How Institutional Dysfunction Has Enabled Poor Economic Policy Thinking

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Yves here. It is pretty astonishing that a full ten years after the crisis, the G20 has decided that it might want to understand why the economics profession got it so wrong. This article focuses on the role of research and publication in reinforcing orthodoxy (although since the piece is meant for Very Serious People, it has to say so in a coded manner).

By Rob Johnson, Institute for New Economic Thinking President,
Senior Fellow and Director, Franklin and Eleanor Roosevelt Institute and Thomas Ferguson, Director of Research, Institute for New Economic Thinking. Originally published at the Institute for New Economic Thinking website

In a memo for the G20, INET calls for changes to the evaluation of economic research to ensure that economic theory—and policy—is more rigorous, innovative, and in service to society.

The findings in this memo, “Research Evaluation in Economic Theory and Policy: Identifying and Overcoming Institutional Dysfunctions,” will also be presented by INET at the G20 Berlin on Tuesday, May 29.

The problem this essay addresses can be framed in terms of two quotations from Alexis de Tocqueville. The first comes from his famous speech in the French Chamber of Deputies just prior to the outbreak of the Revolution of 1848: “We are sleeping on a volcano….do you not see that the earth is beginning to tremble. The wind of revolt rises; the tempest is on the horizon.” The second is from Democracy in America: “When the past no longer illuminates the future, the spirit walks in darkness.”

In 2018, the darkness is all too palpable: A chain of economic reverses that no prominent economists, central bankers, or policymakers anticipated has combined with other shocks from technology, wars, and migrations to produce the political equivalent of the perfect storm. The world financial meltdown of 2008 set the cyclone spinning. As citizens watched helplessly while their livelihoods, savings, and hopes shriveled, states and central banks stepped in to rescue the big financial institutions most responsible for the disaster. But recovery for average citizens arrived only slowly and in some places barely at all, despite a wide variety of policy experiments, especially from central banks.

The cycle of austerity and policy failure has now reached a critical point. Dramatic changes in public opinion and voting behavior are battering long entrenched political parties in many countries. In many of the world’s richest countries, more and more citizens are losing faith in the very ideas of science, expertise, and dispassionate judgment – even in medicine, as witness the battles over vaccines in Italy, the US, and elsewhere. The failure of widely heralded predictions of immediate economic disaster when the UK voted to leave the European Union and Donald Trump became President of the United States has only fanned the skepticism.

Placing entire responsibility for this set of plagues on bad economic theory or deficient policy evaluation does not make sense. Power politics, contending interests, ideologies, and other influences all shaped events. But from the earliest days of the financial collapse, reflective economists and policymakers nourished some of the same suspicions as the general public. Like the Queen of England, they asked plaintively, “Why did no one see it coming?”

Answers were not long in arriving. Critics, including more than a few Nobel laureates in economics, pointed to a series of propositions and attitudes that had crystallized in economic theory in the years before the crisis hit.Economists had closed ranks as though in a phalanx, but the crisis showed how fragile these tenets were. They included:

  1. A resolute unwillingness to recognize that fundamental uncertainty shadows economic life in the real world.
  2. Neglect of the roles played by money, credit, and financial systems in actual economies and the inherent potential for instability they create.
  3. A fixation on economic models emphasizing full or nearly complete information and tendencies for economies either to be always in equilibrium or heading there, not just in the present but far into the indefinite future.
  4. A focus on supply as the key to economic growth and, increasingly after 1980, denials that economies could even in theory suffer from a deficiency of aggregate demand.
  5. Supreme confidence in the price system as the critical ordering device in economies and the conviction that getting governments and artificial barriers to their working out of the way was the royal road to economic success both domestically and internationally.

Initially, debates over this interlocking system of beliefs mostly sparked arguments about the usefulness of particular tools and analytical simplifications that embodied the conventional wisdom: Dynamic stochastic general equilibrium models; notions of a “representative agent” in macroeconomics and the long run neutrality of money; icy silence about interactions between monetary rates of interest and ruling rates of profit, or the failure of labor markets to clear.

Increasingly, however, skeptics wondered if the real problems with economics did not run deeper than that. They began to ask if something was not radically wrong with the structure of the discipline itself that conduced to the maintenance of a narrow belief system by imposing orthodoxies and throwing up barriers to better arguments and dissenting evidence.

The empirical evidence now seems conclusive: Yes.

“Top 5” Dominance for Promotion and Tenure

Studies by James Heckman demonstrate the critical gatekeeping role of five so-called “top journals” in recruitment and promotions within economics as a field.Four of the journals – the American Economic Review, the Journal of Political Economy, the Quarterly Journal of Economics, and the Review of Economic Studies– are Anglo-American centered and published in the US or the UK as is the fifth, Econometrica, though it is sponsored by the Econometric Society, which has long involved scholars from Scandinavia and other countries.

Heckman’s research shows that the number of Top 5 (T5) articles published by candidates plays a crucial role in the evaluation of candidates for promotion and tenure. This is true not only in leading departments but more generally in the field, though the influence of the count weakens in lower ranked institutions.

The Great Disjunction

Heckman compares citations in Top 5 journals with articles frequently cited by leading specialists in various fields and with publication histories of Nobel laureates and winners of the Clark Medal. He is crystal clear that many important articles appear in non-T5 journals – a finding supported by other studies.This evidence, he argues, highlights a “fundamental contradiction” within the whole field: “Specialists who themselves publish primarily in field journals defer to generalist journals to screen quality of their colleagues in specialty fields.”

Citations as Pernicious Measures of Quality in Economics

Heckman draws attention to the increase in the number of economists over time and the relative stability of the T5. He argues that his findings imply that the discipline’s “reluctance to distribute gatekeeping responsibility to high quality non-T5 Journals is inefficient in the face of increasing growth of numbers of people in the profession and the stagnant number of T5 publications.”

Other scholars who have scrutinized what citations actually measure underscore this conclusion. Like Heckman, they know that citation indices originated from efforts by libraries to decide what journals to buy. They agree that transforming “journalimpact factors” into measures of the quality of individual articlesis a grotesque mistake, if only because of quality variation within journals and overlaps in average quality among them. Counts of journal articles also typically miss or undercount books and monographs, with likely serious effects on both individual promotion cases and overall publication trends in the discipline. As Heckman observes, the notion that books are not important vehicles for communication in economics is seriously mistaken.

Analytical efforts to explain who gets cited and why are especially thought provoking. All serious studies converge on the conclusion that raw counts can hardly be taken at face value.They distort because they are hopelessly affected by the size of fields (articles in bigger fields get more citations) and bounced around by self-citations, varying numbers of co-authors, “halo effects” leading to over-citation of well-known scholars, and simple failures to distinguish between approving and critical references, etc. One inventory of such problems, not surprisingly by accounting professors, tabulates more than thirty such flaws.

But cleaning up raw counts only scratches the surface. Heckman’s study raised pointed questions about editorial control at top journals and related cronyism issues. Editorial control of many journals turns over only very slowly and those sponsored by major university departments accept disproportionately more papers from their own graduates.Interlocking boards are also fairly common, especially among leading journals.Carlo D’Ippoliti’s study of empirical citation patterns in Italy also indicates that social factors within academia figure importantly: economists are prone to cite other economists who are their colleagues in the same institutions, independently of the contents of their work, but they are even more likely to cite economists closer to their ideological and political positions.Other research confirms that Italy is not exceptional and that, for example, the same pattern shows up in the debates over macroeconomics in the US and the UK after 1975.

Other work by Jakob Kapeller, et al., and D’Ippoliti documents how counting citations triggers a broad set of pathologies that produces major distortions.Investing counts with such weighty significance, for example, affects how both authors and journal editors behave. Something uncomfortably close to the blockbuster syndrome characteristic of Hollywood movies takes root: Rather than writing one major article that would be harder to assimilate, individual authors have strong incentives to slice and dice along fashionable lines. They mostly strive to produce creative variations on familiar themes. Risk-averse gatekeepers know they can safely wave these products through, while the authors run up their counts. Journal editors have equally powerful incentives: They can drive up their impact factors by snapping up guaranteed blockbusters produced by brand names and articles that embellish conventional themes. Kapeller, et al. suggest that this and several other negative back loops they discuss lead to a form of crowding out, which has particularly pernicious effects on potential major contributions since those are placed at a disadvantage by comparison with articles employing safer, more familiar tropes.The result is a strong impetus to conformism, producing a marked convergence of views and methods.

These papers, and George Akerlof in several presentations, also show that counting schemes acutely disadvantage out-of-favor fields, heterodox scholars, and anyone interested in issues and questions that the dominant Anglo-Saxon journals are not.This holds true even though, as Kapeller et al. observe, articles that reference some contrary viewpoints actually attract more attention, conditioning on appearance in the same journal – an indication that policing the field, not simply quality control, is an important consideration in editorial judgment. One consequence of this narrowing is its weirdly skewed international impact. Reliance on the current citations system originated in the US and UK, but has now spread to the rest of Europe and even parts of Asia, including China. But T5 journals concentrate on articles that deal with problems that economists in advanced Anglo-Saxon lands perceive to be important; studies of smaller countries or those at different stages of development face higher publication hurdles. The result is a special case of the colonial mind in action: economics departments outside the US and UK that rely on “international” standards advantage scholars who focus their work on issues relevant to other countries rather than their own.

Citation Counting and Women Economists

The long, dismal history of women’s engagement with economics as a field has finally attracted anguished attention. The kernel of that history is easy to summarize: until recently, talk of glass ceilings was a stretch, because so few women could be found anywhere on the floor.

This peculiar history means that sifting out the role citations play in the bigger picture is inevitably complicated, especially as women enter the field in larger numbers. Giulia Zacchia has compared the publication records and citation patterns of men and women economists. Her conclusion is stark: economics is an “environment in which to reach top academic roles—or sometimes any academic position—women economists are increasingly forcedto conform to research activities and publishing habits of their male colleaguesThe tendency to assess research quality based on standardized bibliometrics reveals a dual path of convergence and conformity: i) a progressive reduction in the variety of research interests of women and men economists; ii) a tendency to converge to international standards of perceived research excellence…These phenomena reveal a consistent reduction in diversity in economics, and more broadly the pluralism of research.”Her work and other research by Marcella Corsi and Carlo D’Ippoliti suggest that the T5 system puts up barriers to distinctively feminist expression in economics.As a result, a significant number of women economists, especially at the top, have react by copying the males as they make their way in the discipline: “Gender homologation was stronger for full and associate professors than it was for Ph.D. students – demonstrating how institutional changes can produce indirect discrimination effects.”

What Can Be Done?

All talk of remedies needs to begin by acknowledging two sovereign facts. Firstly, as Alberto Baccini and other analysts have emphasized, systems of evaluation trigger many sorts of schemes to game the system.The situation is exactly like bank regulation as summarized in “Goodhart’s Law”: Actions by regulators to rein in banks quickly induce innovations to take advantage of the rules. This does not mean that regulation is hopeless, but that proposed remedies need careful scrutiny and should never be viewed as once and for all fixes.

Secondly, any idea that some formula can completely supplant discussions and assessments of individual work is delusory. The point is powerfully driven home by Kapeller and Steinerberger. They set up an agent-based model of what a perfect refereeing process look likes in a hierarchical system of publication outlets. Then they ask how acknowledging that referees sometimes make mistakes changes things. Their conclusion is eye opening: even small amounts of refereeing error in the system lead to more sweeping changes in the system as a whole than anyone likely suspected. First-rate papers end up at the bottom of the pile; top journals accept substantial numbers of dogs and good papers scatter all around. Their results amount to a yellow caution flag against the idea of taking pecking orders in journals too seriously for any important decisions.

But given the clear evidence that the volcanoes are steaming, it would be foolhardy not to try to do better. We are convinced that economics as a discipline still has much to offer the world and that restoring its standing in public life is much to be desired. But this will be something of an uphill climb. Things cannot go on as they have. The ground beneath our feet is shifting, just as in de Tocqueville’s time. Another five years of more of the same is likely to produce far more serious reactions that will make current controversies about expertise look quaint.

Remediation is required at three different levels: The first concerns the way economics as a discipline proceeds; the second relates to how economic theories into economic policymaking; and the third concerns the role of women and diversity.

Regarding the progress of the discipline, an obvious first step is required: The G20 should insist that individual national academies of science place the problem of evaluation of research and personnel high on their respective agendas. The problems highlighted here are not necessarily limited to economics, and some national academies have become concerned with methods used in research evaluation. But within economics the issues appear especially clear cut and pressing, because of the link with policymaking and ultimately the wellbeing of the population. National academies should be adjured to hold publichearings and conferences on what went wrong, with both theory and policymaking. They should solicit comments from a wide range of experts, scholars, and even the general public. The results of these assessments should be made public and exchanged among the academies. The end product should be convergence of agreement on specific policy failures and clear inventories of the (mistaken) economic theories that were enlisted to support them. The national academies should take the lead in communicating these results to the media and large funders of research in each country. If these constituencies better understood how shaky the evidence about citations is and the relatively low effectiveness of existing professional screening protocols, pressure for improvement would intensify. As it becomes clear that methods of evaluation can be improved relatively easily, the will to improve the system would intensify.

Possible reforms of economics have stimulated widespread discussion, but produced a wide dispersion of views. What to do about journals poses an especially thorny problem. The T5 system bears an uncomfortable likeness to a classic cartel system, which several US and UK university graduate departments quite obviously support to their own advantage and which provide convenient places for outside interests to wield influence.

More discussions of the best way to open up the system are needed. Some analysts are impressed with the success of the open source publication movement in some of the physical sciences. They aspire to replace the T5 system with a broad set of open access journals on the internet. In some proposals, comments and reactions to articles would be published alongside original contributions in real time.

Not everyone regards this as feasible or desirable nor is it clear how much would materially change were it implemented. Some analysts take the ability of a few mathematicians to display their prowess by solving publicly posted problems on the internet with no journal intervention at all as evidence that journals could be downgraded tout court. But the number of scholars who succeed in solving these problems is few and all of them together are insufficient to structure the kinds of real life scientific communities required for modern countries to flourish. In practice, these open challenge schemes thrive inside a larger ecology of expertise that maintains itself in universities, government laboratories, research institutes, etc. Skeptics also shudder to recall Thomas Hobbes’ famous comment that 2+2=4 would be disputed if it affected someone’s interest. They see no reason why on line mobbing of the type now familiar in socially contentious discussions on the internet would not occur within science practiced along such lines. At the turn of the twentieth century, national rivalries in medicine, physics, and even mathematics were sometimes intense. Today, though, the number of interested private actors has likely increased. The global warming debate might be considered a kind of warning. That under pressure macroeconomics tends to dissolve into extensively solipsistic communities that cite communicants relatively heavily hardly dampens such fears.

By contrast, practical improvements to personnel review are perhaps easier to imagine and might effectively go more quickly to the roots of the problem. One reason for the popularity of the T5 system is that it requires review committees and deans to make little more than a pretense of reading candidates’ research. One simply totes up the number of articles, weights each by journal impact figures, and arrives at a formal or informal total score. End of discussion. Fearful defenders of the status quo cite the bulge in candidates and streaming proliferation of articles as reasons to stick with this procedure, despite its obvious lack of intellectual merit.

An approach that is viable even with relatively large numbers of candidates might be one based on the system used for many years in the MIT Economics Department. Likely rooted in an old aphorism of Paul Samuelson’s that in science one honors peak, not average, performance, this approach functions by having candidates put forward their three best publications for evaluation. Members of departments who would never be able to review the entire oeuvre of candidates can fully participate. The process could be improved by contriving some auxiliary safeguards for special circumstances. Such processes could also employ a set of different citation indices, sifted to remove obvious foolishness (such as the failure to control for field size), as one form of evidence among others.

Another easy improvement could be a flat ban on the use of “point scales” or scorecard tallies of minimum numbers of articles in journals of different types as conditions for promotion. A number of countries now require something like this, despite the evidence brought forward by Heckman, Baccini, Corsi, et al., and others.

Some reforms are similarly easy to envisage with respect to the application of economic theories in economic policy. The case for more pluralism is compelling. There is no reason why the US defense establishment should be the only organization that sets up formally constituted “Team B”s that deliver alternative, officially reported assessments. It is obvious that since 2008 both governments and international organizations have been carried away with a mania for secrecy about their operating economic projections and the economic theories they are trying to implement. These should be opened up to formal discussions, similar to what used to happen in testimony in the U.S. Congress and regulatory commissions.

We venture to suggest that a close reading of the debates over financial regulation in the run up to the 2008 collapse will readily reveal the lengths to which authorities and collaborating economists went to stifle public debate. The guiding idea of efforts to reverse this state of affairs would not be to say that particular economic theories are right and or wrong but to assess whether the economic theories being applied are biased because they have never seriously been questioned. To win back public confidence, economists need to justify and support their ideas. That can happen only if we guarantee pluralism, so that they all are forced to argue with one another, instead of retreating to silos.

Making economics safe for diversity, of course, also implies improving the situation of women in economics. Many of the most relevant reforms, however, concern the structure of the discipline as a whole, not better uses of citations per se. It is obviously fanciful to imagine that much can be done without substantially increasing the number of women at all levels of the profession and securing their representation on all journal boards and committees that pass on research. That seems patent. It would also help if the discipline routinely calculated indices of gender equity in the economics profession (e.g., a glass ceiling index) to monitor and ensure gender-neutrality of research institutions by looking at hiring procedures, research assessments, and other strategic venues for the advancement of women, and increasing awareness of unconscious bias. All this, of course, presupposes workplaces in which sexual harassment is not tolerated and in which not simply talk, but action occurs to remedy the problems as they come to light.


Nobel Prize winning economists who have recently appeared on panels critical of the way work in economics is now evaluated include George Akerlof, Angus Deaton, Lars Hansen, and James Heckman. See, e.g., “Taking the Con Out of Economics: The Limits of Negative Darwinism,” Panel Presented at the Institute for New Economic Thinking Conference in Edinburgh, Scotland, October 2017, available on the web at and “Publishing and Promotion in Economics: The Curse of the Top 5,” Panel Presented at the American Economic Association Annual Meeting, Philadelphia, January 2017; on the web at

James J. Heckman and Sidharth Moktan, “Publishing and Promotion in Economics: The Curse of the Top 5,” Paper Presented at the Institute for New Economic Thinking Plenary Conference in Edinburgh, Scotland, October, 2017; on the web at

See also the discussion of concentration over time in Florentin Glotzel and Ernest Aigner, “Six Dimensions of Concentration in Economics: Scientometric Evidence from a Large Scale Data Set,” Institute for Ecological Economics, Vienna University of Economics and Business, Working Paper No. 15, Year 3, 2017; on the web at

We are grateful to Alberto Baccini, who shared with us some counts from his own data for the period 2009 to 20018; the less than commanding position of the T5 is apparent.

See, e.g., Todeschini, R. and A. Baccini, Handbook of Bibliometric Indicators. Quantitative Tools for Studying and Evaluating Research.(Weinheim, Germany: Wiley-VCH, 2016).

Alan Reinstein, James R. Hasselback, Mark E. Riley, David H. Sinason, “Pitfalls of Using Citation Indices for Making Academic Accounting Promotion, Tenure, Teaching Load, and Merit Pay Decisions,” Issues in Accounting Education26, No. 1, pp. 99-131.

Studies also show low rates of agreement between citation counts and the judgments of the relevance of papers by peer reviewers. See the discussion in Wouters, P. et al. (2015), The Metric Tide: Literature Review (Supplementary Report I to the Independent Review of the Role of Metrics in Research Assessment and Management), HEFCE. DOI:

10.13140/RG.2.1.5066.3520; on the web at

Cf. also Colussi T., “Social Ties in Academia: A Friend is a Treasure”, The Review of Economics and Statistics,Vol 100, Issue 1 (2017), pp. 45-50.

Alberto Baccini and Lucio Barabesi, “Gatekeepers of Economics: the Network of Editorial Boards in Economic Journals,“ in Lanteri, A. Vromen, J. eds., The Economics of Economists(Cambridge: Cambridge University Press, 2014), pp. 104-150.

Carlo d’Ippoliti, “’Many Citedness’: Citations Measure More Than Just Scientific Impact,” Institute for New Economic Thinking Working Paper No. 57, Revised April 6, 2018; on the web at

See Lasse Folke Henricksen, Leonard Seabrooke, and Kevin Young, “Fathers of Neoliberalism: The Academic and Professional Performance of the Chicago School, 1960-85,” Paper Presented at Institute for New Economic Thinking Conference, Edinburgh, Scotland, October , 2017; on the web at

Jakob Kapeller and Stefan Steinerberger, “Emergent Phenomena in Scientific Publishing: A Simulation Exercise,” Research Policy45 (2016), pp. 1945-52; Christian Grimm, Stephan Pühringer and Jakob Kapeller, “Paradigms and Policies: The State of Economics in the German-Speaking Countries,” Institute for Comprehensive Analysis of the Economy, University Linz, ICAE Working Paper Series, No. 77 – March 2018; but especially Matthias Aistleitner, Jakob Kapeller, and Stefan Steinerberger, “The Power of Scientometrics and the Development of Economics,” Institute for Comprehensive Analysis of the Economy, University Linz, ICAE Working Paper Series, No. 46 – March 2016 (Updated: August 2017).

See the papers cited supra.

See, e.g., Akerlof’s “Sins of Omission,” Paper Presented at the Institute for New Economic Thinking Plenary Conference, Edinburgh, Scotland, on the web at and Lee, F. S., X. Pham and G. Gu, “The UK Research Assessment Exercise and the Narrowing of UK Economics.” Cambridge Journal of Economics37, 4 (2013) : 693-717.

Giulia Zacchia, “The Dark Side of Discrimination in the Economics Profession,” Institute for New Economic Thinking Blog, November 3, 2017; available on the web at See also her “Diversity in Economics: A Gender Analysis of Italian Economic Production,” Institute for New Economic Thinking, Working Paper No. 61; available on the web at For a study strongly suggesting that different standards are applied by reviewers and editors to publications by women economists, see Erin Hengel, “Evidence From Peer Review That Women Are Held to Higher Standards,” Vox,December 22, 2017; on the web at

Marcella Corsi, “Diversity and the Evaluation of Economic Research: the Case of Italian Economics,” Paper presented at the Institute for New Economic Thinking Conference, Edinburgh, Scotland, October 2017; available on the web at

Marcella Corsi, Carlo d’Ippoliti, and Giulia Zacchia, “How Academic Conformity Punishes Women – and Restricts the Diversity of Economic Ideas,” Institute for New Economic Thinking Blog, December 14, 2017, available on the web at

Zacchia, “The Dark Side.”

See, e.g., Edwards, M. A. and S. Roy, “Academic Research in the 21st Century: Maintaining Scientific Integrity in a Climate of Perverse Incentives and Hypercompetition,” Environmental Engineering Science34, 1 (2017) : 51-61; and Smaldino, P. E. and R. McElreath, “The Natural Selection of Bad Science,” Royal Society Open Science3, 9 (2016).

Those continue to happen, but they now play little role in most policy formation; the end of official support for many legislative caucuses is a related factor.

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  1. Ed Walker

    I’m just stunned that this paper doesn’t mention the seminal work on the problem, Marion Fourcade’s paper The Superiority of Economists.

    Oh wait, Fourcade and her colleagues are sociologists, not economists, so no reason to consider their research and thinking. Also, and not for nothing, she and they are French, and read Pierre Bourdieu who has done a lot of work on the sociology of academics, focused on France but widely applicable.

    And here’s something interesting; there is no mention of the funding of economics at universities and colleges. So, no mention of the hundreds of millions the filthy rich have poured into the field. Of course, they heatedly deny that matters. A recent tweet from a Geroge Mason/Mercatus prof was livid at the very suggestion that Koch money influenced hiring decisions.

    And that’s before we get into the gendered nature of economics, or it’s political usage by ideologically-driven politicians looking for “experts” to support their preconceptions.

    There is a lot more and someone needs to say it out loud in clear, uncoded language.

    1. BillC

      Thank you for this citation, Ed. I, too, find Fourcade’s paper far more direct than the INET paper’s diplomatic circumlocutions.

      An illuminating sample from the top of the 2nd page:

      In fact, [economists] “earn more and have better career prospects” than physicists and mathematicians …; only computer scientists and engineers do better. … many prominent economists have the opportunity to obtain income from consulting fees, private investment and partnerships, and membership on corporate boards. … 40 percent of the income of economic authors in the fields of finance and industrial organization comes from consulting activities …

      Almost by itself, this answers the Queen’s question, “Why didn’t anyone see [the 2007/8 crisis] coming?”

      A better-supported and more damning indictment than Fourcade’s of economics pseudo-science as (mal-)practiced for the last 4-7 decades in these parts is hard to imagine.

  2. The Rev Kev

    Just a thought line here. I have heard and read conservatives say that “Politics is downstream from culture” and I get what they are saying. You change the culture and that predetermines the politics that you get. In reading this article, the thought struck me that perhaps the reason that economics as a profession has been corrupted so badly is that maybe conservatives consider government to be downstream of economics. Thus you control what economics theories are permitted to be discussed and that gives them the governments that they want.

    1. Steve Ruis

      I support your contention. There is in the US a concerted effort to praise capitalism as some sort of god-given system and to defame all other systems. Venezuela’s current problems are due to socialism, not bad management, of course. Of course, since the wealthy are doing oh so well under the status quo, they are bound to favor it, but they are not just favoring it, they are nailing it down onto our culture.

      1. Andrew Watts

        There is in the US a concerted effort to praise capitalism as some sort of god-given system and to defame all other systems.

        The Marxist economist Richard Wolff made the claim that economists are simply cheerleaders for capitalism in an interview on Chapo Trap House, He elaborated and substantiated this claim by saying that business schools had to be founded because economics departments were useless as a method of educating a cohort of business specialists.

    2. Norb

      Very succinct and thoughtful indeed. Remember Ronald Reagan’s now infamous, “Government is the Problem” mantra. The real cultural warriors were the neoliberal terrorists who are hell bent on commodifying the entire planet for their own exploitation- masked in the language of “freedom” and “democracy”.

      This line of thought is also important in that your framing cuts to the core of the cognitive problem attempting to deal with economics, namely, it is a religion. I would define a religion as a system of faith and worship that is driven by a particular interest. All the wordy-ness and arm waiving is just an attempt to obfuscate this simple truth. Persecution of the unfaithful is also a dead giveaway.

      This whole notion that the current reigning economics profession is ready, or attempting to “see the light” is somewhat amusing, or in another sense should be insulting considering the social damage they have caused, and are continuing to inflict on the broader citizenry. Burning at the stake is more appropriate, and maybe these slight rumblings of contrition are a sign that some might be getting worried that their “economic” program has gone too far.

      When what goes on in the human mind looses connection to events in the real world, changes must be made in order to remain sane. The current orthodoxy is also ultimately doomed to failure in that what is the point of creating and maintaining a deluded and demoralized citizenry? That is a recipe for internal stagnation and external conquest. It would only be a successful strategy if the elite are able to move on after the broader society falters and fails. That thought is almost too cynical to contemplate. But that might explain why the .001% remains the .001%. The current economic priests are starting to feel the pressure because their flocks are beginning to realize that their everyday experience no longer matches the sermons they receive.

      Time for a new sermon.

    3. mle detroit

      Following Rev Kev’s point and Ed Walker’s third paragraph, have there been any studies of the sources of gifts, underwriting, and other purchases of academic work at the most “influential” economics and business economics departments?

      1. DanB

        Dear mle…: I asked a similar question when I did follow-up research on the fate of East German intellectuals in 2014, 23 years after 2/3 of them lost their jobs due to the unification of Germany. As one internationally known East German professor of (Marxist) economics told me: Who would fund such a study? and Why would they fund it? To document what the West Germans did to the East Germans? (PS: This professor was never rehired in the unified Germany; he was often told he was “overqualified” for the academic posts for which he applied after unification.)

  3. John Wright

    In the academic side of the economics profession, it would seem to be prudent to “go with the flow.”

    Even the economists who recognized problems in 2008, such as Steve Keen and Dean Baker, are not celebrated.

    In our society, it seems more likely that some powerful group or individual wants to do something and then proceeds to find an economist to support that action, via an editorial or media appearance, perhaps it is “free” trade, more immigration, easy money, tight money, quantitative easing, outsourcing, insourcing, charter schools, or austerity.

    I suspect there are economists who attempt to accurately anticipate economic events.

    But they work for hedge funds and private wealth management firms.

    And what is the incentive for a prominent public economist to warn of economic problems that may have been caused by government and well-connected interests?

    If someone, such as Alan Greenspan, gave early notice of sub-prime/mortgage backed security issues how would he have been better off?

    It suggests a central banker career strategy that, if one observes a large economic problem brewing, retire and publish your book before the SHTF.

    If the career central banker actually warned/took actions to circumvent a financial bubble and the bubble popped anyway, they could be tagged as a goat for causing the crisis.

    Maybe the economics profession is functioning as one would expect?

  4. Michael C.

    One has to wonder, if the elite economists who have defined the parochial and narrow scope of what capitalism is, how it works, and who wins and loses in the system, and maybe in particular it’s late 20th Century form, neroliberalism, had maybe expanded their self-serving views to include a Marxian critique and analysis of they might not had been so stupid?

    That’s not to say the Marx had all the answers, but is only to say that if you presuppose the outcome you want and buttress it with only the information that supports (no matter how poorly) those outcomes, you end up with crisis and the contradictions within capitalism resulting in the failures described above.

    Universities and Econ departments don’t allow the wide critical view needed into their schools, and no matter what you think of Marx and his ideas, they should at least be the starting point in the discussion when approaching economic policy. The right wing shift in the governments and the people’s of the world is not some unexpected outcome but is directly related to a system that builds in economic disparity, short-term planning (due to emphasis on next quarters profits and stock price), and an emphasis on winner take all rather than human needs.

    It’s not “the economy, stupid.” It”s the stupid system.

    1. Norb

      The problem with the American system is that its founding principles, that all men are created equal, and are endowed with certain, God given, unalienable rights, runs in contradiction to the chosen economic models of building society. Slavery and Capitalism are antithetical to these sentiments. Capitalism might be workable if restrained and heavily regulated, but why bother with that because human corruption will always find a way to undermine such a system; it is inherently weak and guarantees suffering will be born by the masses- Brexit will provide the perfect example as predicted by Yves.

      A heavily regulated capitalism is socialism by another name.

      The same, self-serving arguments are also made about war. The thought that humans could live in peace is treated as some unrealistic and insane idea. Instead of selecting from the human population for cooporation and peace-loving sensibilities, the minority sociopathic murders are allowed to run wild.

      Real human “progress” will be made when the peace faction gains supremacy. But that is impossible as long as the economic system upon which all human subsistence depends remains entrenched in competition and striving to hoard against fears of scarcity.

      FDR had it right, although imperfect, society was moving in the right direction. We live in a world of abundance that is being squandered. The only way to avoid ultimate destruction is to embrace this abundance as stewards and conservators instead of fearful exploiters.

      Conserve the world by embracing sustainable living. Now that is a powerful political message. So powerful, it will be met with the full force of the sociopathic murders currently in charge of human societies.

      What else to say, but prepare yourself.

      1. Ed Walker

        The equality stuff is in the Declaration of Independence, not the Constitution. The latter is specifically devoted to protecting the interests of property holders, specifically including slavers. This is not surprising. The Founders were heavily influenced by John Locke. Locke was a slaver himself . And remember that Lockean ideas are based on protecting private property from the random predation of absolute monarchs.

    2. Chris

      OMG, Michael C.


      That’s an amazing slip of the keys. It explains a ton too. I love that it combines the term which the people discussed in this article usually deride with the name of the last Roman emperor who is renowned for extravagance and tyranny.


      1. animalogic

        I agree with your comment whole heartedly.
        But:”the name of the last Roman emperor who is renowned for extravagance and tyranny.”(& please forgive my quibble) Nero was certainly not the last emperor to have had such characteristics.
        (Elagabalus springs to mind)

    3. J Sterling

      It’s been said that you can tell how dominated economics is by a particular minority of society, by the economists’ word for phenomena where workers are paid more for their labor being “disease”. As in Baumol’s Disease for example.

  5. R. BAIRD

    Both sides of the political divide often go awry simply because they refuse to acknowledge the role of human nature. We mere mortals know this as we are the full recipients of the “free market,” the good, the bad, and the extremely ugly. The likes of Alan Greenspan in the rarified air strata were shocked, shocked, shocked! I bring you a small excerpt from Mr. Greenspan’s testimony before the Government Oversight Committee of the House of Representatives. Still clueless, he does acknowledge a flaw:

    Pressed by Waxman, Greenspan conceded a more serious flaw in his own philosophy that unfettered free markets sit at the root of a superior economy.

    “I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms,” Greenspan said.

    Waxman pushed the former Fed chief, who left office in 2006, to clarify his explanation.

    “In other words, you found that your view of the world, your ideology, was not right, it was not working,” Waxman said.

    “Absolutely, precisely,” Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”

  6. Jesper

    This bit:

    In many of the world’s richest countries, more and more citizens are losing faith in the very ideas of science, expertise, and dispassionate judgment – even in medicine, as witness the battles over vaccines in Italy, the US, and elsewhere.

    Might be believed by some, others might believe that more and more citizens are sceptical about the practioners ability to provide expertise and dispassionate judgment. From my own perspective I do believe in science, expertise and dispassionate judgment but I don’t believe that many professional economists have much expertise (outside of knowledge of basic statistics and statistics software) or that they practice dispassionate judgment.

    As far as being sceptical of medicine then I’ll post this link again:

    Pharmaceutical companies are not in business to heal people, they are in business -> They do whatever they legally can to make money and they even put pressure on the legislative to get more opportunities to legally make more money.
    The article contains this link to the Lancet relating to “the reproducibility and reliability of biomedical research”:

    The case against science is straightforward: much of the scientific literature, perhaps half, may simply be untrue. Afflicted by studies with small sample sizes, tiny effects, invalid exploratory analyses, and flagrant conflicts of interest, together with an obsession for pursuing fashionable trends of dubious importance, science has taken a turn towards darkness.

    1. Ted

      The problem is widespread, and now well recognized. Here, for example, from psychology (also a juggernaut of social science influence)

      If we looked and any other (social) scientific discipline, we’d get the same result.

      The articles from medium and The Lancet you link highlight the problems well enough, the system is corrupt from top to bottom. Another examples of where misguided emphasis on juicing “metrics” (for personal gain) rather than taking one’s time to develop expertise and do things correctly is literally killing people, or simply ruining lives (as if that is some consolation).

  7. Jim Haygood

    Economies are inherently cyclical. Keynesianism, in its original incarnation, envisaged sures during economic expansions to offset the fiscal deficits provoked by recessions. But sures are a distant memory — now it’s pedal to the metal all the time, just to keep a becalmed, debt-choked economy treading water.

    Credit is also procyclical. It was severely rationed during and after the 2008 meltdown. Now covenant-lite bonds prevail for corporate financing, while individuals can get 3 percent down FHA loans to buy houses at prices that exceed the 2006 peak, with 33 times leverage. Prudent!

    What role can academics play in this endless sisyphean tragedy? None, probably. Warning of recession invites career risk for economists, so most of them just won’t do it. Like the Hazmat team, economists show up after the train wreck to help with the cleanup. Federal Reserve economists are engineering that crack-up right now, with their fruitcake bond dumping campaign.

    By 2020, they’ll be tanned, rested and ready for their next exciting outing. :-)

  8. Summer

    As others have stated, there are economists out there who have already seen through the current dogmas.
    Michael Hudson is one and another that comes to mind is Chilean economist Manfred Max-Neef. A transcript of an interview with him from 2010:

    An excerpt to perk interest:

    “I worked for about ten years of my life in areas of extreme poverty in the Sierras, in the jungle, in urban areas in different parts of Latin America. And at the beginning of that period, I was one day in an Indian village in the Sierra in Peru. It was an ugly day. It had been raining all the time. And I was standing in the slum. And across me, another guy also standing in the mud — not in the slum, in the mud. And, well, we looked at each other, and this was a short guy, thin, hungry, jobless, five kids, a wife and a grandmother. And I was the fine economist from Berkeley, teaching in Berkeley, having taught in Berkeley and so on. And we were looking at each other, and then suddenly I realized that I had nothing coherent to say to that man in those circumstances, that my whole language as an economist, you know, was absolutely useless. Should I tell him that he should be happy because the GDP had grown five percent or something? Everything was absurd.

    So I discovered that I had no language in that environment and that we had to invent a new language. And that’s the origin of the metaphor of barefoot economics, which concretely means that is the economics that an economist who dares to step into the mud must practice. The point is, you know, that economists study and analyze poverty in their nice offices, have all the statistics, make all the models, and are convinced that they know everything that you can know about poverty. But they don’t understand poverty. And that’s the big problem. And that’s the big problem. And that’s why poverty is still there. And that changed my life as an economist completely. I invented a language that is coherent with those situations and conditions.”

    It’s a good interview of someone developing an alternate view.
    (There are critiques and studies of wealth that I think we need more of as well, only poverty is thought of as pathological – a subject which he tackles.)

  9. JEHR

    And just maybe, human goodness and human evil have a cyclical nature too and we are just in the bad part of the cycle right now. However, it may be true also that the time period of 1950 to 1970 was an anomaly that may not recur, and that the true nature of human beings is to lie, to cheat, to steal, to commit fraud and practice multifarious corruptions and violence. When you look at the widest version of history, human nature is not so benign.

    1. Summer

      In a nutshell, the American consumer was highly important from 1950 to 1970 until the rest of the world recovered more from 2 world wars.

  10. Summer

    1950 to 1970…the rest of the industrial world was decimated after 2 world wars.
    And more countries wanted independence from colonialism (less loot spread around, however thinly, back home – though not totally disappeared).

  11. Scott1

    Psychology turns into sociology. Either the system is making everyone prosperous and happy or it is making everyone desperate.
    Desperation is the American way. The comfort of misery seen as pathological in the individual is a more general pathology. Too much bile in the system.
    “The Sticky Floor.” is the phrase my cousin invented. She is a leader in Women’s Studies. It may well apply more correctly that “The Glass Ceiling”. Overall the turn in the article to the dearth of women economists threw me.
    As science enables engineering, economics enables financial engineering. The predominant financial engineer of our times is Meyer Lansky. Organized business, the “real” economy of General Motors and Dow & Dupont & General Dynamics & Raytheon, ITT, Apple, Google, Microsoft all now have adopted Meyer Lansky Financial Engineering.
    It was made legal as economic theory and practice under Clinton Unit 1’s reign.
    The preeminent financial engineer is David Cay Johnston. He called Dean Baker a “real” economist as opposed to Michael Hudson. I prefer Hudson to Dean myself. Nobody knows everything. This is why all you really have to know is the goal. “You cannot go wrong if your goals are correct.” is what Einstein said.
    The main reason for misery is poverty, which is not having enough to operate the household without debt peonage.
    The United States and the EU as run by Central Banks have it so only the selected have infinite access to currency. The States don’t have enough money so the System prefers they deny their people things like education and healthcare, and sell bonds.
    It is okay for the Federal Government to tax or not tax but the States must tax to fill their treasuries.
    Alan Greenspan’s philosophy came from Ayn Rand whose world view encouraged the exclusive access and economic security to have and do whatever they, the rich, people like Elon Musk or Jeff Bezos, envisioned as ideal for them, and them only. (They live in airport land with a pond.)
    It came from Russian Dystopian Objectivism and produces Dystopia.
    The American Philosophy, that which made America loved is American Eclectic Pragmatism.
    The wrong goal is to make only those in Finance rich. The right goal is to make everyone as much a jet setter as the jet setters.
    Until the goal of Economists is blatantly aimed at relative equality of life, the discipline is simply on the wrong track and is never going to be worth doing.

  12. JBird

    Approved economics has nothing to do with actually understanding or solving anything except be a useful smokescreen for wealthy special interests. I have gotten a more accurate and functional understanding of overall economics from classes, and books in anthropology, political science, and history than in any classes labeled as “economics.”

    That is really sad. It is also very deliberate. Those who say modern economic studies have been stripped of anything but neoliberal/libertarian economic ideas are right. Even then, it seems that it has been either further simplified, or abstracted, to further channel any thoughts away from real life.

    Let’s put it this way. Philosophy can be used to actual ask and study questions or it can be used to debate how many angels can fit on the head of a pin. Guess what what modern mainstream economics does?

  13. Sound of the Suburbs

    There are inherent flaws in neoclassical economics that have already been discovered.

    The 1920s roared with debt based consumption and speculation until it all tipped over into the debt deflation of the Great Depression. No one realised the problems that were building up in the economy as they used an economics that doesn’t look at private debt, neoclassical economics.

    The two elements of neoclassical economics that come together to cause financial crises.

    1) It doesn’t consider debt
    2) It holds a set of beliefs about markets where they represent the rational decisions of market participants; they reach stable equilibriums and the valuations represent real wealth.

    Everyone marvels at the wealth creation of rising asset prices, no one looks at the debt that is driving it.

    The “black swan” was obvious all along and it was pretty much the same as 1929.

    1929 – Inflating US stock prices with debt (margin lending)
    2008 – Inflating US real estate prices with debt (mortgage lending)

    “Stocks have reached what looks like a permanently high plateau.” Irving Fisher 1929.

    An earlier neoclassical economist believed in price discovery, stable equilibriums and the rational decisions of market participants, and what the neoclassical economist believes about the markets means they can’t even imagine there could be a bubble.

    The amount of real wealth stored in the markets becomes apparent once the bubble has burst.

    The debt overhang (ref. graph above) is dragging the US economy down and is the cause of Janet Yellen’s inflation mystery, but they don’t know because they don’t consider debt. It’s called a balance sheet recession.

    The problems that led to 2008 come from private debt in the economy and the problems now come from the overhang of private debt in the economy, but they are using an economics that doesn’t consider private debt.

    They don’t stand a chance.

  14. Sound of the Suburbs

    “The problem this essay addresses can be framed in terms of two quotations from Alexis de Tocqueville. The first comes from his famous speech in the French Chamber of Deputies just prior to the outbreak of the Revolution of 1848: “We are sleeping on a volcano….do you not see that the earth is beginning to tremble. The wind of revolt rises; the tempest is on the horizon.” The second is from Democracy in America: “When the past no longer illuminates the future, the spirit walks in darkness.”

    How about this quote …..

    “These fools in Wall Street think they can go on forever! They can’t!” President Theodore Roosevelt 1909.

    The US has just forgotten its own history; this is what it was like at the end of the 19th and beginning of the 20th century. Capitalism was running wild, but the difference was there used to be a critical press.

    Catch up on US history.

    “PR! A Social History of Spin” Stuart Ewen

    Finding out what the private sector uses PR for also helps you understand their motivations, it’s worth reading.

    1. JBird

      Our Esteemed Elites are mostly college educated which hopefully includes American history. But maybe it’s become like modern college economics. Stripped of inconvenient information.

      I agree that beyond the normal American nation’s ultra short memory, there is a regular effort by some to eliminate any inconvenience ones. If history is a career or even a hobby you will likely know much about America history bad (and good too!) that goes zooop into the memory hole. It becomes a boring national hagiography. Sanitized. But that shouldn’t be.

      But STEM courses are so much more important than fluff like history.

      1. Sound of the Suburbs

        In history we study what the elites are up to, we don’t pay much attention to what is going on with general population.

        This does.

  15. ObjectiveFunction

    Fantastic piece, Yves.

    As with a few other commenters here, the essay puts me in mind of historiography, to wit E.H. Carr whose ‘before studying history, study the historians’ became the fighting slogan for the radical history movement of the 1960s:

    “The facts are really not at all like fish on the fishmonger’s slab. They are like fish swimming about in a vast and sometimes inaccessible ocean; and what [facts] the historian catches will depend, partly on chance, but mainly on what part of the ocean he chooses to fish in and what tackle he chooses to use.”

  16. ObjectiveFunction

    “Economists had closed ranks as though in a phalanx, but the crisis showed how fragile these tenets were. They included:
    1. A resolute unwillingness to recognize that fundamental uncertainty shadows economic life in the real world.”

    …. And for this one, do I even need to requote Upton Sinclair?!

    Economists and central bankers are our modern day priest-astrologers. We *need* them to know! to appease Bel-Marduk and Istar, to ensure a fruitful harvest, the birth of worthy sons

    ….and also, for a small commission, to manage our tax collections/ debts/ alehouses/ brothels [hat tip to Prof Hudson].

  17. Sound of the Suburbs

    This is about the UK, but applies equally to the US as we are all doing the same neoliberal things.

    Why isn’t the economy growing?

    We shouldn’t get side tracked with productivity as productivity is GDP per hour worked and we need to grow GDP.

    What is GDP?

    The amount of money spent into the economy by consumers, businesses and the Government the income we receive from the trade balance with the rest of the world.

    Now we know what GDP is we can immediately see why austerity is contractionary. The cut in Government spending comes straight off GDP (someone tell Macron).

    The aim is to increase the amount of goods and services within the economy at the same rate as the demand for those goods and services, whilst increasing the money supply to allow those extra goods and services to be purchased.

    Milton Freidman understood the money supply had to rise gradually to grow the economy with his “Monetarism”. He thought that central bank reserves controlled the money supply and this is why it didn’t work.

    The economists focus on supply (neoclassical economics) or demand (Keynesian economics) until the balance of supply and demand gets out of step. The economy stagnates due to either insufficient supply (1970s stagflation) or insufficient demand (today’s ultra low inflation).

    Money needs to enter the economy to increase the supply of goods and services, while at the same time; the increased money supply enables the demand for those goods and services.

    Banks and governments create money and this is now well understood outside the mainstream.

    The banks have been creating money to lend into real estate and inflate financial asset prices. This is not what you want; they should be creating money to increase the supply of goods and services by lending into business and industry. Their lending hasn’t been increasing GDP.

    It all started going wrong when with financial liberalisation and a 1979 policy decision. The UK eliminated corset controls on banking in 1979 and the banks invaded the mortgage market. This is the start of the real estate frenzy.

    You can let bankers do what they want, but they have no idea how to grow the economy with bank credit.
    Supply had outstripped demand by the 1920s in the US and they used bank credit to maintain demand, but this can never work in the longer term as this money needs to be paid back. Government created money has to fill the gap as it doesn’t need to be paid back.

    Governments can create money, jobs and wages in the public sector, building the infrastructure for the economy and looking after the health and education of the population to provide the economic framework necessary for the private sector who can’t make a profit doing these things.

    The magic number is GDP, we need to focus on what increasing that number means.

    Our main problem is an ideological Left who think the answer always lies on the demand side and an ideological Right who always think the answer lies on the supply side.

    The Left think Government is the answer and the Right think the private sector is the answer.

    You need both, due to the increased productivity of the private sector that cannot create the necessary demand for those goods and services through private sector wages alone.

    1. Sound of the Suburbs

      Understanding money is critical and this is something central bankers monitor, but they don’t appear to know what it means ……

      The flow of funds within the economy.

      This helps us understand why Government sures precede finical crises and why balanced budgets and Government sures push the private sector into debt

      Richard Koo shows the graph central bankers use, the flow of funds within the economy, which sums to zero (32-34 mins.).

      Government assets + corporate assets + household assets + transfers from/to the rest of the world = zero
      They can’t all be positive.

      The US runs a large trade deficit and this money needs to come from somewhere.

      It is the Government that should run the big deficit to fund the other three and if you clamp down on government spending your economy can’t grow unless it starts running on bank debt. The corporate sector and households have to get into debt to balance this zero sum equation.

      A Government sur requires an indebted private sector unless you are Germany and run a trade sur.

      This is the US (46.30 mins.)

      Clinton was proud of the Government sur but he didn’t realise that this meant the private sector had to go into debt. The last Government sur occurred in 1927 – 1930, it precedes crises.

      Richard Koo’s video shows the Japanese Government ran a sur just before the Japanese economy blew up.

      1. Sound of the Suburbs

        Neoclassical economics doesn’t focus on GDP because it predates it. It was put together before they knew how to measure economic activity.

        It lets the wealthy accumulate all the money until the economy falls over though a lack of demand.
        Mariner Eccles, FED chair 1934 – 48, passes comment the last time they used neoclassical economics in the US in the 1920s.

        “a giant suction pump had by 1929 to 1930 drawn into a few hands an increasing proportion of currently produced wealth. This served then as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied themselves the kind of effective demand for their products which would justify reinvestment of the capital accumulation in new plants. In consequence as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When the credit ran out, the game stopped”

        This time it’s global.

        2014 – “85 richest people as wealthy as poorest half of the world”
        2016 – “Richest 62 people as wealthy as half of world’s population”
        2017 – World’s eight richest people have same wealth as poorest 50%

      2. Sound of the Suburbs

        The perfect economy.

        Supply, demand and the money supply rise together.

        Extra money is needed to consume the extra goods and services the economy now produces.

        Robots are no problem; the Government just needs to create the money, jobs and wages to balance the extra supply.

        There is always plenty to do in the public sector, e.g. infrastructure, schools, hospitals, public leisure and care services.

        Why did they invent the GDP measure?

        Markets were all the rage in the 1920s and they thought the US stock market represented real economic activity, but in 1929 they found it didn’t.

        When you use neoclassical economics you look at the markets, but don’t look at debt.

        The bankers inflate the markets with debt; no one can see the problem and everyone thinks real wealth is being created.

        1929 – Inflating US stock prices with debt (margin lending)
        2008 – Inflating US real estate prices with debt (mortgage lending)

        Central bankers have inflated the markets with QE, but it’s just a “wealth effect” as GDP hasn’t changed significantly.

        GDP is real wealth; the wealth in the markets has a habit of evaporating almost over-night.

  18. impermanence

    Lying, cheating, and stealing is what we human beings seem to do best, so when the pot becomes big enough, the elite [those willing to do whatever it takes] do what the elite have done, lie, cheat and steal with reckless abandon.

    Those who choose to live a noble life must always be grounded by the notion that the reward for doing such is in achieving good night’s sleep, and little more. You truly can not have your cake and eat it too, not then, not now, not ever…

  19. beachcomber

    Quote from Wikipedia (not perhaps an unimpeachable source but on this occasion purely factual):- “Nobel Prize. Awarded for outstanding contributions for humanity in chemistry, literature, peace, physics, and physiology or medicine. Often confused with Nobel Memorial Prize in Economic Sciences”.

    Evidently the Institute for New Economic Thinking shares in that confusion. Recipients are not “Nobel Laureates”; they are “Sveriges Riksbank Prize” winners. The difference is that the former work in disciplines for which Alfred Nobel made specific testamentary provision; for some unfathomable reason he didn’t see fit to include economics among them. (Doubtless it was just absentmindedness)?

    So the Swedish central bank took it upon itself to rectify his lamentable omission by the invention of its very own, bogus, “Nobel Prize” – the so-called “Prize in Economic Sciences (sic) in Memory of Alfred Nobel”. Thereby the bank sought to bolster the claims of economics to be accorded equivalent intellectual kudos to the physical sciences. In other words it was just a transparent stratagem in an ongoing PR campaign (a manifestation of a syndrome frequently found among economists, known as “physics envy”).

  20. beachcomber

    I’d like to point out that among the most caustic critics of the mainstream economics academy are a significant number of heterodox economists amongst whom are some who did foresee and warn about the inevitability of the Great Financial Crisis.

    Their aim is a a desperately-needed and fundamental reform not even mentioned in, let alone espoused by, the INET report, namely a radical shake-up in the teaching of economics, world-wide, with a wholesale revision of the university curriculum to include (in particular) the teaching of how the banking system actually works in a modern economy with a fiat currency – and the jettisoning of old wives’ tales (which people like “Nobel laureate” Paul Krugman continue to believe-in and propagate) like the loanable funds model of banking and the money multiplier, which are still being taught as holy writ.

    This is where mainstream neoclassical economics comes closest to theology – and the orthodox academy shows no sign whatsoever of purging itself of its fallacies because too many reputations, lucrative tenured appointments and consultancies are tied-up in sustaining them.

  21. bruce wilder

    I read all the way thru to this peroration. What a way to pull a punch.

    We venture to suggest that a close reading of the debates over financial regulation in the run up to the 2008 collapse will readily reveal the lengths to which authorities and collaborating economists went to stifle public debate. The guiding idea of efforts to reverse this state of affairs would not be to say that particular economic theories are right and or wrong but to assess whether the economic theories being applied are biased because they have never seriously been questioned. To win back public confidence, economists need to justify and support their ideas. That can happen only if we guarantee pluralism, so that they all are forced to argue with one another, instead of retreating to silos.

    I think they are pointing at two closely related and very real problems in mainstream economics — that differing views do not oppose each other effectively and productively. Fresh water and Salt Water call each other names, but, for all the prattling about rigor, they do not engage with each other on grounds of critical method. They tend to congratulate themselves on the proliferation of models, as Dani Rodrik recently did.

    But, if they are going to be made to argue with each other, what are they going to argue about, except what is wrong and what is right? “Assess” “bias”? And, do what when it is found, as it will be?

    1. beachcomber

      @bruce wilder

      Agree completely.

      It’s just navel-gazing, and will get precisely nowhere. A total break with the fossilised neoclassical mindset is the only answer, but its priesthood is in thrall to it and are the last people to be able to accept that it has any flaws. I wrote “theology” in my last post; it should have been “theocracy”.

      1. bruce wilder

        It is not that policy economists ignore the epistemic imperatives of social science qua knowledge-seeking and (inexplicably?) act as if they are the guardians of a theocratic dogma — I think policy economists actually do function in political society as priests and augurs did in the Roman Republic: theirs is a legitimizing function, deeply embedded in the apparatus of civic propaganda. Their outputs are a catechism and liturgy spun out from the rhetorical engine of “Econ 101” (aka the clichés of a “free market economy”) and a deeply obscure esoterica of DSGE and the like used to socialize and sort the seminarians.

        Johnson and Ferguson, the authors of the INET essay, seem to be at pains to argue that economics must reform in order to recover effectiveness as a legitimizing academic discipline, but shy away from confronting the full extent to which economics has become devoted to agnotology in service to legitimizing the powers-that-be.

        The implications of a socially and politically dominant academic discipline devoted to agnotology would indeed seem to include revolution as the authors acknowledge, by quoting Tocqueville. But, of course, the Viscount de Tocqueville was deeply ambivalent about the original French Revolution as well as the aristocratic enemy of the crass and authoritarian populism of Louis-Napoléon, who was brought to power as Napoleon III in the revolution Tocqueville was warning the French Chamber of Deputies about.

        Revolutions are destructive — it is hard for a sensible person not to be ambivalent about destruction, even when demolition is clearly necessary. If you are going to pack explosives around the foundations and light the fuse, you’d better have the sense to run far and fast — not stand around on the upper floors talking idly about patching the stucco or repainting, as Johnson and Ferguson appear wont to do. This is the problem with INET: Soros’ money has been used to pay interior decorators to discuss problems of structural engineering.

  22. Ignacio

    Thank you Yves for bringing this article. The review on the discussion about the citation counting indexes, journal impacts and the resulting hyerarchical biased system and flawed scientific “excellence” records is very good. It is apt for all scientific disciplines.

    It has always striked me the obsessive focus on rankings that I consider “native” of the US, but widely accepted elsewhere and is, i believe, one of the main forces driving hyerarchy and then inequality. Just the contrary of diverse that is the desirable system which delivers best results in any academic area.

    One easy measure not mentioned in the article would be to ban rankings.


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