Tim Johnson — The Golden Rule

Finance and philosophy.

Money, Maths and Magic
The Golden Rule
Tim Johnson | Lecturer (associate professor) in the Department of Actuarial Mathematics and Statistics, Heriot-Watt University, Edinburgh

David F. Ruccio — Utopia and the economics of control

Good article about economics, power and ethics, with which I would substantially agree as a philosopher. 

However, Professor Ruccio passes over the economic aspect of power, which bestows the ability to extract economic rent. 

Power results in asymmetries that vitiate perfect competition and generate imperfect markets. This allows for rent extraction. Rent goes to the powerful, that is, the owners of real and financial capital, to the disadvantage of those lacking power, basically workers.

Economic rent, rent-seeking, and rent extraction create inefficiencies and therefore fall under the purview of purely economic inquiry. 

Employing models whose assumptions are so limiting that they ignore rent is either unscientific, or worse, ideologically biased. The former is ignorant and the latter is unethical.

Let's get real here and call a spade a spade. Morons or crooks?

Occasional Links & Commentary

Utopia and the economics of control

David F. Ruccio | Professor of Economics, University of Notre Dame

Bill Mitchell — Employment as a human right

As I indicated earlier this week, I will progressively add notes to the body of work that will become the manuscript for my next book (with long-time co-author Joan Muysken) on the – Future of Work. As I write bits and pieces, I will post them here for comments and feedback. The book will be published sometime in 2018. At present, I am working on the philosophical considerations that we will deploy to underpin the more prescriptive elements (policy proposals) that we will produce....

Bill Mitchell – billy blog
Employment as a human right
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Michael Roberts — The system is broken

While Skidelsky’s arguments have more than an element of truth about them, he does not really explain why mainstream economics has become divorced from reality. This is not a mistake of education or lack of recognition of wider social sciences like psychology; it is a deliberate result of the need to avoid considering the reality of capitalism. ‘Political economy’ started as an analysis of the nature of capitalism on an ‘objective’ basis by the great classical economists Adam Smith, David Ricardo, James Mill and others. But once capitalism became the dominant mode of production in the major economies and it became clear that capitalism was another form of the exploitation of labour (this time by capital), then economics quickly moved to deny that reality. Instead, mainstream economics became an apologia for capitalism, with general equilibrium replacing real competition; marginal utility replacing the labour theory of value and Say’s law replacing crises.

As Marx succinctly put it: “Once for all I may here state, that by classical political economy, I understand that economy, which, since the time of W. Petty, has investigated the real relations of production in bourgeois society, in contradistinction to vulgar economy, which deals with appearances only, ruminates without ceasing on the materials long since provided by scientific economy, and there seeks plausible explanations of the most obtrusive phenomena, for bourgeois daily use, but for the rest, confines itself to systematizing in a pedantic way, and proclaiming for everlasting truths, the trite ideas held by the self-complacent bourgeoisie with regard to their own world, to them the best of all possible worlds.”

What is wrong with mainstream economics is not (just) that economists of today are too narrowly mathematical and focused on economic models – there is nothing inherently wrong with using maths and models – or that most economists do not have the wider “erudition and multiple talents” of the classical economists of the past. It is that economics is no longer ‘political economy’, an objective analysis the laws of motion of capitalism, but an apologia for all the ‘virtues’ of capitalism.…

The Protestant ethic equated virtue with material wealth and worldly success. This was an underlying factor in the development of capitalism (economic liberalism) as a cultural norm in the West. See Max Weber's The Protestant Ethic and the Spirit of Capitalism and R. H. Tawney's Religion and the Rise of Capitalism, for example.

It is not just market fundamentalism that is the problem, according to Michael Roberts. Even Keynesianism is only a ploy to paper over the warts of capitalism when they arise cyclically, addressing the symptoms rather than the underlying etiology.

In my view, policy makers may have chosen to ignore fiscal spending to solve the ‘technical problem’ of the Long Depression partly “for political reasons”. But there are also very good economic reasons for arguing that in a capitalist economy, increased government spending and running budget deficits would not get an economic recovery if the profitability of capital is low.

If the profitability of domestic investment is low, then increased funding will flow to increases in asset prices, e.g., stock buyback that increase financial wealth but not real wealth, or investment will flow abroad where returns are more attractive.

Michael Roberts' Blog
The system is broken

Michael Roberts

See also

A study of social class — defined by annual income and by education-level — finds that “Social class rank was positively associated with essentialist beliefs [beliefs that genetics is more important than environment in explaining social class]. ... Social class rank was also positively associated with both belief in a just world ... and meritocracy beliefs, ... suggesting that upper-class ... individuals are more likely to believe that society is fair and just than are their lower-class rank counterparts.”

This study, “Social Class Rank, Essentialism, and Punitive Judgment,” was published in the Journal of Personality and Social Psychology, and was performed by Michael W. Kraus and Dacher Keltner, two leading social scientists, whose investigations of the moralities that are applied respectively by the rich and by the poor, are contributing importantly to our understanding of society, of politics, of law, and of economics.

This research found that “Upper-class ... individuals were more likely to endorse beliefs that social class is an inherent, stable, and biologically determined social category relative to their lower-class ... counterparts. Moreover, this pattern emerged after accounting for both political attitudes and material resource measures of social class. ... Beliefs that society is fair and just explained the tendency among upper-class ... individuals to endorse essentialist [biological] beliefs about social class.” Thus: the richer and more educated a person was, the more that he thought the world is just, and the more he attributed his being upper-class to his supposed inborn superiority, rather than to the circumstance of his having been born from rich parents who possessed the money to send him to college and perhaps to an expensive university.

Social Darwinism.

The Huffington Post
The Rich And Educated Believe Wealth Correlates With Virtue, Says Study

Eric Zuesse

Julie Nelson — Economist Julie Nelson Says Much of Economics is a Sham Science

We undermine our survival if we continue to imagine economics as a ethics-free and care-free sphere.

Evonomics
Economist Julie Nelson Says Much of Economics is a Sham Science
Julie Nelson | Professor of Economics and department chair at the University of Massachusetts-Boston and a senior research fellow at the Global Development and Environment Institute at Tufts University

Brad DeLong — Musings on “Just Deserts” and the Opening of Plato’s Republic – More

Greg Mankiw Defending the 1% proposes what he calls the “just deserts” theory of social justice:

What you have gained and hold by playing by the economic rules is yours: social justice consists in not cheating or injuring people, and not being cheated or injured in turn.

This is an old theory: we see it first in the western intellectual tradition nearly 2400 years ago, in the opening of the dialogue that is Plato’s Republic. It is advanced by Kephalos…

Socrates dismisses it out of hand.

WCEG — The Equitablog
Musings on “Just Deserts” and the Opening of Plato’s Republic
Brad DeLong

See also

Counterpunch
The Magical Invisibility Cloak Utilitarianism Wears in the Age of Neoliberal Capitalism
Fred Guerin

Scientific American
How Morality Changes in a Foreign Language

Julie Sedivy

Understanding Society
Profit and Gift in the Digital Economy
Dave Elder-Vass | Lecturer in Sociology at Loughborough University

Nick Johnson — Reflections on ethics and the good society

Tony Lawson, a professor of economics and philosophy at Cambridge University, has researched and championed the role of social ontology, that is, the study of the basic subject matter and constitution of social reality, in economics. From a paper of his discussing the role of ethics, in which I found much of interest and inspiration, here are a few choice quotes, which are implicitly critical of mainstream economics and supportive of a different approach to economics as a truly social science:

The Political Economy of Development

Reflections on ethics and the good society

Nick Johnson

Katehon — Russian Orthodox Church against liberal globalization, usury, dollar hegemony, and neocolonialism

The Russian Orthodox Church of the Moscow Patriarchate has published a draft of the document "Economy in the context of globalization. Orthodox ethical view. " This document demonstrates the key positions of the Russian Church on a number of issues relating to the economy and international relations.… 

Not to be outdone by the pope.

Speaking of the pope:

Katehon (not the document): The unconditional support of state sovereignty against the transnational elite is a distinctive feature of the position of the Orthodox Church. This differs the Orthodox from Catholics, who are members of the globalist transnational centralized structure, in contrast to the Orthodox Churches, which are united in faith, but not administratively.…

This document is very important because it shows that the Russian Orthodox Church not only occupies a critical position in relation to the liberal globalization, but also offers a Christian alternative to globalization processes. While Catholics and most Protestant denominations have passionate humanist ideas, and in the best case, criticize globalization from the left or left-liberal positions, the Russian Orthodox Church advocate sovereignty and national identity. The most important aspect of the Orthodox critique of globalization is the idea of multipolarity and the destructiveness of modern Western civilization’s path.

Where the two Churches agree is on distributism.

Katehon
Russian Orthodox Church against liberal globalization, usury, dollar hegemony, and neocolonialism

Peter Radford — Why Trump?

Not really about Trump.

For those of us who value economics as an understanding of a critical part of social reality we must insist that those inhabiting that alternative world take full responsibility for the outcome of their ideas if, and when, those ideas are allowed to seep into actual policy making. They must be blamed. And we ought to demand an explanation as to why the imposition of fanciful ideas onto an unsuspecting world, with the core consequences now becoming apparent, is at all ethical.

You see, Polanyi was right. At least in so far as he projects the blame for extreme politics, in a major part, onto the shoulders of those who advocate policy based upon theories that stand not so much on solid foundations but in midair.

It is not possible now, nor has it ever been, to extract economics form its socio-political context. It is not possible to remove history. Nor is it possible to remove the panoply of institutional, cultural, geographic, intellectual, or technological frameworks within which economic activity takes place. Those things frame every single transaction. They channel them. They constrain them. And they create the pathway along which an economy travels. If we ignore such things then the consequent study is a sterile amoral technical exercise of little practical value.…

The Radford Free Press
Why Trump?
Peter Radford

Amitai Etzioni — How Learning Economics Makes You Antisocial

It's all how it’s framed — "anti-social," where the criterion is reciprocity (fairness),  or "rational," where being rational signifies maximizing "utility."

Evonimics
How Learning Economics Makes You Antisocial

Amitai Etzioni | Professor of international relations, George Washington University and Director of the Institute for Communitarian Policy Studies

Peter Radford — Mea Culpa: Storytelling Part Two

Another must read from Peter Radford about the foundations of economics. As he observes, these involve life and death issues because economics is not only descriptive but also performative, especially when it is policy-oriented and the wrong story can lead to disaster.

The Radford Free Press
Mea Culpa: Storytelling Part Two
Peter Radford

Miles Kimball — "Aristotle saw people not as striving to maximize a state of satisfaction, and also not as striving..."

Aristotle saw people not as striving to maximize a state of satisfaction, and also not as striving to perform a list of duties. He saw them, instead, as striving to achieve a life that included all the activities to which, on reflection, they decided to attach intrinsic value.

— Martha Nussbaum, Cultivating Humanity: A Classical Defense of Reform in Liberal Education, pages 119-120

Confessions of a Supply Side Liberal
"Aristotle saw people not as striving to maximize a state of satisfaction, and also not as striving..."
Miles Kimball | Professor of Economics and Survey Research at the University of Michigan

OAN — Pope calls for more market regulation, denies he is Marxist: paper

Pope Francis has called for more regulation of financial markets and rejected suggestions that his criticisms of unbridled capitalism smack of Marxism. 

“Markets and financial speculation cannot enjoy absolute autonomy,” he said in an interview published in La Stampa newspaper on Sunday, calling for greater ethics in the economy and a better distribution of the earth’s resources. 

“We cannot wait any longer to resolve the structural causes of poverty in order to cure our society of an illness that can only lead to new crises,” he said. 

Conservative Catholics, particularly in the United States, have criticized some of his past pronouncements on the economy, with several openly calling him a Marxist. But the Argentine pope said he was just stating Church teachings. 

“If I repeat some sermons by the first fathers of the Church in the second or third centuries about how the poor must be treated, some would accuse me of preaching a Marxist homily,” he said. “The New Testament does not condemn wealth but the idolatry of wealth.”

One America News Network
Pope calls for more market regulation, denies he is Marxist: paper

Christina McRorie — The Emptiness of Modern Economics: Why the Dismal Science Needs a Richer Moral Anthropology

It’s tempting to conclude that Piketty understands and delivers what the public wants from economics: a return to classical political economy. More than a few reviews of his work make this exact claim; he’s been hailed as the Smith, Mill, or Marx the twenty-first century has been waiting for. 

If only it were true. Or, to be fair, completely true. Piketty’s work is certainly a welcome step in the right direction, but it doesn’t make him the new Adam Smith. Empirical attention to the sweep of history was not the only thing that enabled the grand theorists of classical political economy to make sense of market life for their readers. The other half of what made political economy—the forerunner of economics—so compelling was its ability to take on “big questions” by connecting economic matters with moral and philosophical concerns, often by way of what might be called moral anthropology. 

For those longing for a revival of political economy in the tradition of Smith, even Piketty’s remarkable turn to richer data doesn’t fully satisfy their hunger for a fully worked out exploration of the connection between economics and larger philosophical and moral questions. These questions are about more than mere markets and politics; they pertain directly to the moral dimensions of economic life.

Because early economists such as Smith (1723–90) were also moral philosophers, they took up such questions naturally. They assumed that theories of justice and normative reflections on society were inseparable from their theories about pricing, the distribution of resources, and national wealth. They assumed that their field could advance only if all such concerns were part of a seamless whole. 

This may seem a surprising history for a discipline that has long been known as the “dismal science,” on the grounds that its business is to make gloomy statistical predictions backed with the authority of science. The little-known origin of the phrase, however, had to do precisely with philosophical arguments over anthropology, and nothing at all to do with statistics. Nineteenth-century historian Thomas Carlyle used the term in a pro-slavery essay to attack the profession of political economists such as John Stuart Mill, who supported slave emancipation on the basis of their egalitarian beliefs about human nature.2 It’s a mark of how much economics has changed that—rather than serving as a badge of honor—the title now generally conveys a sarcastic commentary on the discipline’s total lack of philosophical, or humanistic, aspirations.…

Are humans intrinsically self-interested or selfish? And if so, does this nature participate in some larger order—either spontaneous or divinely planned—in which self-interest invariably redounds to public benefit? Can we be described, without remainder, as rational utility-maximizing actors? Or does this characterization fail to capture, in some real manner, the complicated way in which our selves are morally constructed, and the complicated ways in which our behavior develops? And, inching toward more modern issues, is it really the case that interpersonal utility comparisons are impossible to make, and fruitless besides?

We can’t push these questions aside. Nor should we. They float around, behind, and beneath most of our conversations about market orders, wealth inequality, and the future of capitalism. And this is so precisely because the discipline of economics cannot avoid being about human nature and human behavior. As much as a century after Adam Smith, economists still took this for granted. In 1890, economist-philosopher Alfred Marshall opened his famous textbook,Principles of Economics, with the claim that
Political Economy or Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing. Thus it is on the one side a study of wealth; and on the other, and more important side, a part of the study of man.26 

The fact that economics today has largely set aside the big questions proper to this study—both empirical and normative—has left it with a gaping hole of meaning at its center. Piketty’s remarkable work begins to fill the void by returning attention to big-picture questions about real peoples’ lives. But even Capital in the Twenty-First Century fails to restore fully the humane breadth of the earliest discussions of political economy. Surely, such breadth is called for as we try to talk together about the common good and the future of our economic arrangements.

Nice article by an ethician that is familiar with the literature of economics as it relates to the big picture and the big issues that conventional economics assumes away and the world suffers for it. While economists bears some of the blame, it is a result of the compartmentalism of knowledge that has taken place since liberal education as education for life was replaced by practical education as preparation for a career in a field. Definitely worth a read.

The Hedgehog Review | VOL. 16 NO. 3 (FALL 2014)
The Emptiness of Modern Economics: Why the Dismal Science Needs a Richer Moral Anthropology
Christina McRorie

ht Mark Thoma at Economist's View

Christina McRorie is a fellow of the Institute for Advanced Studies in Culture and a doctoral candidate in the Department of Religious Studies at the University of Virginia. Her research focuses on ethical issues raised by the global economy and consumer society.

Miles Kimball — Liberty and the Golden Rule

A paradox of liberalism:

Part of the problem is in the limitations of the golden rule: “Do unto others as you would have them do unto you.” That is all well and good if they have the same preferences, but not if they want something different from what you would want in the same circumstances. Until further advances in technology, we are shut out of knowing directly what the world looks like from inside someone else’s mind, and have to guess based on how we would feel. But that sometimes steers us badly off target. Giving everyone personal liberty is a safeguard against our blind meddling.

Of course, applying the golden rule at a meta-level would say “I want liberty, so I should give others liberty as well.” But there are many times when liberty is a higher law than the applying the golden rule at the detailed level.

Confessions of a Supply-Side Liberal
Liberty and the Golden Rule

Miles Kimball | Professor of Economics and Survey Research at the University of Michigan

Tim Johnson — Maths and morals, economics and greed

I recently asked a prominent mathematician who once ran a hedge fund, Doyne Farmer, whether seeking to make a riskless profit was ethical. I don't think he understood the question. Mathematics has always been part of finance but with the re-introduction of derivatives markets in the 1970s and their growth in the nineties, ‘quants’, trained in engineering, physics and mathematics, came to dominate the ‘casino banking’ that is widely criticised. My concern is that the quants are not amenable to questions of morality, and so the problems of finance are going to be difficult to resolve without finding the right way of communicating with the bankers who see themselves as scientists.…

Thoughtful post about a key issue at the heart of neoliberalism. I would add that the problem is beginning with individualism, which is the basis of the concept of homo economicus, rather than society, which is the foundation for the concept of homo socialis. When the objective, positive, and quantitative is emphasized at the expense of the subjective, normative and qualitative, the social outcome is predictably disastrous and potentially catastrophic.

Money, Maths and Magic
Maths and morals, economics and greedTim Johnson | Lecturer (associate professor) in the Department of Actuarial Mathematics and Statistics, Heriot-Watt University, Edinburgh

Tim Johnson — Economics, Ecology and Ethics

I have come to conceive of markets as centres of communicative action reliant on the norms of reciprocity, sincerity and charity. In this formulation mathematics is not used to determine (predict) the truth but as a language to facilitate discourse. I believe, based on sociological studies of the markets, that when market makers offer a price they can be seen as making a claim, which can be challenged by speculators and arbitrageurs, who either accept the claim/price and let it pass, or challenge it by taking the price or offering their own. In this sense mathematical models are used to justify claims, furthermore I believe this practice of using mathematics in justifying claims in finance was adapted in both politics, to deliver democracy, and science: I do not believe in stochastic systems models can be used to predict, only to justify in a discursive process. 

This might seem academic and irrelevant, the practical usefulness is that it enables me to identify why practices described by Farmer might be unethical, rather than relying on an instinct that speculation in complex financial instruments just can't be right (where as geo-engineering, genetic modification or nuclear weapons are OK). I aim to show in my research, that such markets can offer growth without creating the inequality that Michel Loreau objected to, but I feel is a consequence of the aim at efficiency that a 'Darwinian' economics demands.

Money, Maths and Magic
Economics, Ecology and Ethics
Tim Johnson | Lecturer (associate professor) in the Department of Actuarial Mathematics and Statistics, Heriot-Watt University, Edinburgh

Unlearning Economics — The Ethics of Inequality

One of the areas Thomas Piketty's book Capital in the 21st Century does not address, at least in much detail, is exactly why (economic) inequality is a problem. Piketty worries that inequality may be undemocratic, as those with large fortunes influence the political process; he also worries that inequality may create social and political tensions; and he argues that a dominance of inherited inequalities may suck the life out of capitalism. On the other hand, he states that some inequalities may be desirable in order to promote entrepreneurship and achievement.Yet he never explicitly spells out his political position on why, when and how much inequality is desirable, or indeed why it should be considered a problem in itself. In the hopes of filling this void, I will present a case below for why inequality may not be ethically justified.

Pieria
The Ethics of Inequality
Unlearning Economics

See also Chris Dalby, Who Are The World’s Richest Oil Barons? at OilPrice

By what right do a handful of individuals own a bulk of the world's petroleum and natural gas resources that are the common heritage of the creatures of the earth? And a handful of corporations the rest, other than that which is owned by "sovereigns" like Saudi Arabia, read the royal family. This brings up the question as to whether expropriation of the commons is ethical. Even John Locke, who is regarded as the father of propertarianism, grounded the supposed natural and inalienable right to the ownership of private property in personal use.

Matt O'Brien — Dave Brat’s unorthodox economics: Adam Smith ‘was from a red state’

So what are Brat's economic beliefs? Well, he's focused on, to his mind, two related questions: why rich countries are so rich, and what ethics has to do with economics. Let's look at them both....

In short, Brat thinks that culture matters—and so does ethics. Now, that's not a word you hear economists use very much nowadays, but Brat points out that they used to....

...according to Brat, that unlike economists today, Smith "knew that the world of thought must be unified"—that "positive analysis and normative analysis must meet in the end." In other words, Brat thinks economists have to get back to telling us how to live, and not just how to live efficiently. Or at least be explicit about it, so we can judge whether we like the ethics behind their economics.

I agree with this in principle, although I disagree with Brat on the details. Suppressing the normative and prescriptive content of assumptions in order to appear more positive and science-like is disingenuous or ignorant.

As Keynes wrote in a letter to Harrod (787, 4 July 1938), "economics is essentially a moral science and not a natural science. That is to say, it employs introspection and judgments of value."

The Washington Post — Wonkblog
Dave Brat’s unorthodox economics: Adam Smith ‘was from a red state’
Matt O'Brien

Bill Black — Yes, Theoclassical “Economists [are] Basically Immoral”

Bill is on a roll.

The failures of theoclassical economists and economics are total and myriad. Many of their theories are long-falsified dogmas. Their methodological preference is econometrics – which gives the worst possible results in bubbles and when accounting control fraud epidemics occur. Theoclassical policies are intensely criminogenic, anti-democratic, and grotesquely unfair. Their proudest creations – their risk and price models – proved to massively understate risk and overstate asset values. They betray the scientific method that they purport to exemplify because they are overwhelmingly mono-disciplinary, in thrall to their dogmas, driven by self-interest, incapable or unwilling to follow logical standards of internal consistency, and intellectually dishonest. They award Nobel Prizes to economists who fail what economists claim is the decisive test of truth and success – predictive ability. Theoclassical economists are infamous for their arrogance, praising their field as the only social science worthy of the term “science” and celebrating its “imperial” nature while ignoring work in other fields that has proven to have far superior predictive success. Theoclassical economists are infamous for their lack of altruism.

But the gravest failure of theoclassical economists; and one that is the source of many of these other deficiencies I have just described is that they are basically unethical. The obvious aspects of this lack of ethics are that theoclassical economists act as if their conflicts of interest are so irrelevant that they do not even require disclosure – much less avoidance. Theoclassical economists, however, are immoral in a more fundamental manner. They repeatedly advance positions that are profoundly unethical – and bad economics and bad criminology.

Ouch.

New Economic Perspectives
Yes, Theoclassical “Economists [are] Basically Immoral”
William K. Black | Associate Professor of Economics and Law, UMKC