Timothy Taylor — What Economists Need from their Readers: Goodwill, Intelligence Co-operation

Interesting Keynes quote. Was Keynes a Postmodernist?

Conversable Economist
What Economists Need from their Readers: Goodwill, Intelligence Co-operationTimothy Taylor | Managing editor of the Journal of Economic Perspectives, based at Macalester College in St. Paul, Minnesota

JW Mason — How I Think about Monetary Policy

From my point of view, the conceptual issues here are simpler than you’d guess from the shouting. It comes down to two questions. First, how much control does the central bank have over the terms on which various economic units can adjust their balance sheets by selling assets or issuing new liabilities? And second, how many units would increase their spending on goods and services if they could more easily make the required balance sheet adjustments? Obviously, these questions are not straightforward. And they have to be answered jointly — to be effective, monetary policy has to reach not just the elasticity of the financial system in general, but its elasticity at the points where it meets financially-constrained units. But in principle, it’s simple enough.…

JW goes on to show how conventional approaches to dealing with these "simple" questions are simplistic. Economies are granular rather than homogenous, dynamic rather than static, complex rather than simple.

The whole question, it seems to me, is made more confusing than it needs to be by two bad habits of economists. First is the tendency to think of the economy as a tightly articulated system, with just a few degrees of freedom.…

The second vice is economists’ incorrigible tendency to mistake the map for the territory.…

Both of the oversimplifications seem to result from assuming ergodicity.

The first is the informal fallacy of hasty generalization. The second is the informal fallacy of mistaking a view of reality for reality. They are related fallacies, the second being an instance of the first. They seem to arise at least in part from a cognitive bias for imposing precision without due regard for rigor. Strange for math people that regard rigor so highly in model formulation.

This is not economics but logic and critical thinking, which are taught in Philosophy 101. JW gets an A for recognizing this. Economists that commit these errors get an F.

J. W. Mason
How I Think about Monetary Policy [For some reason this link is not working now]
JW Mason

Randy Wray — A New Meme For Money: the EEA presentation

We need a new meme for money.

...We need a social metaphor, a public interest alternative to the private maximization calculus. We need to focus on the positive role played by government, and its use of money to serve us well.

Economonitor — Great Leap Forward
A New Meme For Money: the EEA presentation
L. Randall Wray | Professor of Economics, UMKC

Nicholas Kaldor on exorcising the demon of monetarism

Ramanan put up a must-read Kaldor quote of which the festival of Diwali reminded him. The festival of Diwali celebrates the victory of good over evil, symbolized by the gods vanquishing the demons.

Why are these two things important for our understanding. First, we are dealing with a fundamental cognitive mistake, indeed, a mathematical one. Secondly, this mistake is not one that highly intelligent people would be likely to make analytically. Moreover, they exhibit strong resistance to analytical counter-argument, even though the math is not only clear but simple, indeed, elementary. This sends an important signal.

The signal is that we are not dealing with reason alone here, and so rational argument is not likely to change either minds or hearts. In fact, recent psychological research reveals that when indisputable fact is marshaled to counter such arguments, those holding the position tend to double down instead of retreating — even the most intelligent measured by conventional standards. Clearly something other than reason is involved.

Kaldor apparently realized this judging from his metaphor. While the ancient sages were cognitively advanced, they realized that communicate with the people of their eras they needed to speak in context. So they used metaphors like battles between gods and demons in their teaching stories. These stories were heard by children who took them literally but the object of such storytelling was to plant seeds that would later mature into deeper understanding. The stories of heavenly battles were meant to symbolize the inner struggle of all between the "angels of their better nature" and the forces of temptation.

Carl Jung was probably the first Western scientist to approach the ancient teaching stories analytically. He realized that they were actually about the tension between conscious cognitive-volitional-affective operations and unconscious ones. Can we see the dialectic going on in the social, political, and economic arena among ideologies in this light. I think so.

Therefore what is needed is an approach that is not only cognitive but one that addresses all levels. For example, arguments involving debt tend to be moralistic and rhetorical more than factual or logical. In fact, when monetary economics is first explained to them, many people recoil in horror at the notion that public debt is actually "good" and, indeed, usually necessary.

We have talked quite a bit about framing counter-arguments previously. I strongly suggest reading The Debunking Handbook, suggested in the comments by modernmoney. It's a short and easy read.

I would also encouraging looking at cognitive bias and informal fallacy. Here is list of cognitive biases. Here and here are lists of informal fallacies.

Robert Vienneau — Reproducing Civil Society

There exist at least two approaches to economics:

• One focused on the allocation of given scarce resources among alternative ends.
• One focused on the conditions for the reproduction of society.

The first is the approach of the so-called neoclassical theory [in which the focus is on price theory], and the second is the approach of classical political economy [where the focus is on political theory].

Thoughts on Economics
Reproducing Civil Society
Robert Vienneau

"Economics is not a social science"

Not only is economics as currently taught not a science, it isn’t social either. Margaret Thatcher famously claimed that “there is no such thing as society” and mainstream economics works from exactly the same assumption – for mainstream economists society is simply the aggregation, the adding together, of millions of individual economic actors and actions. All of these actors are assumed to be “rational” – a word which economists also use in a way that reflects their own prejudices – a purely calculating and narrowly self interested mentality focused on short and long run material gratification, whose relationship to other economic actors is intrinsically competitive. Thus ‘rational economic man’ has no emotion, is part of no social psychological processes involving mutual influence, common hopes, beliefs and fears, no mutual support, no group or common class interests. Instead ‘rational economic man’ is a calculating machine, focused on maximising his satisfactions or “utility”.

As a model of what human beings are generally like this is crazy – it is more than a simplification, it is a distortion. It is a view that is blind to the different layers of our psyche, to our complexity and to the oft conflicted way in which we behave. Indeed it rules out the very sides of human behaviour that are pro-social and co-operative.

Read the whole post at The Energy Bulletin, Economics is not a social science by Brian Davey

This is a well-reasoned argument and devastating critique of economics based on narrow methodological individualism. Good reasons, too, why economics will never be "scientific."

Paul Krugman on what's wrong with the economics profession

The Profession and the Crisis. Eastern Economic Journal (2011) 37, 307–312.

(h/t Mark Thoma)

UPDATE: Cullen Roche responds at Pragmatic Capitalism on behalf of MMT.

THE REAL LESSON OF THE CRISIS

Pseudo-argument

Many quasi-economic arguments — really pseudo-arguments — involving economic policy stem from Alfred Marshall who founded new classical economics on the premise that what classical thinkers had called "political economy" — the study of the socio-economic system including government — was too complex to handle with any precision. Marshall proposed a new methodological approach that he called "economics" as a discipline limiting the scope of its study to rather narrow aspects of the economy capable of being examined with some precision using mathematics and graphs based on partial equilibrium (like the familiar supply and demand curve), and the representative firm.

Of course, if this method is scaled to include all firms in aggregate, it commits the fallacy of composition. To his credit Marshall himself realized this danger and cautioned others against.

Marshall meant these simple models as aids to thinking about more complex issues, not as models of them. Extending the simple to the complex involves a logical jump, which is an illegal move in the game, owing to the fallacy of composition, for example, and it also involves the fallacy of overgeneralizing. Such sophistical arguments also generally involve straw man arguments designed to make the opposition look foolish. It's just rhetoric made to look like reasoning in order to advance an ideological view under the guise of being "scientific."

Arguments that mainstream economists present to the public are often based on this kind of over-simplification and over-extension of the part to the whole. I suppose they would defend what are doing by saying that to communication with lay people they need to oversimplify. But in so doing, they are essentially misrepresenting the conclusions they are presenting, which do not hold at all.

I suspect that at least some of them know better, and they are simply couching ideological norms in reasoning that pretends to be that of an expert in economics when is just propagandizing or moralizing. For example, can it coincidental that their line of reasoning always fits their political ideology?

But even in their professional work such "experts" are overshadowed by the notion introduced by Marshall that political economy is based on an ineffective method. As result they miss the forest for the trees. Keynes saw through this error and corrected it in his macro approach, the validity of which both neoliberal and Austrian economists deny, since both marginalize the role of government, even though government is necessarily a key component of the economy in a modern developed state.

Unfortunately, both neoliberals and New Keynesians seem to miss this point. For example, Brad DeLong is one of the few professors teaching political economy these days and he is quite well informed about the subject. But when it comes to his own practice of economics, even he seems to ignore political economy or minimize it in his popular presentations about economic policy. As a layperson in economics, I find this curious.

[Originally posted as comment to a post at Bill Mitchell's billy blog. Slightly edited here.]

We need to get back to a contemporary understanding to political economy as a comprehensive socioeconomic approach that includes all relevant factors including government.