Real World Curriculum

II – Fresh Perspectives

Fresh Perspectives

In this section of the book and website we feature essays and manifestos by dissenters and mavericks from the front lines of the battle to overthrow the neoclassical paradigm.

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Can Economists Improve the Human Condition?

Paul Ormerod

“Do you need math to study economics at university?” is a question I often get asked. Here is a cautionary tale for anyone who still has illusions about the relationship between the two disciplines. A friend of mine teaches economics at Cambridge, England. Recently she had a first year student who was very good indeed at math. So much so that he complained there wasn’t enough of it in his course. For his second year, he was sent on an exchange to the other Cambridge: the Massachusetts Institute of Technology. Emails of an increasingly desperate nature began to whiz back to my friend across the Atlantic. The final one said simply: “Help! Please let me back home. There isn’t any economics in this course. It’s all math.”


Things are not quite so bad in most places, but math is becoming increasingly pervasive in economics. Just for the record, at the right time among consenting adults, I too use math. There are both good and bad reasons for employing it in the service of economics. So far mainly the bad ones have prevailed.

It wouldn’t matter much if policy makers didn’t take economics so seriously. Hardly anyone bothers about some of the lunacies in literary theory, for example. But economics matters and, at the frontiers of the discipline, a subtle but profound shift is taking place. Economics is starting to become more realistic, more rooted in institutions, in history, in the real world and, as a result, more useful.

That is, in fact, how economics started off in the first place. Only then it wasn’t called “economics” but “political economy,” symbolizing the fact that economies do not exist independently of political systems and institutions.

Economics is starting to become more realistic, more rooted in institutions, in history, in the real world and, as a result, more useful

Adam Smith single-handedly founded the discipline of economics over 200 years ago, and his influence is profound even today. Yet his seminal book The Wealth of Nations contains no equations at all. Instead Smith uses carefully constructed arguments supported by a wealth of historical evidence. English stockbroker David Ricardo, author of On the Principles of Political Economy and Taxation (1817), is less well known – but the standard economic theory of trade is still based on his work. More than a century later, two figures from opposite ends of the political spectrum made wide-reaching contributions to economics. John Maynard Keynes was trained as a mathematician at Cambridge, switching later to economics. Friedrich Hayek, the intellectual inspiration for Thatcherism, had deep insights in psychology as well as in economics. Ricardo, Keynes, Hayek and a host of other key figures in economics studiously avoided math. Instead they used thoughtful arguments backed up by evidence.

So how has math come to be so pervasive in economics, when so much was achieved without it? The worst reason is that the use of math makes economists feel like they are proper scientists. They suffer from deep “physics envy.” Physicists have to use math. (Try doing quantum physics in words.) And they are real scientists, who really have explained how lots of things really do work. So if we use math, that makes us real scientists, doesn’t it? Well, the logical error in this last sentence is pretty obvious. But it doesn’t stop the inner glow of satisfaction that most economists feel when they cover the page in mathematical symbols.

So how has math come to be so pervasive in economics, when so much was achieved without it?

There is a more serious and more damaging reason why math, or at least a particular kind of math, is used in economics. This is inextricably linked with the concept of “economic man.” Economics is essentially a theory about how individuals behave. And the standard theory not only assumes that individuals are self-interested, but that they behave like some sort of supercomputer – always gathering every bit of information relevant to a decision. These individuals then make the best possible decision out of all available options. Not just a good decision, but the very best. Or, as economists like to say, optimal.

There is a whole branch of math devoted to optimal solutions: differential calculus. It is the ideal tool for a theory stating that individuals behave in a way optimal for them, given their tastes and preferences. So, for example, if you eat junk food and weigh 300 pounds as a result, or if you drink heavily and destroy your liver, or if you smoke and get cancer, hey, that’s your choice. You must have been making what you believed to be the best possible lifestyle choice for you, and calculus can prove it!

This is still the basis for a lot of the economics taught in university. Yet, paradoxically, it has been precisely the use of math within economics that has undermined this view of the world. It’s also a reason why the subject is moving on dramatically.

Math can be very useful in economics provided that we think of it simply as one tool among many. It is a tool that can assist us in logical thinking. It’s like another language – it can help us find our way around.

Math can be very useful in economics provided that we think of it simply as one tool among many.

Math has helped economists understand the implications of the economic man theory of behavior. After more than a century of research, economists determined that the theory is a marvelous intellectual construct, but a completely empty box. It has no testable implications. When economists say “demand curves slope downwards” or “people are paid what they are worth,” they have no theoretical basis for making these assertions. We cannot logically deduce from the theory of economic man behavior that either of these statements, both widely used by economists, are true.

Pioneers like the 2001 Nobel laureates George Akerlof and Joseph Stiglitz moved the subject on in the 1970s. They realized something else was needed, so they abandoned the idea that people have perfect information when they make decisions. They developed the concept of “bounded rationality”: the idea that though we may try to make the best decision, we may not succeed due to a lack of vital information. So in a world of bound rationality, people who binge on junk food or smoke heavily are not necessarily seen as making the best possible decision for themselves. The work of Akerlof and Stiglitz was a huge step forward in making economics more realistic.

Daniel Kahneman and Vernon Smith, the 2002 Nobel winners, made even bigger strides with their work. They actually went out into the world and conducted experiments to see how people really do behave. Observing and deducing just like real scientists! And they found that most of the time people don’t behave like the economic man at all. In his Nobel lecture, Kahneman stated: “The central characteristic of agents [people] is not that they reason poorly, but that they often act intuitively. And the behavior of these agents is not guided by what they are able to compute, but by what they happen to see at a given moment.”

In other words, the whole concept of a rational, calculating economic man is being abandoned completely. The economic man theory postulates that people have all the relevant information to make the best possible decision. In this new approach people have – at best – imperfect information … they stumble along, trying to make reasonable decisions, sometimes succeeding but often failing.

“An economist who is only an economist cannot be a good economist.”

The rules of behavior people use depend on the specific time and place. When the Soviet Union fell, for example, the policies forced on Soviet markets – based upon economic man – were disastrous. They led to theft and asset stripping on a stupendous scale and a massive fall in living standards. The policies failed to account for the fact that Russia and the other nations of the Soviet Union had little or no experience of how markets worked. Above all, they failed to take into account that in the West there are very few pure “free markets” – institutions, law, custom and practice all mediate the workings of markets. An outdated view of the world forced these tired policies on the Russians.

The new approaches that have developed to replace the economic man, perhaps surprisingly, make economics much harder. Instead of just manipulating some equations, we have to think hard about what the relevant rules of behavior are in any particular context. And we have to restore the importance of institutions and history. In short, we have to restore the idea of political economy in a totally modern guise. Hayek is mistrusted by many, but there is a profound truth in his remark: “An economist who is only an economist cannot be a good economist.”

All this makes economics more humble. Instead of claiming a completely general theory of behavior – applying to all people at all times in all places – economics is now much less grandiose. But ultimately, these changes will serve to make the discipline more realistic … and potentially more powerful as a force for helping to understand and improve the human condition.

Paul Ormerod studied economics at Cambridge University and did a postgraduate degree at Oxford. He is the author of The Death of Economics, Butterfly Economics and Why Most Things Fail. Download some chapters from his website, www.paulormerod.com.


THE CREATIVE DESTRUCTION OF NEOCLASSICAL ECONOMICS

Deep in a recession and with scary ecological scenarios looming, now may be the ripest moment we’ll ever have to power-shift global capitalism onto a new path. Adbusters #85 asks economics students around the world to join the fight to revamp Econ 101 curriculums and challenge the endemic myopia of their tenured neoclassical profs. Go to KICKITOVER.ORG, read a few texts, download the Kick it Over Manifesto (and other posters) and whack them up in the corridors of your campus. Make sure your university is at the forefront of the paradigm shift from neoclassical to ecological economics now underway. If you’re an economics student, email kevin@adbusters.org to receive a half price copy of Adbusters #85.

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The Slow Food Revolt

The frenetic pace at which we’re forced to live disrupts our natural habits.

The Slow Food Revolt

Photos by Ian Buchko

The “slow food” movement – founded by Carlo Petrini in 1989 – is a revolt against the fast pace forced on us by industrial civilization, specifically fast-food culture. The movement’s manifesto rejects “the machine” as a life model, and blames this mechanized way of life for a frenzied existence in which productivity outweighs all else. The frenetic pace at which we’re forced to live disrupts our natural habits, destroys our environment and is ultimately inimical to life. To counteract the ill effects of frenzied living, the movement proposes replacing industrial agriculture with organic agriculture, nurturing more discriminating palates and promoting just compensation for conscientious food producers.

The slow food movement rejects the theory behind machine culture: mainstream neoclassical economics. Neoclassical theory was created to provide behavioral science with an equivalent to classical mechanics in physics. The concepts of space and time in classical mechanics do not correspond exactly with actual location and chronology. Instead they correspond to what Nicholas Georgescu-Roegen calls the “indifferent distance and indifferent time interval” of classical mechanics. Mechanical phenomena, therefore, are essentially independent of place and time. The forces of push and pull, although operating in opposition, eventually settle into a unique position of balance called mechanical equilibrium.

Economic models work in the same way as models of mechanical equilibrium – they are marked by supply and demand curves, which eventually settle to determine market prices. These models represent the economic process as an isolated cycle of production and consumption – neither inducing qualitative change in the environment (natural or social) nor being affected by qualitative change. But surely it is precisely these qualitative changes and distinctions that differentiate the living from the nonliving condition … if only because each moment – in spite of the indifference of classical mechanics to time – brings the living organism closer to its eventual demise.

These economic models have created a machine culture wholly indifferent to the complexity and mortality of the living condition, in which consumption is totally divorced from its social and environmental ramifications. If mainstream economics and the machine culture it created are to account for the qualitative nuances of the living condition, they will have to be restructured. These models will have to be pulled from their present state of isolation and integrated into the surrounding environment. Social institutions would then begin to reflect biological reality, acknowledging that life subsists within a very narrow range of physical and chemical parameters. These institutions would come to recognize that the whole, the entire system – of which they are only fragments – is greater than the sum of its parts.

Horacio Velasco is an environmental policy researcher and advocate. He currently resides in the Philippines but would love to emigrate to the UK, Germany or Canada in search of more nurturing cultural soil.

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Whirlpools and Turbulent Flows

When weather scientist Edward Lorenz was programming a computer to predict weather patterns in 1961, he entered the decimal .506 as a shortcut for the full sequence of .506127. The result was a radically different weather scenario. Lorenz remarked on this finding in a 1963 paper: “One meteorologist remarked that if the theory were correct, one flap of a seagull’s wings could change the course of weather forever.” Appearing before the American Association for the Advancement of Science, Lorenz gave a talk entitled “Does the Flap of a Butterfly’s Wings in Brazil Set Off a Tornado in Texas?” The title has since become a shorthand expression for nature’s interconnectedness.

Lorenz’s findings kick-started the 1980s academic cottage industry of “chaos theory.”

Lorenz’s findings kick-started the 1980s academic cottage industry of “chaos theory.” Aided by the personal computing explosion, scientists plumbed the bizarre, psychedelic landscapes of fractals and “strange attractors,” mathematical forms that appeared to underlie some of nature’s most persistent themes. Suddenly it became possible to see links between seemingly unrelated things. From dripping taps to the collapse of caribou populations, from the whirlpool of cream in your coffee cup to the pinwheel of stars in a galaxy millions of light years away, chaos theory supplied the connections. Charles Fort was right: you could measure a circle beginning anywhere.

The disciplines of chaos theory and complexity theory have both had a strong influence on the physical sciences and on some of the life sciences as well. Urban planners and social scientists have also seized the new ideas. Yet as far as neoclassical economics is concerned, it’s as if the discoveries of Lorenz and his colleagues never occurred. The disconnect between rhetoric and reality has alerted some of the silverbacks within the financial-speculative complex that something is very wrong with their profession. Among them are Joseph Stiglitz, former senior vice president and chief economist of the World Bank, former hedge fund financier George Soros and University of Bologna professor of political economics Stefano Zamagni.

David Suzuki is another skeptic and he offers a great anecdote about economic thinking. While at the University of British Columbia, Suzuki figured it would be a good idea to supplement his academic background in biology with an understanding of economics. During the first class, Suzuki’s instructor stood at the blackboard drawing lines in chalk to show the flow from the resource base into the market, with subsidiary industries adding value and creating wealth for investors.

Suzuki pointed to the side of the blackboard that was empty of equations, the resource base, and asked whether the calculations took into account the effect of human activity on the environment, the diminishing reserves and growing waste that Suzuki reasonably regarded as a cost mortgaged into the future. “That’s an externality,” the instructor responded drily. In other words, the environment is something external to the grand human workings of the market and not worth factoring in. Suzuki left the class on the spot.

According to Stefano Zamagni, economics was referred to as “the science of happiness” prior to the 1900s. By the late 20th century, it bore the ignominious title, “the dismal science.” In a lecture in Vancouver in 2004, Zamagni described the crisis facing economic science. Economists identify the common good with the sum total of individual goods, the professor says, which doesn’t work, as it ignores “the good of every individual in all the dimensions of a human being.” What Zamagni calls the “original sin of economics” is the reductionist idea that economic relations are reducible to the exchange of equivalence: I give or do something for you and you give or do something for me of the same value.

Yet there is another dimension to exchange, based on the principle of reciprocity, and as Zamagni noted, “… the principle of reciprocity is completely different from the exchange of goods.” Reciprocity is closely tied to trust, and both variables are missing entirely from economic equations. In fact they are extremely difficult or impossible to quantify, yet immensely important for sustaining fair economic relations. Enron, anyone?

Zamagni connects several decades of materialistic economic philosophy – with its reductionistic disconnect from the real world – to the deterioration of North American civic and family life. The “instrumental rationality” of economic thinking, he says, has ventured far beyond its sphere of applicability, justifying a dog-eat-dog paradigm for both interpersonal and international relations.

Steve Keen, associate professor of economics and finance at the University of Western Sydney, describes conventional economic theory as “autistic.” “What passes for ‘normal’ in economics barely deserves the appellation ‘science,’” he asserts in his 2001 paper “Economists Don’t Have Ears.”

Keen writes: “Most introductory economics textbooks present a sanitized, uncritical rendition of conventional economic theory … the courses in which these textbooks are used do little to counter this mendacious presentation. Students might learn, for example, that ‘externalities’ reduce the efficiency of the market mechanism. However, they will not learn that the ‘proof’ that markets are efficient is itself flawed.” Keen also assails the economics taught at an undergraduate level as “profoundly boring.” And those who move from the discipline into accountancy, finance or management learn just enough to walk away from the classroom with a warped view of the world.

Although there is a vast body of literature critical of economic thinking, the students aren’t exposed to any of it. Most students end up swallowing the axioms of economic science because, as Keen notes, “… their training leaves them both insufficiently literate and insufficiently numerate.” Neither are they given the historical context for economic thinking, making it seem as if some bearded prof had delivered it from on high, reading from inscribed tablets.

Economics has persevered with mathematical methods that professional mathematicians transcended long ago, Keen writes. “This dated version of mathematics shields students from new developments in mathematics that, incidentally, undermine much of neoclassical economic theory.”

In particular, applying the findings of chaos theory to real-world market behavior involves an understanding of “ordinary differential equations.” Yet this topic is taught in very few courses on mathematical economics, notes Keen. When it is taught, it is not covered in sufficient depth.

“Economics students therefore graduate from Masters and PhD programs with an effectively vacuous understanding of economics, no appreciation of the intellectual history of their discipline and an approach to mathematics which hobbles both their critical understanding of economics and their ability to appreciate the latest advances in mathematics and other sciences. A minority of these ill-informed students themselves go on to be academic economists and then repeat the process. Ignorance is perpetuated,” Keen claims.

Ultimately we are no more “rational utility maximizers” in a “free market” than we are sacks of chemicals disconnected from the air we breathe. We are creative patterns, whirlpools and turbulent flows, inseparable from all the other patterns in the river of being. This is what ecology and the sciences of connectedness have been telling us for decades. And as the frogs, songbirds and honeybees continue with their vanishing acts, the time is running short for the wizards of the dismal science to get it.

Geoff Olson is a Vancouver-based writer and political cartoonist. His articles and artwork can be found at geoffolson.com. From Common Ground, August 2008.

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Econophysics: A New Paradigm

Econophysics: A New Paradigm

Wireframe, 2002, 39X70 Inches, Lambda Print | © collectif_fact | www.collectif-fact.ch

Adam Smith was deeply influenced by the principles of Newtonian and classical physics and firmly believed that this system was a model for all social and economic phenomena. The principles of classical physics depicted the inner workings of the natural world so eloquently and were, after all, so widely believed. Newtonian physics described the world as deterministic, mechanistic, absolute and certain. The universe was often portrayed by the familiar metaphor of a clock, which could be analyzed by simply explaining its parts and how they move. According to Smith, similarly objective laws could describe human behavior – particularly economic behavior. His most familiar example is the invisible hand.

The classical economists envisioned the free market as a completely self-regulating system controlled by the laws of the universe with no need for human interference. People appear to be free, but they are, in fact, controlled by market mechanisms and natural and objective laws. Just as planets and particles move in accordance with the laws of motion in Newtonian physics, people act in accordance with the laws of the market, such as supply and demand.

Classical economics has undergone several revisions over the past several hundred years that have left it dry, stale and devoid of any human values, but the basic principles are the same and they still cling to the assumptions of Newtonian physics. The principles of classical physics lent themselves nicely to classical economics, but neoclassical economics – the grandchild of Smith’s original science – still adheres to classical physics.

Neoclassical economics differs in several important ways from Smith’s classical economics. One prominent contrast is the complete removal of all values from economic thought. Neoclassical economics is also marked by a significant belief in human rationality, in humans’ ability to describe their world. This rational agent, the main player in the economic game, is known as homo economicus. The quintessential rational agent acting in an objective economic model is much like the Newtonian particle moving along paths well defined by the laws of motion. And just like the particle moving completely unaware of the laws guiding it, people are caught up in a completely depersonalized system – unaware of its guiding and organizing principles. Neoclassical economists talk of the “perfect market” – one that exhibits “perfect competition” between businesses and “perfect information” between businesses and consumers. The “perfect market” will tend, so the theory goes, to a level of supply and demand that is socially optimal. Perfect competition implies perfect information, which exists when every individual is rational and has complete knowledge of 1) the method of pricing and 2) all methods and techniques of production. The consumer has perfect information when she knows everything about how a product was made and priced. The consumer will therefore be able to make the best possible decision when purchasing a product. Of course, the market is not perfect. Imperfections abound. Consider the seemingly innocuous act of purchasing a pair of jeans. Often the buyer does not have any information about where, when and under what conditions the jeans were made, yet she is regarded as completely rational and as acting in accordance with the laws of the market. This view that people can be treated mathematically is ultimately demoralizing and depersonalizing.

So it seems we are stuck with a valueless and deterministic economic model based on a valueless and deterministic physics; we cannot change the physics and we cannot change the economics. But the same science that ultimately led to this economic catastrophe can save it. Not under the guise of classical physics but under the new paradigm of modern physics – inaugurated by Einstein, Schrödinger and many others. Although it is still relatively young, modern physics has shown us that the world is not structured the way Newton and his contemporaries thought. Rather, it is indeterministic, random, relative, holistic, subjective and uncertain. It has shown us that humans are not merely observers but also participators. Built into the very fabric of the world is a small space for us to help shape it. Modern physics has done something classical physics missed: made room for human values. The old neoclassical economists need to catch up with our current physical worldview. One avenue they might take is to revise the orginal assumptions of neoclassical economics to coincide with the implications of modern physics.

The neoclassical economic zeitgeist has turned out to be a catastrophe. Rampant consumerism, the ever-widening gap between rich and poor, demoralization, depersonalization and environmental neglect are just a few of the problems of modern capitalism. Given this state of affairs, we must ask these critical questions: How did it get to be this way? What can we do to escape or amend these problems? The deep-seated answer to these questions lies in the foundations of physics.

In his book Small is Beautiful: Economics as if People Mattered, the late economist E.F. Shumacher addressed the fact that the current economic paradigm functions not only without incorporating the sustainability of the natural environment but also without recognition of the very people it so clearly depends on. Now that people matter again in physics, and since economics endeavors to be modeled after physics, we ought to matter again in economics as well.

Michael Mannino has his masters in philosophy and recently began his career as a college professor, teaching philosophy and critical thinking. He welcomes your feedback: write him at mannino49@hotmail.com.

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Confessions of a Radical Prof

I teach students to repudiate the false god of money and the prevailing economic religion of the market.

Confessions of a Radical Prof

Wellesley hired me in 1978 as the college’s first and only radical economist. I was hired in response to student pressure: while doing their junior year studies abroad, students had been exposed to theories other than mainstream American neoclassical economics and they wanted these views represented at school. The department posted a job for someone to teach what they called “competing paradigms of economics.” I was a PhD candidate in economics at Yale, where I studied with David Levine (Yale’s one Marxist economist … he didn’t get tenure). I applied and was hired.

All Wellesley economics faculty were required to teach two of the required “core” courses. I was assigned to introductory and intermediate microeconomics and given the mainstream textbook, but I refused to teach mainstream economics straight. Instead, I presented the material in the textbook, critiqued it and taught the outlines of the alternative, radical view. I remember feeling that by criticizing the economics bible I was engaging in a deeply subversive activity. I used to imagine that a huge arm would reach into the classroom, pick me up and carry me off. Luckily nothing of the sort happened. Instead, based on my popularity with students and the success of my first book, An Economic History of Women in America, I received a permanent, tenured position.

Once tenured, I could relax a bit and take more risks with my teaching. I began to realize that my critiques of mainstream economic theory and advanced capitalist economy seemed to be backfiring. From the very first time I presented the supply and demand framework to my intro econ students, for example, I pointed out that supply and demand curves only determine prices in perfectly competitive markets … which don’t exist. I considered this key to my students’ education, especially since mainstream economists apply the framework inappropriately so often, yet many of them continued to forget this key fact on their tests.

Once tenured, I could relax a bit and take more risks with my teaching.

Teaching about market equilibrium, a situation in which there is neither shortage nor surplus of a product, presented another particularly bothersome failure. I always took care to explore the fact that equilibrium – where the supply and demand curves cross, and quantity supplied equals quantity demanded – does not mean that everyone is happy, or that basic needs are met. Many people could, in fact, be starving because they are too poor to be able to “demand” what they need. Even when no lines or shortages exist, people can still be dying from starvation. Despite my lessons, many of my students were unable to point out the falseness of the statement “everybody is happy in equilibrium” on their tests. They left my class accepting the free market/neoliberal line that government policies which intervene in markets – such as minimum wages or rent control – are inherently bad because they prevent markets from getting to equilibrium. I wanted to pull my hair out. It seemed the more I critiqued mainstream economics, the more I strengthened its hold on most of my students.

At first I tried to heighten my criticism of mainstream economic theory, and to begin it earlier in the course. I would criticize supply and demand curves and marginal utility curves before I even drew them. As I taught the theories, I would interlace critique in virtually every sentence. This approach, however, frustrated my students: why was I teaching it to them if it was wrong? How could they learn the material if I didn’t present it to them completely before attacking it? While some of my students – usually those who were radical themselves – understood and appreciated my criticism, many of them found it confusing, alienating and discouraging.

A similar problem emerged with my radical critique of advanced capitalism. My classes on radical economics presented the neo-Marxist view that large corporations dominated the economic landscape: oppressing workers, brainwashing consumers through advertising to keep them enslaved by the work/spend cycle and manipulating the government to do their bidding through campaign financing and bribes. I juxtaposed this view with that of our mainstream text, which obscured corporate power by focusing on small, helpless firms controlled by sovereign consumers who – when market failures made it necessary – use their votes to get the government to intervene on their behalf. I was amused – and dismayed – to find that many of my students’ exams showed they actually thought I had been teaching them about two different countries!

The students who believed in the radical view were also convinced that large corporations were so powerful that nothing could be done about them.

Even as I adjusted my teaching to make sure my students understood that these were two views of the US economy, however, I realized another problem. The students who believed in the radical view were also convinced that large corporations were so powerful that nothing could be done about them. Instead of inspiring my students to radical activism, I had taught them to be cynical and resigned about the prevailing economic dysfunction and injustice. If they couldn’t do anything about it, they figured, why not at least get rich by becoming an investment banker?

Then I learned about the spiritual principle of non-reaction. When you react to someone, you are letting him determine your behavior rather than choosing it yourself. My teaching was largely reactive: by centering on a critique of the text I was continually “reacting” to the book rather than achieving my goal of demolishing mainstream economics – in my students’ heads and in the world. My radical critiques of large corporations were also a reaction, and only emphasized corporate power to such a degree that it made my students feel helpless.

I began to evolve a new way of teaching that focuses less on mainstream economic theory and powerful, profit-motivated corporations. Now we begin the term identifying both pressing economic problems and the global warming crisis. I point out the problems associated with consumers, workers and firms acting in self-interested and materialistic ways. I present, discuss and give examples of the emerging “solidarity economy,” which is based on socially responsible or “high road” economic values, practices and institutions: ethical consumption, fair trade, socially responsible corporations. This puts materialistic competitive consumerism and traditional profit-motivated corporations on the defensive. From this point of view one wonders why anyone ever believed that a solely profit-motivated corporation, dedicated to serving its owners (the stockholders), would be able to do right by its other stakeholders: consumers, workers, suppliers, government and the environment. Or why anyone would imagine that buying more and more material things would bring true fulfillment.

One of my most successful assignments this term was based on the PBS documentary Affluenza and Me, which analyzes contemporary consumer culture in the us as an illness. The symptoms of this “affluenza” are overwork, time shortage, debt, breakdown of family relationships, ecological destruction, etc. We also read and discussed an excerpt from P.A. Payutto’s book Buddhist Economics, which presents enlightened consumption as building well-being through resistance to advertising and cravings, knowledge of one’s true needs and service to the whole.

I no longer teach the core aspects of mainstream microeconomics as some superpower theory. I now present microeconomics as a theory that understands some aspects of the economy but misses others. It’s a theory whose models can only be used if their limitations are acknowledged, and if they are supplemented by other concepts and understandings. The supply and demand curve framework, for example, can be very helpful in elucidating problems in contemporary labor markets – such as below-subsistence level wages caused by an excess of labor.

I no longer teach my student about corporate power as an overpowering monolithic force but as something which has to be continually constructed through the collaboration of consumers, workers, managers, government officials and laws. I show them that it is something that needs to be radically reconstructed through socially responsible behavior.

I teach my students how to make their microeconomic decisions – as consumers, workers, entrepreneurs, parents and citizens – in ways that create well-being for themselves and their loved ones. I teach them how to use their economic power to express and actualize their deepest values – to repudiate the false god of money and the prevailing economic religion of the market. I teach them that enlightened self-interest involves behaving in a socially responsible manner, since we all depend on each other … and on the whole. We all have to do our part to save both the planet and ourselves – there is plenty that we can do by aligning our economic decisions with our true values.

Julie Matthaei is an economics professor at Wellesley College and a cofounder and board member of the US Solidarity Economy Network (www.ussen.org). She coedited Solidarity Economy: Building Alternatives for People and Planet, available at lulu.com/changemaker.

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Post- Pythagorean Economics

Moving from cold, hard to fuzzy, nonlinear logic.

Post- Pythagorean Economics

Daniel Canogar – Enredos 3, 2008

Adbusters #88: Thought Control in Economics Cover

THE CREATIVE DESTRUCTION OF NEOCLASSICAL ECONOMICS

Deep in a recession and with scary ecological scenarios looming, now may be the ripest moment we’ll ever have to power-shift global capitalism onto a new path. Adbusters #85 asks economics students around the world to join the fight to revamp Econ 101 curriculums and challenge the endemic myopia of their tenured neoclassical profs. Go to KICKITOVER.ORG, read a few texts, download the Kick it Over Manifesto (and other posters) and whack them up in the corridors of your campus. Make sure your university is at the forefront of the paradigm shift from neoclassical to ecological economics now underway. If you’re an economics student, email kevin@adbusters.org to receive a half price copy of Adbusters #85.


Pythagoras was born around 570 BC. He spent his youth traveling to Egypt, Syria and Babylon, where he immersed himself in the mystical teachings of the East. At the age of about 40, he established his own quasi-religious cult in Crotona, southern Italy. His teachings attracted hundreds of followers, some of whom suffered severe privations – including a five-year vow of silence – to become a part of his inner circle, known as the mathematikoi.

The cult’s philosophy was based on reason and number. To the Pythagoreans, number was all. Each number had a special, almost magical meaning. The monad, unity, represented the original unity from which the universe was created, and was associated with divine intelligence. The dyad, two, represented the division of this unity into duality. (The even numbers, which contained the number two, were therefore seen as representing weakness and mutability.) Three represented all things with a beginning, middle and end. Four represented completion – like the four seasons.

The most perfect number was the decad, ten. The sum of one, two, three and four, it represented the totality of forces that make up the universe. In reference to the decad, the Pythagoreans compiled a list of ten opposing principles, which divided phenomena into two classes:

good  • evil
limited  • unlimited
odd  • even
one  • plurality
right  • left
male  • female
at rest  • in motion
straight  • crooked
light  • darkness
square  • oblong

By aligning themselves with the qualities in the first column, the Pythagoreans believed they could achieve purity and become closer to the gods.

The reasons why they chose these ten pairs has puzzled scholars from Aristotle on, but some can be guessed at. In Pythagoras’s philosophy, for example, the universe consisted of two components: the Limited, which signified order, and the Unlimited, which represented chaos and plurality. The former was associated with the monad and odd numbers, the latter with the dyad and even numbers. Pythagoras’s biographer, Iamblichus, wrote: “The right hand he called the principle of the odd number, and is divine, but the left hand is the symbol of the even number and of that which is dissolved.” The right hand is controlled by the left side of the brain, which we now associate with linear, logical reasoning of the sort championed by the Pythagoreans. This preference for the right hand has passed on through language – the word “sinister” comes from the Latin sinestra, meaning left.

So what does all this ancient, mystical stuff have to do with the hard, cold logic of neoclassical economics – which views humanity as a mere aggregate of rational, self-interested actors? The model for economists has long been Newtonian, mechanistic physics, which, in turn, is explicitly based on Pythagorean thought. So this list of pairs is like two complementary strands of the dna of economics. Consider that neoclassical economics:

* is based on the idea of scarcity and emphasizes limited resources like oil at the expense of unlimited resources like wind;

* rejects uncertainty and duality (symbolized to the Pythagoreans by evenness);

* is based on the primacy of the individual (one) over society (plurality);

* values right-handed logic, ignoring emotion and left-handed thought;

* is based on a male paradigm that undervalues things like childcare;

* sees the economy as a static system, maintained at rest by the invisible hand of capitalism;

* uses a simplistic, linear (straight) approach to model complex, nonlinear (crooked) phenomena;

* attempts to shine the light of reason and observation over the economy, rejecting the indeterminacy (darkness) of human systems;

* reduces complex and often strongly biased social and political systems to the simple symmetry (squareness) of mathematics.

Neoclassical economists are Pythagoreans. They still think that number is all. And they are still trying to find good and attain Utopia by aligning themselves with the first column of this ancient list.

Since the 1960s, a number of new sciences have emerged that directly challenge the Pythagorean paradigm. Fuzzy logic, fractals, network theory and nonlinear dynamics deal with systems that are indeterminate, crooked, plural and in motion. Feminists and ecologists have also pointed out the defects in the neoclassical system. As economists incorporate these voices and developments, we will come nearer to an economics that is not just post-autistic, but post-Pythagorean.

David Orrell is a mathematician and author whose work has appeared in New Scientist, the Financial Times, BBC Radio and CBC TV. He is the author of Apollo’s Arrow: The Science of Prediction and the Future of Everything and The Other Side of the Coin: The Emerging Vision of Economics and Our Place in the World.

——————————————————————

When the Going Gets Tough

Economists go very quiet.

Economists Go Very Quiet

Yasutaka Kojima

They’re happy to take the credit in the good times, but the disciples of this false science are hard to find in a recession.

So the Footsie has tumbled again. Forgive me for asking, but where are the economists? As the nation is mired in a recession, an entire profession seems to have vanished over the horizon – like conmen stuffed with cash – leaving thousands destitute. They said recessions were over. They told politicians to leave things to them and all would be fine. Yet they failed to spot the subprime housing crash … and now look at the mess.

When I studied economics we were told we would be masters of the universe. Our noble science had harnessed the verities of math to those of human behavior and would go on to conquer politics. Rampant recession would go the way of hyperinflation. Like leprosy and cholera, they were epidemics that modern science had rid from our shores.

It did not matter if the economists were welfare Keynesians such as Myrdal, Robinson and Galbraith or free-marketeers such as Marshall and Friedman. All were “social scientists.” They claimed to have cracked the dna of economic exchange – to have turned the base metal of money into political gold. We believed them. We believed the Keynesians until we slumped into stagflation. We believed that light-regulation capitalists such as Margaret Thatcher and Gordon Brown could convert boom-bust into an upward sloping plane of glory. We believed the Bank of England when it said that, in its hands, inflation was dead and prosperity eternal. It was bliss to be alive – and an economist.

If Britain were now in the grip of bubonic plague, there would be all hell to pay from some profession or other.

If Britain were now in the grip of bubonic plague, there would be all hell to pay from some profession or other. An “influential” committee would be summoning the chief medical officer and subjecting him to the third degree. Why no national rat strategy? Why no crash inoculation?

The espionage pundits were likewise castigated for wrongly leading the nation to war against Iraq, for giving dud professional assessments on fallacious intelligence. The architectural profession has taken the rap (very occasionally) for the grotesque failures of public housing in the 1970s. Climate scientists may yet be damned for the costly lunacy of new energy sources, such as wind turbines and biofuels.

Yet economics is a Teflon profession. A quarter of a century ago, 364 practitioners wrote a letter denouncing the policies of the then Thatcher government as having “no basis in economic theory.” They were wrong in fact and wrong in judgment. Thatcher’s policies laid the groundwork for a strategic shift in the underpinning of British prosperity. There was no inquiry, no hearing, no peep of retraction or remorse. Since then economists have flooded into government; there were roughly a thousand at the last count. What do they all do? Despite reports of demoralization in the Treasury, that department remains the home base for public sector management through financial aggregates. During the Blair/Brown era it has held government in thrall.

Economic managers have always claimed credit for the success of Brown’s Treasury regime. They have espoused quantifiable outputs, targets and delivery indicators. They invented the celebrity consultant and the maxim that only what is measured matters. Above all, the economics profession (and its house journal, the Economist) was ecstatic when Brown delegated monetary control to the Bank of England. This was supposed to isolate the economy from political pressure, subcontracting the regulation of interest rates and markets.

Today we are older and wiser. Controlling the agencies of credit has proved beyond the finest professional minds in the game. Where now are the effortless pundits of the Treasury and the Bank of England? Where now the gilded ones of Moody’s and Standard & Poor’s, credit raters to the mightiest in the land?

When the shit hits the fan, economists always blame politicians.

Alan Greenspan, former chief of the us Federal Reserve Board and a Brown adviser, is unrepentant. He recently declared that “anticipating the next financial malfunction … has not proved feasible.” There is nothing so unseeing as a wronged economist.

When the shit hits the fan, economists always blame politicians. They would have some justice if they did not take credit when things go right. I was always uncomfortable at the overselling of economics as a science, when it is rather a branch of psychology, a study of the peculiarities of human nature. Its spurious objectivity, manifest in its ridiculous love affair with math, induced a “Jupiter complex,” a conviction that scientific certainty, applied with enough rigor to any problem, triumphs over all.

Economic management is and always will be about politics, about the clash of needs and demands resolved through the constitutional process. The delegation of interest rates to the Bank of England worked when it ran in parallel with politics, but not anymore. Now that reflation seems urgent for recovery, the system is biased against common sense, yet no politician dare tell the Bank to cut rates and risk inflation.

The newest craze is “nudge” economics, from Americans Richard Thaler and Cass Sunstein. They put the subject firmly among the behavioral sciences – if not the arts. Human actions are too mysterious and unpredictable to be liable to quantification and modeling. They are responsive to what the academic Paul Ormerod called “butterfly economics.” Nudge steers, but does not order or plan.

This requires knowledge of the working of markets, incentives, expectations and panics. But converting microeconomics into macro has always been a dangerous game. Much has been made of the success of Spain’s dirigiste banking regulators in putting security before runaway profit. But this was a triumph of politics over economics. Greenspan may laconically remark that “we can never have a perfect model of risk,” but we can have alertness to risk and we can have caution.

Economics has long traded on being a science when it is not. For a third of a century since the 1976 IMF crisis, it has enjoyed great influence over British policy. Now it has met its Waterloo and a little humility would be in order. Once again economics must be rescued by that true master of all things: politics.

Simon Jenkins, “When the Going Gets Tough, Economists Go Very Quiet,” Real-World Economics Review, no. 47. This article first appeared in the Guardian, guardian.co.uk.

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