Bill Mitchell — The Bandwagon effect – caution not credit is needed

We all know what the – Bandwagon effect – is. There is a lot of research literature in social psychology trying to understand why people who believe one thing one minute, suddenly ditch that belief system and appear to be proponents of a new belief system, often, in total contradiction to their previous views. The effect is related but distinct from the Groupthink phenomenon which I have written about extensively in relation to the way mainstream economics has maintained a hold on the public debate despite being unable to explain anything useful. Whatever the underlying explanations – social norms, conformity pressures, information cascades and the rest of it – the ‘Bandwagon effect’ is rampant at the moment among economists. It appears that everyone has become an expert on Modern Monetary Theory (MMT) and want to drop the term into their Op Eds, media articles etc despite, in many cases, writing in the not to distant past, ridiculous mainstream articles that are the anathema of MMT. I give those who are jumping on the bandwagon no credit at all. The reason is that these sort of shifts are dangerous. They typically misrepresent our work and attempt to interpret it within the old paradigm, which just leads to the general public, especially where the commentator has a high public profile, being mislead … as usual. Everyone, apparently is an MMTer now. But from what they say we know that is not the case. And just as this cohort swing to save face in what is a glaringly obvious empirical rejection of all the mainstream predictions and theoretical constructs, they will swing again and start talking about ‘budget repair’ and ‘inflation’ and ‘debt burdens on our grandchildren’ when the dust settles and the elites push to regain their dominant position. We should not be lulled into creating liaisons that are not sustainable or based on a true shift in view....

False friends and untrustworthy allies.

On the one hand, it is a good thing that our work has now reached mainstream status and more people are realising that the main insights are undeniable, despite years of denial from those opposed.

But, as I have cautioned before, when there is a paradigm shift going on in any academic discipline, the resistance from the dominant but degenerative paradigm takes many forms.

The smarter members, who see the writing on the wall, try to capture the emerging paradigm and re-express it in their own language and concepts – just as the Hicksian IS-LM framework stole Keynes’ work not long after it was published.

Those on the periphery of the dominant paradigm, the media and commentators who continually reinforce the dominant paradigm through their journalism get stuck betwixt.... 

Bill Mitchell – billy blog
The Bandwagon effect – caution not credit is needed
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Milton Friedman's Thermostat, redux — Jason Smith

Pesky physicists. 😃

Jason Smith "converses" with Milton Friedman.

Short, fun, and not wonkish.

Information Transfer Economics
Milton Friedman's Thermostat, redux
Jason Smith

George H. Blackford — Economists Should Stop Defending Milton Friedman’s Pseudo-science

Recommended reading on the history and philosophy of science, the philosophy of economics, and Milton Friedman's instrumentalism.

Evonomics
Economists Should Stop Defending Milton Friedman’s Pseudo-science

George H. Blackford | former Chair of the Department of Economics at the University of Michigan-Flint

Frank Li — John Maynard Keynes: The Best Economist Since 1899?

In a previous post (Milton Friedman: A Man of the Past?), I concluded that Milton Friedman, an extreme advocator of "free market" and individualism, is mostly an economist of the past.

In this post, I will highlight John Maynard Keynes, a balanced advocator of both "free market" and "managed market", as the best economist since 1899....

Frank Li is a Chinese ex-pat now a businessman in the US, has a BE, ME, and PdD in electrical engineering. So cut him some space on the economics. He is not in paradigm with MMT, but rather somewhat of

an old Keynesian, which is a lot closer than most.

On the other hand, his view as a Chinese ex-pat become successful in the US and also as a highly education and experience lay-person looking in at economics is valuable.

economicintesect.com
John Maynard Keynes: The Best Economist Since 1899?
Frank Li | Chinese ex-pat, Founder and President of W.E.I. (West-East International), a Chicago-based import & export company, B.E. from Zhejiang University (China) in 1982, M.E. from the University of Tokyo in 1985, and Ph.D. from Vanderbilt University in 1988, all in Electrical Engineering

Peter Turchin — What Is the Role of Morality in a Capitalist Economy?

In September 1970 Milton Friedman published an articlein The New York Times Magazine, “The Social Responsibility of Business is to Increase its Profits.” Friedman, who has received the Nobel Prize in Economics in 1976, is probably the most influential economist of the second half of the twentieth century. His views have become the mainstream economic thinking, although few economists today care to state them as boldly as Friedman.

In my recent book UltrasocietyI use the examples of fictional Gordon Gekko (a character in the movie Wall Street) and all-too-real Jeff Skilling (the CEO of Enron) to explain why this view is wrong. Yet I have wondered on occasion, do economists really believe that “the world runs on individuals pursuing their self interests” (to use another Milton Friedman quote) and that businessmen should be motivated solely by self-interest unadulterated by any feelings of sympathy or morality?...

Evonomics
What Is the Role of Morality in a Capitalist Economy?

Peter Turchin | Professor in the Department of Ecology and Evolutionary Biology at the University of Connecticut, Research Associate in the School of Anthropology, University of Oxford, Vice-President of the Evolution Institute, and blogger at Cliodynamica — A Blog about the Evolution of Civilizations

See also

The CEO of Sears Fails His Company by Believing in Ayn Rand and the Invisible Hand

Jonathan Haidt | Thomas Cooley professor of ethical leadership at the NYU-Stern School of Business

Peter Fleming — Is Homo Economicus Dead?

Peter Fleming tells what his book, The Death of Homo Economicus, is about.

Economic Sociology and Political Economy

Is Homo Economicus Dead?

Peter Fleming | Professor of Business and Society at Cass Business School, City, University of London

Merijn Knibbe — Why, to the detriment of the economics profession, MiltonFriedman ignored Hyman Minsky’s advice

I’m talking about the 1962 Milton Friedman/Anna Schwarz article ‘Money and Business Cycles’ (the Minsky comments can be found in the same document). According to Friedman and Schwarz, the government and only the government indirectly creates money mainly via central bank interest and QE like bank-liquidity policies. Period. Which makes the government, and only the government, responsible for these deep depressions. Period.…

The 64 trillion-dollar question is of course: why do Friedman and Schwarz discard modern monetary measurement and why do they stick to their CCA? Why don’t they mention Copeland and why don’t they even mention the Flow of Funds (which, again, is the cornerstone of modern monetary measurement)? Why didn’t they catch up with the developments in modern economic statistics taking place at the most important central banks of the world? Why did the bend over backwards to avoid any data and each author which hinted at, in the words of Minsky “a commercial loan monetary system … consistent with a debt deflation view of how major recessions are generated: a view in which the historically observed changes in the money supply, particularly those associated with deep depression, are a result of business behavior”?\

The more salient question is why anyone took their work seriously when they were clearly in the weeds considering that even the classical economists realize the key role of private credit?

Real-World Economics Review Blog
Why, to the detriment of the economics profession, MiltonFriedman ignored Hyman Minsky’s advice
Merijn Knibbe

Bill Mitchell — There is nothing much that Milton Friedman got right!

“If we want to ensure more people are well-employed, central banks alone will certainly not suffice” is a quote I am happy to republish because I consider it to be 100 per cent accurate. The only problem is that the way I think about that statement and construct its implications is totally at odds with the intent of its author, who claimed it was “an important lesson of Friedman’s speech”, which “remains valid”. The quote appeared in a recent Bloomberg article (July 17, 2017) – What Milton Friedman Got Right, and Wrong, 50 Years Ago – written by journalist Ferdinando Giugliano. It celebrates the Presidential Speech that Friedman gave to the American Economic Association on December 29, 1967 at their annual conference in Washington D.C. In terms of the contest of paradigms, the speech is considered to be the starting point proper of the Monetarist era, even though it took at least another 5 or 6 years (with the onset of the OPEC oil crises) for the gospel espoused by Friedman to really gain ground. The problem is that Friedman was selling snake oil that became the popular litany of the faithful because it suited those who wanted to degrade the role of government in maintaining full employment. It was in step with the push by capital to derail the Post War social democratic consensus that had seen real wages growing in proportion with productivity, reduced income inequality, jobs for all who wanted to work and a strong sense of collective solidarity emerge in most advanced nations. This consensus was the anathema of the elites who saw it as squeezing their share of national income and giving too much power to workers to negotiate better terms and conditions in their work places. Friedman provided the smokescreen for hacking into that consensus and so began the neo-liberal era. We are still enduring its destructive consequences.

Friedman’s speech was subsequently published in the American Economic Review as ‘The Role of Monetary Policy’ in the 1968 volume 58(1) (pages 1-17). 

The Bloomberg article goes along with the view that Friedman’s speech represented a “paradigm shift” in economics....

Bill Mitchell – billy blog
There is nothing much that Milton Friedman got right!
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Brian Davey — Mismodelling human beings – “rational economic men” in love, politics and everyday life

This chapter explores the assumptions about human nature on which mainstream economics is based. The description of “rational economic man” ignores most psychological and psychotherapy understandings of people. — Brian Davey, Credo: Economic beliefs in a world in crisis, Chapter 9

Key to the conceptual confidence trick are assumptions about what people in general are like. It is all based on an implicit modelling of human beings. Certain types of behaviour (the type that allows economists to model people and markets) are called “rational”. Now, you might think that this description of people is meant by economists to be applicable only to economic and market activities. Certainly this was the point of view of one of the founders of the famous Chicago school of economics, Frank Knight. Although committed to the alleged virtues of the market, Knight was not naive about how far you could take economic analysis. In his book Risk, Uncertainty and Profit he concluded that economics only applied to the satisfaction of wants, and that this business of satisfying wants by no means accounted for all of human activity. Indeed Knight questioned how far one could go with a “scienti c treatment” of human activity and wrote of his own views:

In his views on this subject the writer is very much an irrationalist. In his view the whole interpretation of life as activity directed towards securing anything considered as really wanted, is highly artificial and unreal. (Backhouse, 2002, p. 204)

Some contemporary economists of the Chicago school don’t see it this way. If people are calculating their individual self interest in their economic dealings why should one assume that they do not do the same thing in their political, their social and their interpersonal dealings? Should we not also assume that government ocials are calculating their interests too? At the very least, why should contact between business and government not lead to a cosy relationship, particularly if people can leave government posts and get lucrative jobs with industry? What about bribes and kickbacks from business for special favours? 

As I argued earlier, we can take the idea from Anaïs Nin that we do not see things as they are – we see things as we are. There is likely to be a loop in which a theory which describes how people are assumed to be, when powerfully propagated in textbooks as “social science”, will have an influence on how people behave. With economics we have a theory which argues that if people just look after their own interest that’s OK because “an invisible hand” described by wizard intellectuals delivers an approximation to an optimal allocation of resources. Under the influence of a view like this, concern about what is in a wider interest is not likely to blossom. It is unlikely to figure as a motivation or concern. As individualists people will look no further than themselves. They do not need to look further than themselves because the “invisible hand” will do the rest.

It is quite logical to believe that if people are actually like this then their attitude to the community and to the state will be framed in the same terms. Such people, customers of the state, rather than citizens and members of communities, will then have an interest in getting the best deal from the state to pursue their own individual agendas.…

This is an interesting post and the book is a free download.

Frank Knight assumed that utility maximization applied only to economic behavior, while Gary Becker extended that assumption to human behavior in general. This assumption that humans act in their self-interest to gain maximum satisfaction "naturally" or "by nature" rests on the assumption of methodological individualism, which in turn presumes an assumption of ontological individualism.

Extreme individualism contradicts the longstanding assumption that humans are social animals dating at least to Aristotle's Politics.* The assumption of sociality that has greater biological and psychological evidence than the assumption that humans are chiefly individualistic in interests, motivation, decision making and behavior, and act independently of other factors and influences.

The Western intellectual tradition has viewed "rationality" as the distinguishing characteristic of humanity and since its inception in ancient Greece, the Western intellectual tradition has also viewed rationality as moral and pro-social.

Radical (Jacobin) and reactionary (liberal) individualism are innovations that developed in reaction to overbearing government as a residual of the feudalism system that was an obstacle to rising capitalism. This was also a reaction of the Protestant Reformation to the Church's dogmatism and monopoly on knowledge asa means of social control. While these forms of individualism are "rational" in terms of the historical dialectic, given conditions prevailing at the beginning of the modern period, they are neither intrinsic to humanity as indicative of "human nature," nor naturalistic in terms of the course of human development and history.

Emphasis on individualism ignores the broad and deep social and economic influence of culture and institutions, for instance. Conventional economics excludes institutionalism as heterodox, for example, and ignores economic sociology.

Radical and reactionary individualism are pernicious assumptions both socially and also personally, for they are separative. Rather than resulting in spontaneous natural order, pursuit of self-interest primarily leads to egotism and social dysfunction. Extreme liberalism is opposed by both traditionalism and socialism for this reason. Freedom without responsibility confuses liberty with license.

Credo
Mismodelling human beings – “rational economic men” in love, politics and everyday life

Brian Davey

* From these things therefore it is clear that the city-state is a natural growth, and that man is by nature a political animal, and a man that is by nature and not merely by fortune citiless is either low in the scale of humanity or above it (like the “ clanless, lawless, hearthless” man reviled by Homer,1 for one by nature unsocial is also ‘a lover of war’） inasmuch as he is solitary, like an isolated piece at draughts. And why man is a political animal in a greater measure than any bee or any gregarious animal is clear. For nature, as we declare, does nothing without purpose; and man alone of the animals possesses speech. The mere voice, it is true, can indicate pain and pleasure, and therefore is possessed by the other animals as well （for their nature has been developed so far as to have sensations of what is painful and pleasant and to indicate those sensations to one another）, but speech is designed to indicate the advantageous and the harmful, and therefore also the right and the wrong; for it is the special property of man in distinction from the other animals that he alone has perception of good and bad and right and wrong and the other moral qualities, and it is partnership in these things that makes a household and a city-state.

Bill Mitchell — A basic income guarantee is a neo-liberal strategy for serfdom without the work

A reader pointed out the other day that a good idea remains a good idea even if bad people advocate it. This was in relation to my blog – Why are CEOs now supporting basic income guarantees?. It reprised an issue that has a long history in culture and the arts. Should we hate Wagner because it was symbolic for the Nazis? What about the work of Budd Schulberg who produced the screenplay for ‘On the Waterfront’ but was simultaneously dobbing people into the House Un-American Activities Committee? There are countless examples of this sort of quandary, or not, depending on your viewpoint. As I wrote in the earlier blog (cited abive), I am always suspicious when the elites advocate something. It is not just a taste for Wagner they are articulating. Generally, they are advocating further pathways that they can shore up their control and power. Which means bad things for the rest of us! The BIG is one of those pathways and it leads to impoverishment and an on-going capitalist domination. A basic income guarantee is not a path to nirvana – I see it as just a neo-liberal strategy for serfdom without the work....

Ccapitalism is not as much about private ownership of the means of production as it is about favoring capital, that is, ownership of real and financial assets, over the other factors of production — labor, that is, workers, and land, that is, the environment.

Capitalism is about capital accumulation and this occurs through expropriation and exploitation of workers and the environment by means of the application of power and control.

In democratic republics, the people have the opportunity to confront this through the electoral process. But they have to know what the alternatives are and how to proceed. Presently, they are being kept in the dark and misled.

MMT shows what some of the economic options are and how they would work to produce an economic system in which the factors of production are integrated harmoniously, with the top priority being people and the planet.

I know that BIG-toting progressives will respond and say their intent is different to Friedman’s. Sure enough. But structures are structures.

The BIG is very susceptible to neo-liberal manipulation. Once you abandon the narrative that it is the government’s responsibility to ensure full employment and agree that all the government is required to do is guarantee a bare existence then the slippery slope has been erected.

A moment’s reflection tells us that the CEOs and their lobbying organisations typically oppose any form of social assistance being provided by governments, in the same way, they tend to oppose wage rises.

Capital-labour conflict remains a central dynamic in our societies and only naivety would lead one to conclude it will go away, or rather, be ‘outside’ this dynamic by giving the unemployed a bare minimum BIG.

Once those who were formerly workers – in direct opposition to capital – become meagre consumption units, then the balance of power is tilted further towards capital....

Bill Mitchell – billy blog
A basic income guarantee is a neo-liberal strategy for serfdom without the work
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — Another Milton Friedman legacy bites the dust

Milton Friedman and his gang at Chicago, including the ‘boys’ that went back and put their ‘free market’ wrecking ball through Chile under the butcher Pinochet, have really left a mess of confusion and lies behind in the hallowed halls of the academy, which in the 1970s seeped out, like slime, into the central banks and the treasury departments of the world. The overall intent of the literature they developed was to force governments to abandon so-called fiscal activism (the discretionary use of government spending and taxation policy to fine-tune total spending so as to achieve full employment), and, instead, empower central banks to disregard mass unemployment and fight inflation first. Several strands of their work – the Monetarist claim that aggregate policy should be reduced to a focus on the central bank controlling the money supply to control inflation (the market would deliver the rest (high employment and economic growth, etc); the promotion of a ‘natural rate of unemployment’ such that governments who tried to reduce the unemployment rate would only accelerate inflation; and the so-called Permanent Income Hypothesis (households ignored short-term movements in income when determining consumption spending), and others – were woven together to form a anti-government phalanx. Later, absurd notions such as rational expectations and real business cycles were added to the litany of Monetarist myths, which indoctrinated graduate students (who became policy makers) even further in the cause. Over time, his damaging legacy has been eroded by researchers and empirical facts but like all tight Groupthink communities the inner sanctum remain faithful and so the research findings haven’t permeated into major shifts in the academy. It will come – but these paradigm shifts take time.

The latest research effort to wipe Friedman’s theoretical legacy off the map was presented to the ASSA Annual Meetings (in Chicago, this year) at a session on January 8, 2017 by two young Harvard economists.…

Arguably, "Friedmanism" led to the Global Financial Crisis (system failure) that is still unfolding around the world, resulting in a discrediting of conventional economics, the unwinding of the post-WWII liberal order, and the inception of a new world order that is now in the making, unfortunately led by the right since the left is absorbed in navel-gazing and blaming.

Bill Mitchell – billy blog
Another Milton Friedman legacy bites the dust
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

James Kwak — What’s Wrong With Econ 101

Both Hayek and Friedman saw themselves as participants in a battle of ideas against encroaching socialism. In their hands, an analytical framework became a universal worldview: Economics 101 became economism. Economism is the belief that basic economics lessons can explain all social phenomena — that people, companies, and markets behave according to the abstract, two-dimensional illustrations of an Economics 101 textbook. Ideally, students should learn that the competitive market model is just that — a model, which by definition abstracts from the real world. According to the rhetoric of economics, however, the lessons of Economics 101 can be transplanted directly into the real world. The central idea that free markets generate the greatest possible economic well-being for society becomes a universal framework for understanding and answering any policy question.

Economism may not accurately describe reality, but its reduction of complex phenomena to simple concepts was a major asset in the battle of ideas. The political landscape of the United States after World War II was dominated by the shadow of the New Deal and the idea that the government could and should play a major role in managing the economy. Businesses that opposed intrusive regulations and wealthy individuals who feared higher taxes needed an intellectual counterweight to the New Deal, a conceptual framework that explained why an activist government was bad not just for their profits and their pocketbooks, but for society as a whole. Economism filled that need....

Economism aka Econ 101 is ideology, pure and simple, masquerading as science — because the math "proves" it.

As the mantra of free markets, small government, and lower taxes became more popular with voters, Democrats adapted by also paying homage to competitive markets. It was Bill Clinton who said, "The era of big government is over." And Barack Obama’s signature health-care-reform program is centered on the idea of using (regulated) market competition to expand access to health insurance.…

Economism is the reduction of social reality not just to Economics 101, but to just one Economics 101 lesson: the model of a competitive market driven by supply and demand.

If we were to redesign Economics 101, what would it look like? One possibility is to begin not with abstract models, but with the real world. How do companies use technology to produce goods, and how are those companies organized? How are products and services distributed, and how do manufacturers, intermediaries, and retailers set prices? How are wages determined — not in the theoretical model, but in real life? What factors determine the set of opportunities available to different people on different parts of the planet?...

Connecting the dots between Adam Smith and Donald Trump.

The Chronicle of Higher Eduation
What’s Wrong With Econ 101
James Kwak | Associate Professor of Law at the University of Connecticut School of Law

David Glasner — Larry White on the Gold Standard and Me

Gold standard, free banking, central banking, fixed rule versus flexible discretion, and financial crises in the 19th century.  Important from the perspective of economic history, history of economics (H. Simons, M. Friedman), and money & banking. If you are interested in these topics, it's an important read.

Uneasy Money
Larry White on the Gold Standard and Me
David Glasner | Economist at the Federal Trade Commission

Jason Smith — Economics, physics, and data: a response to Blackford

This is a bit wonkish if you haven't been following this exchange, but it makes some good points relevant to philosophy of science and philosophy of economics. It is about Milton Friedman's famous article on "as if" methodology, that is, instrumentalism rather than realism relative to economics and physics. Blackford is a heterodox economist, and Jason Smith is a physicist.

Information Transfer Economics
Economics, physics, and data: a response to Blackford
Jason Smith

George H. Blackford — Economists Should Stop Defending Milton Friedman’s Pseudo-science

Science is explanatory as well as predictive. Milton Friedman's methodology is pseudo-scientific.

Evonomics
Economists Should Stop Defending Milton Friedman’s Pseudo-science
George H. Blackford | former Chair of the Department of Economics at the University of Michigan-Flint

Sandwichman — The Iatrogenic and Incoherent "Theory" of Flexibility

Sandwichman hits it out of the park. Contains some choice references.

EconoSpeak
The Iatrogenic and Incoherent "Theory" of Flexibility
Sandwichman

Jörn Bibow — Of Voices in the Air and Never-Ending Dreams of Helicopter Drops

The debate over helicopter money rages on.

Good read.

Multiplier Effect
Of Voices in the Air and Never-Ending Dreams of Helicopter Drops
Jörg Bibow

Yves Smith — New IMF Paper Challenges Neoliberal Orthodoxy

While the IMF’s research team has for many years chipped away at mainstream economic thinking, a short, accessible paper makes an even more frontal challenge. It’s caused such a stir that the Financial Times featured it on its front page. We’ve embedded it at the end of this post and encourage you to read it and circulate it.

The article cheekily flags the infamous case of the Chicago Boys, Milton Friedman’s followers in Pinochet’s Chile, as having been falsely touted as a success. If anything, the authors are too polite in describing what a train wreck resulted. A plutocratic land grab and speculation-fueled bubble led quickly to a depression, forcing Pinochet to implement Keynesian policies, as well as rolling back labor “reforms,” to get the economy back on its feet.

The papers describes three ways in which neoliberal reforms do more harm than good.…

Now that the wheels are coming off, the knives are coming out.

Naked Capitalism
New IMF Paper Challenges Neoliberal Orthodoxy
Yves Smith

Joerg Bibow — ‘Helicopter money’ is a muddled fiscal policy by another name

Short and to the point.

Financial Times — Letters
‘Helicopter money’ is a muddled fiscal policy by another name
Joerg Bibow, Professor of Economics, Skidmore College

Ben Bernanke — What tools does the Fed have left? Part 3: Helicopter money

"The deflation speech saddled me with the nickname 'Helicopter Ben.' In a discussion of hypothetical possibilities for combating deflation I mentioned an extreme tactic—a broad-based tax cut combined with money creation by the central bank to finance the cut. Milton Friedman had dubbed the approach a 'helicopter drop' of money. Dave Skidmore, the media relations officer…had advised me to delete the helicopter-drop metaphor…'It’s just not the sort of thing a central banker says,' he told me. I replied, 'Everybody knows Milton Friedman said it.' As it turned out, many Wall Street bond traders had apparently not delved deeply into Milton’s oeuvre.” (Ben Bernanke, The Courage to Act, 2015, p. 64)

Brookings — Ben Bernanke's Blog
What tools does the Fed have left? Part 3: Helicopter money
Ben Bernanke | Distinguished Fellow in Residence with the Economic Studies Program at the Brookings Institution and also serves as a Senior Advisor to PIMCO and Citadel

ht Mark Thoma at Economist's View