spent etc. Otherwise it’s like playing in a sandpit when you’re really on a whole beach of the stuff. Incremental/snail’s progress rather than a responsive state. Poverty of ambition, miserable if you think there is scarce monetary resources in the macro sense.
“Our only hope then is to work around them. How to do that is the question.” That is the conclusion I have also reached.
At present it seems impossible to displace the household analogy because it seems such common sense. And that is why I have been saying that Burnham can, and should, continue to observe fiscal rules, idiotic as they are. At the moment we don’t need to create more money and therefore we don’t need to break the fiscal rules. What is needed is a properly progressive tax system (including equalising capital gains tax, dividend tax with income tax, combining income tax and NI (so that the idiotic non progressive nature is obvious), limiting pension tax relief to basic rate, making employers NI highly progressive etc). This will bring money into circulation, which is what is currently needed. These changes can be made on the basis of fairness and morality without trying to convince people that their fundamental understanding of economics is wrong. Of course fiscal rules do eventually have to go. But the economy can be greatly improved within them. If that is done people won’t care much that the fiscal rules are eventually ditched.
I am not sure I agree.
The fiscal rules are not just an accounting constraint. They shape policy choices from the outset. They become the reason why necessary investment is ruled out before the debate has even begun. Accepting them, even tactically, risks conceding the argument that government is financially constrained when it is not.
That said, I do agree that much could be achieved within the existing framework. A genuinely progressive tax system would reduce inequality, improve economic efficiency and make the tax system much fairer.
Equalising the taxation of earned and unearned income, reforming national insurance and restricting higher-rate pension tax relief would all make sense.
The case for those reforms can indeed be made on grounds of fairness.
But I would not say they are needed to “bring money into circulation”. Progressive taxation redistributes spending power; it does not create money. Government spending creates money. Tax changes who has command over the economy’s resources.
So I think there are two debates to be had simultaneously. One is about creating a fairer tax system. The other is about explaining why fiscal rules are unnecessary constraints on a currency-issuing government. I do not think we should postpone the second until the first has been won because the fiscal rules continue to distort political choices every day they remain in place.
I mostly agree.
I don’t think discussion on the fallacy of fiscal rules should be postponed. I agree it shapes the discussion in a wholly unhelpful way.
Progressive taxation only really deals with revenue expenditure. Capital expenditure could be dealt with by your suggestion of hypothecated public purpose gilts coupled to ISAs being restricted to them. Again this could be explained as a sensible reform not requiring and acceptance of true economics.
The reason I say that progressive taxation brings money into circulation is that it takes stagnant money, not circulating in the economy, hoarded by the wealthy, and makes it circulate. Although this doesn’t create money it acts in a similar fashion. It increases the overall velocity of money/fiscal multiplier and means the economy can grow. But, eventually, we would need to return to deficit spending.
I guess the point is what can we reasonable argue for, now, without having to change people’s naive belief in the household analogy.
Many thanks for this, and your many other posts.
Re Tim Kent’s post at 4:40pm,
There’s definitely an element of if you can’t beat ’em, join ’em in here. rather than alienate yourself from those in power by denigrating their beliefs, pretend you agree with them and then move within their rules, bending them gently but firmly as you head in the right direction. Gain their confidence while manipulating them to your own will. All is fair in love, war and politics.
PS. I’m not sure I’m devious enough to get away with doing this myself, but I’ll back anyone else who thinks they are.
“It is difficult to get a man to understand something when his salary depends upon his not understanding it.”
— Upton Sinclair, I, Candidate for Governor: And How I Got Licked
So true
Seems to me their epistemology and ontology is driven by arrogance, a belief in their own righteousness so no need to include and consult other disciplines which might ask them to identify their own cognitive bias and logical errors.
Meanwhile as they fiddle ‘Rome burns’.
It’s always interesting to ask people What is money? At first they will look at you like you are crazy for asking then they will give you all sorts of uses of money but not an actual definition. It is just something that exists and they never think about what it actually is.
I am working on a series of infographics on this series. I will not release them until I am happy with them all. I am not, as yet.
After years of seeing government ignore scientists (they didn’t understand what they were saying) and zoing everything economists told them to ( they didn’t understand them either) I am convinced another discipline needs the ear of policymakers.
Let us call it human provisioning for basic needs – the science and practice of, in a digitalized, centralized world, ensuring government management if essential assets and flows meet basic need in a signified way.
When facts are denied or even derided, there is no possibility of democracy in the true sense of the word. The good news is that this is nothing new, in fact it is almost as old as the hills. Inconvenient truths have been routinely buried down the ages, invariably by powerful people who stood to lose their power if the actual truth became widely accepted. I say good news because these people are invariably swept away by events that were happening because of a truth they denied.
The household analogy is not the truth and it cannot hold, much as denial of climate change cannot endure. How or when history will flip these untruths is difficult to say, except that both will surely happen in the next decade. That’s not a very long time and both upheavals are perceptible now to those watching them.
I hope you are right
That’s why I would never encourage a young person to study economics (or neoclassical economics which is what a- level and degree courses should actually be called), young people are far better off studying an engineering or science degree subject as these are based on empirical evidence, whereas economics is not!
Or art, theology or history and learn how to really appraise evidence.
This is for Mike (12.34) I think this is the theology of privatisation thesis Richard mentioned:
https://etheses.durham.ac.uk/id/eprint/5052/1/5052_2505.PDF
Not the one. Peter Sills wrote the on I am referring to.
I wish I’d come across this thesis 10 years ago. Thank you for alerting me to it.
Well it took almost 2000 years for universal acceptance that the earth was round but the Greeks had accepted it within 700 years. So I’m hoping with the Household Budget analogy that it won’t take as long and that we are more like the Greeks.
Me too