tag:blogger.com,1999:blog-2803301992615276792024-03-13T14:12:41.808+01:00The Underhanded EconomistEconomics is not rocket science. It's not even science.Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.comBlogger38125tag:blogger.com,1999:blog-280330199261527679.post-77407456745700116322016-10-14T16:33:00.000+02:002018-04-18T15:31:32.069+02:00Der stille Abschied der Ökonomie von der AngebotspolitikDie Angebotspolitik -- <i>supply-side economics</i> im O-Ton -- hat seit nunmehr 30 Jahren die ökonomische Realität in der Welt bestimmt. Ökonomen haben Politiker und Regierungen beraten und Generationen von Studenten ausgebildet, und wir haben unsere Volkswirtschaften nach ihren Vorgaben umgebaut.<br />
<br />
Und nun stellt sich heraus, dass es für diese ökonomische Theorie offenbar <i>niemals eine wissenschaftliche Basis gab.</i> So schreibt der Nobelpreisträger für Ökonomie Paul Krugman in seinem <a href="http://krugman.blogs.nytimes.com/2016/07/18/the-gops-original-sin/?smid=tw-nytimeskrugman&smtyp=cur&_r=0">Blog in der New York Times</a><br />
<blockquote class="tr_bq">
<i>Supply-side
economics never had any evidence behind it; it never had any support in
academic research; it barely even had any support among economic
researchers and forecasters in the business world. It was and remains
crank economics pure and simple, with nothing going for it except
political convenience.</i></blockquote>
Er wiederholte seine Kritik gegen supply-side kürzlich in Genf anlässlich eines Vortrags am Graduate Institute Geneva (<a href="https://youtu.be/h3pkhcbPdi8?t=3028">YouTube video, ab 50:30</a> , speziell ab 51:08 "Was the evidence always really that good?").<br />
<br />
Tatsächlich
wurden die Versprechungen der Angebotspolitik (Wachstum, Vorteile für
Mittelstand, etc.) nie realisiert. Sie resultierte stattdessen in
geringerem Wachstum, grösserer Ungleichheit, unternehmen-schädlichem
Kurzfrist-Denken, Instabilität in den Finanzmärkten und in der Folge
häufigerer und schwererer Finanzkrisen, von deren letzter wir uns (mit
Ausnahme der obersten 1%, die immer profitieren) bekanntlich immer noch
nicht vollständig erholt haben.<br />
<br />
Obwohl
es gemäss <a href="http://krugman.blogs.nytimes.com/2016/07/18/the-gops-original-sin/?smid=tw-nytimeskrugman&smtyp=cur&_r=0">Paul Krugman</a> nie eine wissenschafttliche Basis für die Supply-Side Politik gab,
hatten Ökomen in der Akademie oder in der Praxis deren Thesen propagiert
und in der Folge sowohl dem Mittelstand der Länder, als auch deren
Volkswirtschaften immensen Schaden zugeführt.<br />
<br />
Interessant
ist nun, dass sich die Ökonomie angesichts der Fehlleistungen der von
ihnen eben noch propagierten Thesen inzwischen offenbar still und heimlich von ihnen
verabschiedet hat. So hiess es im Wikipedia-Artikel zur Angebotspolitik vom
<a href="https://de.wikipedia.org/w/index.php?title=Angebotspolitik&oldid=146931096">21. Oktober 2015</a> unter dem Titel <i>Geschichte</i> noch:<i><br /></i><br />
<blockquote class="tr_bq">
<i>Die
Mehrheit der Ökonomen in Deutschland neigte sich in den letzten Jahren
der Angebotspolitik zu. So formulierten im Jahr 2005 mehr als 250
deutsche Professoren der Volkswirtschaftslehre einen
angebotsorientierten Grundkonsens im Hamburger Appell.</i></blockquote>
In der Überarbeitung des Artikels vom <a href="https://de.wikipedia.org/w/index.php?title=Angebotspolitik&oldid=149276509">21. Dezember 2015</a> wurde dieser Passus klammheimlich entfernt (vgl Titel <i>Rezensionsgeschichte</i>).
Kein Hinweis mehr darauf, dass Ökonomen jemals einen "Grundkonsens"
zur Angebotspolitik formuliert und die ideologische Basis für den Umbau
ganzer Volkswitschaften gelegt hatten.<br />
<br />
Da die
Ökonomie offenbar auf jeden Modetrend aufspringt -- sofern er
mittelstands-feindliche Konsequenzen hat -- und sich dann still von
ihnen verabschiedet, ohne jemals Rechenschaft abzulegen, Fehler
zuzugeben und in der Konsequenz den Rückbau dieser Fehlleistungen zu
fordern, sollten wir nicht denselben Fehler noch einmal machen, wenn sie
nun die Festschreibung dieser Fehlleistungen in unumkehrbaren
Freihandelsvertägen wie TTIP oder TiSA fordern.<br />
<br />
Wir sollten uns eher
überlegen, wie wir verfahren würden, wenn sich an einer andern
universitären Fakultät eine vergleichbare Fehlleistung ereignet hätte,
wie die der Angebotspolitik in der Ökonomie oder gar dem Unvermögen der sogenannten Wissenschaft,
die Finanzkrise von 2008 nur schon zu erkennen, während sie im Begriffe
war, die Weltwirtschaft kollabieren zu lassen. Würden wir eine solche
Inkompetenz andernorts auch einfach so hinnehmen und den Akademikern gestatten, dieselben
erwiesenermassen falschen Thesen einer neuen Generation von Studenten
als Dogma und Lehre einzutrichtern?Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-4274469381067078502016-03-03T20:12:00.002+01:002016-03-09T08:14:01.002+01:00The Fallacy of Perfect CompetitionI've written extensively about perfect competition and the fact, that the claims made by economists cannot be reproduced in a computer simulation a.k.a by evidence -- incidentally, the only thing that matters in a discipline that wants to be taken seriously as a science.<br />
<br />
The solution to this apparent riddle rests on a contradiction: the claims made about perfect competition hold <i>only</i>, if the firms are <i>not </i>profit maximizers. If they are, the quantities and prices are the same as in a monopoly, or more precisely (and less misleadingly) something I hereby define as <i>Total Market Level</i>.<br />
<br />
To understand why, one must first understand the concept of maximum. A monotonous function has a maximum, if and only if its value "goes up", and then beyond its maximum position "goes down" again. So, if there is a maximum profit, this implies that there's a certain quantity, below <i>and </i>above which profits are smaller than at that quantity <br />
<br />
A bit more formally: Let's assume that the profit function has a maximum P<span style="font-size: x-small;">max</span> at quantity Q<span style="font-size: x-small;">max</span>. This implies that for all quantities q < Q<span style="font-size: x-small;">max</span> or q > Q<span style="font-size: x-small;">max</span> profits will be <i>less </i>than P<span style="font-size: x-small;">max</span> (otherwise P<span style="font-size: x-small;">max</span> would not be a maximum). Notice that this implies that if q < Q<span style="font-size: x-small;">max</span>, increasing quantities produced will increase profits. But notice also, that for quantities q > Q<span style="font-size: x-small;">max</span>, profits can only be increased by <i>decreasing </i>quantities produced.<br />
<br />
This profit function depends only on the market demand curve. Indeed, above discussion did not involve any mentioning of the number of firms. Now, let's assume we have K profit-maximizing producers that together produce Q<span style="font-size: x-small;">K</span> items:<br />
<blockquote class="tr_bq">
Q<span style="font-size: x-small;">K</span> = Σ<span style="font-size: x-small;">i=1..K</span> q(i)</blockquote>
If Q<span style="font-size: x-small;">K</span> is less that Q<span style="font-size: x-small;">max</span>, any of the K firms that produces one additional item will make a positive profit. Being a profit maximizer, it will do that, eventually increasing Q<span style="font-size: x-small;">K</span> to equal Q<span style="font-size: x-small;">max</span>.<br />
<br />
If, on the other hand, Q<span style="font-size: x-small;">K</span> is bigger than Q<span style="font-size: x-small;">max</span>, producing additional items will reduce profits for it (and, incidentally, for all other firms as well). However, producing even one fewer item will positively increase profits (because to the "right" of the maximum, profits are increased by reducing the number of items). Being a profit maximizer, the firm will therefore reduce the number of items produced until Q<span style="font-size: x-small;">K</span> equals Q<span style="font-size: x-small;">max</span>. This holds for any K (number of firms).<br />
<br />
But, perhaps by producing one additional item, the firm may reduce profits for everybody else (because of the falling demand curve) but <i>still</i> increase profits for itself? After all, there's one additional item to sell! Well, let's check, shall we. The firm increases profits for itself if and only if<br />
<blockquote class="tr_bq">
P' = (Q+1)*p(Q+1) ≥ P = Q*p(Q)<br />
(Q+1)*p(Q+1) - Q*p(Q) ≥ 0</blockquote>
that is, if one more item sold at the new, lower price is still more than one less item at the old, higher price (for simplicity we assume no cost, i.e. price equals profit).<br />
<br />
But notice, that this is the difference between two profit maximization curves, the first term being "one step" (i.e. one item) ahead. So the first term will pass the maximum profit P<span style="font-size: x-small;">max</span> at Q<span style="font-size: x-small;">max</span> first, and from then on will always be smaller than the second term. So you <i>can </i>increase profits by selling additional items, <i>but only </i>until the maximum quantity is reached. After having passed Q<span style="font-size: x-small;">max</span>, profits will fall <i>for anyone who produces additional items</i>.<br />
<br />
If firms are profit maximizers, none of them will produce that one item (or any further ones), and the total number of items will be Q<span style="font-size: x-small;">max</span>. After all, any that did would shrink its profit because of this one item (and more so because of all further ones), contradicting its being a profit maximizer. <br />
<br />
<i>Perfect Competition</i><br />
<br />
Economists will counter that all of the above is irrelevant as an argument against the concept of perfect competition, because of the fact that perfect competition requires that firms have no market power. In other words, the offered quantities of any of the firms are so small so as not to affect market prices.<br />
<br />
It is true that the concept of perfect competition entails this requirement, but notice that this also implies the following two statements:<br />
<ul>
<li>Firms are not subject to the "law of demand"</li>
<li>Firms are not profit maximizers</li>
</ul>
The first of these statements is obvious: if selling a hundred units less or a thousand more does not affect market prices, then the law of demand does not hold. After all, it is the whole point of the demand curve that -- as a continuous and monotonous function of quantity -- it assigns a specific price variation to <i>any </i>specific variation of quantity.<br />
<br />
The second point is less obvious, but equally cogent: if any variation of quantities doesn't also change prices, there can't be any variation of profits (which, after all is price minus cost), and the whole concept of profit maximization disappears. Poof! Gone! This last point exemplifies the mendacity of economics: by stating innocuously that firms have no market power, they underhandedly change the rules of the game: firms stop being profit maximizers. And indeed, if you look closely, you will see that at P=MC firms maximize <i>quantity</i>, and not profit!<br />
<br />
Perfect competition is a <i>singularity</i> where the "laws" of economics don't apply. Like with the event horizon around a black hole, where the laws of physics and the concept of time stop applying, there is kind of an event horizon around perfect competition. Inside, there's no price variation with respect to variation of quantity (i.e. no law of demand) and hence no profit variation/maximization. Note in particular that you cannot "reach" perfect competition by
increasing the number of firms. The whole discussion above did not
involve any particular number of firms. Prices and profits are at <i>total market price and quantity levels </i>(what economists misleadingly call "collusive" or "monopoly" levels) for <i>any </i>number of firms. <i>You have to change the rules</i> in order to get to perfect competition.<br />
<br />
So firms maximize quantity instead of profits inside the singularity called perfect competition. But why would they do even <i>that</i>? If there's no profit to be made and revenue covers only cost of production (what P=MC actually means), why would they bother maximizing even quantity? Sometimes economists claim that there's some "intrinsic" profit contained in the cost, so that they actually do make "some" profit. But there's the obvious problem that a producer could then just reduce this "intrinsic" profit, lower prices and thus attract more business, ultimately driving the intrinsic profit down to zero. Ha! economists will yell, now we gotcha! They won't do that, because they're profit maximizers! Yes, but if they are, they'd maximize profits even further, and go all the way to P<span style="font-size: x-small;">max</span> at quantity Q<span style="font-size: x-small;">max</span>, wouldn't they? It's a contradiction! <i>Either</i> they're profit maximizers, then they end up at P<span style="font-size: x-small;">max</span>. <i>Or </i>they operate at P=MC, but then they are <i>not </i>profit maximizers. They cannot be/do both.<br />
<br />
<i>Cournot-Nash formula</i><br />
<br />
The <i>Cournot-Nash formula</i> is a continuous function in N, the number of firms, that approaches perfect competition as the number of N is increased. Yes, this is true, but <i>only </i>if the firms are not profit maximizers (Note that we have seen above that for <i>any </i>number of profit maximizing firms, quantities and prices will be at <i>total market levels</i>. If there's a contradiction with Cournot-Nash it <i>must </i>be with respect to profit maximization).<br />
<br />
Indeed, if they are profit maximizers, prices and quantities <i>will </i>end up at total market levels. You don't even have to work through the mathematics of the Cournot-Nash formula on the wikipedia page about the <a href="https://en.wikipedia.org/wiki/Cournot_competition">Cournot competition</a>. It suffices to jump to <a href="https://en.wikipedia.org/wiki/Cournot_competition#Implications">Implications</a> to see that...<br />
<blockquote class="tr_bq">
According to this model the firms have an incentive to form a cartel,
effectively turning the Cournot model into a Monopoly. Cartels are
usually illegal, so firms might instead tacitly collude using
self-imposing strategies to reduce output which, <i>ceteris paribus</i> will raise the price and thus increase profits for all firms involved.</blockquote>
This wording would make any sleazy politician proud of himself, had he come up with it. In short and cleared of all the misleading double talk, it means the following:<br />
<blockquote class="tr_bq">
If firms are profit maximizers, prices and quantities will end up at total market levels.</blockquote>
If you don't believe it, here's the same paragraph with some "special typography" to assist in your grasping the core of it:<br />
<blockquote class="tr_bq">
According to this model the firms have an incentive to <span style="color: #cccccc;">form a cartel,
effectively turning the Cournot model into a Monopoly. Cartels are
usually illegal, so firms might instead tacitly</span> <span style="color: #cccccc;">collude </span>[be] using <span style="color: #cccccc;">
self-imposing </span>strategies to <span style="color: #cccccc;"><span style="color: black;">reduce output</span> which, </span><span style="color: #cccccc;"><i>ceteris paribus</i> </span><span style="color: #cccccc;">will raise the price <span style="color: black;">and thus </span></span>increase profits<span style="color: #cccccc;"> for all firms involved</span>.</blockquote>
There's a technical term for these "strategies to reduce output and thus increase profits": it's called profit maximization. Note that economists call it collusion (indeed, <i>tacit </i>collusion! Why not call it insidious?) when firms ruin the claims made by economists about perfect competition -- just by being profit maximizers.<br />
<br />
<i>The best for last</i><br />
<br />
The concept of competition in general and our discussion at the beginning rests on the (implicit) assumption that firms have complete knowledge. If we relax that requirement we can make an interesting discovery.<br />
<br />
If firms <i>don't</i> have total knowledge, they know that they have passed the maximum profit level <i>only</i> <i>after </i>having produced that one item that has reduced their profit. In other words, they don't know quantity Q<span style="font-size: x-small;">max</span> (which will maximize profits for them), but they'll notice that profits start falling after having produced item number Q<span style="font-size: x-small;">max</span>+1. Sorry, too late!<br />
<br />
This is of course true for any and all of them. Each firm will therefore produce one item too many. They don't "collude" so they don't share this information. Every firm will have to discover on its own.<br />
<br />
So K firms together will produce Q<span style="font-size: x-small;">max</span>+K items. The interesting bit is that this is <i>exactly </i>what we discover if we run a computer simulation of this kind of competition between profit maximizers! Quantities are slightly higher and prices/profits are slightly lower than what would be expected at actual total market levels, because some firms (statistically half of them) have overshot while attempting to guess Q<span style="font-size: x-small;">max</span>.<br />
<br />
Real evidence in the form of a computer simulation thus confirms our result -- even down to its practical limitation, namely that we don't have total knowledge. Wow, if we give up unsubstantiated ideological dogmas and rely on evidence instead, economics can be a science, after all!<br />
<br />
<i>Further Reading</i><br />
<a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2594577">A Reconsideration of the Theory of Perfect Competition</a>, Dimitrios Nomidis<br />
<a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2736690">The Fallacy of the Perfect Competition Theory</a>, Dimitrios Nomidis<br />
<br />
<i><span style="font-size: x-small;">Updated: 09.03.2016</span></i>Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-71002611156536379032015-12-14T10:33:00.000+01:002016-03-04T09:13:47.656+01:00How economists workThe model was amazing. It was neat and slick and smooth all around, had no edges. It looked just perfect.<br />
<br />
"Does it float?" I asked excitedly.<br />
<br />
"Of course!" The boat maker said. "Look!"<br />
<br />
He went to the whiteboard and drew sketches, scribbled formulas and explained his theory of boat making in all details. It looked awesome.<br />
<br />
"That's awesome," I said. "Now, does it float?" I asked even more excitedly.<br />
<br />
"Yes", the boat maker said, "I just showed you". Then he summarized the most salient points of his theory while pointing here and there on his whiteboard.<br />
<br />
"Great", I said slightly but back. "Can I put it in water and see it floating?"<br />
<br />
"Ah.. it's not really necessary. <a href="https://youtu.be/I97y0NboLrk?t=448">We had this philosophical debate since the nineteen seventies. People will never agree about the facts, but it's logical</a>: If you build boats according to the theory they'll float".<br />
<br />
He turned to the door, where his secretary appeared. "I'll be right there", he called, then turned to me again. "You'll excuse me", he said. Then he left.<br />
<br />
I stood there for a while, then I couldn't resist. I gently grabbed the model of the boat, walked to the tank in the laboratory and very gently put the model into the water. It sank like a stone.<br />
<br />
I was shocked. How can that be? The theory said it would float. I walked to the whiteboard and checked the theory. It seemed flawless, but then I noticed something strange: In the boat maker's theory of boat making, there was no concept of water. Water <i>was </i>mentioned, but only in the most cursory manner: Because there cannot be any water <i>inside </i>the hull (otherwise the boat would be too heavy and would not float), water does not play any significant role to the details of the inner construction of boats, which after all is a container of sorts. Only what's <i>inside </i>a container matters. If there can't be any water <i>inside </i>the boat, water can be ignored, obviously. This is a valid simplification of theory. Because it is. You're not a boat maker, so how would you know. Perhaps you <a href="http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/07/can-you-please-read-a-first-year-textbook.html">read a first year's boat making text book</a>, before you discuss boat making theory.<br />
<br />
I was shivering. Could it be that during the last 30 years since supply-side boat making came into fashion, we designed boats according to a theory where water was absent? Could it be that the boat sinking crisis of 2008 was due this flawed theory? After all, those boats were sinking in <i>water</i>.<br />
<br />
How could we ever know. No boat maker has ever been called to account for the miserable failure in recognizing the boat sinking crisis of 2008. Indeed, the same flawed theory of boat making is still taught to this very day.<br />
<br />
<div class="copy-paste-block">
<div class="bq_fq_a">
<i>It doesn't matter how
beautiful your theory is, it doesn't matter how smart you are. If it
doesn't agree with experiment, it's wrong.</i> <span style="font-size: x-small;">Richard P. Feynman</span></div>
<div class="bq_fq_a">
<br /></div>
</div>
Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-34577040122514431282015-12-11T15:07:00.000+01:002018-04-18T15:51:03.538+02:00The Dog Leash Model of EconomicsWe're in unchartered territory. Billions of QE funds that don't appear to reach main street and don't appreciatively stimulate the economy. Business taxes are low, credit is free, yet there are practically no investments. What's going on?<br />
<br />
This is an instance of what I call <i>The Dog Leash Model of Economics</i>.<br />
<br />
Let me explain.<br />
<br />
The economy works like a dog on a leash. There's an important property of a leash, that is totally underestimated: You can <i>pull </i>on a leash, but you cannot <i>push</i>. That's because of the way ropes of any kind, including dog leashes, are constructed. While they technically transmit forces equally well in both directions, this holds only true as long as there is tension in the leash. As soon as there is slack in the rope, you lose the ability to exert any force.<br />
<br />
At this point, you may ask yourself, why I'm writing as if I'm addressing a moron. That's because most economists are. No offense.<br />
<br />
Well, then how <i>does </i>a dog leash work? You can pull at the leash to slow down the dog. If the dog stops or lays down, you can pull at the leash to make him move (or stand up and then move) towards you. That's it. That's how dog leashes work. Note, that you cannot make a dog walk any other way. In particular, you cannot <i>push </i>a dog with the leash.<br />
<br />
What about incentives, you ask. Well, what about them? They are number 4 on Gregory Mankiw's <a href="https://en.wikiversity.org/wiki/10_Principles_of_Economics">10 Principles of Economics</a>, you say: "Dogs respond to incentives". So, if I give in on the leash, the dog walks faster. Incentives! Well, Gregory Mankiw is a moron. Did he see the financial crisis coming? No? Then why is anyone still listening to him?<br />
<br />
Alright then, what about <i>opportunities</i>? By giving in on the leash I can give the dog the <i>opportunity</i> to walk faster! Opportunities? Didn't see that one coming...<br />
<br />
Still, that's not true. You cannot make a dog run faster by giving him slack in the leash. A dog that is walking will keep on walking even if there's slack in the leash. You cannot push a walking dog with a leash.<br />
<br />
Then what about a <i>running dog</i> that's pulling you after him? By giving in on the leash, he can run even faster! Now, <i>that </i>is true, but note two things: first, this only works, if the dog is <i>running already</i>. You cannot make him walk or run in the first place. And second, if he's running so fast that he's pulling you behind him, perhaps you should not give in on the leash at all, because he may then run too fast for you and you may trip and fall and break your leg.<br />
<br />
OK, I think I get it, finally... (rolling eyes everywhere). Now what has all this dog leash business got to with economics? Glad you asked! That's because the economy works <i>exactly </i>like a dog on a leash!<br />
<br />
Let me explain.<br />
<br />
<i>Monetary policy works like a dog on a leash</i>.<br />
<br />
If you pull on the leash, i.e. <i>raise interest rates</i>, the dog (the economy) will slow down. That's because you inflict pain: you raise the price of money for banks. Banks will not shoulder the pain (would they ever?) and pass the higher cost on to the lenders. Lenders (businesses and consumers) will at one point feel that credit is too expensive now and stop taking any (and hence stop investing or consuming-on-credit). Pull, pull, pull. And thus the economy will gradually slow down. So, pulling on the leash, i.e. raising interest rates works.<br />
<br />
But what if you <i>lower </i>interest rates, i.e give in on the leash? Well, if the economy is running already, it may run even faster. So fast indeed, that you trip and fall and break your leg. We call such a situation<i> Financial Crisis of 2008</i>. But an economy that is laying down or walking slowly cannot be made to stand up and walk faster by giving in on the leash i.e. by giving more and cheaper credit.<br />
<br />
Because, what if the economy does not <i>want </i>to stand up or walk faster (does not ask for credit)? How can you make it? By pushing on the leash (forcing credit on him)? Won't work, because you cannot push on a leash.<br />
<br />
What about incentives? Well, what about them. We have below zero interest rates, central banks are flooding the system with free money, even after all the tax breaks that business got. So why aren't they investing? What more incentives do they need?<br />
<br />
<i>You cannot push on a leash</i>. The whole incentives thing is utter nonsense. People respond to incentives only, if the are <i>already </i>in the mood/ready/prepared to respond. But if they are already in the mood/ready/prepared they don't really need any further incentives. And if they are <i>not </i>in the mood/ready/prepared to respond, they simply won't -- with or without any incentives. Incentives don't work. Pain, however, <i>always </i>works.<br />
<br />
<i>Demand and supply works like a dog on a leash</i>.<br />
<br />
Demand means pulling on the leash. You want, so you pull. Supply is giving in on the leash. Here, take! <i>Push</i>. This is why supply-side economics never seems to work. <i>You cannot push on a leash</i>. Unless businesses produce for the warehouse, somebody sometime has to <i>buy </i>all that stuff, i.e. <i>pull</i>. To that end, they need <i>money</i>, because businesses are not giving their stuff away. So if you take money from those who buy and give it to those that produce, how is the buyer going to pay for the thing? But more importantly why should businesses hire more people or invest, if you give them the money? Why should they? Incentives? Incentives don't work, only pain does.<br />
<br />
Businesses invest and hire only if they're <i>forced to</i>, i.e. if somebody pulls -- hard! -- on the leash. The shop owner orders new supplies only if the shelves are getting empty <i>because of demand</i>. The supply chain orders new supplies from the producers only if the warehouse is getting empty <i>because of demand</i>. The producers produce only if they're getting orders from the suppliers <i>because of demand</i>. Pull, pull, pull. And all of them hire only if they cannot keep up with the production/warehouse stacking/shelf stacking, i.e. if they <i>cannot keep up with demand</i>. Because if they don't respond, customers, suppliers will find another shop/producer, in other words, they will inflict pain on the original shop or producer, and we know, pain <i>always </i>works.<br />
<br />
So there you go. You have now learned an important lesson about the economy, that most economists are totally unaware of: <i>The Dog Leash Model of Economics</i>, the only explanation of economic processes that really works.<br />
<br />
If henceforth any economist or supply-sider ever wants to lie to you by saying that supply-side works or that incentives work or that the Dog Leash Model of Economics is bullpucky, you have now officially been licensed to hit them hard between the eyes, legs, or any other body part where it hurts most.<br />
<br />
Because pain <i>always </i>works.<br />
<br />
<i>Update</i> <span style="font-size: xx-small;">[14.12.2015]</span>: Why are you saying that Gregory Mankiw is a moron, just because he didn't see the financial crisis coming? It may be true that the economic models that he teaches did not work when faced with the upheaval of the financial crisis, but they worked well all the time before!<br />
<br />
Did they? How do you know? How can you say that an airbag that did not ignite in an accident "worked well all the time"? Perhaps it never worked, but you just didn't know because it was never tested. How do you know that a boat floats if it's never set in water? Of course, it never sank while the boat was ashore. It only sank, when it was set in water for the first time.<br />
<br />
<i>It doesn't matter how beautiful your theory is, it doesn't matter how
smart you are. If it doesn't agree with experiment, it's wrong.</i> <span style="font-size: x-small;">Richard P. Feynman</span>Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-91630048502656312812015-05-11T20:53:00.002+02:002019-03-18T08:20:31.904+01:00Open Letter to Leftist Parties of the World (plus Switzerland)When (or <i>if</i>, depending on your point of view) Global Warming begins to hit us all, there's one thing nobody is able to ask: <i>Why weren't we warned?</i><br />
<br />
Oh, we were warned! For more than 20 years climate scientists keep reminding us about the potential dangers of Global Warning, but we chose -- and continue to choose -- to ignore them.<br />
<br />
The situation with our economic situation is strangely converse to the situation in climate science. Indeed, we did <i>everything</i> economists asked us to do. We lowered taxes for the rich and corporations so they could invest more. We privatized public utilities so they would operate more efficiently and cheaply. We deregulated (or stopped regulating altogether) financial markets so the free market could allocate capital resources optimally. We liberalized labour markets so that free enterprise could employ workers more flexibly and effectively. And still, the global economy collapsed under the weight of a financial crisis that exceeded even that of the Great Depression. And nobody within the economics profession saw it coming.<br />
<br />
And it wasn't even an unforeseeable event like an earthquake. It was rather like a battered cruise ship running full with water and slowly sinking. Even an idiot like <a href="http://en.wikipedia.org/wiki/Costa_Concordia_disaster">Captain Schettino</a> recognized the danger and let himself "drop into a lifeboat" when the Costa Concordia sank. <a href="http://www.ft.com/cms/s/0/50007754-ca35-11dd-93e5-000077b07658.html#axzz3b9iZa0R5">So why didn't economists see it coming?</a> Or rather, why did the economy collapse in the first place, when we did all that was asked of us.<br />
<br />
For the last 30 years the world's economic system has been market-liberalism (sometimes also called supply-side economics, trickle-down, neo-liberalism, globalization etc.). It centers around a set of claims made about economic subjects (that would be corporations. And us) and markets. These claims are the direct consequence of economic theory. These claims are positive, factual, verifiable propositions that can be tested. And when they are tested, they prove to be wrong, time and time again.<br />
<br />
If competitive financial markets are efficient, as the efficient markets hypothesis claims (EFM, for which Eugene Fama received the Nobel price for economics), a financial crisis of the sort we witnessed in 2008 <i>cannot possibly happen</i>. We know (and economists agree) that financial asset markets are very close to the perfect competitive markets they believe in, because it has been vigorously deregulated -- or not regulated at all as in the case of derivatives -- and still the market imploded under its own weight in the credit crisis of 2008. Something can't be right.<br />
<br />
We lowered the taxes on corporations and the rich (in Greece the latter seem not to be taxed at all), so why don't they invest as economists claim they will? Something can't be right.<br />
<br />
Central banks flooded the markets with practically free money, so why don't banks extend credit? Or businesses ask for credit as economists claim they will? Why don't they respond to these incentives? Something can't be right.<br />
<br />
The answer for us is obvious: lack of demand. But wait, according to economic theory supply creates its own demand, that's why it's called <i>supply-side economics</i>. The beneficiary of economic policy is supposed to be the supply side because demand-side economics that we had before the 80s didn't work. If the supply-side does well, demand will follow afoot. So why is there lack of demand? There can't be, if economic theory is right. Perhaps it isn't?<br />
<br />
Economists claim that taxation of the wealthy depresses their incentives to work and invest, and will ultimately suppress all economic activity. But there had been a time called the <a href="http://en.wikipedia.org/wiki/Post%E2%80%93World_War_II_economic_expansion">Golden Age of Capitalism</a> between 1946 and mid-1970s where the top marginal tax rate in the USA was 91% (until 1966 when it dropped to 70%). If the claim is correct there couldn't have been <i>any</i> economic activity in that time period -- <i>at all!</i> --, yet it is known as the Golden Age -- of <i>capitalism</i>. Something can't be right.<br />
<br />
So why do economists make claims like these that when tested prove to be wrong, again and again? Why do they keep demanding economic policy that fails to fulfill any of their claims? Indeed, the regulated social market economy with strong publicly owned infrastructure industry (electricity, telephone, postal service, water supply, waste removal etc.) and moderate to high taxation <i>consistently exceeded market-liberalism in every measure</i>, from inequality, to output, to GDP growth rate, to the number and severity of crises and so on, and on, and on. We know that, because we have the figures to prove it. Why did we change it? <i>The sad irony is that we used measures that according to economic theory can't work to fix a crisis that according to economic theory can't happen.</i><br />
<br />
We know that market-liberalism does not work, because it never has in the 30 years we used its policies. We know that social market economy -- called <i>Golden Age </i>in the US, <i>economic miracle </i>in Germany -- exceeds market-liberalism in <i>every </i>measure. Isn't it time to finally stop the experiment and turn to something we know to work?<br />
<br />
Why don't leftist parties base their economic policy on science instead of ideology? Why don't they tell the peoples of the world what they already know: namely that the economic system called neo-liberalism (or trickle-down, or supply-side, ...) doesn't work and indeed never has, at least on this planet? Why don't they argue for and advocate policies that support the middle-class that is and always has been the driver of the local (inland) economy? Why don't they ask, who is supposed to buy all the stuff being made, if incomes are being redistributed upwards? After all, a rich person may have 5 cars, but she doesn't have 5000 cars. So who's supposed to buy the 4995 remaining ones? And what are they supposed to pay them with? The wages that they have not earned, because wages keep being suppressed to pay for excessive bonuses of the CEOs? The tax increases that they had to pay, because the rich and corporations got tax breaks and somebody had to pick up the bill? The inflated prices of newly privatized formerly state owned enterprises that didn't have to make a profit and therefore could offer their services at lower prices?<br />
<br />
In short, why don't leftist parties advocate policies that help the middle class (a.k.a "the people") and hence the whole economy -- instead of policies that are allegedly business-friendly but consistently lead to more and deeper crises, more inequality and lower growth rates?Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-40029478577262081492015-05-11T18:58:00.000+02:002015-05-11T18:58:03.487+02:00News From The BookshelfI'm just reading <a href="http://www.theguardian.com/books/2014/may/29/economics-the-users-guide-ha-joon-chang-review">Economics: The User's Guide</a> by <a href="http://en.wikipedia.org/wiki/Ha-Joon_Chang">Ha-Joon Chang</a>, Professor of Economics at the <a href="http://en.wikipedia.org/wiki/University_of_Cambridge">University of Cambridge</a>. It is a very accessible introduction to economics by the writer of the no. 1 bestseller <i>23 Things They Don't Tell You About Capitalism</i>. Both books are real eye openers, and required reading for anyone who wants to be taken seriously when debating economic policy.<br />
<br />
Chang is a heterodox economist, i.e. he doesn't follow the economic mainstream which -- as you'll remember -- failed spectacularly in predicting the Financial Crisis of 2008. Or even <i>recognizing</i> it when it happened, and, no, it wasn't like an earthquake that nobody could have seen coming but rather like a ship running full of water. I mean, you can say what you want about <a href="http://en.wikipedia.org/wiki/Francesco_Schettino">Captain Schettino</a> of <a href="http://en.wikipedia.org/wiki/Costa_Concordia_disaster">Costa Concordia</a> notoriety, but at least <i>he knew </i>that the vessel was sinking and made an exit.<br />
<br />
Alright then. Buy the book and read it. NOW!<br />
<br />Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-29585269598970710182015-01-04T12:05:00.001+01:002015-01-05T09:25:23.924+01:00Die Tragödie des MerkelsIm Blog <a href="http://blog.bernerzeitung.ch/nevermindthemarkets/"><i>Never Mind The Markets</i></a> des Schweizer Newsnets (Tages-Anzeiger, Finanz und Wirtschaft, Berner Zeitung und andere) diskutieren die Autoren regelmässig die Situation im Euro-Raum und im Besonderen die Rolle Deutschlands. Als wichtigste Volkswirtschaft und Haupt-Exporteur innerhalb des Euro-Raums hat Deutschland einen massiven Einfluss auf (und Verantwortung für) die Situation der übrigen Länder und speziell der Krisenländer an der Peripherie.<br />
<br />
Ein Problem für die EU sei, so schreiben die Autoren, dass Deutschland zu viel exportiere und zu wenig importiere. Letzteres sei darauf zurückzuführen, dass in Deutschland zu wenig konsumiert werde, was wiederum daher herrührt, dass die Löhne in Deutschland im Vergleich zum während des letzten Jahrzehnts erwirtschafteten Produktivitätsgewinn viel zu tief seien. Diese Besonderheit Deutschlands wird oft als Kritik an dessen Erfolg aufgefasst, auf die dann in den Kommentaren mitunter säuerlich reagiert wird. Tatsache ist, dass das Erfolgsmodell Deutschland -- dessen Soziale Marktwirtschaft -- immer mehr einem angelsächsisch inspirierten Markt-Liberalismus weicht, mit Tiefsteuern für Unternehmen, dem Abbau von Sozialen Leistungen und Privatisierungen von Staatsunternehmen und Rentenkassen. Wie überall, führen diese Massnahmen auch in Deutschland zum Niedergang des Mittelstands.<br />
<br />
Das Tragische an der Situation Deutschlands ist, dass die Staatsführung,
insbesondere Bundeskanzlerin Merkel Grundkenntnisse in Wirtschaft
fehlen. Das ist kein Vorwurf, sondern eine Tatsache. Hier die
Begründung:<br />
<br />
<div style="text-align: right;">
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<div class="separator" style="clear: both; text-align: center;">
</div>
<table cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: right; margin-left: 1em; text-align: right;"><tbody>
<tr><td style="text-align: center;"><a href="http://upload.wikimedia.org/wikipedia/commons/2/23/Bundesarchiv_Bild_183-1990-0803-017%2C_Lothar_de_Maiziere_und_Angela_Merkel.jpg" imageanchor="1" style="clear: right; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img border="0" src="http://upload.wikimedia.org/wikipedia/commons/2/23/Bundesarchiv_Bild_183-1990-0803-017%2C_Lothar_de_Maiziere_und_Angela_Merkel.jpg" height="204" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Angela Merkel 1990</td></tr>
</tbody></table>
1. Bundeskanzlerin Merkel ist als "Ossi" in einem sozialistischen Wirtschaftsgebiet aufgewachsen und geformt worden. Ihr fehlt daher das vegetative Gefühl für die Funktionsweise einer westlich, d.h. markt-ideologisch geführten Wirtschaftsordnung. Da sie kein Gefühl dafür hat, wie eine Marktwirtschaft funktioniert, kann man ihr jede ideologische Verdrehung unterjubeln.<br />
<br />
2. Vor dem Mauerfall hatte in Deutschland gerade das grösste Experiment der neueren Geschichte begonnen und Fahrt aufgenommen: der Umsturz der Sozialen Marktwirtschaft in eine deregulierte, privatisierte und steueroptimierte Liberale Marktwirtschaft. Die bittere Ironie der Geschichte war ja gerade, dass die Montagsdemonstranten vor der Wende in der DDR "Keine Experimente" skandiert hatten, weil sie keinen neuen "Dritten Weg" beschreiten, sondern einfach die Westliche Wirtschaftsordnung unverändert übernehmen wollten. Wie konnten sie ahnen, dass man im Westen gerade dabei war, die ersehnte Wirtschaftsordnung unzustürzen und damit ein gigantisches Experiment zu starten. Viele der impliziten Versprechen wie Verteilungs- und Steuergerechtigkeit, die während des Kalten Kriegs dem Kapitalismus abgerungen worden waren, wurden im Nachhall nach der Wende von den Liberalen aufgekündigt. Das konnte Bundeskanzlerin Merkel natürlich nicht wissen. Ihr ökonomischer Referenzpunkt wurde wie bei einem Hütchenspieler unter der Hand abgeändert.<br />
<br />
3. Als Physikerin ist Bundeskanzlerin Merkel darauf konditioniert, dass Wissenschaftler eine Ahnung von ihrer Materie haben, und dass Lehrbücher den Stand des Wissens wahrheitsgemäss wiedergeben. Beides ist im Fall der Ökonomie nicht gegeben: Ökonomen haben wohl Ahnung von Ökonomie, aber keine Ahnung von Wirtschaft, und Lehrbücher, vor allem einführende Literatur, verfälschen oder ignorieren den Stand des Wissens (vor allem Tatsachen, die empirisch widerlegt wurden) und haben einen von Ökonomen durchaus unbestrittenen pro-Markt-Bias.<br />
<br />
Diese teuflische Dreifaltigkeit von fehlender persönlicher Erfahrung, Täuschung über den wahren Charakter der eigentlich herbeigesehnten Wirtschaftsordnung (unterschobene Liberale statt erwünschte Soziale Marktwirtschaft) und schliesslich Täuschung über den wahren -- nämlich ideologischen -- Charakter der Wissenschaft Ökonomie, führt dazu, dass Bundeskanzlerin Merkel wirtschaftliche Massnahmen ergreift, die nicht funktionieren und immer weiter von einer gerechten, effizienten und krisenarmen Sozialen Marktwirtschaft wegführen.Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-41883950679314935252015-01-02T11:30:00.000+01:002015-12-28T11:12:41.107+01:00On typical cost curvesI have written extensively about perfect competition and the fact that the claims associated with it cannot be proven scientifically. In fact, computer simulations of perfect competition show conclusively the same price and amounts as in a monopoly. I've also written about Joseph Stiglitz' explanation of why this might be a logical outcome of the theory.<br />
<br />
There is a further point that I want to make, and that Hill and Myatt make in their excellent book <a href="http://zedbooks.co.uk/node/17369"><i>The Economics Anti-Textbook</i></a>. It is the point about the "typical cost curve" that underlies the theory of perfect competition.<br />
<br />
For the theory to produce the results that economists claim, firms must be so small that they don't have market power: any change in production quota is too small as to affect market prices. The chief thing that guarantees their small sizes is the <a href="http://en.wikipedia.org/wiki/Cost_curve">typical u-shaped average cost curve</a>, because profit-maximising firms will stop producing when marginal cost of production equals the marginal revenue from sales. The problem is, that the <i>typical u-shaped average cost curve</i> is a total fabrication pulled out of thin air. What economists call "typical" is known at least since 1952 to have no factual base whatsoever.<br />
<br />
In a survey by Wilford J. Eiteman and Glenn E. Guthrie in 1952 (published in <i>The Shape of the Average Cost Curve</i>, American Economic Review, 42.5: 832–838) managers of 334 companies were shown a number of different cost curves, and asked to
specify which one best represented the company’s cost curve. A stunning 95% of managers responding to the survey chose cost curves with constant or falling costs. That leaves at most 5% for the "typical" u-shape.<br />
<br />
A. S. Blinder, former vice chairman of the American Economics Association, conducted the same type of survey in 1998, which involved 200 US firms in a
sample that should be representative of the US economy at large.
He found that about 40% of firms reported falling variable or
marginal cost, and 48.4% reported constant marginal/variable cost
(<i>Asking about Prices: A New Approach to Understanding Price Stickiness</i>. Russell Sage Foundation, New York). A minority of about 11% of those surveyed reported the typical u-shape.<br />
<br />
What does all this tell us? Economists know at least for 60 (that's sixty) years that the tale of u-shaped cost curves -- and as a consequence the majesty of perfect competition that rests heavily on this claim -- is a falsehood, yet it's still the staple of every economics textbook. Note that also the Wikipedia page linked above did not mention the fact that the claim has been empirically proven to be false, until I added it on January 3, 2015 (see page history).<br />
<br />
The u-shaped cost curve is not a simplification either, because assuming a constant average cost would be much simpler. But then, constant average cost does not guarantee the firms to remain small, and hence perfect competition to work.<br />
<br />
No, the typical u-shaped cost curve is a complete <i>fabrication </i>pulled out of thin air in order for the theory of perfect competition to yield the results that economists wish it to have but cannot produce otherwise. After all, who wants to know a truth that contradicts the dogma of perfect competition?<br />
<br />
Now, how's that for a value-free and results-open science!<br />
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<i>Update </i><span style="font-size: x-small;">[28.12.2015]</span>: I just noticed that the Wikipedia page that I edited (see above) has been modified to begin with the statement: "Some argue that cost curves are not typically U-shaped." If nothing else, this shows how insidiously economists misrepresent facts. Indeed, the statement "some argue that..." makes it seem as if the not-U-shaped cost curves are a position held by a minority of economists ("some") when what follows is actually <i>real evidence</i>. Not just "theory", but <i>observations</i> in the real world. Something that "some" people call <i>science</i>. I modified the article to state "<i>Evidence shows</i> that cost curves are not typically U-shaped." Let's see how long this modification lasts. Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-85023643443821556252014-08-09T09:00:00.000+02:002014-08-13T07:30:02.123+02:00The Myth of Perfect CompetitionI <a href="http://underhandedeconomist.blogspot.com/2013/08/keen-on-collusion.html">have</a> <a href="http://underhandedeconomist.blogspot.com/2013/08/keen-on-collusion-2.html">written</a> <a href="http://underhandedeconomist.blogspot.com/2013/09/keen-on-collusion-3.html">extensively</a> about the standard textbook claim that under perfect competition you'll get higher quantities at lower prices compared to a monopoly situation, and the strange fact that this proposition somehow cannot be reproduced in a computer simulation. Instead, the simulation consistently shows the same quantities at the same prices for perfect competition as for a monopoly. I am particularly interested in this result because in Switzerland later this year a referendum is being held on whether to abolish "competition" in the so-called health insurance market and install a government-run single payer monopoly instead. Of course, the claim that competition keeps quality up and prices down is heard everywhere. But apparently it cannot be scientifically shown to be true.<br />
<br />
I've come across two explanations as to why the situation called perfect competition is unstable, and why therefore prices and quantities might converge to monopoly levels. Both of these start by asking what would happen if a firm chooses to demand a higher price than the equilibrium price at perfect competition. The theory claims that consumers would simply abandon such a supplier and fulfill their purchases elsewhere which in turn would discourage such a deviation. However, beyond mere assertions to that end the theory fails to show that this is indeed so.<br />
<br />
Joseph Stiglitz, for example, says that the process of switching to a new supplier involves a certain cost (looking for a new supplier, driving farther, etc), and as long as the price increase is lower than the cost of switching, the consumer is better off if he remains with the supplier, despite the higher price.<br />
<br />
This may be so, but there's a more serious problem with the theory (cf <i>The Economics Anti-Textbook</i> by Hill and Myatt): It is not certain at all, that the other suppliers are able or indeed willing to absorb these defecting customers. Economists, of course, will claim that because the firms are small, the number of defectors is small enough and thus easily absorbed by the remaining firms. But if the firms are small, it also implies that one or a few additional customers are being felt by those firms that receive them. The fact that firms are small cuts both ways. In any case, however, the firms are unable to absorb additional customers for a simple reason: they are already operating at the sweet spot where the production capacity is maximized and marginal cost equals marginal revenue. One additional unit produced and — because of the rising cost curve (remember?) — the firm incurs a loss. The firm has thus two options: refuse to serve the customer or raise the price, which, according to the theory, will drive away customers and hence inflate the number of defectors even further.<br />
<br />
But consider what happens if only a <i>single</i> customer is willing to accept the higher price, e.g. because there is no place else to go: the firm serving this one customer will make a positive profit because it can successfully charge a price above marginal cost (remember that because MC = MR, all other firms make no profit at all). The theory implies that this cannot possibly happen as no customer would pay a higher price, given all the fabulous competition among firms. But at the same time it fails to show that the customer has any other place to turn to, and Stiglitz suggests that the customer may actually benefit from staying.<br />
<br />
But this is not all: because all participants in perfect competition, firms included, have total knowledge, they all know that any small raise in price has the potential to lead to a positive profit because no other firm is able to absorb any possibly defecting customers. Therefore a few might stay. Remember that <i>one single</i> loyal customer is enough. Knowing all this, all firms — who are profit maximizing after all — will exhibit a tendency to increase prices just a little in order to exploit this non-negligible potential for profit. This tendency acts like an electromagnetic force between equally charged particles that will eventually drive prices away from the so-called equilibrium point towards the only real stable equilibrium price point: at monopoly level.<br />
<br />
There you have it. The whole myth of perfect competition that rests on a completely fabricated assumption (of rising marginal costs) cannot be verified in a computer simulation. Instead, prices appear to converge at monopoly levels even for hundreds of thousands of profit-maximizing and non-colluding firms that compete in a market. Furthermore, a plausible story exists that explains why this is indeed a possible or even likely outcome given all assumptions presented. Will any of this change any debate anywhere on this planet about markets vs state-run monopolies?<br />
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Take a guess.Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-2834875243900605462014-07-28T15:55:00.002+02:002014-08-08T17:30:44.592+02:00The Science of EconomicsI often get some heat when I make the claim that economics isn't science. Science is not a field of study but a <i>method</i> of study, they say, which is sort of true. Alright then, let's be more precise.<br />
<br />
Economics is the scientific study of "the economy" in the same way that theology is the scientific study of God.<br />
<br />
Theology is a very peculiar kind of science, because the object of study — God — does not reveal himself to those that engage in the studying. Nobody has ever interviewed God. Nobody has even <i>seen </i>him or can prove his very existence, so nobody can <i>know </i>what God really thinks or wants (not that this fact stops some people from acting as if they did). Now, of course, you can <i>still </i>do science and study revelation and religious practice and rituals using the historic texts (e.g. the Bible), but you will only learn what <i>people </i>thought God wanted, what <i>people </i>believed, and what <i>people </i>did to share that belief — even with people that didn't care. So the study of God (the literal meaning of "theology") is not so much about God but about the <i>people who do the studying</i>. So it's really like doing <i>alien research</i>, for example by interviewing people who claim to have been visited or abducted by aliens. Here again, through these interviews will learn <i>absolutely nothing </i>about aliens. You will only learn about the people (and the minds of those) that make these alien claims.<br />
<br />
In the same way that theology (or alien research) is not the scientific study of God (or aliens), economics is not the scientific study of the economy. Now, in contrast to (earth-visiting) aliens there <i>is </i>an economy to study, but the science of economics does not care about the real thing. As I've shown in an <a href="http://underhandedeconomist.blogspot.com/2013/04/final-proof-economics-is-not-science.html">earlier post</a>: when confronted with <i>facts in the real economy</i> that contradict <i>claims in their economic theory</i> they dismiss the former by saying that you needn't bother with facts as they don't matter. Only economic theory does. In the words of David Stockman: "People will never agree about the facts, but it's logical..." (<a href="http://www.youtube.com/watch?v=I97y0NboLrk">Here's</a> the video. The quote is at 7'30").<br />
<br />
There is ample literature that shows that the science of economics distorts inconvenient facts in their textbooks (1), replaces hypotheses that are both plausible and empirically observable by other hypotheses that are neither (2), but that just so happen preserve the desired ideological properties of the economy (e.g. equilibrium), or simply makes stuff up and presents it a logically derived theory (3).<br />
<br />
Here are a few books that prove all the above claims, and much more. I can only recommend that everybody who cares about the well-being of the economy in general or the middle class in particular reads some (or all) of these books to inoculate oneself against the nonsense that is economic "theory"<br />
<ol>
<li><a href="http://www.economics-antitextbook.com/">The Economics Anti-Textbook</a> by Rod Hill and Tony Myatt<br />This book serves both to teach <i>and</i> debunk microeconomics. Each section starts with a summary of the theory as presented in a textbook, and then proceeds to show where ideological bias, logical inconsistency or simply empirically unfounded invention taints, distorts or invalidates the theory. Hill and Myatt don't always disprove the theory but show convincingly that more plausible alternatives exist. Helpful <i>questions for your professor</i> allow economics students to probe their teacher's openness to reasoned debate.</li>
<li><a href="http://press.princeton.edu/titles/9702.html">Zombie Economics</a> by John Quiggin<br />Quiggin's book is particularly enlightening about economics' unwillingness to accept empirical evidence. Analyzing the most important factors that led the world into the financial crisis of 2007 he shows a) how these theories contributed to the crisis, b) how the crisis disproved important claims of these theories, but most importantly c) how the economics profession keeps defending these refuted claims tooth and nail, despite all the evidence that the crisis piled on their doorstep.</li>
<li><a href="http://www.guernicamag.com/interviews/adler5_1_2010/">Economics for the Rest of Us</a> by Moshe Adler<br />Adler does not actually debunk any of the theories he's discussing in the book, but he shows that they were conscious choices by economists in the face of better, more plausible theories because they had ideological bias against these theories or any of their (sometimes distant) implications.</li>
</ol>
Each of these books shows convincingly that the so-called value-free science of economics consciously chooses theory that fits its ideological pro-market bias and summarily dismisses any that contradicts it (or that leads to an ideological conflict down the road). This pre-determinism alone is sufficient to disqualify economics of the label "science". But what these choices also show is that economics does not really care about the economy "out there". Instead, economics is an attempt to indoctrinate the peoples with a certain purely made up conception of the economy where the Free Market guides everything perfectly and flawlessly with its Magical Invisible Hand. In that respect, economics is not that different from theology.Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-25698694024959955362014-06-28T20:54:00.000+02:002014-08-11T18:54:12.457+02:00My Music BlogSometimes you need some time off, especially if you're writing about mainstream economics. There's only so much inconsistency, illogicality or ideology that you can take at any one time. I for one need a valve to vent off, and in my case that's music. I own a <a href="http://usa.yamaha.com/products/musical-instruments/keyboards/synthesizers/mox_series/?mode=series">Yamaha MOX6</a> and a small collection of home-made analog synthesizers and use them to produce music, or just tickle the ivories, as the saying goes.<br />
<br />
I have several songs in the pipeline in various stages of completion, and will be publishing them as soon as I deem them finished. If you like music, and enjoy a few minutes off my rants on economics, you're welcome to take a look at my music blog <a href="http://yoshimusix.blogspot.com/">YoshiMusix</a> and/or my <a href="https://www.youtube.com/channel/UCWZi8OIw12_i935dlxpFefg">YoshiMusix channel</a> on YouTube where I also occasionally present one or the other of my <a href="http://inaptlycrafted.blogspot.com/">do-it-yourself electronics projects</a>.<br />
<br />
And now back to business!Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-30379332762217432392014-05-11T11:23:00.000+02:002014-05-11T11:25:54.519+02:00Pseudo-ScienceThe other day I was looking for ... oh well, to cut a very long story short, I ended up on the page of the Swiss Association for Critical Thinking (<a href="http://www.skeptiker.ch/">Sceptics Switzerland</a> <span style="font-size: xx-small;"><span style="font-family: Arial,Helvetica,sans-serif;">[German]</span></span>) when on their <a href="http://www.skeptiker.ch/der-verein/fragen-und-antworten/">FAQ</a> I found the following little gem. Not that I didn't know before, but the neat and concise formulation reminded me of something. Let's see if you can guess what I thought they were referring to <span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-size: xx-small;">[translated from German]</span></span>:<br />
<br />
<blockquote class="tr_bq">
<i>What is pseudo science?</i><br />
<br />
Pseudo science is something that pretends to be science, but in fact isn't, mainly because it does not rest on the basic criteria of the scientific method.<br />
<br />
<i>How do I recognize pseudo science?</i><br />
<br />
Pseudo science violates the criteria of the scientific method usually in one or more of the following ways:<br />
<ul>
<li>Pseudo science regards research solely as a means to confirm the corresponding doctrine (no openness to outcome)</li>
<li>Pseudo scientific teachings are formulated as absolute truths (that cannot be refuted)</li>
<li>Subjective, untestable and non-repeatable anecdotes are presented as would-be proofs (non reproducibility)</li>
</ul>
</blockquote>
If that is not a definition of the so-called science of economics, I don't know what is.<br />
<br />
In Switzerland a referendum is soon being held on whether to establish a <a href="http://www.lohnschutz.ch/">minimum wage</a> <span style="font-size: xx-small;"><span style="font-family: Arial,Helvetica,sans-serif;">[German]</span></span>, and the debate centers around the usual claim that a minimum wage causes unemployment. Practically every reference to the mountain of research that has contradicted this claim is countered using an argument that fits one of the points above. The minimum wage opponents simply <i>want</i> the claim to be true and will disregard any empirical evidence to the contrary based on the most spurious claims.Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-66171466625328727232014-04-03T22:12:00.002+02:002014-11-03T19:31:48.456+01:00More News from the BookshelfIn a <a href="http://underhandedeconomist.blogspot.com/2013/11/the-bookshelf.html">previous post of the same title</a>, I promised to write a review of the book <a href="http://en.wikipedia.org/wiki/The_Economics_Anti-Textbook"><i>The Economics Anti-Textbook</i></a> by Rod Hill and Tony Myatt, and I can herewith unambiguously state, that I may perhaps do that -- provided I'll ever get to it. The problem is that in the meantime I bought and read <a href="https://www.facebook.com/TheRealZombieEconomics">Zombie Economics</a> by John Quiggin, and I must say that this is essential reading for anyone who wants to be taken seriously in economics debates. Indeed so much so, that I reserve the right to ignore anything anyone says who has not read it.<br />
<br />
<i>Zombie Economics</i> deals with economic models and theories that found a horrible death as a result of the financial crisis, but that still walk among us like those rotting and stinking corpses familiar from dingy zombie movies. Prof. John Quiggin does a great job in systematically debunking the theories that brought about the financial crisis, by first explaining the theory, then showing how it contributed to the crisis, how and why it died, and finally how it crawled from the grave as a zombie to wreak further havoc on an economy still struggling from the crisis.<br />
<br />
Highly recommended!Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-20925179936971504302014-03-13T18:08:00.000+01:002014-11-03T19:32:43.565+01:00Sie werden nie aufhören.......bis sie uns auf die bleichen Knochen ausgebeutet haben. Ich habe vor einiger Zeit einen Beitrag über das <a href="http://underhandedeconomist.blogspot.com/2013/08/geheimplan-zum-verkauf-der-demokratie.html">Trans-Pacific Partnership Abkommen</a> geschrieben, und dabei davor gewarnt, dass solche Abkommen die Tendenz haben, plötzlich auch für uns bindend zu werden. Die Warnung war berechtigt: Zur Zeit wird in vollkommener Geheimhaltung vor den betroffenen Völkern der EU das <a href="http://de.wikipedia.org/wiki/Transatlantisches_Freihandelsabkommen">Transatlantische Freihandelsabkommen</a> (TTIP) zwischen der EU und den USA verhandelt.<br />
<br />
Das folgende Video erklärt, worum es geht, und vor allem, dass es unbedingt zu verhindern ist, weil es die Völker und Staaten der EU für alle Zeiten zu Knechten multinationaler Konzerne macht.<br />
<br />
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</div>
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<iframe allowfullscreen='allowfullscreen' webkitallowfullscreen='webkitallowfullscreen' mozallowfullscreen='mozallowfullscreen' width='320' height='266' src='https://www.youtube.com/embed/Ljxv-yFBPQ8?feature=player_embedded' frameborder='0'></iframe></div>
<br />
Welcher anständige Bürger eines dieser Länder würde sein Volk in dieser Weise an die Interessen multinationaler Konzerne verschenken? Hat der Wirtschaftsliberalismus nicht schon genug Schaden angerichtet?<br />
<br />
Weitere Informationen unter: <a href="http://www.ttip-unfairhandelbar.de/">TTIP unfair handelbar</a> und <a href="https://www.attac.de/ttip-stoppen">TTIP stoppen (Petition)</a>.<br />
<br />
Die <a href="http://www.theguardian.com/commentisfree/2013/nov/04/us-trade-deal-full-frontal-assault-on-democracy">Kolumne von George Monbiot im Guardian</a> enthält ein paar Details zur neu geschaffenen Möglichkeit von Konzernen im TTIP, Staaten zu verklagen, wenn demokratische Volksentscheide die Profite der Konzerne zu schmälern drohen.<br />
<br />
Und wer die Lügen der Liberalen glaubt, dass dies nur eine rein theoretische Möglichkeit sei und daher für die Demokratie überhaupt keine Gefahr darstelle, sei daran erinnert, dass gegenwärtig auf der Basis einer ähnlichen Regelung die <a href="http://www.spiegel.de/wirtschaft/unternehmen/atomausstieg-vattenfall-verklagt-deutschland-auf-milliardensumme-a-795370.html">Bundesrepublik Deutschland vom Vattenfall-Konzern in Milliardenhöhe verklagt</a> wird, weil das Volk die Frechheit besessen hatte, in seinem eigenen Land die Regeln bestimmen zu wollen.Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-80167567723129296162013-11-26T18:22:00.001+01:002013-11-26T18:22:23.946+01:00News from the BookshelfI'm reading <a href="http://en.wikipedia.org/wiki/The_Economics_Anti-Textbook">The Economics Anti-Textbook</a> by Rod Hill and Tony Myatt, and I must say that this is one of the best books on the basics of economics that I've ever read. And that means <i>ever</i>. EVER!!!! In contrast to Steve Keen's Debunking Economics (for in-depth discussion of that book see the blog <a href="http://unlearningeconomics.wordpress.com/tag/steve-keen/">Unlearning Economics</a>), which attempts to destroy what is dear to the dyed-in-the-wool hard core neoclassical (and by extension neo-liberal) economist, the anti-textbook is much gentler. It does not actually debunk any of the theories presented. Rather, it highlights biases, analytical weaknesses and internal inconsistencies in those theories in an attempt to offer some sort of a second opinion. Also, competing theories are presented that contradict the mainstream, but that have some merits on their own, for example empirical evidence to support them (which the mainstream often doesn't). I would strongly suggest that anyone studying economics reads The Economics Anti-Textbook as a kind of inoculation against the propaganda and indoctrination of a so-called science that, according to McCloskey, should be more like an <a href="http://en.wikipedia.org/wiki/McCloskey_critique">art of rhetoric</a>.<br />
<br />
In the following weeks I'm going to review some of the chapters of the anti-textbook, so stay tuned.Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-72723606607386027852013-09-22T11:47:00.001+02:002013-09-24T12:23:45.002+02:00Keen on Collusion (3)This is the third part of a (apparently getting more and more open ended) <a href="http://underhandedeconomist.blogspot.ch/2013/08/keen-on-collusion.html">short</a> <a href="http://underhandedeconomist.blogspot.com/2013/08/keen-on-collusion-2.html">series</a> on Steve Keen's alleged debunking of the notion that under perfect competition you get higher quantities at lower prices compared to a monopoly situation. I say "alleged", because (a) his debunking is vigorously disputed, and (b) Keen is not to be the first to have discovered the flaw in the theory (see <a href="http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/12/a-post-for-steve-keen.html?cid=6a00d83451688169e2017c342b9961970b#comment-6a00d83451688169e2017c342b9961970b">this comment</a> on Worthwhile Canadian Initiative, for example).<br />
<br />
In this episode of the saga I'd like to discuss this <a href="http://unlearningeconomics.wordpress.com/2012/07/03/debunking-economics-part-ii-perfect-competition-profit-maximisation-and-non-existent-supply-curves/#comment-2959">comment</a> on the blog <a href="http://unlearningeconomics.wordpress.com/">Unlearning Economics </a>where the commenter tries to explain the flaws in the logic and math of the <a href="http://www.paecon.net/PAEReview/issue53/KeenStandish53.pdf">Keen/Standish</a><span style="font-size: xx-small;">[PDF]</span> paper. In it they admit a few errors but otherwise defend their claims. As I wrote earlier, the logic and math is not what makes Keen's (re)discovery remarkable but the results of his computer simulation. After all, software doesn't have a bias unless it's actively programmed in, whereas "economist" and "bias" appear to be synonymous, at least if <a href="http://thenewpress.com/index.php?option=com_title&task=view_title&metaproductid=1581">Moshe Adler</a> is to be believed. Anyway, I take issue in particular with the following paragraph in the comment:<br />
<blockquote class="tr_bq">
Then the [Keen/Standish] paper shows some simulations which are meant to support the
claim that it is “optimal” for firms to choose collusion. Since the
firms are not optimizing, just adjusting their quantities [in] some ad-hoc
way in response to changes in their profits, it’s hard to tell what is
driving the results. Then we see some attempt to refute Cournot result,
but instead of going through standard Nash equilibrium computation
(which doesn’t contain any mathematical mistakes – I’ve solved enough
homeworks to be confident about this), Keen presents some convoluted
model where firms respond to other firms choices in fixed proportion,
and derives that optimal level of strategic interaction is zero. Only
problem is that he again assumes that optimum = maximizing joint
profits.</blockquote>
There's a problem in almost every sentence of this paragraph, so I try to address them one by one.<br />
<ol>
<li><i>[It] is“optimal” for firms to choose collusion.</i><br />Firms do <i>not </i>"choose collusion". Apart from the fact that that expression has a negative connotation (why would a value-free science call an outcome using a negatively loaded term?), is it not at least <i>thinkable</i> that the outcome called "collusion" is in fact the <i>natural outcome</i> (instead of positive "choice") of perfect competition, and that the one that economists claim (P=MC) is rather a result of their innate bias i.e. wishful thinking?</li>
<li><i>Since the
firms are not optimizing, just adjusting their quantities in some ad-hoc
way</i>...<br />Firms <i>are </i>optimizing (or rather <i>maximizing</i>). I wrote a simple simulator myself, and at the core of the simulation is the following equation evaluated by each firm:<br /><span style="font-size: xx-small;"><br /></span><span style="font-family: Verdana,sans-serif; font-size: small;">profit = quantity*(unitprice - unitcost(quantity))</span><br /><span style="font-size: xx-small;"><br /></span>As the price is determined by the market, the only value that can be adjusted to maximize profit is the quantity. To increase profit, the quantity must be increased (price is > 0). But of course all other firms do the same thing (increase quantities to maximize profits), so the price may fall as a result, and hence profit. The firms do not know which quantity produces maximum profit (how would they?), and in any case that wouldn't help, because all other firms interfere with any prediction by their own production. So each firm continuously <i>and individually</i> boosts or throttles production depending on whether increasing/reducing production last time round helped to increase/decrease profit. This process is called <i>profit maximization</i>.</li>
<li><i>...it’s hard to tell what is
driving the results.</i><br />No, it's <i>not</i> hard to tell what is
driving the results: <i>profit maximization</i> is.</li>
<li><i>[Instead] of going through standard Nash equilibrium computation [...], Keen presents some convoluted
model</i><br />Of course, if you go through the Nash equilibrium formula you will guarantee the inherent result, because it is constructed that way. Keen's
(software) model is not convoluted at all: even a high school kid with some basic programming skills can write a simulator that will yield the same result, because ... I don't know ... perhaps, this is simply the natural outcome of perfect competition, whereas the one that economists claim simply does not materialize, irrespective of how much they want it to be true. After all, a <a href="http://underhandedeconomist.blogspot.com/2013/04/final-proof-economics-is-not-science.html">minimum wage does not lead to unemployment</a>, either, despite every economist saying so. Perhaps economists are simply ... well ... wrong about stuff?</li>
<li>
<i>...and derives that optimal level of strategic interaction is zero.</i><br />If by "strategic interaction" the commenter means "collusion", why is it bad that there is none of it?</li>
<li><i>Only
problem is that he again assumes...</i><br />The software model assumes only (a) a falling demand curve, (b) market participants being price takers, and (c) absence of information sharing, a.k.a. "collusion" (i.e. no <i>firm [taking] the quantity set by its competitors as a given [and evaluating] its residual demand</i> <span style="font-size: xx-small;">[<a href="http://en.wikipedia.org/wiki/Cournot_competition">Wikipedia</a>]</span>).</li>
<li> <i>...that optimum = maximizing joint
profits.</i><br />Firms do <i>not</i> maximize <i>joint</i>
profits. How could they? There is no notion of "joint profit" in my simulator (and neither, I presume, in Keen's), and believe me, unless you actively program that notion into your simulator, it does not appear out of nowhere. Instead, they maximize <i>individual</i> profits (see point 2 above). The only information flowing <i>out</i> of the single firm is its production quantity, and the only thing flowing <i>into</i> it is the price that the market determined, based on quantity and falling demand curve. Where would the joint thing come from? Stray electrons in the microprocessor? <i>Perhaps the outcome of the simulator is the natural outcome of perfect competition, and the theory is simply wrong.</i></li>
</ol>
Software does not lie. People with agendas do.<br />
<br />
<i>Update</i>: As to the maximizing of joint profits (point 6 above): Even if it were true that firms in Keen's software did indeed end up maximizing "joint profits", why would that discredit his findings? Doesn't the so-called "invisible hand" accomplish the same thing without bothering economists at all? After all, they do claim that the pursuit of individual utility maximization will ultimately lead (through the divine magic of the invisible hand) to the maximization of "joint" utility...<br />
<br />
Again, it appears that one of the inherent qualities of the "science" of economics is the twisting and turning of any argument as economists see fit. They don't want to know. They want to <i>win</i>.Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-86207302444107473852013-09-13T22:04:00.001+02:002013-09-13T22:04:13.437+02:00Why I might read a first year economics book after all.It appears that soon after I wrote a post on why <a href="http://underhandedeconomist.blogspot.com/2013/09/why-i-wont-read-first-year-textbook-on.html">I won't read an economics text book</a>, <i>ever</i>, I got a comment by <a href="http://worthwhile.typepad.com/">The Man Himself</a>. Wow! <i>Blogito ergo sum</i>!! I'm alive!!!<br />
<br />
Unless, of course, it was just an answer-bot.<br />
<br />
Anyway, would <a href="http://www.amazon.co.uk/Modern-Political-Economics-Making-Post-2008/dp/0415428882/ref=wl_it_dp_o_pC_nS_nC?ie=UTF8&colid=3FKSQ67Q3B6FS&coliid=I1I9UPWN2YAUND">this book</a> suggested by <i><a href="http://unlearningeconomics.wordpress.com/">Unlearning Economics</a></i> (<a href="http://unlearningeconomics.wordpress.com/2012/08/01/read-a-textbook/">here</a>) count as a first year economics book? Guess not, but I'll read it anyway. Would Mankiw do? He's an <a href="http://www.huffingtonpost.com/2013/06/17/greg-mankiw-defending-one-percent_n_3454381.html">asshole</a> <span style="font-size: xx-small;">[<a href="http://scholar.harvard.edu/files/mankiw/files/defending_the_one_percent_0.pdf">PDF</a>]</span>, but I might — <i>might!</i> — read his <a href="http://www.amazon.com/Principles-Economics-N-Gregory-Mankiw/dp/0538453052/ref=sr_1_2?s=books&ie=UTF8&qid=1379101514&sr=1-2&keywords=mankiw">Principles</a> if I'll be able to steal it somewhere (download, not take from a bookstore without paying. I don't hurt people, only idiots).Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-85470289370782287352013-09-12T11:25:00.001+02:002013-10-12T10:06:28.495+02:00Why I won't read a first year textbook on economics.While researching material for my previous blog <a href="http://underhandedeconomist.blogspot.com/2013/08/keen-on-collusion.html">post</a> "<a href="http://underhandedeconomist.blogspot.com/2013/08/keen-on-collusion-2.html">series</a>" on the notion of collusion in competitive markets I came across an article by Nick Rowe asking people who comment on his blog to, please, <a href="http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/07/can-you-please-read-a-first-year-textbook.html">read an economics textbook</a>. In his post he gives a pretty accurate description of myself, perhaps except the "smart" thing:<br />
<blockquote class="tr_bq">
You are probably very smart. You are probably very well-educated --
either formally, or self-educated, and probably both. You spend a lot of
time on the internet reading economics blogs and commenting on those
blogs. You maybe even have a blog of your own, where you write about
economics topics. You are probably politically engaged. You are probably
a lefty, but may be a righty, or someone who is not easily categorised
on that political spectrum. You probably think of yourself as a critic
of economics, or a critic of what you see as orthodox economics. You are
probably sympathetic to what you see as heterodox economics. </blockquote>
<blockquote class="tr_bq">
<i>But you have never once read a first year economics textbook.</i></blockquote>
Well, I have read <i><a href="http://www.amazon.com/The-Cartoon-Introduction-Economics-Microeconomics/dp/0809094819">The Cartoon Introduction to Economics</a></i> (volumes one and two), but I guess they don't count. I have also read many books on economic topics by various people, among them many economists, mostly on specific aspects of the modern globalized economy:<br />
<ul>
<li>George Monbiot: <i>Captive State</i></li>
<li>Joseph E. Stiglitz: <i>Globalization and its Discontents</i></li>
<li>James K. Galbraith: <i>The Predator State</i></li>
<li>Naomi Klein: <i>The Shock Doctrine </i></li>
<li>Ha-Joon Chang: <i>23 Things They Don't Tell You About Capitalism</i></li>
<li>Steve Keen: <i>Debunking Economics</i></li>
<li>Moshe Adler: <i>Economics for the Rest of Us</i></li>
</ul>
...and on the financial crisis in particular:<br />
<ul>
<li>Matt Taibbi: <i>Griftopia</i></li>
<li>John Lanchester: <i>Whoops!</i></li>
<li>Yves Smith: <i>ECONned</i></li>
</ul>
From these and other books that I cannot remember from the top of my head (and I'm too lazy to walk to the bookshelf to look up), but in particular from Steve Keen's <i>Debunking Economics</i>, I developed a sense that economics is not really a science but a theology (cult?) of the market. So while I am very sympathetic to Nick Rowe's wish, there is a reason why I won't
read an economics textbook and actually would discourage anyone from
doing so. The reason is simple:<br />
<br />
<i>Economics textbooks lie to you. Insidiously</i>.<br />
<br />
In his book <i>Debunking Economics</i>, Steve Keen describes many instances where economists' claims have been disproven by other economists, sometimes even those of the same school of thought, yet are still taught in textbooks as if they were still valid. Sometimes they ignore the refutation (no mention in the textbook), sometimes they muddy the waters (as in "the conditions for the claim to be valid are beyond the scope of this discussion"), but sometimes they simply lie (as in "is this claim valid? It certainly is!"). Sometimes they massage the assumptions in a way that makes "true" after all, what had been logically disproven (as in "if we don't find a direct road from A-town to B-ville, let's rename C-city to B-ville, because now there is"). Other claims cannot be justified when contrasted with the real economy ("minimum wage leads to unemployment"), or cannot be replicated when simulated in software ("in a perfect competition, price equals marginal cost"). Sometimes a valid theory has been (silently) replaced by another theory because one of the implications contradicted the dogma, even if — as Moshe Adler writes — "each economics professor is left to invent his own parable" because there is no evidence for their claims.<br />
<br />
I am quite certain that I would be able to read a book on, say, Dyanetix — a term that I just made up and bears no relationship to any existing concept or method whatsoever — without becoming a follower of that concept, because the notions in this book would likely be so patently absurd that no sane people would accept them. I am quite immune to bullshit.<br />
<br />
But if I read a book on, say, a historic event where the author would take some liberty with facts, assumptions and causes, I'd have no way of telling if and how I was being misled. My desire to learn would be insidiously exploited to implant false facts and ultimately false thoughts into my mind. Facts would blend with fiction to create a pseudo-history that starts
shaping my experience of the world, perhaps even to my detriment. <br />
<br />
This is exactly the case with economics textbooks. I have no way of telling whether a certain claim is reasonable (because it might contradict the evidence — irrespective of whether it appears logical) or whether a certain assumption is permitted (as it might predispose a certain outcome). Strangely enough, in mathematics or physics textbooks even the most innocuous claim is routinely subjected to a rigorous mathematical proof, whereas in economics textbooks, where they would be most needed to expose sometimes rather blatant distortions, they are (deliberately?) omitted even for grand claims and theories that affect whole national economies and the livelihoods of whole peoples.<br />
<br />
Here's a proposition: What if a couple of economics professors of different economic factions — some orthodox, some heterodox — came together and wrote an economics textbook describing the economic mainstream that is taught in economics classes around the world, but in a manner that allows the reader to see which parts are disputed. For example, theories that have been logically disproven or that contradict the empirical evidence would be printed in <span style="color: #cc0000;">red</span>, hypotheses that have no supporting evidence or whose validity are disputed would be printed in <span style="color: #0b5394;">blue</span>, and so on. Of course, the logical flaws and the grounds of the dispute would have to be listed. Uncontested parts could remain in black ink. If there are alternative theories to the mainstream ones, they'd be contrasted side by side. This way the reader would get all the alleged benefits of being exposed to the mainstream economic thought without being misled or brainwashed with claims that are contradicted by logic, evidence or other economics. Now, <i>that </i>is a textbook I'd be more than happy to read!<br />
<br />
<b>Update</b>: It appears that such a textbook does indeed exist! I just bought the <a href="http://www.amazon.com/The-Economics-Anti-Textbook-Critical-Microeconomics/dp/1842779397/ref=sr_1_1?ie=UTF8&qid=1381564453&sr=8-1&keywords=economics+anti+textbook">The Economics Anti-Textbook</a> by Rod Hill and Tony Myatt, and in it, they argue that the claim of economics to be a value-free science is a myth. The book is a <i>guide to decoding the textbooks, it reveals the hidden value judgements, ignored evidence and unmentioned alternative theories</i>. Exactly what I was looking for. It just moved to the top of the stack of books to be read.Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com2tag:blogger.com,1999:blog-280330199261527679.post-32538188680801438302013-08-31T10:36:00.002+02:002013-08-31T12:50:37.201+02:00Keen on Collusion (2)In my previous post on monopoly vs perfect competition (<a href="http://underhandedeconomist.blogspot.com/2013/08/keen-on-collusion.html">Keen on Collusion</a>) I discussed the findings of Steve Keen's paper <i>Emergent Effective Collusion in an Economy of Perfectly Rational Competitors</i> <span style="font-size: xx-small;">[<a href="http://arxiv.org/pdf/nlin/0411006.pdf">PDF</a>]</span> that computer simulations of the so-called Cournot-Nash solution of perfect competition fail to show the results that the theory predicts. Instead of price equaling marginal cost, output and price appear to converge to monopoly-levels even for hundreds of firms. I thought that this result was devastating. After all, the tale of monopoly vs perfect competition is one of the basic tenets of basic economic knowledge that appears in literally every single economics textbook on this planet. That a simple computer simulation disproves it must have hit the economics profession like a bomb shell. Or so I thought.<br />
<br />
What I see instead is yawns, bored bloggers writing that this is old stuff, and anyway, so what? The blogger writing at <a href="http://unlearningeconomics.wordpress.com/2012/07/03/debunking-economics-part-ii-perfect-competition-profit-maximisation-and-non-existent-supply-curves/">Unlearning Economics</a> says it best: "economic theory is disturbingly aware of its own flaws", which as a consequence turns what they teach into lies. If they <i>know</i> (as they <a href="http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/12/a-post-for-steve-keen.html?cid=6a00d83451688169e2017c342b9961970b#comment-6a00d83451688169e2017c342b9961970b">claim</a> they do) that the models they use to rationalize a certain preference (of competition over monopolies) <i>don't</i> actually produce the result they claim, and then even nonchalantly dismiss this fact, how can they not be liars if they continue to preach the very same gospel?Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-26616040899330214072013-08-27T18:37:00.002+02:002013-08-29T19:23:50.965+02:00Keen on CollusionI'm reading Steve Keen's <a href="http://www.amazon.com/Debunking-Economics-Revised-Expanded-Dethroned/dp/1848139926">Debunking Economics</a> for the second time, and I'm stuck in the chapter where he debunks the notion that — compared to a monopoly — under perfect competition you get higher quantities at lower prices. I've checked various texts on the subject on the Internet, and this appears to be the gospel taught to countless students of economics. I'm a bit set back after several people (<a href="http://www.sciencedirect.com/science/article/pii/S0378437107008874">Paul Anglin</a>, <a href="http://werdiscussion.worldeconomicsassociation.org/?post=a-comment-on-the-critiques-of-the-neoclassical-firm-theory">Minseong Louis Kim</a>, <a href="http://chrisaulddotcom.files.wordpress.com/2012/04/debunk.pdf">Christopher Auld</a>, among them) had found errors in the math and thus appear to have debunked Keen on this matter. While I can (just about) follow the math and their arguments in favour of the Holy Gospel, there remains a significant problem: Keen wrote a <a href="http://arxiv.org/pdf/nlin/0411006">computer simulation</a> of the "mechanics" of competition, and he found that even with thousands of firms output and price appear to converge to monopoly levels. Not that economists (of all people...) are incapable of committing <a href="http://theconversation.com/the-reinhart-rogoff-error-or-how-not-to-excel-at-economics-13646">rather stupid and embarrassing programming mistakes</a>, but the rules of competition are simple enough that a simple program can be written in about an hour or so (I did). <br />
<br />
<span style="font-family: inherit;">What I found interesting is that I had to search for several hours until I found an explanation of competition that didn't appear to offer separate rules for a monopolist and for perfect competition. Of course, you can win any argument if you get to massage the rules such that one of them says "I'm right, whatever I say". I wanted a smooth function of N (the number of firms) that yields a monopoly situation if N=1, and perfect competition if N→∞. The function exists and is the one that Prof. Auld uses to debunk Keen. It's the <a href="http://en.wikipedia.org/wiki/Cournot_competition">Cournot</a>-Nash solution of the equilibrium output under perfect competition. Except, it isn't: when simulated in software the so called equilibrium output is the same for any N > 0, with quantity and price being at monopoly-level.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">The problem with this solution and also the Marshallian equilibrium (or whatever it's called) is the claim that firms have total knowledge about the quantities produced by all firms (and consequently the price they can expect when selling their warez):</span><br />
<blockquote class="tr_bq">
<span style="font-family: inherit;"><i>Each firm takes the quantity set by its competitors as a given, evaluates its residual demand, and then behaves as a monopoly.</i><span style="font-size: xx-small;"> <span style="font-size: x-small;">[Wikipedia page on <a href="http://en.wikipedia.org/wiki/Cournot_competition">Cournot competition</a>]</span></span><i><br /></i></span></blockquote>
<span style="font-family: inherit;">Keen states that this assumption is unrealistic (and his computer simulation doesn't rely on it), and, indeed, </span><span style="font-family: inherit;">this </span><span style="font-family: inherit;">is a strange requirement. Where would this information come from? The firms certainly don't tell one another — this would constitute collusion, wouldn't it, and the whole point of perfect competition is the absence of collusion after all. Indeed so much so that a situation with monopoly-level prices under competition is routinely called "collusion" (see the title of Keen's paper: <i>Emergent Effective </i>Collusion <i>in an Economy of Perfectly Rational Competitors</i> <span style="font-size: x-small;">[<a href="http://arxiv.org/pdf/nlin/0411006.pdf">PDF</a>]</span>). But expecting them to share this </span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">private </span></span>information about their </span><span style="font-family: inherit;"><span style="font-family: inherit;">production quota </span>is even more absurd, when you consider that firms are profit maximizers, and by not-telling they can achieve higher i.e. monopoly-level profit margins as shown by Keen's computer simulation.</span><br />
<br />
So it appears that to rationalize a certain desired result, namely that perfect competition is preferable to a monopoly, economic theory assumes a condition which is not only absurd on the surface (firms telling each other about their production plans) but also inconsistent with their being profit-maximizers (because sharing this information actually <i>reduces</i> profits in the simulation). That such simulations can lead to the "collusive" rather than the Cournot-Nash equilibrium happens to be a known fact (see <a href="http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/12/a-post-for-steve-keen.html?cid=6a00d83451688169e2017c342b9961970b#comment-6a00d83451688169e2017c342b9961970b">this comment</a> on the Worthwhile Canadian Initiative post on <a href="http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/12/a-post-for-steve-keen.html">Keen</a>), but I doubt that students of economics will ever get to hear of it. Incidentally, calling the undesired outcome with the loaded term "collusive", when its cause is actually the opposite: the removal the collusive assumption in the simulation, is rather brazen. But then, "Hitler-pricing" would presumably be over the top even for economists.Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-7130940583347272952013-08-04T13:13:00.001+02:002018-04-18T16:25:56.166+02:00Geheimplan zum Verkauf der Demokratie an WirtschaftsinteressenDer Titel scheint vielleicht etwas reisserisch, aber tatsächlich täuscht er nur in einem Punkt: die Demokratie wird nicht verkauft sondern <i>verschenkt</i>. Der Geheimplan ist das <a href="http://en.wikipedia.org/wiki/Trans-Pacific_Strategic_Economic_Partnership">Trans-Pacific Partnership</a> Agreement (TPP), das gerade unter <a href="http://alangraysonemails.tumblr.com/post/53325968066/i-saw-the-secret-trade-deal">absoluter Geheimhaltung</a> zwischen den USA und 11 Pazifik-Anliegerstaaten verhandelt wird, und von dem die Öffentlichkeit erst erfahren hat, nachdem einzelne Kapitel der Vereinbarung durch Lecks ans Licht gekommen sind. Sogar der US-Senator Ron Wyden, Vorsitzender der Handelskommission im US-Senat, jenes Gremium also, das Rechtssprechung über diese Art Verträge hat, hat keinen Zugang zum Text der Vereinbarung. Ron Wyden sitzt in der Sicherheitskommission des US-Senats und darf Baupläne von Nuklearsprengkörpern einsehen, aber nicht den Text der TPP-Vereinbarung!<br />
<br />
Hier ein kurzes Video, in welchem Lori Wallach, Direktorin des <a href="http://www.tradewatch.org/">Public Citizen's Global Trade Watch</a> die Vereinbarung auf <a href="http://www.democracynow.org/">Democracy Now!</a> erklärt:<br />
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<iframe allowfullscreen='allowfullscreen' webkitallowfullscreen='webkitallowfullscreen' mozallowfullscreen='mozallowfullscreen' width='320' height='266' src='https://www.youtube.com/embed/JB3gRhOF8hM?feature=player_embedded' frameborder='0'></iframe></div>
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Weitere Informationen und Kapitel der Vereinbarung: <a href="http://www.citizenstrade.org/ctc/blog/2012/06/13/newly-leaked-tpp-investment-chapter-contains-special-rights-for-corporations/" rel="bookmark">Newly Leaked TPP Investment Chapter Contains Special Rights for Corporations</a>.<br />
<br />
Vielleicht erinnern sich einzelne Leser an das 1998 nach heftigen Protesten der Öffentlichkeit abgebrochene <a href="http://en.wikipedia.org/wiki/Multilateral_Agreement_on_Investment">Multilateral Agreement on Investment</a> (MAI). Es scheint, dass unsere Corporate Overlords nicht aufgeben und immer neue solche Vereinbarungen lancieren werden, bis sie eine Welt erschaffen haben, in der die 1% uns alle bis auf die bleichen Knochen ausbeuten können. Man soll sich auch nicht von der Tatsache einlullen lassen, dass es sich um eine "Trans-Pazifische" Vereinbarung handelt. Solche Verträge gelten erfahrungsgemäss als Blaupausen für Handelsabkommen, unter die am Ende alle Länder, also auch die Schweiz, fallen werden.<br />
<br />
Als Ron Kirk, der US-Handelsrepräsentant in den TTP-Verhalndlungen, gefragt worden war, weshalb dieses Abkommen unter solch totaler, in dieser Form einmaliger Geheimhaltung verhandelt würde, hat er effektiv zugegeben, dass die Völker den Abbruch der Verhandlungen erzwingen würden, wenn sie erführen, worum es im Abkommen geht ("in the past, when the text was revealed, we couldn't finish it", 7:02 im Video).<br />
<br />
PS: An der Position 13:25 in obigem Video offeriert ein "Vertreter" der "Texas Corporate Power Partnership" den US-Unterhändlern bei den TPP-Verhandlungen ein <a href="http://www.rawstory.com/rs/2012/05/13/u-s-trade-rep-given-corporate-power-tool-award-for-secret-treaty-talks/">"Corporate Power Tool" Award</a>, und meint unter Beifall und "Yeah!"-Rufen des Publikums "the TPP agreement is shaping up to be a great way to maximize our
profits, regardless of what the public of this nation or any other
nation thinks is right." Ich sehe ein, dass diese Leute keinen Sinn für Sarkasmus haben, aber dass sie ehrlich glauben, ein Anrecht auf solche Geschäftsbedingungen zum Schaden der 99% zu haben, ist schon ziemlich dreist.Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-8374038443730784652013-05-30T19:33:00.001+02:002013-05-30T19:33:13.107+02:00Ferienlektüre (2)Da ich anfangs Juni für zwei Wochen ins südliche Ostasien auf eine Kreuzfahrt gehe, habe ich ein paar Bücher besorgt, um den einen oder andern Moment der Ruhe und Behaglichkeit mit Geschichten und Berichten über ökonomische Kriminalität zu zerstören. Zu den jeweiligen Buchtiteln habe ich ein Video (wo vorhanden) und andere Informationen beigestellt.<br />
<br />
Ich wünsche allen schon mal eine schöne erste Junihälfte!<br />
<br />
<b>Whoops! Why Everyone Owes Everyone and No One Can Pay</b><br />
John Lanchester<br />
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<a href="http://www.guardian.co.uk/books/2010/jan/23/whoops-john-lanchester-howard-davies">Whoops</a> @ The Guardian<br />
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<b>ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism</b><br />
Yves Smith<br />
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<iframe allowfullscreen='allowfullscreen' webkitallowfullscreen='webkitallowfullscreen' mozallowfullscreen='mozallowfullscreen' width='320' height='266' src='https://www.youtube.com/embed/anFubBPqMw8?feature=player_embedded' frameborder='0'></iframe></div>
<br />
<a href="http://en.wikipedia.org/wiki/ECONned">ECONned</a> @ Wikipedia<br />
<a href="http://digamo.free.fr/econned.pdf">ECONned</a> als Free Download <span style="font-size: xx-small;">[PDF]</span>Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-2269536017036231312013-04-17T08:26:00.001+02:002013-04-18T06:25:09.394+02:00Final Proof: Economics is not ScienceConsider, if you will, the following analytic proposition:
<br />
<ol>
<li><i>If</i> someone wanted to make a statement about the physical world,</li>
<li><i>To that end</i> formulated a precise mathematical and/or logical model,</li>
<li><i>On the basis</i> of that model made a prediction for a specific situation,</li>
<li><i>And then</i> the precise situation arises, <i>but </i>the predicted result fails to materialize.</li>
</ol>
If such a situation ever came true it is safe to claim that everybody — <i>everybody </i>— would concede, that the model in question must be wrong. The only discipline where this is not the case is economics. Watch the following exchange between <a href="http://en.wikipedia.org/wiki/David_Stockman">David Stockman</a>, economist and author of <i>The Great Deformation</i>, and <a href="http://en.wikipedia.org/wiki/Saru_Jayaraman">Saru Jayaraman</a>, activist and author of <i>Behind the Kitchen Door</i>, on Real-Time with Bill Maher. The guests are seen debating the fact that in the USA tipped servers in restaurants get only a minimum wage of $2.13 an hour (and are actually paid nothing because the amount covers just the necessary taxes). Watch:<br />
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Here's the summary of what we're witnessing:<br />
<ul>
<li>Stockman claims (5:57) that a higher minimum wage would "destroy jobs".</li>
<li>Jayaraman <i>disproves</i> (6:52)<i> </i>this claim <i>with evidence</i> that in California where in places servers are paid the higher national minimum wage the number <i> </i>of restaurants is <i>growing</i> <i>faster </i><i>than ever</i>.</li>
<li>Stockman replies to his claim being disproved that (7:30) "People will never agree about the facts but it's logical: If you raise the cost of running a business on the margin you are going to eliminate the employment on that business ... [crosstalk]".</li>
</ul>
Well, first, no, it's only <i>economists </i>that will never agree — or care — about the facts. People with brains actually do, and second, no, it's not logical, it's <i>wrong</i>. Jayaraman has just proved <i>with facts</i> that what Stockman claims <i>did not happen</i>.<br />
<br />
I know of no other discipline that is equally impervious to factual evidence as economics. Note especially that when Stockman claims that the reasoning behind his claim is "logical" then the underlying assumptions or the theory that makes this reasoning inescapable <i>must be wrong</i>. <i>Period</i>. There is no escape from that if economics claims to be a science. And if — what is often heard — economics is not an "exact science" then it simply cannot make any such exact or inescapable claims. I thought we left behind already centuries ago such claims that whatever contradicts the Bible cannot possibly be true. In fact, the only quasi-science where <i>facts are irrelevant if the theory says otherwise</i> (to paraphrase Stockman's assertion above) is economics. The inescapable conclusion therefore must be that economics cannot be science.<br />
<br />
I'd love to see a student of economics take this video to class and then confront the professor why economics is the <i>only </i>discipline in the world (apart from religion) where factually disproved claims are still maintained, taught and defended tooth and nail as "logical".<br />
<br />
Further reading:<br />
<em>Brian Davey</em>, <a href="http://www.feasta.org/2011/10/05/economics-is-not-a-social-science/">Economics is not a social science</a> <br />
<ol>
</ol>
Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-32287867146842395522013-03-30T17:23:00.000+01:002013-03-30T17:23:13.096+01:00Der Irische RaubIch schaue gerade das Arte Doku <a href="http://www.youtube.com/watch?v=ZziNelkUadY"><i>Die Wahrheit - Eurokrise - Wem schulden die maroden Banken das Geld?</i></a> auf YouTube und muss jetzt eine Pause machen. Ich kann in einer bestimmten Zeit nur eine begrenzte Menge an ökonomischer Psychopathie ertragen. Schwache Nerven sollten die Finger komplett davon lassen, es ist unerträglich. Nur soviel: mein kleines <a href="http://underhandedeconomist.blogspot.com/2012/07/die-geschichte-vom-spanischen-raub.html"><i>Märchen vom Spanischen Raub</i></a> wird von der Realität in einem Ausmass übertroffen, das jede Vostellungskraft sprengt.Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com0tag:blogger.com,1999:blog-280330199261527679.post-7952230659589612022013-03-30T15:52:00.000+01:002013-09-13T09:40:32.681+02:00Ökonomie - Die Theologie des MarktesIch habe schon lange die These vertreten, dass Ökonomie keine Wissenschaft sei, weil sie an "Wissen" nicht interessiert ist. Mein letzter Post über den <a href="http://underhandedeconomist.blogspot.com/2013/03/ein-kleiner-mathematischer-beweis.html">Mindestlohn</a> ist ein <i>case in point</i>, wie der Angelsachse sagt. Obwohl Mindestlöhne seit Jahren exisitieren, und deren Wirkung auf Arbeitslosigkeit daher beobachtet werden kann, lehrt die Ökonomie immer noch die Orthodoxie. Ich nenne dieses Phänomen <i>Faktenresistenz</i>.<br />
<br />
Trotzdem hat es aber eine gewisse Zeit gedauert (und einige ökonomische Bücher benötigt), bis ich eingesehen hatte, dass Ökonomie in Tat und Wahrheit eine <i>Theologie </i>ist. Der Glaube an den Freien Markt ist ein religiöser Glaube mit all ihren Dogmen, Evangelien, Sekten, Priestern, Ketzern usw. Im Gegensatz zu einer Wissenschaft, in der es schon namentlich darum geht, "Wissen" zu "schaffen", hat die Ökonomie den Zweck, sich selber und — da eine Religion nie damit zufrieden ist, den wahren Glauben zu haben, sondern ihn immer auch andern aufzwingen muss — <i>alle andern </i>davon zu überzeugen, dass ihr Gott (Markt) den längeren Penis hat als alle andern Götter.<br />
<br />
Im blog <a href="http://unlearningeconomics.wordpress.com/">Unlearning Economics</a> (empfohlen für jeden Kritischen Ökonomen!) zitiert der Autor aus der Einführung zum Kapitel 11 <span class="leftnavTitle"><a href="http://wps.pearsoned.co.uk/ema_uk_he_sloman_economics_6/41/10679/2734079.cw/index.html"><i>Markets, Efficiency and the Public Interest</i></a> des Buches <a href="http://wps.pearsoned.co.uk/ema_uk_he_sloman_economics_6/41/10678/2733799.cw/index.html">Economics</a> von John Sloman</span><br />
<blockquote class="tr_bq">
<i>First we show how a perfect market economy could under certain
conditions lead to ‘social efficiency.’ … [we then] show how markets in
practice fail to meet social goals. These failures provide the major
arguments in favour of government intervention in a market economy. </i></blockquote>
Diese Zeilen sind äusserst erhellend und zielen auf den Kern meiner ökonomischen Kritik. Der Autor ist in diesem speziellen Fall besonders hilfreich, da er im wesentlichen mein Argument explizit macht:<br />
<blockquote class="tr_bq">
<i>Zuerst </i>wird gezeigt, dass ein Perfekter Markt (Gott) zu (absoluter) sozialer Effizienz führt,<br />
<i>dann </i>wird gezeigt, dass ein realer Markt (Welt) <i>diese sozialen Ziele verfehlt</i>.</blockquote>
Man beachte, dass das ökonomische Modell perfekt und die Realität mangelhaft ist und deshalb die geforderten Ziele verfehlt.<br />
<br />
Dies ist keine Wissenschaft, sondern Theologie, denn in einer Wissenschaft, etwa der Meteorologie, ist es immer das idealisierte Modell, das mangelhaft ist, da es die Realität gerade <i>wegen </i>seiner Idealisierungen nicht vollkommen abzubilden vermag und daher von dieser abweicht. Diese Umkehrung der Bedeutung von Idealisierung und Realität ist der Kern einer Theologie: Gott ist unfehlbar. Es ist immer die Realität, die mangelhaft ist.<br />
<br />
Wäre die Ökonomie eine Wissenschaft, dann würde wie in der Meteorologie ein allfällig idealisiertes Modell dazu verwendet werden, den realen Markt zu <i>verstehen</i>, um danach das <i>Modell </i>(und eben nicht die Realität!) zu verfeinern, damit letzteres nach und nach genauere Voraussagen zu produzieren vermag. Tatsächlich aber besteht das ökonomische Projekt darin, die mangelhafte Realität dem Perfekten Modell anzugleichen, und damit quasi einen Ökonomischen Gottesstaat (einen Total Freien Markt) zu errichten.Ralph Sommererhttp://www.blogger.com/profile/11324180682096167302noreply@blogger.com1