Tuesday, January 1, 2013

Lars P. Syll — Robert Lucas and the intellectual collapse of freshwater economics


Robert Lucas is at is again. The invisible hand will return the economy to equilibrium at full employment to the degree that it is allowed to operate by eliminating government interference. And as Lars points out, without a shred of evidence in the face of massive failure of that paradigm to foresee the crisis, which it explains as either resulting from governmental intervention or an unforeseeable shock.

The presumption of equilibrium in neoclassical economics is derived from a 195y century view of physics that contemporary economists have attempted to save using DSGE. That is is say, the assumption is that equilibrium is the guiding principle in analysis of "free" markets and distribution by price discovery.

This is reminiscent of past presumptions that affected thought in the West. The Greeks had that cosmos (order) is imposed on the original chaos (randomness) by logos (rational principle or cause – Greek αἰτία). The Greek term logos is the root of English "logic." The ancient Greeks held that the universe (cosmos) is rational. Logic is the rational structure underlying human cognition of invariant principles that order change iaw law (causality). Mathematics is an aspect of logic. The lintel of Plato's Academy was inscribed with the words, "Let no one ignorant of geometry come under my roof." Given this presupposition the discovery of irrational numbers was an earth-shaking event that initially concealed from the uninitiated lest they lose faith. Subsequently, it led to a bifurcation between arithmetic and geometry that persisted until the beginning of the modern period.
The discovery of irrational numbers caused a break in Greek mathematics between arithmetic and geometry. The Greeks could not accept the fact that some lengths were incommensurable with rational numbers. Therefore, they decided that numbers could not be associated with lengths. Unfortunately, this decision led to a division between arithmetic and geometry that was not reconciled until the time of Descartes. (Math Lair)
Similarly, Aristotle had posited that the motion of heavenly objects must be circular because of the perfect form of the circle. This presupposition was at the root of the resistance to change in astronomy from a Ptolemaic system of epicycles to the simpler heliocentric Copernican system, later explained by Kepler, who was the first to use elliptical orbits.

Modern physics also presents a parallel. Classical physics presents the universe as realistic and deterministic. The discovery of quantum mechanics shook that foundation by suggesting the bedrock on which classical physics is built is probabilistic. Einstein famously objected to this interpretation with "God does not play dice," and engaged in a running debate with Bohr for decades over this. The debate was finally resolved by time, and now a majority of physicists accept that "reality" is probabilistic at ground.

The discipline of economics is affected by a similar presumption — equilibrium. Keynes rejected the neoclassical view, but Keynesians were not able to hold the fort. Samuelson capitulated and "bastardized" Keynesianism with his neoclassical synthesis. Now mainstream economists, who call themselves "orthodox" and everyone else "heterodox," which is a euphemism for "heretical," have largely prevailed and imposed equilibrium as the "normal" paradigm in Kuhn's sense.

Until this lock on the discipline is broken, economics will be theology and lag its sister science in adherence to a dogma that has been widely discredited.

As Robert Vienneau wrote recently:
If you want to argue against mainstream economics, a mainstream economist can dismiss you as ignorant of some model variation and as attacking a strawperson. Furthermore, this dismissal could be "justified" by just checking whether you have a degree from a small number of schools, and, if you do, just mocking you as not having fully learned what they are teaching. Thus, your time can be taken up with argument about whether you know what you are talking about. The mainstream economist never need get to the point of engaging a critique.
The economics profession is broken and it cannot be fixed without replacing those who adhere religiously to discredited dogma, which looks suspiciously like a conservative preference for government as an adjunct to business rather than the ordering mechanism of society as a complex system in which emergence presents challenges that markets alone are not suited to address.

Lars P. Syll's Blog
Robert Lucas and the intellectual collapse of freshwater economics
Lars P. Syll | Professor, Malmo University

4 comments:

Matt Franko said...

If it were possible within the academe presently, (big if) it may be a good idea for "MMT" to leave the economics debt and transfer over into "govt operations" or something like that.

They have the famous "John F Kennedy School of Government" at Harvard or where ever... maybe just tranfer over into a school like that and start teaching the truth over there about state/govt currency system operations and $NFA flows, etc.. and the hell with the economics debt... if anyone asks about why you are not in the 'economics' dept just tell them they are all morons and sorry but you had to leave them all behind ...

rsp,

Unknown said...

1 of 2

I get the fallaciousness of equilibriums and whatnot, but if the mainstream is wedded to equilibrium, then by definition any "discrediting" would exist in the periphery, fringe, heterodox, etc.

Saying equilibrium theory has been "widely discredited" would by definition promote that position to the mainstream.

This statement:

"The economics profession is broken and it cannot be fixed without replacing those who adhere religiously to discredited dogma, which looks suspiciously like a conservative preference for government as an adjunct to business rather than the ordering mechanism of society as a complex system in which emergence presents challenges that markets alone are not suited to address."

is wrong.

First, the state is not "the" ordering mechanism of society. At most, it can be argued as "an" ordering mechanism among many. Personally, I don't consider the state as an ordering mechanism of society, but a disordering mechanism of society, because the state is society's institution of violence and coercion. The state's activity is backed by coercion. It's demands are not subject to other people's choices. What it demands, the people must obey. Every state in the world initiates violence to some positive degree, because every state acts in non-consensual ways to a positive number of individuals in every society. I argue that such aggressive violence is a disordering, not ordering, mechanism in society.

Humans are most productive and society is most ordered when there is peace. The more peace, the more ordering and less disordering.

Second, the state is not immune from the concept of complexity and emergence. The state is composed of people just like private institutions are. I am not arguing the government is a business or anything, but rather, that complexity and emergence apply no less to the state.

I argue that the various fields of protection and security, money creation, judicial services, and so on, those services typically carried out by the state, don't HAVE to be carried out by anyone acting in a state-like manner.

The state is really just a word we use to describe a particular form of social interaction. The state is an agency of individuals who use force. Whether such force is used to protect people, or aggress against them, varies from country to country, but in all cases, underneath all the veneer, underneath all the "discussions", and "debating" and "lawmaking", it's all just force and coercion.

Now, surely we can all agree that force is, in the presence of aggressive people who themselves introduce force in a context of peace, quite useful. But force is something that comes from individuals, not just those who are elected or who conquer territories and declare themselves leaders over all. Thus, there is no necessary logic of why the state must exist. It is one thing to argue the state exists. It is another to say that the state is necessary.

There is no world state, and yet there is no obvious disordering in the world. Many would argue that the LACK of a world state has allowed us to observe bad states from worse states. Not only that, but world anarchy is the very limitation that is preventing bad states (African dictatorships, theocratic dictatorships, etc) from taking over the whole world. It is because there is a sense of competition against the very worst states that is preventing their form of violence from smothering the world in theocracies and tin pot dictatorships.

Unknown said...

2 of 2

The same principle of competition against bad states today, in a world of pseudo-anarchy, which has definitely lead to an avoidance of disordering that comes with theocracies and other dictatorships, can be applied to within countries, such as the US, where instead of one giant monolithic state, there are many smaller "competing" independent states. Then another increase in the number of protection and security providers. And another.

In a complex and emergent society, the more flexibility there is in the areas of protection and security, money creation, and so on, the less disorder can arise from the distinctly disordering one-size-fits-all mechanisms that derive from monopoly states.

Monopolies and complex, emergent societies are like oil and water.

The argument that in a complex, emergent society, states are NEEDED, or else society will get stuck in a poor, substandard condition, is nothing but the widely discredited neoclassical equilibrium theory making a new appearance, dressed in new garb. A state of disequilibrium is just another equilibrium.

The argument here is that in statelessness there will allegedly arise an equilibrium (called disequilibrium) that is unwanted, undesirable, substandard, low level, etc. I reject such dogmatic, mystical nonsense. It belongs in the dustbin of history of ancient Greek mythology.

Statelessness will just contain a different trajectory of complex, emergent phenomena than the one we have now. There will not be any tendency towards a state of disequilibrium (which is just another word for equilibrium) in statelessness no less than there is no tendency towards equilibrium in statist societies.

The real question then becomes whether or not you or I or our friends and family desire to live in a new trajectory of complex, emergent phenomena, where more resources and labor are allocated more in accordance with individual choices, and less in accordance with collectivist one size fits all choices.

Please note that in complex and emergent societies, duplication of services among competing providers leads to progressively improving services that adapt to changing preferences and technology. It should not be claimed that duplication is necessarily sub-optimal and wasteful. We have such incredible electronics for example in large part because there are so many providers offering similar products, and consumers picking and choosing among them has carried over to providers having the incentive to continuously improve their products.

The same thing can occur with everything does by those who call themselves statesmen. There are no services in a complex and emergent society that make monopolies necessary, let alone non-disrupting.

The question of the state boils down to a moral, not a scientific, issue. Those who want a state always regress back to moralizing ("What about the children?", "Who will help the poor?", etc)

Tom Hickey said...

@ Pete Petepete

What planet are you from, may I ask?