Masthead graphic based on a painting by Gudrun Thriemer.

Tuesday, January 13, 2009

Notes on economics as a sectarian "science."

Economics is a sectarian "science." It is the most mathematical of the social sciences and employs the most simplistic models of human psychology and behaviour. Today, everyone talks about "confidence". However, few talk, for example, about shopping as a form of addictive behaviour.

In his 2006 State of the Union address, President Bush acknowledged his country's addiction to oil; however, mathematical economic models ignore the idea as a casual metaphor by a dyslexic buffoon rather than as a psychological disposition that might override other factors in creating demand and a situation of oversupply, to say nothing of numerous wars, oppression, and poverty to feed the habit.

Let's have a look at a few other sectarian behavioural quirks with economic consequences:
First, a word about language behaviour. "Subprime" mortgage is a euphemism, plain and simple. "Subprime" means literally "less than the very best" or "not quite the ultimate." By way of contrast, a term that is almost never used in discussions of the economic crisis is the word "sucker." PT Barnum is rarely quoted: "No one ever went broke underestimating the intelligence of the public." A subprime mortgage is a form of snake oil. Lenders buy business by selling debt to suckers who cannot afford it, but who can dream and feel glad when they are finally "approved" or even "pre-approved" to receive money they will never be able to repay. The subprime is then repackaged and marketed as an asset in a shell game right under the noses of buyers and regulators who should know better, but who are too busy....

Well, let's just say that the herding behaviour of investors has been studied, but is seldom part of the public analysis.

Suddenly Kenyes is respectable again. Frequent mention of his "paradox of thrift" sometimes formulated as a "vicious cycle of thrift" is put forward as a plea to go on spending. Suddenly people feel duped into living beyond their means, buying crap that they cannot afford. This feeling of being had, like Charlie Brown as he misses the football for another season, is called a crisis in "confidence." Gullible is another word we might dust off and use more.

Now that Keynes is poised for a comeback, it may be time to remember the Paris peace conference of 1919 where he proposed that the Allies simply cancel their debts. The US opposed this sensible plan, largely because it held the bulk of the debt.

Friedman and Pat Buchanan agree on gas tax and carbon tax, an interesting transcendence of the usual sectarian boundaries.

In 2000, Perry Anderson, noted Marxist and founding editor of the New Left Review acknowledges that "neo-liberalism as a set of principles rules undivided across the globe" It is, he said then, "the most successful ideology in world history." In that same essay (P Anderson, "Renewals," New Left Review 2/1, January/February 2000, p16),
he argued that this circumstance "will probably remain stable so long as there is no deep economic crisis in the West." For an essay that criticizes this "historical pessimism," see

Philip Blond, a philosopher and journalist, in a March 2008 article for the Independent:

"The disintegration of Anglo-Saxon-inspired markets has come about largely because of the confluence of two tendencies of the 'free market': speculation and monopoly capitalism. Contrary to received opinion, free markets – unless subject to civil regulation, asset distribution and persistent intervention – always tend to monopoly.

"Similarly, there is nothing inherently efficient about free markets – they do not of themselves promote sound investment or wise management. Rather, when markets are conceived wholly in terms of price and return, and when asset wealth and the leverage that this provides becomes as concentrated as it was in the 19th century (which is a scenario we are approaching), then markets encourage nothing other than gambling masking itself as sound investment."
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