Wednesday 2 December 2015

How Economists Are Failing Society: Professor Robert Wade At The Ika Seafood Bar & Grill.

Heterodox And Proud Of It: Professor Robert Wade is an economist who refuses to toe the accepted line. Someone with the courage to point out that the neoliberal economic emperor isn’t wearing any clothes.
LAILA HARRE saved the very best for last. The “Salon” lunch with economist, Professor Robert Wade, provided one of those clarifying political moments when, at last, the veil falls away and you are shown the real state of affairs in all its terrifying clarity.
Wade is what his orthodox colleagues at the London School of Economics would loftily dismiss as a “heterodox” economist. Someone who refuses to toe the accepted line. Someone with the courage to point out that the economic emperor isn’t wearing any clothes.
More than this, however, Wade exposes orthodox neoliberal economics as a failure. Presenting itself as a scientific discipline, fully capable of pronouncing definitively on the true nature of reality – the profession was, nevertheless, unable to produce a single accurate prediction of the Global Financial Crisis (GFC).
There was a very good reason for this. As Wade explained to his mostly academic audience, the Dynamic, Stochastic, General Equilibrium (DSGE) model used by orthodox economists all over the world – including the OECD, the IMF, the World Bank and the Bank of England – does not factor-in the influence of the financial sector on the economy, and flatly denies that economies conforming to the DSGE model are susceptible to crises generated endogenously (i.e. from within themselves).
Just think about that for a moment. An economic model that makes no allowance for the most powerful force in the modern international economy – finance capital. A model which, for that very reason, simply could not see the Global Financial Crisis coming.
Now, you might think that a profession which had exposed its shortcomings so dramatically might be feeling just a little bit chastened; might be looking for a new economic model; might even be ready to admit that it had got just about everything horribly wrong and apologise to the world for all the extraordinary suffering its failure to read reality correctly has produced.
You would, however, be wrong.
Orthodox economists pride themselves on their positivism. They are not swayed by their emotions, nor do they make value judgements. The language of ethics and social responsibility is foreign to them. Their language is mathematics. Numbers don’t lie – and they certainly don’t apologise!
But if Orthodox Economics pays no heed to the real world and cannot predict an event as devastating as the GFC; if it scorns all those who posit a different interpretation of the economic data; if it guards the tenets of its economic faith as jealously as any member of the Roman curia, and punishes heretics with equal severity; then what, exactly, is the orthodox economics profession?
The answer lies in the word “faith”. Wade himself said that there is a religious quality to the thinking of the men and women in economic institutions like the NZ Treasury. And this, of course, is exactly what the orthodox economics profession has become – a modern priesthood.
In terms of the social and political function it serves, Orthodox Economics is no different from the Medieval Catholic Church. It exists for one reason and one reason only: to justify the ways of the rich to the poor, and to convince them there is no alternative to the inequality and injustice of the existing order. As it was in the beginning, is now, and ever more will be, world without end.
This brief review hardly does justice to Wade’s lecture. There is much more that I wish I could recall: astonishing quotations from these naked economic emperors that left his audience shaking their heads in disbelief.
The vote of thanks was given by Laila’s dad, who first met Wade when he was a young student of anthropology back in 1960s Auckland. Indeed, he was able to produce a wonderful photograph of the young Robert Wade, taken during an expedition to the islands of the South Pacific.
There he was, one of many rowers, hauling manfully on his oar, in the midst of a vast and troubled sea.
Somehow, it seemed appropriate.
This essay was posted on The Daily Blog and Bowalley Road on Wednesday, 2 December 2015.


Brendon Harre said...

I recently found and bought a book written in 1969, titled "New Zealand", co-authored by John Harre -a distant relative of mine and Laila's father, in a second-hand shop in Murchison. It is good to hear he is still contributing in a small way to the debate of who we are and how we progress-by providing interesting background photos to this day.

Guerilla Surgeon said...

A discipline that takes absolutely no notice of psychology can hardly be called a science.

Nick J said...

You should probably quote John Ralston Sauls Law of Economists. It goes like this; take ten economists ideas and the predicted results, give a score of one for a correct answer, nought for each wrong. Add up total, answer will always be nought.

Ralston Saul might sound cynical but not as cynical as a profession that if it was honest would admit they are constantly and deliberately wrong. Paychecks I suspect.

Tiger Mountain said...

that the conventional–neo lib–economists at Treasury and all those financial analysts polluting the media with breathless accounts of currency fluctuations as if they were sports results, show the “emperor has no clothes” is just not on most people’s horizon, and even those that make an effort to investigate such things don’t usually get far

it is essential that people believe that capitalist production relations are as natural and eternal as the weather and that they be good consumers (commodity fetishism as Marx termed it) and get captured by thumping great mortgages to remove them from the arena of fightback that those crazy lefties are into

I remember the late Peter Conway in the 90s investigating marxist economics with the cross left party WISSE–Workers Institute for Scientific Socialist Education–before he took on a conventional tertiary route to a degree, ultimately his “out” from Karl Marx world view was that his Labour Party uni buddies reckoned they had disproved Marx assertion of the tendency for the rate of profit to fall over time being one of the main inbuilt flaws of capitalist economics; they had not but the pressure was on from a learning institute and social democratic party not to deviate if he wanted a tidy career path

these days an awful lot of money exists only as bytes for an instant on digital stock markets and new means are developing to hack into these transfers in portions of a second, beyond what the 80s ‘paper money’ traders could have dreamed of, and bitcoin and other alternative currencies etc

greywarbler said...

Seems to me that there are a few absolutes in economics, supply and demand pressure effects, I think would be one. Then there are general trends. And from those reasonable scenarios could be formed as in other sciences. And feeding more information in would result in changes to predictions.

But the sort of scientific scenarios I was thinking of to use as a guide, are the ones on nature. And nature just is, dynamic and with some understood rules. and many imperfectly understood, or being explored. With people's activity, the data they feed into a scenario can be doctored and ill comes of that when trying to offer a sound scientific reading for the past, present or future.

Fern said...

George Monbiot recently wrote a very interesting Guardian article showing what happened when economic theory was applied to real life in David Cameron’s own constituency. Worth reading.

Anonymous said...

I do not know who to believe, what to believe, or probably more to the truth, what the fuck is the answer to our problems, my mate Karl once said "we must negate the negative' Chris that means you and all your commentators are dead in the water.

Anonymous said...

All our present political parties buy into the nonsense that passes as economics.

A fairly large chunk of the population, at least suspects, it is a bit dodgy.

There cannot be a rebuilding of faith in our political system until we have political party(s) that challenge the economists.

The apologists for the system like Andrew Little and James Shaw present more of a barrier to the growth of a popular condemnation of orthodox economics with their idiotic 'kind capitalism or green capitalism" than the openly greedy and dodgy John Key.

At least Key doesn't really try to pretend there is any way to make the system work that does not rely on taking from the exploited many to give to the greedy few. He simply tries to normalise this. The social democrats sell false hope which inevitably end up being dashed (even if it takes a few years),and only end up provong that the likes of Key are right about there being no other way within the system.

The sad thing is that many of the Labour/Green types know economic orthodoxy is a load of old bollocks but lack the courage to break from it.

While Key is unafraid of being openly on the side of the rich and powerful and fully in support of their economic system his political opposition are simply too afraid of telling the truth they know, yet at the same time are constantly trying to claim moral superiority over him.

And they think nobody notices.

Pretty hard to say which bunch is the most disgusting really.

peterlepaysan said...

Would eveyone please stop associating "economics" with "science". There is no connection.

Good science does not rely on statistics or modelling. Good science uses objective testing to evaluate different hypotheses.

Economists are incapable of any of the above. They are worthy of the respect that should be given to mediaeval scholars debating how many angels could dance on thead of a pin.

The "study" of economics, at best is conjecturally descriptive, it cannot be prescriptive.

Power hungry groups are happy to use economists with useful creeds to advance their own interests.

Useful creeds are used by power hungry groups every where (DAESH).

Anonymous said...

HI Chris, is this speech available online?

Chris Trotter said...

I don't think so.

He was, however, speaking from notes. You could ask the Association of Professional Economists (or similar) at whose conference he was the keynote speaker, if they could let you have a copy.

Sorry I can't be more helpful.

Grant said...

@peterlepaysan. You really do say some stupid things. I nearly sprayed coffee out my nose when I read your statement that: "Good science does not rely on statistics or modelling."

From Wikipedia:

"Statistics is the study of the collection, analysis, interpretation, presentation, and organization of data.[1] In applying statistics to, e.g., a scientific, industrial, or societal problem, it is conventional to begin with a statistical population or a statistical model process to be studied. Populations can be diverse topics such as "all persons living in a country" or "every atom composing a crystal". Statistics deals with all aspects of data including the planning of data collection in terms of the design of surveys and experiments."

And on modelling:

"Scientific modelling is a scientific activity, the aim of which is to make a particular part or feature of the world easier to understand, define, quantify, visualize, or simulate by referencing it to existing and usually commonly accepted knowledge. It requires selecting and identifying relevant aspects of a situation in the real world and then using different types of models for different aims, such as conceptual models to better understand, operational models to operationalize, mathematical models to quantify, and graphical models to visualize the subject. Modelling is an essential and inseparable part of scientific activity, and many scientific disciplines have their own ideas about specific types of modelling."

peterlepaysan said...

To Grant @4/12/16 @18.28

You obviously have great faith in economists and the accuracy of Wikipedia definitions.

Hypothises may rely on statistics and modelling. No problem.

Good science relies on testing the hypothises.

Economists only test their hypothises via lobby groups and politicians with the electorate being test guinea pigs, rats, mice whatever (never humans).

Economists are high priests of voodoo philosophy. There is no science in economics.

Yeah, I know that it was once referenced as a "gloomy science". That was when science was was conflated with "study". "Science" today has a rather more demanding meaning.

Statistics are very marginal. They can "prove" anything, especially if the funders pay enough.

Modelling may be useful in the development of hypothesis. That is all. Models cannot be real.

What is it that you are defending?

Guerilla Surgeon said...

Grant: I almost sprayed tea up my nose when I saw you refer to Wikipedia as your source for information on science. Modelling might be an essential tool of science, but as far as economics goes it definitely has its weaknesses. Particularly economics, because as I have mentioned before, classical economics uses formulae that have been abandoned by actual scientists for years. Modelling works best when there are fewer variables. Unfortunately in economics there are many, including human nature which economists have also misinterpreted for a long time. It's easy enough to tell their modelling is flawed, because it doesn't predict a great deal. And the essence of science is accurate prediction surely?

Grant said...

@peterlepaysan & GS.

1.I'm not defending mainstream economics and the pretty pass it has helped to bring us to.

2. a) When debating on the internet, is there a source other than wikipedia which can be used as a quick reference for general information? If so I haven't found it yet and a Google search can take some considerable time in sifting wheat from chaff. If either of you have a particular issue with the wiki quotes i used or the linked articles they were lifted from, please by all means specify where they are wrong. Better still, become a wikipedia editor and debate with the authors of the article in the Talk section to get the article changed. So much more productive than sneering..

b) GS, you do know that many mathematicians, technicians and scientists contribute to the writing and editing of articles in Wikipedia don't you? Also that it is open source and anyone can become an editor and join in the process of improving the style or veracity of an article at any time? Articles are often critiqued and edited by experts and protected from destructive reversion by an editorial panel. I'm aware that Wikipedia isn't perfect, but it's a hell of a lot better than the basic encyclopedias which people used to use in which articles were often written by one 'expert' and remained in print long after they ceased to be current. I think it's a noble and worthy project which makes a lot of high quality information available to more people than ever before. It's a work in progress and always will be but still very worthwhile. Trying to say it's worthless as a reference tool is, in my view, elitist nonsense.

c) My own science education stopped short at yr 13, (7th form level), but that and the fact that I have friends and family who are scientists is enough to inform me that Peterle-p's statement which I reacted to is patently ridiculous and if left to stand makes those who accept it without rebuke look like fools. I note that in his response he has already started back-pedalling and admitting that stats and modelling are used to form hypotheses as part of the scientific method. In fact their use goes well beyond the hypothesis stage.

greywarbler said...

It's no wonder we usually cannot get intelligent and practical thinking leading to beneficial outcomes for us all. The time goes in disagreements on modelling, whether Wikipedia has value, cost-benefit analysis and searching enquiries based on limited bases etc.

One question could be, whether economists have ever followed creative accounting practices, and prepared two separate advisory reports - one for regulatory scrutiny and one showing all aspects and externalities well costed. Really thorough financial inquisitors might have done that. Are there hidden secret caches of stunning factual information about the misdevelopment of our country and economy in its end days that we have overlooked or are ignoring?

The really important thing to commenters though is to prove wrong and combat others' findings and line of thinking. Perhaps at meetings, if every 15 minutes there was a compulsory pause and a brief reference to a summary of meeting purposes there would be a fruitful and useful move towards the goal. Now that is the most practical discipline that could be used in discussion in all the Disciplines.

I remember enjoying the 2000 book rebutting economics by a disillusioned observer here in NZ, Paul Bieleski which was gathered from monthly newsletters from the Anti-Economist League. Here is Brian Easton's opinion on it and a background on the subject.
(There is one available through for US$12 plus postage.)

(And on the basis that we need to allow other information to slip into our focussed minds - a history around the Bielskis, a surname different by one letter, and part WW2 we probably have not read. This should have reference to us in our present rocky, degraded civilisation.)

nolajo said...

There are two reasons, not mentioned by Professor Wade, why so-called mainstream economists have not changed their tune following the crash: one, academics are notoriously reluctant to admit that they were wrong, and two, they are afraid of losing their jobs if they stop pushing ideas that please the rich

Guerilla Surgeon said...

Grant. You still haven't addressed the main problems. Defending Wikipedia is fine, I've no great objection to it as such – just your patronising attitude in using it to refute specific problems with economic modelling. If you had bothered to look up ECONOMIC modelling on Wikipedia, you would have found that there are pitfalls. See here:

Grant said...

@ GS.

So, which of these statements is the one you stand by?

"Grant: I almost sprayed tea up my nose when I saw you refer to Wikipedia as your source for information on science."


" Defending Wikipedia is fine, I've no great objection to it as such".

Then you say: "..just your patronising attitude in using it to refute specific problems with economic modelling."

Please show me where I have used wiki quotes "to refute specific problems with economic modelling". (Sic) nb. apart from anything else, this statement makes no logical sense.

I have made it perfectly clear on two occasions that I was making no comment whatsoever about economic modelling.

What I objected to, because it is nonsense, was P-le-P's insistence that "Good science does not rely on statistics or modelling". This statement is simply wrong and I called it as such. End. Of.

I am at a total loss as to why you jumped on the band wagon and decided, based on nothing whatever, that I was saying something totally different to what I actually said.

Guerilla Surgeon said...

Grant. Dammit my bad my tongue must've got screwed up somehow in that sentence. What I meant to say was that there are specific problems in economic modelling that Wikipedia doesn't address unless you search for "economic modelling". And Peter is correct in saying that good science doesn't RELY on modelling. Economics conducts few if any replicable experiments, and more or less fully relies on modelling. End. Of.
As far as the patronising attitude goes I apologise, it possibly just something I read into your statement, which we often do when we don't have the advantage of being face-to-face.

peterlepaysan said...

Grant you simply do not understand what science means.

I repeat, statistics and modelling may form the basis of developing various hypotheses. For any of these hypotheses to be accepted as scientific theory they have to be rigorously tested experimentally.

Economists are incapable of the the testing unless they are indifferent to the social suffering of a failure. That is why "spin doctors" exist.

Real science has to consider ethical matters before an experiment can be done.

Economists do not give a shit. The only thing that matters to them are their egos.

Academics are prone to egotism, probably why so many are attracted to politics.

There is no science in economics. Economics is "business dressed up in academic regalia. My original post was to plead to stop associating economics with science.

That post still stands unrefuted.

Grant said...

GS & peterlepaysan. "Good science does not rely on statistics or modelling."

Your argument has now been reduced to semantic 'head of a pin dancing' about the meaning of the word 'rely' in the quote above.

Despite p-le-p's arrogant assertion that I do not understand 'what science means', I rather think I do.

All branches of 'science' use and 'rely on' stats and modelling in ways that extend well beyond the level of initial hypothesizing. There is an ongoing feedback loop between hypothesis / gathering observed data / modelling based on stats and equations derived from real life observation / comparison of real life observations with how the models function / modification of hypothesis and adjustment of modelling equations in order to refine the way models are able to help demonstrate and predict the way systems work.

For a basic intro see:

I can keep finding more examples all day if you really want me to.

As for debating the merits of modelling in the 'dismal science' of economics, have the debate with someone who wants to have it.

There are some really brilliant examples of climate modelling based on real life observational data converted to stats and equations and then into graphical computer models if you care to google for them.

If you don't want to be called on what you say then think a little more carefully about how you say it.

Unknown said...

Would eveyone please stop associating "economics" with "science". There is no connection.
Unless you see the human economy as a subset of the world's ecosystem.