The true state of affairs is almost opposite of what Friedman makes it out to be when he ventures the opinion that “different predictions about the importance of so-called ‘economies of scale’ account very largely for divergent views about the desirability or necessity of detailed government regulation of industry and even of socialism rather than private enterprises.”
Was there ever an economist who came to believe in either socialism or capitalism because of compelling empirical evidence about economies of scale? For that matter, it is probably not economic arguments at all that turn economists into planners or free marketeers …The fundamental link between economic freedom and political freedom, however, is rarely discussed, possibly because mainstream economists are embarrassed to admit that what really lies behind their preference for private over public ownership of industry is a definite piece of reasoning in political theory.
According to Chicago economist George Stigler, studying economics naturally ‘makes one politically conservative.’ And the post-2007 world we live in today surely bears witness of how unjustified is the Panglossian conservative-libertarian myth of the free market.
Once the dust has settled, there is a strong case for an inquiry into whether the teaching of economics has been captured by a small but dangerous sect.
The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes … I believe that there is social and psychological justification for significant inequalities of income and wealth, but not for such large disparities as exist to-day.
John Maynard Keynes wrote this in General Theory (1936).
Four decades later the Iron Lady appeared in the Parliament with this gobsmacking attempt at explaining away the problem:
It’s hardly surprising that Pinochet-lovers like Margaret Thatcher and other neoliberals of the same ilk had this rather debonair attitude on rising inequality. But how about economists?
Economists are not rewarded for studying the economy. That is why almost everyone in the profession missed the $8 trillion housing bubble, the collapse of which stands to cost the country more than $7 trillion in lost output according to the Congressional Budget Office (that comes to around $60,000 per household).
Few if any economists lost their 6-figure paychecks for this disastrous mistake. But most economists are not paid for knowing about the economy. They are paid for telling stories that justify giving more money to rich people. Hence we can look forward to many more people telling us that all the money going to the rich was just the natural workings of the economy. When it comes to all the government rules and regulations that shifted income upward, they just don’t know what you’re talking about.
In case you’re in doubt, you might better have a look at e. g. what Harvard economist and George Bush advisor Greg Mankiw writes on the rising inequality we have seen for the last 30 years in both the US and elsewhere in Western societies:
Even if the income gains are in the top 1 percent, why does that imply that the right story is not about education? …
It may be better to think of the return to education as stochastic. Education not only increases the average income a person will earn, but it also changes the entire distribution of possible life outcomes. It does not guarantee that a person will end up in the top 1 percent, but it increases the likelihood. I have not seen any data on this, but I am willing to bet that the top 1 percent are more educated than the average American …
The rising inequality that has been going on in our societies since the Reagan-Thatcher era is outrageous. Income and wealth has increasingly been concentrated in the hands of a very small and privileged elite. And a society where we allow the inequality of incomes and wealth to increase without bounds, sooner or later implodes. The cement that keeps us together erodes and in the end we are only left with people dipped in Reagan-Thatcher libertarian egoism and greed.
Now, more than ever, is it high time to reawaken Keynes’s dream of a more egalitarian society and once and for all put an end to the neoliberal counterrevolution!
Heiner Flassbeck and Costas Lapavitsas spell out their version of what is roughly the neoclassical textbook model of a currency union. Their main point is that there would not have been large unsustainable current account imbalances within the Eurozone, and consequently no sovereign debt crisis in the deficit countries, if all member states had kept their nominal wage growth equal to labor productivity growth plus 2% (the inflation target). Professor Wren-Lewis (2016) has been making the same point …
All this talk about labor-cost competitiveness diverts attention away from the real problem of the Eurozone: the common currency and monetary unification have led to a centrifugal process of structural divergence in terms of structures of production, employment and trade … This centrifugal process has been fueled and strengthened not just by the surge in cross-border capital flows following the introduction of the euro, but also by the common currency itself as well as by the centralized and uniform interest rate policy of the ECB which up to 2008 was perhaps appropriate for stagnant and low-inflation Germany, but was undeniably out-of-sync with inflation levels in Southern Europe … Cheap credit in the South created unsustainable asset bubbles and facilitated untenable debt accumulation which fed into higher growth, lower unemployment and higher wages—but (totally in line with market rates of return) all concentrated in the non-dynamic and often non-tradable sectors of their economies. German wage moderation mattered a lot, not through its supposed impact on cost competitiveness, but via its negative impacts on (wage-led) German growth and inflation, which in turn prompted the ECB to lower the interest rate in the first place.
The consequent crisis of the Eurozone is a deep crisis of inadequate aggregate demand in the short run and unmanageable structural divergence between major member states in the long run. Hence, the real questions are: how to bring about structural convergence between member countries of a common currency area (so far lacking any meaningful supranational fiscal policy mechanisms) in terms of productive structures, productivity levels, and ultimately incomes and long-term living conditions? What is the appropriate interest rate for the structurally divergent “core” and “periphery” if it has to be one-size-fits-all? And how can banks, the financial sector, and capital flows be made to contribute to a process of convergence (rather than divergence)? There are no simple answers and it is easy to yield to sheer “pessimism of the intellect.” But unless progressive economists source the “optimism of the will” and start seriously addressing the real issues, rather than rehashing myths about unit-labor cost competitiveness, the future of the Eurozone looks very bleak indeed.
BBC report on the need for rethinking economics and the way we teach it.
You enquire whether or not Walras was supposing that exchanges actually take place at the prices originally proposed when the prices are not equilibrium prices. The footnote which you quote convinces me that he assuredly supposed that they did not take place except at the equilibrium prices … All the same, I shall hope to convince you some day that Walras’ theory and all the others along those lines are little better than nonsense!
Letter from J. M. Keynes to N. Georgescu-Roegen, December 9, 1934
Den antiintellektuella avgrunden är nära när den postmoderna sanningsrelativismen infekterar det offentliga samtalet på alla nivåer, inklusive den akademiska världen.
I Sverige tycks den pedagogiska disciplinen vara värst smittad. En docent i pedagogik fick för några år sedan Skolverkets uppgift att skriva en rapport om fysikundervisningen i den svenska skolan, samt komma med förslag på hur den skulle attrahera fler flickor.
”Föreställningen om det vetenskapliga tänkandets självklara överhöghet rimmar illa med jämställdhets- och demokratiidealen. […] Vissa sätt att tänka och resonera premieras mera än andra i naturvetenskapliga sammanhang. […] Om man inte uppmärksammar detta riskerar man att göra missvisande bedömningar. Till exempel genom att oreflekterat utgå från att ett vetenskapligt tänkande är mer rationellt och därför borde ersätta ett vardagstänkande” …
Pedagogen skriver vidare i rapporten: ”En genusmedveten och genuskänslig fysik förutsätter en relationell infallsvinkel på fysiken samt att en hel del av det traditionella vetenskapliga kunskapsinnehållet i fysiken plockas bort.”
Det vetenskapliga kunskapsinnehållet i fysiken ska alltså ”plockas bort” för att ”underlätta” för flickor. Inte nog med att detta är en förfärlig kunskapssyn, det är dessutom kränkande att betrakta flickor som oförmögna eller sämre på att ta till sig kunskap i fysik.
Författaren till rapporten heter Moira von Wright och är numera professor i pedagogik och rektor för Södertörns högskola. När nu en sådan kunskapsteoretisk grundsyn slagit rot i våra högre lärosäten har vi ett problem …
Efter att ha läst artikeln “En pedagogisk relation mellan människa och häst. På väg mot en pedagogisk filosofisk utforskning av mellanrummet” i Pedagogisk Forskning i Sverige är man dock föga förvånad över sakernas tillstånd inom svensk pedagogisk “vetenskap”:
Med en posthumanistisk ansats belyser och reflekterar jag över hur både människa och häst överskrider sina varanden och hur det öppnar upp ett mellanrum med dimensioner av subjektivitet, kroppslighet och ömsesidighet.
- Dumb and dumber in modern macroeconomics
- Why Paul Krugman is no real Keynesian
- Dani Rodrik’s blind spot
- Robert Lucas, rational expectations, and the understanding of business cycles
- The blatant absence of empirical fit of macroeconomic models
- Non-ergodic economics, expected utility and the Kelly criterion
- Greg Mankiw makes a fool of himself — again
- Is macroeconomics for real?
- Please say after me – Sonnenschein-Mantel-Debreu
- James Heckman — the ultimate take down of teflon-coated defenders of rational expectations
The so-called new-Keynesian (or NK) model, has emerged and become a workhorse for policy and welfare analysis … The model starts from the RBC model without capital, and, in its basic incarnation, adds only two imperfections. It introduces monopolistic competition in the goods market. The reason is clear: If the economy is going to have price setters, they better have some monopoly power. It then introduces discrete nominal price setting, using a formulation introduced by Calvo, and which turns out to be the most analytically convenient.
The model is simple, analytically convenient, and has largely replaced the IS-LM model as the basic model of fluctuations in graduate courses (although not yet in undergraduate textbooks). Like the IS-LM model, it reduces a complex reality to a few simple equations. Unlike the IS-LM model, it is formally rather than informally derived from optimization by firms and consumers … The costs are that, while tractable, the first two equations of the model are patently false … The aggregate demand equation ignores the existence of investment, and relies on an intertemporal substitution effect in response to the interest rate, which is hard to detect in the data on consumers. The inflation equation implies a purely forward looking behavior of inflation, which again appears strongly at odds with the data …
One striking (and unpleasant) characteristic of the basic New Keynesian model is that there is no unemployment! Movements take place along a labor supply curve, either at the intensive margin (with workers varying hours) or at the extensive margin (with workers deciding whether or not to participate). One has a sense, however, that this may give a misleading description of fluctuations, in positive terms, and, even more so, in normative terms: The welfare cost of fluctuations is often thought to fall disproportionately on the unemployed.