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The evidence from the sociologists against economic thinking is compelling

One of the stark facts about the academic economics discipline is its insularity and capacity to deliver influential prognoses on issues that affect the well-being of millions with scant regard to the actual consequences of their opinions and with little attention to what other social scientists have to say. The mainstream economists continually get things wrong but take no responsibility for the damage they cause to the well-being of the people. A 2015 paper – The Superiority of Economists – published in the Journal of Economic Perspectives (Vol 29, No. 1) by Marion Fourcade, Etienne Ollion and Yann Algan is scathing in its assessment of the economics discipline. They say that mainstream economists largely ignore contributions by other social scientists and consider them inferior in technological sophistication, have a “predilection for methodological and theoretical precision over real-world accuracy”, largely ignore”the basic premise of much of the human sciences, namely that social processes shape individual preferences”, and parade an arrogance and superiority that masks the sterility of their analysis. In this context, I thought the 2015 Report from the Joseph Rowntree Foundation – Sociological perspectives poverty – was a breath of fresh air in its approach to understanding poverty. The empirical base it presents refutes most of the major assumptions and conclusions of economists who work in the field of poverty. A mainstream professor who was supervising my economics graduate program once said to me: “Bill you are a bright boy but you should be doing sociology”, which was an example of the negative control mechanism designed to weed out dissidents (like me). It didn’t work. But I always considered the disciplines of sociology and anthropology (not to mention psychology, political science, social welfare etc) to be important in my journey to become ‘well read’. Most economists, however, do not think that. Perhaps that is why I was able to be part of the development of Modern Monetary Theory (MMT).

The insularity of economics

First, the problem of economics.

One “eminent professor” of economics, interviewed by the researchers for “The Superiority of Economists” article, told them that:

You are only supposed to follow certain rules. If you don’t follow certain rules, you are not an economist. So that means you should derive the way people behave from strict maximization theory … The opposite [to being axiomatic] would be arguing by example. You’re not allowed to do that … There is a word for it. People say ‘that’s anecdotal.’ That’s the end of you if people have said you’re anecdotal … [T]he modern thing [people say] is: ‘it’s not identified.’ God, when your causality is not identified, that’s the end of you.

In fact, what mainstream economics has come down to, at the graduate level, is a cute game, which former IMF chief economist Olivier Blanchard summarised in his August 2008 article – The State of Macro as being an exercise in following:

… strict, haiku-like, rules … [the economics papers] … look very similar to each other in structure, and very different from the way they did thirty years ago …

Graduate students are trained to follow these ‘haiku-like’ rules, that govern an economics paper’s chance of publication success.

So if an article submission does not conform to this haiku-like structure it has a significantly diminished chance of publication.

So we get a formulaic approach to publications in macroeconomics that goes something like this:

  • Assert without foundation – so-called micro-foundations – rationality, maximisation, RATEX.
  • Cannot deal with real world people so deal with one infinitely-lived agent!
  • Assert efficient, competitive markets as optimality benchmark.
  • Write some trivial mathematical equations and solve.
  • Policy shock ‘solution’ to ‘prove’, for example, that fiscal policy ineffective (Ricardian equivalence) and austerity is good. Perhaps allow some short-run stimulus effect.
  • Get some data – realise poor fit – add some ad hoc lags (price stickiness etc) to improve ‘fit’ but end up with identical long-term results.
  • Maintain pretense that micro-foundations are intact – after all it is the only claim to intellectual authority.
  • Publish articles that reinforce starting assumptions.
  • Knowledge quotient – ZERO – GIGO.

This is why the publication bias problem in mainstream macroeconomics is so significant.

Economists are notorious for their lack of regard for other disciplines, particularly those that study human behaviour.

Economics is the “least outward-looking social science” (see the 2017 study – Inside Job or Deep Impact? Using Extramural Citations to Assess Economic Scholarship).

It operates as an:

… insular professional culture that discounts contributions by other social scientists, imposes dogmatic standards in teaching and training, and uses tightly controlled hiring practices to enforce conformity with the norms and goals of a guild-like professional elite.

In 2002, the work of Rik Pieters and Hans Baumgartner concluded that:

… no area of economics appears to build substantially on insights from its sister disciplines.

(Reference: Pieters, R. and Baumgartner, H. (2002) ‘Who Talks to Whom? Intra- and Interdisciplinary Communication of Economics Journals’, Journal of Economic Literature, 40(2), 483–509).

“The Superiority of Economists” article found that:

1. “Examining the structure of interdisciplinary citations in detail reveals sharp differences across disciplines.”

2. “sharply asymmetric flows between economics and the other social sciences” in cross-citations.

3. “articles in the American Political Science Review cite the top 25 economics journals more than five times as often as the articles in the American Economic Review cite the top 25 political science journals. The asymmetry is even starker with regard to the American Sociological Review. While only 2.3 percent of the sociologists’ citations go to their economic colleagues (often in a critical fashion, arguably), just 0.3 percent of economists’ citations go to sociologists …”

4. “French sociologist Pierre Bourdieu, the top-cited name in US sociology today, received a single mention in the AER during the 2000s”.

5. “economists have in general less regard for interdisciplinarity than their social scientific and even business school brethren”.

6. The majority of economists either “disagree or strongly disagree with the proposition that ‘in general, interdisciplinary knowledge is better than knowledge obtained from a single discipline.'” We are the only discipline that holds that view.

7. There is a strict hierarchy enforced in economics – with economists looking “both inwards and towards the top if its internal hierarchy” – “there is more control”. This is the Groupthink element.

8. The control extends to the design of PhD programs, who gets a job, who gets published, who gets research grants, who gets to give keynote speeches, who gets access to the media, and on.

Economics and poverty

This insularity then affects how economists analyse real world problems.

While economists often claim poverty is a topic that they are interested in, they adopt such sterile approaches, biased towards promoting individual choice to the top of causes, that the analyses fall short of providing an understanding.

As the 2015 JRF Report – Economic theories of poverty note:

Classical economic traditions contend that individuals are ultimately responsible for poverty, thereby providing a foundation for laissez-faire policies … Both classical and neoclassical approaches overemphasise monetary aspects, the individual as opposed to the group, and a limited role for government …

Classical traditions view individuals as largely responsible for their own destiny, choosing in effect to become poor (e.g. by forming lone-parent families). The concept of ‘sub-cultures of poverty’ implies that deficiencies may continue over time, owing for example to lack of appropriate role models, and that state aid should be limited to changing individual capabilities and attitudes (i.e. the laissez-faire tradition).

When I was an economics student we were taught that unemployment, which in the real world is a major cause of poverty, was, in fact, a choice made by individuals who preferred ‘leisure’ to ‘work’ because the real wage they could access was not large enough to offset the utility they would gain from enjoying the leisure that arose from not working.

There were elaborate technical analyses presented as I went through the years of study to show that if the government dared to introduce an income support payment for unemployment it would further distort the choice for leisure – the so-called ‘corner solution’ of the work-leisure model.

We were also told that the real wage they faced was low because they had chosen not to invest in themselves to enhance their productivity through human capital accumulation (education and training).

And the more insidious claims were that a class of impoverished people deliberately positioned themselves in this way (as a ‘utility maximising’ choice) because of categorical biases in the welfare systems.

More recently, we have been told that indolent teenage girls keep having kids so they can enjoy the child support payments and avoid working.

The mind-numbing effects of this sort of ‘education’, read, indoctrination, take their toll on many economics students as they progress through their studies.

While there is a lot of self-selection involved (that is, prior beliefs are attracted to economics), economics programs at university level also nurture sociopathological tendencies in the students.

I have written about this before – see for example these blog posts:

1. The brainwashing of economics graduate students (February 12, 2019).

2. Economics curriculum is needed to work against selfishness and for altruism (September 19, 2018).

3. Humans are intrinsically anti neo-liberal (May 22, 2017).

One of the obvious points is that this sort of framing is no accident.

Even during the Great Depression, the idea that the government would provide income support to the unemployed was strongly resisted by business leaders, who wanted cheap labour.

In Howard Zinn’s – A People’s History Of The United States: 1492-Present – published by Harper Perennial (p.378), we read that:

Henry Ford, in March 1931, said the crisis was here because “the average man won’t really do a day’s work unless he is caught and cannot get out of it. There is plenty of work to do if people would do it.” A few weeks later he laid off 75,000 workers.

The data from that period shows that every time a job vacancy was advertised hundreds applied seeking work.

There have been many articles written by key mainstream economists (such as Milton Friedman) that argue that economic cycles (and hence unemployment dynamics) are driven by labour supply shifts.

An essential conclusion that you would draw from the supply shift stories is that quits (workers leaving jobs on their own volition to pursue leisuer) should behave in a countercyclical manner.

All the empirical evidence on quit behaviour from every country runs contrary to that construction.

US institutional economist Lester Thurow wrote in his 1983 book – Dangerous Currents:

… why do quits rise in booms and fall in recessions? If recessions are due to informational mistakes, quits should rise in recessions and fall in booms, just the reverse of what happens in the real world.

I also recall reading a lovely account of how the mainstream economists explained the rapid rise in unemployment during the Great Depression – that within the elapse of a year or so, around 25 per cent of the workforce suddenly acquired a new found taste for leisure and decided to quit their work – a sudden outbreak of laziness struck the world during the 1930s!

If mass unemployment becomes an optimal choice between work and leisure and leisure wins out then government should not try to stimulate spending to provide more jobs nor provide unemployment benefits to further subsidise leisure.

The demand side – spending etc has no part to play in creating employment and hence reducing unemployment.

This agenda was, of course, anti-government intervention, unless it was feeding procurement contracts in the military-industrial complex or bailing out capitalists and bankers in times of crisis.

The target was to reduce assistance to the poor and redistribute national income to the rich – the defining characteristic of the neoliberal era.

The ‘individuals are to blame’ narrative that comes from mainstream economics teaching extends into a number of areas and a nomenclature emerged to support this strategy.

In various nations the terms were different – but they all were designed to vilify the unemployed and other income support recipients – ‘bludgers’, ‘drifters’, ‘lazy’, ‘scheming’, ‘living off the rest of us’, and more.

Them and us.

That sort of strategy meant that nations could endure significant recessions without the majority (who kept their jobs) questioning the basis of the recessions (a lack of overall spending) and the role that governments could play in eliminating them.

Some literature actually eulogised the recession experience as a sort of ‘cleansing’ episode where capitalism maintained efficiency – by shedding high cost technologies and less profitable entrepreneurial ventures.

The on-going redistribution of national income away from workers and the rising income inequality was carefully swept where it would not be noticed.

Enter the sociologists

The Joseph Rowntree Foundation (JRF) Report – Sociological perspectives poverty – (published in June 2015), offers a stark point of departure for social scientists who are interested in engaging with real world problems such as poverty.

The Report (authored by Tracy Shildrick and Jessica Rucell):

… describes and critically analyses sociological theories on the causes of poverty and discusses contested concepts that relate to how we might understand poverty from a sociological/social theory perspective …

In contrast to economists, who focus on individual causation (the ‘unemployed are to blame’ narrative), sociologists tend to adopt structural explanations and understandings and then see how “the structure and organisation of society … relates to social problems and individual lives”.

This is a much more attractive and fruitful path to take and is consistent with the break that Keynes and others made from the mainstream in the 1930s, when they rejected the standard ‘optimising’ explanation for mass unemployment in favour of a focus on the systemic failure of the economy to generate enough jobs as a consequence of insufficient aggregate spending.

They also showed how aggregate level constraints (say, a lack of jobs) rendered individual choice powerless. When there are not enough jobs, an unemployed individual can do very little to become employed.

The JRF Report tries “to balance up the relative importance of social structures (that is, the ways in which society is organised) and the role of individual agency (people’s independent choices and actions)” as a basis for understanding poverty.

In terms of the balance between structure and agency, economists are located at the extreme end of agency.

Sociologists seek to engage with real world evidence to challenge the ‘individualistic’ construction of poverty.

The JRF study concluded that:

1. “poverty can be better understood as a result of the ways in which resources and opportunities are unequally distributed across society” – that is, a structural outcome of unequal power and access to national income.

2. “social class and processes of class reproduction remain important, particularly for the continuity of poverty over time and across generations”.

3. “people’s social class positions still influence the opportunities open to them. Starting out life in poverty means a greater risk of poverty in later life.”

During the Great Depression and all major cyclical events that have followed, the mass unemployment that arose was clearly accompanied by rising layoff rates and falling quit rates.

When job vacancies were offered, huge numbers of people queued up in the application queue.

The JRF Report reviews the research evidence in this field and concludes:

Empirical evidence does not support the idea that people positively embrace living on welfare benefits or that people prefer living on benefits to working. There is little evidence that all but a very small number of claimants prefer not to work or that claimants do not actively engage in job searching … Throughout more than twelve years of research in deprived neighbourhoods in Teesside, Shildrick and colleagues also found a strong commitment to work amongst people who are often described as having rejected the work ethic … even when repeatedly faced with ‘junk jobs’ … characterised by ‘gruelling, monotonous, tightly controlled and poorly rewarded’ working conditions … and sometimes being made substantially poorer in taking work. The work ethic of research participants remained stubbornly – and perhaps surprisingly steadfast …

Think about the vast body of research that they are reporting on here.

Economists sneer at it – as being anecdotal or qualitative.

Real social scientists consider it to be valuable insights into real world human behaviour.

And then juxtapose that with the views pushed by progressives who support the introduction of a universal basic income to overcome poverty.

The research evidence is clear – people want to work, even if the jobs are not particularly flash.

There is no evidence that a large number of unemployed would prefer to be passively supported by income guarantees.

The researchers further noted that:

The fact that a work commitment remains strong even where jobs are scarce can be explained, at least in part, by long-standing class cultural expectations about the importance of employment within the working class. Work has moral and emotional dimensions, as well as economic ones, and it offers dignity and respect … The idea that the workless inhabit cultures of worklessness or that they pass on such attitudes and values to young people has also been found wanting …

Again, recognising that an attachment to work is more than just a desire to earn income.

We gain our place in society through work.

There is no culture of preference for passive income support where the state abandons its responsibilities to generate enough jobs, and, instead treats the people it makes unemployment because of its faulty macroeconomic policy positions, as passive consumption units.

Further, in this neoliberal era, having a job is not guarantee of an escape from poverty.

The JRF Report notes that:

In the current context, working conditions for many have worsened, public sector jobs have rapidly declined, unemployment and underemployment have been increasing, and low-paid and part-time work have proliferated … It is a particular problem for those countries which have followed an economy based on aggressive free-market principles. As a result, in-work poverty is an increasingly important explanation for contemporary poverty.

This is the problem of the ‘working poor’.

Please see these blog posts (among others):

1. Welcome to the ‘homeless’ working poor – a new neoliberal KPI (February 22, 2018).

2. The neo-liberal class warfare on the poor and the rest of us (March 10, 2016).

3. Rising working poor proportions indicates a failed state (June 20, 2012).

4. The war on the poor (December 29, 2004).

So a Job Guarantee program has to not only ensure everyone can work when they want a job but also that the wages and conditions guarantee a socially-inclusive existence.

Conclusion

Introducing a Job Guarantee is not a panacea to everything.

But it is a giant first step to a better society.

But don’t expect to many economists to agree. But then they have made themselves irrelevant in the main through their Groupthink and insularity.

That is enough for today!

(c) Copyright 2019 William Mitchell. All Rights Reserved.

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    This Post Has 30 Comments
    1. I call for a new Discipline: Politenomics
      The study of divergent macroeconomic policies and their outcomes. Quantitative and verifiable case studies.
      Economists can’t call that too ‘qualitative’.

    2. Bourdieu would not be at the top of my list. But then … . Not mentioned explicitly, though it lies in the background, is the fact that when mainstream economists deal with real data, their analyses of it are incompetently done: incompetently presented graphics, no real statistical analysis hence no error assessments, and data tables presented as rock solid. One example that comes readily to mind is Krugman’s treatment of data. When he deals with data of any sort in his blog, he tells that reader that the post is wonkish meaning it is technical and, therefore, possibly difficult. Well, he compounds any difficulty there may be by incompetently presenting the data, usually in graphic form. What does he do wrong? He fails to label the axes or even to scale them. One is left wondering what the hell the graph is saying. If his errors are pointed out, he, either explicitly or implicitly, suggests that the reader is at fault for the lack of understanding and claims to fix the error. Except that his ‘fix’ is fundamentally inadequate.

      This has not always been the case. One need only consult Oskar Morgenstern’s The Accuracy of Economic Observations written in the 1950s to see that data presented by economists in the thirties and forties in tables were invariably accompanied by error estimates. Not any more.

      Why is this? A number of reasons could be suggested. Laziness could be a reason, but this doesn’t seem to be quite right. Reliance on mathematical equations, such as those from Calculus or Mathematical Analysis, looks more accurate. Some of these equations may contain their own error estimates, but not bringing this out in the discussion renders it, from a data analytic perspective, totally inadequate and misleading. Nevertheless, as has been pointed out, these equations leave the real world behind, even when error estimates are incorporated into the equations. A substitute for these equations would be decent statistical analyses of real world data, including error assessments. It would not be neat, but the real world is messy.

    3. I suggest you call the discipline Political Intelligence to signify what is needed in order to fully understand the whole field covered by political economy, ponerology, social psychology, culture wars studies, and so forth. Ideally it would draw on all academic disciplines and the mix would soon engender the disciplines needed to do it properly.

    4. Mainstream Economics vs reality almost seems like the Religion vs science argument all over again.
      In religion you have to go to divinity school and convince the teachers that you believe the dogma before you can be ordained into the ministry. In economics you have to go the a Univ. with the proper sort of Economics Dept. and convince the Professors that you believe the BS before you can get a job in economics teaching or with the IMF, etc.
      The evidence is clear, Mainstream economists {both Neo-liberal and New-Keynesian} don’t care one whit about reality or truth or facts. They behave just like Creationists. In a debate if you get them to admit they got a fact wrong, you can be sure that they will go back to their now proven false ‘fact’ as soon as you turn your back on them.

    5. Bill, you wrote, “While there is a lot of self-selection involved (that is, prior beliefs are attracted to economics), economics programs at university level also nurture sociopathological tendencies in the students.”
      This part makes no sense, “,,, (that is, prior beliefs are attracted to economics), …” to me.

    6. This is a very important post by Bill, because it ventures out from the insular field of economics to draw wisdom from related fields that study the complexities of human behavior, both social and individual. Again, let me praise the tagline of Schumacher’s groundbreaking “Small Is Beautiful”: “Economics as if people mattered.” While mathematical and scientific knowledge must inform economic analysis, the bottom line IMHO is that economics is more closely related to the humanities, in general, than to STEM. This was the thread that ran throughout Schumacher’s work, and MMT has astutely picked it up and continued sewing.

    7. “Small Is Beautiful” was the first economics book I read and I based the essay I had to write for entry into economics degree (mature student) on that. I only had A level economics taken at 17 after 1 year 15 years before. On interview I was told that I’d be better suited to English literature.

      I think this is the best blogpost I’ve read here.

    8. I too have been hesitating to tell people that I study economics in my free time. Usually, I say that what I study is not your mainstream nonsense.

      I read up on Bourdieu’s habitus and cultural reproduction. It explains why I am so “weird” when compared to all my college classmates. Pretty valuable stuff.

    9. One more comment,

      It is really not enough to just learn economics. Without history and politics (heck, even psychology and sociology now), one really can’t understand the issue at hand.

      Learning MMT has widened my horizon to beyond even MMT itself. I find myself reading alot of stuff completely outside my field (molecular biology) and participating in labor movement. It is quite a remarkable education.

    10. “… people want to work, even if the jobs are not particularly flash”.
      and
      “We gain our place in society through work” .

      Absolutely!

      I just watched a TV programme in which the presenter (Levison Wood) talked with a small-time merchant in the souk in Damascus. His livelihood depends on the tourist trade and he hadn’t seen a tourist in six years. Asking-prices had nosedived. Hard to imagine anything more discouraging. But he still comes to work every day because “it’s not fitting that a man stay at home and do nothing” (he then proceeded to cajole Wood into buying two articles he clearly didn’t want, so he clearly had lost none of his skills and relished the rare chance to employ them).

      .

    11. It amazes me why economists are so against the job guarentee.

      When they have created their own JG programme. Giving themselves work to get the next building built in their economics departments and more funding from the corporate world.

      The Kenneth C. Griffin Department of Economics. That used to be known as the University of Chicago’s Department of Economics for example.

    12. @ Newton Finn
      I agree heartily with the rest of what you wrote but would take you up on this:-

      “While mathematical and scientific knowledge must inform economic analysis…”

      “Must” they? They didn’t inform Adam Smith’s SFAIK. Not being an economist – nor versed in the history of economic thought (though neither are the majority of economists it seems) – I was under the impression that it wasn’t really until the mid-C19th or later that people like Jeavons changed the direction of economics in order to facilitate its claim to be a “science” – and that was where the rot (in more ways than one) set in. It led more-or-less directly to precisely the malaise which Bill analyses so penetratingly (as have others).

      “Mathematical knowledge”? – yes, essential in regard to its application to statistical analysis of sociological and macroeconomic trends and the like (“econometrics”)
      – but “scientific knowledge”? – phooey.

      Here’s one critique (among many):-
      “It can be noted first that mathematical methods and techniques of the sort employed by economists (use of functions, calculus and so forth) presuppose regularities at the level of events. Whether the latter are a priori hypothesesed or a posteriori ‘detected’, the successful application of economists’ mathematical tools require(s) event regularities or correlations. Systems in which such event regularities can occur can be called *closed*. Deductivism … is just the doctrine that all explanations be couched in terms of such (closed systems of) event regularities. Modern mainstream economics … is just a form of mathematical deductivism” (Tony Lawson “What is this ‘school’ called neoclassical economics” Cambridge Journal of Economics 2015).

      But the one that really takes the biscuit IMO is Axel Leonhuvud’s hilarious spoof-anthropological study “Life among the Econs”, which all economics students should be required to demonstrate that they have learned by heart before being awarded their degree.

      (But wouldn’t that require crediting economics students with having such a thing as a heart, which might be a dubious proposition…?)

    13. If it isn’t bad enough that economics pays scant regard to other disciplines in the social sciences, it basically ignores the physical sciences. The economic process is a physical transformation process and is subject to the natural laws of physical transformation. The economic process is also limited in scale by the finitude and limited availability of the ultimate means – low-entropy matter and energy (otherwise known as natural resources). Apart from Ecological Economists (sadly, many of which are not conversant with MMT), economists have virtually nothing constructive to say or add about sustainability, and I’m including most heterodox economists who obsess themselves with GDP and somehow believe GDP can continue to grow without it trashing the planet.

      It is critical that economists build into their models what ‘production’ and ‘consumption’ actually involves. Production does not involve the creation of anything (first law of thermodynamics). It involves the rearrangement of matter-energy – the physical transformation of natural resources through the agency of capital and labour – whereby use value is added to the natural resources we extract from the ecosphere. Consumption involves the disarrangement of matter-energy, where upon we destroy the use value embodied in the matter-energy that subsequently exists in the form of ‘goods’. Ultimately, when all goods have been directly consumed or have depreciated through use, the output of the economic process is waste that returns to the ecosphere.

      When economic models have this reality of production and consumption built into them, and it is also recognised that the ecosphere has limited regenerative and waste assimilative capacities, then any desire to operate sustainability imposes a limit on the economy’s sustainable productive capacity. It ensures that potential GDP is restricted by the most limiting ‘sustainable’ factor of production, which is clearly natural resources and the ecosphere’s sink capacity at this point in humankind’s development. Hence any economic model that takes account of ecological sustainability will generate an aggregate supply (AS) curve with a vertical section at a level of GDP that does not exceed maximum sustainable productive capacity. Ideally, the AS curve will be vertical at something less than this level of GDP because, ideally, you want labour to be the most limiting factor of production (i.e., you want to run out of labour before you run out of capital or the incoming (sustainable) flow of natural resources). Full employment is not ecologically sustainable unless labour is the limiting factor of production. This adds a new dimension to the problem of full employment, especially if a country’s GDP is currently larger than its maximum sustainable GDP, which is the case for most countries.

      Most point is: we need to build economic models from ecosphere (the ultimate source of all economic activity) to the production or physical transformation process itself and then to GDP, and from GDP to something that better reflects the economic welfare generated by the economic process, such as the Genuine Progress Indicator. Working from GDP back to the ecosphere as if we can grow GDP forever so long as we do it differently is pointless and unscientific. It has also had disastrous consequences for the planet and for us, or more particularly, will have disastrous consequences for future generations of human beings.

    14. None of it is difficult to understand – when the truth runs against the interests of the wealthy and the powerful, the wealthy and the powerful step on the truth. The w & p set up systems of reward and punishment, to ensure that places of higher education serve them. That’s all it is. There is very little that the reach of the w & p cares not to bring into subjugation. That’s how systems of wealth and power work. All those intellectuals, academics, reveal a base nature. Really it’s the type of people least likely to challenge. They love the rewards. Greed and selfishness trumps understanding in the majority of the population.

    15. Philip Lawn – I enjoyed that. It certainly worked for me as a physicist. All I found missing was the relationship of consumption with the second law of thermodynamics and the emergence of entropy. Looks like the start of something useful.

    16. @ Philip Lawn
      “If it isn’t bad enough that economics pays scant regard to other disciplines in the social sciences, it basically ignores the physical sciences”.

      It’s impossible to disagree with your thesis, on your terms, of course – but with reservations:-
      a) if the economics discipline would only repair its most glaring and proximate deficiency (the one on which Bill concentrates his fire) that *alone* would be an excellent start, and one which would contribute significantly to the wider changes in attitude you want to see;
      b) that’s about as much as can reasonably be expected of economics itself because
      c) widening the economics process in your description to include “all forms of human activity” in no way invalidates your argument, so
      d) what you require of economics isn’t applicable exclusively to economists but applies to everybody else just as much;
      e) correct me if I’m wrong but don’t all or most scientific disciplines suffer too from the same well-known “silo effect”, and isn’t that unavoidable to a certain extent given the extraordinary breadth of modern knowledge? (there can be no true polymaths like there once were any more – there’s just too much “stuff”);
      f) would economists’ possessing deep knowledge of the laws of thermodynamics provide them with any greater insight into the well-springs of human action – which is what it seems to me you’re *really* talking about – than not having that knowledge? Isn’t putting it in those terms just one of many possible ways – albeit I grant you a very striking one – of expressing the same fundamental inescapable truths about Nature and the predicament in relation to Nature which humanity faces?

      And always has faced, from stone-age hunters wiping-out the woolly mammoth on the Eurasian steppe through Maori wiping-out the moa in New Zealand, to American frontiersmen more-or-less wiping-out the bison on the prairie (with countless other exterminations great and small along the way, and many more imminent)?

    17. “Production does not involve the creation of anything (first law of thermodynamics). It involves the rearrangement of matter-energy – the physical transformation of natural resources through the agency of capital and labour – whereby use value is added to the natural resources we extract from the ecosphere.”
      @Philip, that’s taking the analogy with physics too far, if you are implying, like many current heterodox economists that energy is a separate factor of production. It is capital: labour working on natural resources.

    18. What I think needs to be addressed are the external factors that we have to wear when avoided by economists. For instance Unemployment has a large external cost. The British Government worked out that one homeless person cost the economy from₤30,000 to ₤400,000 for Mental health, police. welfare legal and social expenses. Adding those costs back into the mix would say I think that Predatory Capitalism is the Most expensive system ever devised.

    19. Philip Lawn, GDP does not only consist of activities like mining and industrial production. A very large (and growing) part of GDP is in areas like health care and education and many other services, where your idea about increased consumption depleting the ecosphere are not necessarily true. It’s difficult for me to see how my consumption of the haircut I get at the barber will damage the ecosphere. But it is easy to see how it adds to GDP.

    20. To Jerry Brown. There are three major sectors of the economy – the primary, the secondary, and tertiary sectors. The output of the primary sector (resource-extractive and agricultural industries) is the input of the secondary sector (manufacturing). The output of the secondary sector is the input of the tertiary sector (services). If you count the indirect as well as direct input of matter-energy into the tertiary sector (the indirect input is usually overlooked in many studies), there are no resource savings from ‘shifting to services’, which is an illusion created by most rich countries now importing many of the manufactured goods that constitute inputs to their tertiary sector (note: if you import manufactured goods, your spare using your own resources and allow the exporting country to bear most of the resource depletion costs). It is true that some forms of consumption are less resource-intensive than others, but they all involve resource use unless you exist in a make-believe world where, to use your example, your hair is cut by an imaginary barber using imaginary scissors in an imaginary barber shop lit by imaginary lighting powered by imaginary energy as you sit in an imaginary barber seat. It is important to note that the very basics of consumption involve eating, drinking, clothing, housing, heating, and transportation which are very resource-intensive. Agriculture on the scale needed to feed 7.8 billion people is extremely resource-intensive and greenhouse gas-intensive.

      To Carol Wilcox. Natural resources used in production are not capital, although ‘natural capital’ (Kn) has the capacity to provide a limited flow of natural resources over time on a sustainable basis, unlike human-made capital, which provides no natural resources (hence why the two forms of capital are complements not substitutes, the latter being what many economists wrongly assume). Give me a lathe, a lathe-operator, and nothing for the operator to work on and I’ll give you zero output, not to mention that resources must be used to create the lathe and to feed, clothe, and train the lathe-operator. Human-made capital (Kh) and labour (L) are the ‘efficient cause’ of production and natural resources (R) are the ‘material cause’ of production. As inputs to what is labelled production, Kh and L are in a different class to R. As much Kh and L as you like and zero R, and you have zero output (Q). In addition, the matter-energy embodied in R must exceed the matter-energy embodied in the Q produced (first and second laws of thermodynamics), which means a given Q requires a minimum irreducible quantity of R to be produced. Moreover, it means that more and more Q requires more and more R, despite the ability of technological progress to reduce the resource-intensity of Q. That’s why the global Ecological Footprint is rising as Gross World Product (GWP) rises and is currently 70% greater than what the planet can sustain. GWP is already well beyond maximum sustainable scale. If we built macroeconomic models as I have suggested, and we restricted the input of R in our models to the maximum sustainable rate, the potential (sustainable) GWP generated by these models would almost halve and would better reflect reality. GWP would only increase to its current level if we almost halved the resource-intensity of production, which would be not far short of what many believe to be technological limits.

      It’s all quite simple. It looks difficult to some people because, sadly, virtually no-one leaves school having any understanding of the first and second laws of thermodynamics and their implications. If everyone left school with this understanding, anyone preaching that economies can grow forever would be considered a lunatic. The very basics of the first and second laws of thermodynamics are not difficult for the majority of people to understand.

    21. The role of Aspiration that fed the pursuit of neoliberalism

      There once was a group of people who called themselves neoliberals, and did so proudly, and their ambition was a total revolution in thought; the most prominent among them included Friedrich Hayek who sought to understand Adam Smith’s “invisible hand” in a scientific and modern conception.

      During the years that followed the end of WW2 there was indeed a convincing argument that a rising tide of free markets would lift all vessels, even those who had not enjoyed much in the way of living standards.

      Poverty, yes there was enough of that to worry those with a social conscience, but council housing developments were progressing on a prodigious scale, and while some housing estates belied a continuing class divide, the popular attitude to educational opportunities and social mobility ensured that inequality was a diminishing feature of modern life.

      Yes, there was the “deserving poor”, regarded with a hint of sympathy by those lucky enough to avoid family and social problems; and despite inflationary scares and industrial upheavals society did progress to ever increasing prosperity. Unemployment, for all its dreadful consequences was somehow tolerated on the grounds that a free market occasionally imposed employment misery, but the welfare state provided a temporary support until the widely accepted austerity brought the economy back into balance.

      The Great Financial Crisis altered that cultural attitude slowly, but in the end decisively, its decade of misery turning austerity into a punishing penalty that seemed out of proportion to the burden of blame. Stagnant living standards and mounting household debt have allowed no respite from the economic pain; in-work poverty exacerbating the sense of unfairness of a system unable to provide any level of relief.

      Making the picture even grimmer has been the sight of decaying town centres, once the hub of vibrant activity. Thus, increasing the number of people in work is pivotal to delivering inclusive growth in places like the Tees Valley. At the time of the Joseph Rowntree Report some 26% of the working age population was economically inactive in this area (compared to 22% in England), rising as high as 30% in Hartlepool and Middlesbrough. A fifth of working-age household were entirely workless.

      Another statistic that would be helpful in determining economic state of the region would be the level of income that is being siphoned out of the area. The Rowntree report would be enhanced by that figure.

    22. I guess I’m an optimist Philip.

      Lets accept the way you section the economy and accept that the amount of material extracted or produced by the ‘primary’ sector has reached its environmental limit. Or even exceeded it. Even if that is so, and that is by no means clear, that would not mean that we can have no growth in GDP. It might mean it will be more difficult because we can’t keep trying to do more production in the same ways we’ve been doing it- but it doesn’t mean we can’t find better, less damaging ways of doing things that produce as much or more from the finite materials (the world) we have to work with.

      Where in your sectors of production do the people who develop new ways of production that use less material to make better products fit in? Where do those who find productive ways to use the waste products already produced by existing production fit? Or use chemical energy more efficiently? Or nuclear energy- I mean the sun isn’t going to stop its fusion reactions anytime soon, what percentage of that energy do we exploit now? Where does solar power fit into your concerns about thermodynamic limitations?

      If your point is that we can’t just keep doing more things the way we are doing them, then I agree. That does not mean we cannot have growth in GDP. GDP is not just a system of adding up the total use of energy and raw materials. How they are used matters a whole lot.

    23. @Philip, I did not say ‘Natural resources used in production are not capital’. I said that energy was capital because it is created from labour on natural resources (land in economic terms). The 3 factors of production are land, labour and capital. Labour and land are the prime factors from which everything else is created. Economics is a social science, because it includes human behaviour.

    24. If you have a university library subscription search for a journal article entitled
      “Homo Economicus on Trial: Plato, Schopenhauer and the Virtual Jury”

      It explains how the concept of Homo Economicus is at odds with thousands of years of Western moral philosophy,

      Frightening thing is that once you introduce an economics student to the notion of Homo Economicus, he or she generally becomes a Homo Economicus.

    25. Bill, what a thought provoking blog with comments coming in left, right and centre. You mentioned an economist Lester Thurow. I was talking about him only a week ago
      with a friend on a bushwalk. An old NSW Treasury colleague who has now passed on was a big fan of Thurow and he got me interested in going back and reading his work.

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