" Science is often thought to proceed from a theory to experiments that test its predictions. If new data are discovered that cannot be explained by the theory, eventually a new theory arises to replace it. If the new theory can explain everything the old one did plus the new phenomena, sooner or later every scientist will adhere to the new paradigm."
there you have it the formal project of " a science "
"Neoclassical economics is taught in every college classroom in the United States and in almost every country in the world. Graduate students learn no other approach to economics. They are taught that neoclassical economics is a science, on a par with physics and the other natural sciences......This proves to them that economics is as applicable to society as physics is to the universe. There are, after all, immutable laws in both. The laws of demand and supply are no different, in principle, than the law of gravity. David Orrell, in Economyths, quotes Lawrence Summers as saying, “Spread the truth—the laws of economics are like the laws of engineering. One set of laws works everywhere.” "
"but ...."
drum roll
"... the authors of the three books under review deny categorically that neoclassical economics is a science."
and we're off after the hare apparent
in fact all is lost at jump street ..we are chasing a decoy
a decoy we built ourselves in fact
but to the bill of indictment:
" Economists have taken certain scientific concepts (such as equilibrium, stability, efficiency, feedback loops) and certain mathematical and statistical techniques and notions (such as calculus, probability, normal distribution, randomness, independence) and applied them to society in ways both inappropriate and simple-minded. "
"Each of these writers concludes that, while economics has scientific pretensions, it is primarily an ideology that supports the interests of the rich and powerful, and in the process, confers prestige, influence, and money on its practitioners."
Modern Political Economics gives us the most sophisticated account of the surreal character of neoclassical economics. This book is not for beginners; a prior understanding of economics is required to get through it. And patience, as it is more than five hundred pages long. However, its deconstruction and demolition of neoclassical economics is devastating. Yanis Varoufakis, Joseph Halevi, and Nicholas J. Theocaratis show us in superb detail how economists have constructed a model of the capitalist economy that assumes it is exactly analogous to a flawlessly operating machine system (they use the movie The Matrix to good effect as an example).
s definbition of a paradigm:
"Neoclassical economists assume that society is made up of independent, self-interested, and all-knowing human beings, who come together in marketplaces over which they exert no control, and all at once arrive at agreements in such a way that every market clears. That is, a price is established at which the supply of every single commodity equals the demand for it. Furthermore, the general equilibrium achieved is one of maximum social efficiency. It is what economists call “Pareto efficient,” after the Italian economist Vilfredo Pareto; it describes an equilibrium such that no change away from it can make at least one person better off without making anyone else worse off."
critique of paradigm:
"Such an economy bears no resemblance to any actual existing economy, nor could it. There is no money in it, no government, no notion that there is a natural world in which production occurs, no workplaces. It is constructed in abstraction from the distribution of wealth and income. It is like a Georgio de Chirico painting, timeless and idealized. Yet, in an act of stunning legerdemain, neoclassical economists employ this imaginary model as if it were the ideal system of production and distribution, the only one that can be used to judge how well any contemporary capitalist economy is performing."
Since the notion of social efficiency has been defined prior to its building, and the equilibrium set of prices satisfies this definition, it follows that any deviation from equilibrium will be inefficient. Economists use this model to argue the undesirable consequences of minimum wage laws, labor unions, price controls, rent controls, income taxes, environmental regulations—indeed just about anything a government does. Because government actions will almost surely harm at least one person, they, by definition, must be ruled out. In addition, all attempts by governments to counteract unemployment (which can only be caused by some external and temporary shock to the economy, such as a drought or a flood) will be self-defeating, since the all-knowing buyers and sellers will immediately act to nullify the desired results of the government policymakers.
hector defeays achilles:
"Economist Robert Pollin put it well in a stinging critique of neoclassical luminary, Robert Lucas..."
"To begin with, Lucas assumed that people carried in their heads a fully worked out and accurate model of how the macro economy functions. In the event that the Federal Reserve tried to stimulate the economy and expand job opportunities by lowering interest rates, all rational people, working with the accurate macroeconomic models in their heads, would know that this initiative would end up causing inflation. More precisely, they would calculate how much inflation would be produced by the Feds intervention, and as such, they would also know that this acceleration of the inflation rate would erode how much they could buy at the given wage they were being paid. The workers would therefore realize that they would be foolish to deliver the same level of work effort until their wages were raised to compensate them for the rise in inflation. The unemployed would similarly refuse job offers whose wages did not account for the erosion of their buying power that would result through the inflation that they would have accurately anticipated.
I remember in the 1980s challenging my Ph.D. students to help me carry out accurately even one of the multiple calculations Lucas claimed anyone could and did perform on a regular basis. Needless to say, we all failed the assignment, and I have no doubt that Lucas himself would have failed. The reason was simply that there was no possible way anybody could know all the things that Lucas blithely asserted everyone knows as a matter of course. (“The Wall Street Collapse and Return of Reality-Based Economics,” Monthly Review 62, no. 4 [September 2010]: 6)
There is much more to Modern Political Economics than a skewering of neoclassical economics. It is, in fact, an exceptional history of economic thought. The authors explicate the economic ideas of every major thinker: Aristotle, the Physiocrats, Adam Smith, David Ricardo, Karl Marx, Leon Walras, Alfred Marshall, Kenneth Arrow, Gerard Debreu, Paul Samuelson, John Nash, John von Neuman, John Maynard Keynes, Milton Friedman, Friedrich Hayek, Michal Kalecki, Paul Sweezy, Robert Lucas, Eugene Fama, and many more. Their intellectual history is the prelude to an examination of the Great Recession triggered by the bursting of the housing bubble. The authors argue that the failure of mainstream economists either to see that an economic collapse was coming or to know what to do about it was due in large part to what they call “lost truths” and “inherent errors.”poor dickie R takes a pranging :
".. Ricardo’s model of the capitalist economy has considerable logical purity. But following his attempt to show, within one grand framework, both how the economy grows over time and what determines the ratio of one price to every other price (something the authors say is impossible and represents the “inherent error” of all general economic theories), Ricardo concluded that there could not be an economic crisis caused by insufficient aggregate demand for goods and services."
"...ignored the challenge ... by Sismondi and Malthus......an important “truth” ... lost for a century, until John Maynard Keynes .."
Economics for the Rest of Us .... divided into two, interrelated, parts. Part One challenges the use of Pareto optimality.... resurrects (Bentham's ) Utilitarianism... a society should always do those things that give rise to the greatest ... (utility) for the most people. ... assumed... an extra dollar yields a lower utility to the rich than to the poor. Maximum social utility is therefore highest when everyone has the same income. "
"With Pareto... we have no way to judge any public policy... Only when some win and not one person loses does Pareto give the go-ahead. ..since it is impossible to measure utility, we cannot know for sure that an additional dollar will give less pleasure to the rich than to the poor person. Thus, there is no justification for government redistribution schemes."
".. with Bentham, we act whenever the gains to the winners are greater than the losses are to the losers. Combined with the argument that the utility of additional money falls, the more money a person has, Utilitarianism gives us ample justification for many public policies. "
"...eminently good public programs ...routinely condemned by neoclassical economists......
price controls for necessary medicines, subsidies to those with low incomes, Medicare, rent controls, progressive taxation, and anti-pollution laws.....
",,,some seldom discussed consequences of growing income inequality. ..., the pervasiveness of ... oligopoly
... confers pricing power ...which leads to higher prices and smaller output than when markets are more competitive. "
"....growing inequality interacts with oligopoly power to deny access to goods and services to those in the middle and at the bottom of the income distribution. "
"....it is more profitable for a monopolist to cater to the rich."
.. if Manhattan apartments were limited in size to 1,200 square feet, then, without constructing even one new building, the supply of apartments for ownership would increase by 35 percent and the supply of apartments for rent would increase by 20 percent.”
." If a few rich patients pay more for a doctor’s services, then, other things being equal, the GDP is higher than it would have been if the doctor had welcomed all patients."
"...inequality is a good thing. What else would keep everyone working so hard?"
"... inequality is but a reflection of unequal productiveness..... "
John Bates Clark. quote:
"The welfare of the laboring classes depends on whether they get much or little; but their attitude toward other classes—and, therefore, the stability of the social state—depends chiefly on the question, whether the amount that they get, be it large or small, is what they produce. If they create a small amount of wealth and get the whole of it, they may not seek to revolutionize society; but if it were to appear that they produce an ample amount and get only a part of it, many of them would become revolutionists, and all would have the right to do so. The indictment that hangs over society is that of “exploiting labor.” “Workmen” it is said, “are regularly robbed of what they produce. This is done within the forms of law, and by the natural working of competition.” If this charge were proved, every right-minded man should become a socialist; and his zeal in transforming the industrial system would then measure and express his sense of justice. If we are to test the charge, however, we must enter the realm of production. We must resolve the product of social industry into its component elements, in order to see whether the natural effect of competition is or is not to give to each producer the amount of wealth that he specifically brings into existence."
" Clark’s formulation... a gross misapplication of Ricardo’s theory of ground rent"
"... workers are paid a wage equal to what they add to their employer’s revenue. "
" Clark and his neoclassical progeny assume that workers can be added, one at a time, to the employer’s land, materials, and machinery, and that we can then measure the amount by which production rises.
This amount, valued at the market price, is presumed to measure the typical worker’s productivity. "
"Competitive conditions in labor markets will ensure that the wage rate exactly equals this “marginal revenue product.” "
"...dismantles this theory by pointing out that there are no plausible real-world examples of it. "
"Modern production is carried out by groups of workers, and if an employer uses more labor, it has to use more capital as well. "
"... it is impossible to separate the productiveness of one worker from the others, or of labor from capital. "
"... grim predictions flow from Clark’s model: raising the minimum wage will cause an increase in unemployment; union wages will do the same. And mass unemployment (as in the Great Depression) is the consequence of the failure of wage rates to fall enough to induce employers to hire more people."
"... the Great Depression can be explained by so-called “sticky” wages"
". Both free market extremists, such as Milton Friedman, and liberal moderates, such as Joseph Stiglitz, blame workers for mass unemployment. "
"Friedman claimed that workers are unemployed because they will not accept lower wages when the demand for their labor falls. ..."
. Keynes showed us that falling wages and prices can lead to uncertainty about the future, and this is what might keep unemployment high."
"Stiglitz’s ...argued that employees are always trying to “shirk,” that is, work as little as possible. To prevent this, employers must pay a higher wage than is consistent with full employment.The resulting unemployment is just what is needed to keep those employed hard at work"
"; they don’t want to lose their shirking premium. "
"modern workplaces have been so thoroughly Taylorized (designed and monitored to maximize employer control, per the dictates of Frederick Taylor) that shirking is nearly impossible."
" Economyths .. an applied mathematician without formal training in economics. ...
"... a question both obvious and unanswered by mainstream economics. Why did economists not see that the economy was about to implode in 2007? "
".... fault is in the fundamental assumptions " “efficient market theory,” . ...always “right.” The only deviations from the market price are the result of random, small shocks. Since they are random, they are predictable using the laws of probability and the normal distribution. "
"... there could have been no housing bubble, no bursting of the bubble, and no Great Recession....
They are ruled out by assumption, the entire chaotic history of capitalism notwithstanding."
"ten “economyths”...:
(1) the economy can be described by economic laws;
(2) the economy is made up of independent individuals;
(3) the economy is stable;
(4) economic risk can be easily managed using statistics;
(5) the economy is rational and efficient;
(6) the economy is gender-neutral;
(7) the economy is fair;
(8) economic growth can continue forever;
(9) economic growth will make us happy;
(10) economic growth is always good.
"... traces Summers’s “one set of laws works everywhere” to Pythagoras’s fascination with the regularity of numbers. "
"Isaac Newton and his physics attracted the original neoclassical economists—William Stanley Jevons, Pareto, and Leon Walras"
". The beautiful symmetry of supply and demand equilibrium derives directly from nineteenth-century physics."
" Unfortunately, human societies cannot be analyzed using the concepts of physics. They are too messy and complex; power of all kinds is critical to them but has nothing to do with the subject matter of the sciences; and, while the universe is indifferent to happiness, human beings are not."
author orrell's contention:
" Although economies are complex systems and therefore not amenable to one-dimensional theories that aim to explain everything, it is possible to find “pockets of predictability.” "
"If we cannot know when an economic crisis will occur or how deep it will be, we can perhaps predict that when we deregulate our banks, we will have problems. "
"Our economies have much in common with networks, like electrical grids, and we can prevent a breakdown in one part of the grid from spreading and causing catastrophe by taking simple steps, such as insulating one part from another. One example would be to maintain a separation between commercial and investment banking. Another would be to have a backup plan, such as forcing financial entities to keep larger money reserves on hand at all times. "
"In mainstream economics, more production is always good because we assume it will make us happier. However, sociologists, psychologists, medical researchers, and ecologists have found that more consumption and more possessions do not make us happier; that the negative consequences of growing inequality can outweigh any positive results of increasing output; that economic growth is destroying the planet. Economists ignore such research at their peril."
" Marx showed that human labor is not reducible to an ordinary commodity; workers rebel against their exploitation....Marx succumbed to the “inherent error,” of using the labor theory of value to explain relative prices, giving rise to the infamous “transformation problem.” They imply that Marx’s failure here is one reason why his truths about profits and labor have been lost. This is much too simple. Marx’s truths have been lost because the class struggle waged by the working class has not succeeded in effectively challenging the rule of capital. Neoclassical economics is the economics of capital, as Marx’s political economy is that of the working class. As long as capital rules without a radical presence fighting against it, neoclassical economics will rule as well. No such presence exists today in any rich capitalist country, or, with a handful of exceptions, in any poor nation, either."
", stating the obvious stupidities and shortcomings of neoclassical economics will do nothing to weaken its hold. "
