The image reproduced from the paper "Cheating nature?"by Economist
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May the source be with you, but remember the KISS principle ;-)
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The image reproduced from the paper "Cheating
nature?"by Economist
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It's not easy to write about pseudo science. The problem has to do with the fluid nature of the concept. It has no single, precise meaning and there is little agreement about its constituent elements. It involved subjugation of scientific aims to political goals and deliberate attempt in deception and subsequent cover up. But recently almost all science became political and all politics involved deception: to say that a politic is not lying is the same as to say that an alcoholic is not drinking. Still there are different degrees of lies with Lysenkoism probably representing one of the most extreme cases when obvious lie is supported by repressive apparatus of state. What we saw it as a tragedy in Stalin's Russia genetics, we now see it as a farce in USA economics.
One of the most dangerous feature of deception schemes use by pseudoscience is Faustian bargain when one trades the independence for political influence, the power grab. And despite popular image of scientists they proved to be as corruptible if not more corruptible as anybody else. Historically the scientific community is generally held together and all its affairs are peacefully managed through its joint acceptance of the same fundamental scientific beliefs. Science is best practiced in a voluntary, peaceful and free atmosphere. What really matters as far as politics and science is concerned is what type of environment the individual scientists have to work in and what degree of freedom they can enjoy. But that changed irrevocably since early XX contrary. In this sense one can say that Lysenkoism represented natural side effect of shrinking of freedom of the scientific community.
As by Frederick Seitz noted in his The Present Danger To Science and Society
Everyone knows that the scientific community faces financial problems at the present time. If that were its only problem, some form of restructuring and allocation of funds, perhaps along lines well tested in Europe and modified in characteristic American ways, might provide solutions that would lead to stability and balance well into the next century. Unfortunately, the situation is more complex, made so by the fact that the scientific establishment has become the object of controversy from both outside and inside its special domain. The most important aspects of the controversy are of a new kind and direct attention away from matters that are sufficiently urgent to be the focus of a great deal of the community's attention.
The assaults on science from the outside arise from such movements as the ugly form of "political correctness" that has taken root in important portions of our academic community. There are to be found, in addition, certain tendencies toward a home-grown variant of the anti-intellectual Lysenkoism that afflicted science in the Stalinist Soviet Union. So-called fraud cases are being dealt with in new, bureaucratic ways that cut across the traditional methods of arriving at truth in science. From inside the scientific community, meanwhile, there are challenges that go far beyond those that arise from the intense competition for the limited funds that are available to nourish the country's scientific endeavor.
The critical issue of arriving at a balanced approach to funding for science is being subordinated to issues made to seem urgent by unhealthy alliances of scientists and bureaucrats. Science and the integrity of its practitioners are under attack and, increasingly, legislators and bureaucrats shape the decisions that determine which paths scientific research should take. There is, in addition, a sinister tendency, especially in environmental affairs, toward considering the undertaking of expensive projects that are proposed by some scientists to remedy worst-case formulations of problems before the radical and expensive remedies are proven to be needed. They are viewed seriously though they are based on the advice of opportunistic alarmists in science who leap ahead of what is learned from solid research to encourage support for the expensive remedies they perceive to be necessary. The potential for very great damage to science and society is real.
Of course, the rise of 'Lysenkoism' in the Soviet Union in the late 40th of the twentieth century is one of the most tragic pages of the history of science. Trofim Lysenko, a Soviet agronomist, came to prominence as the proponent of a theory of heredity that stood in direct opposition to Mendelianism. The details of this theory need not concern us, except to note that it was 'Larmarckist' in its contention that it is possible for organisms to inherit acquired characteristics. This was wrong and the principles of Mendelianism - the theory of heredity - were well understood by then. But Lysenko theory fitted nicely with the Soviet ideology. Particularly, the idea that acquired characteristics could be inherited held out the promise of the perfectibility of mankind which as strange as it may sound was the necessary precondition to irreversible victory of socialism/communism (later when nationalistic forces tore apart the USSR it became clear that such hopes are completely misplaced).
So the Stalinist state intervened in the pre-exiting scientific struggle by declaring the victor and the consequences, certainly for many of the scientists involved and arguably also for the USSR agriculture, were disastrous. The essence of Lysenkoism is that pseudo-scientific theory became a pseudo-religious cult and the power of state was used to suppress dissidents. Many scientists were exiled; some killed. Unfortunately we cannot dismiss the obviously pernicious use of ideology by Lysenko and his supporters simply as an aberration of the era that is often brushed aside as 'the cult of personality' (with or without naming the personality in question). This proved to be much more dangerous and at the same time remarkably resilient phenomenon that survived the dissolution of the USSR. Actually the situation repeated with the USA economics when anything that was not neo-classic was suppressed was by-and-large similar although this time this time it happened without any killings.
Do not fool yourself that Lysenkoism is irrevocably connected with communist ideology. The link was poorly accidental. In reality Lysenkoism emerged more like a cult which was extremely convenient for the control freaks in high position in government. It's not a secret that a lot of high-level administrators in academic institutions belong to the category of micromanagers and as such they are naturally predisposed to Lysenkoism.
In general "Lysenkovisation of science" occurs when the state tries to control both the methodologies and goals of scientific activity and that happens all over the world, although to different degree.
In the USSR huge bureaucratic institutions such as VASKhNIL and VIEM had been set up with the specific goal to control resources and, especially, scientific press. Part of the reason that Lysenkoism gained official support in the Soviet Union was because the Mendelian approach to genetics contradicted official ideology, in particular, Engels's dialectical materialism. In early 50th, just before his death Stalin began to sense that Lysenkoism can hinder practical science by interfering with the academic atmosphere of toleration of dissent most conducive to scientific accomplishment. He even went as far as to declare that
“no science can develop and proper without the clash of opinions, without freedom of criticism.”
But it was too late...
Other governments are also far from being immune from this kind of tendency to select between scientific theories on the basis of ideology rather than the balance of evidence.
More benign variant of Lysenkoism that does not rely on the power of the state is usually called Cargo Cult Science. Another related term is "Mayberry Machiavellis". A long time ago -- well, actually it was just a year, but it seems like a lot longer than that -- a former Bush advisor John DiIulio got into quite a bit of trouble for revealing to Esquire that the White House did not possess, in any conventional definition of the term, a policy-making process:
...on social policy and related issues, the lack of even basic policy knowledge, and the only casual interest in knowing more, was somewhat breathtaking—discussions by fairly senior people who meant Medicaid but were talking Medicare; near-instant shifts from discussing any actual policy pros and cons to discussing political communications, media strategy, et cetera. Even quite junior staff would sometimes hear quite senior staff pooh-pooh any need to dig deeper for pertinent information on a given issue...
This gave rise to what you might call Mayberry Machiavellis—staff, senior and junior, who consistently talked and acted as if the height of political sophistication consisted in reducing every issue to its simplest, black-and-white terms for public consumption, then steering legislative initiatives or policy proposals as far right as possible.
Dan Gardner - Senior Writer for The Ottawa Citizen writes: "Cabinet meetings were scripted, Mr. O'Neill discovered, by White House staffers who sent advance notes to cabinet secretaries telling them when they were 'supposed to speak, about what, and for how long.'" Is this the shadow of Politburo or what?
There are also strong analogies between Reaganomics and Lysenkoism. Useful discussion is at "The Financial Crisis and the Systemic Failure of Academic Economics"
The Financial Crisis and the Systemic Failure of Academic Economics, by David Colander, Hans Föllmer, Armin Haas, Michael Goldberg, Katarina Juselius, Alan Kirman, and Thomas Lux: [From the conclusion] ..."We believe that economics has been trapped in a sub-optimal equilibrium in which much of its research efforts are not directed towards the most prevalent needs of society. Paradoxically self-reinforcing feedback effects within the profession may have led to the dominance of a paradigm that has no solid methodological basis and whose empirical performance is, to say the least, modest. Defining away the most prevalent economic problems of modern economies and failing to communicate the limitations and assumptions of its popular models, the economics profession bears some responsibility for the current crisis. It has failed in its duty to society to provide as much insight as possible into the workings of the economy and in providing warnings about the tools it created. It has also been reluctant to emphasize the limitations of its analysis. We believe that the failure to even envisage the current problems of the worldwide financial system and the inability of standard macro and finance models to provide any insight into ongoing events make a strong case for a major reorientation in these areas and a reconsideration of their basic premises."
While at the surface it looks like rent-seeking behavior of dishonest economists the analogy is pretty strong. A broad critique of Neoclassical economics has been put forward in the book Debunking Economics by Steve Keen See, for example:
Dr. Nikolai Bezroukov
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If history repeats itself...how incapable must Man be of learning from experience George Bernard Shaw |
The federal Office of Science and Technology Policy is taking comments on its draft principles of scientific integrity. Here's what I wrote:UPDATE: The rules for biomedical researchers may be tightening. Why can't we do this for economists?I am writing to offer a comment on scientific integrity. As we know, it is important that those whose work is used to provide a scientific basis for policy decisions reveal the sources of their funding so as to avoid conflicts of interest or undisclosed potential bias. This stipulation has made gradual progress in the medical sciences in particular -- something for which we should all be grateful. Unfortunately, in my own field of economics no one makes or enforces such a rule. Economic analysis often plays a central role in decision-making, and economists are often funded by interested parties, but disclosure is nonexistent. It is unlikely that the economics profession will take the lead in remedying this situation, so we have to look to our clients. If OSTP would take a clear stand on this matter it would improve the credibility of analysis entering the regulatory process and would also have a salutary effect on the profession itself.
Following in the tradition solidified by Samuelson (1947) during the second half of the twentieth century, there have been two trends amongst neoclassical economic theorists. The first is that neoclassical economists increasingly devise compelling, mathematically elegant hypotheses with little interest in their policy implications. The second is their reluctance to engage in conversation with alternative paradigmatic schools (eg. feminists, Marxists, Institutionalists or Post-Keynesians). In doing so they have become, as Samuels recently noted in this Journal, "anti-intellectual, believing that economics is only, or primarily, a set of techniques" (Samuels 1996: 308). Their lack of concern about being unaware of what it is that they don't know, is what I identify as ignorance-squared.
In January 1996, a group of "heterodox economists" made a presentation to the publishing Committee of the American Economics Association responsible for the American Economic Review, Journal of Economic Literature, and the Journal of Economic Perspectives. Anne Mayhew, editor of the Journal of Economic Issues, speaking before the Committee, argued that not one of the publications of the Association conform to the model of scientific inquiry to which the profession pledges allegiance. She cogently argued that a small group of economists have "captured" these journals to promote mathematical complexity at the expense of issues, which incorporate "history, institutions and power". Further, the prestige of the Association and the journals is used "to narrow the discipline, to reward the excessive technical training of the prestigious graduate schools, and to stifle the advance of heterodox approaches to economics". Finally, she noted the curious state of affairs that whereas most economists do not read the American Economic Review, most want to publish an article there in order to advance their careers! (Mayhew 1996)
Clive and Cara Beed have also shown how "quality journals" (predominantly neoclassical) are being used to set standards for both recruitment and promotion (Beed and Beed 1996). It is becoming commonplace for journals to be hierarchically ranked, using a range of diverse standards for policy purposes in the academic industry. The implication is that it is no longer sufficient for academics to publish their ideas; rather it is now necessary to publish in journals that, as Mayhew asserts, they most likely don’t read. Beed and Beed argue that it is not pedagogically sound to rank journals since ranking reveals little more than the mainstream's view of itself. More strongly, they, and others, suggest that, an interpretive, hermeneutic view would be that it is contradictory to imagine that the ideas of social science can be evaluated in any objective quality sense at all (Bohman 1991).
In what follows, the content and causes of Mayhew's and the Beeds’ articulated frustration is pursued. Recent literature on the production of knowledge and ignorance-squared is discussed and then used to investigate neoclassical economic knowledge. Subsequently, it is argued that it is fruitless to appeal to neoclassical theorists to become more methodologically pluralist or to enhance their rhetoric. It is concluded that, although a number of causes exist for the intellectual narrowing of the discipline, a fundamental answer to the query "why is this the case?" may be found in Gramsci's notion of ideological hegemony.
Ignorance-Squared
"The more I study economics the smaller appears the knowledge I have of it... and now at the end of half a century, I am conscious of more ignorance of it than I was at the beginning." (Alfred Marshall, quoted in Schumpeter, 1941: 248)
The usual methodological question in economics is, "how can one tell whether a particular bit of economics is good science?" (Hausman 1989:115). Herein is pursued a somewhat different sociological question which is not how to come to know what one doesn't know, the form of ignorance acknowledged by Marshall in the quote above; but why it is the case that neoclassical economists don't want to be aware of what it is that they don't know, which is subsequently defined as ignorance-squared.
"Ignorance", is discussed herein as the antonym of knowledge, ie. lacking knowledge or information as to a particular subject or fact. The term is not meant in a derogatory manner, but rather, is normally ascertained as the starting point in the quest for knowledge. As reflected in recent literature on ignorance-squared "(T)he greatest achievement of science… is the discovery that we are profoundly ignorant; we know very little about nature and understand even less" (Kerwin 1993: 174). Economic theories provide a formal expression of our perception of reality and all knowledge is produced through social interaction (Berger and Luckmann 1967; Bloor 1976). Ignorance does not imply merely a lack of knowledge, but also the possibility that its antonym is being produced. To supplement this assertion, it is argued that neoclassical economists, as traditional intellectuals, cultivate the social production of ignorance in the struggle for ideas. This is done through narrow pedagogy, delineation of research parameters, and by constraining the production and presentation of non-neoclassical knowledge.
Training in textbook economics and economic research systematically fosters ignorance-squared, in that students and researchers are shielded from any acquaintance with problems outside the domain of successful puzzle solving. The curriculum is always crowded with the positive heuristic of neoclassical economics; there is always too much to teach. There is never time for reflection, for perspective, for the cultivation of awareness, and most importantly, for the presentation of other contentious viewpoints, much less for the knowledge produced outside the disciplinary boundaries. When neoclassical economists restrict their own discourse, as well as their students’ ability to engage with others of the same, or related specialties, then "ignorance-squared", in the manner put forward by Ravetz (1993) is enhanced.
In neoclassical economic terms, the marginal cost of the search for particular knowledge increases, and can be prohibitively high (Wible 1995: 303). But what is not clarified by neoclassical economics is that in any social formation the allocation of resources to the production of knowledge will be determined, as are other resource allocations, through struggle, and in that struggle, both knowledge and ignorance are produced dialectically. Therefore, dominant and subordinate positions are reflected by the various paradigms within the discipline, ideologically and politically.
We are all ignorant in a variety of ways, to various degrees, with respect to specific issues, problems and questions. In fact, it is the increasing awareness of our ignorance of what there remains to know that is most special about the learning process. A taxonomy of ignorance provided by Smithson (1989:9; and 1993:135) suggests a variety of forms:
- All the things of which people are aware they do not know (the most recognised form of ignorance);
- All the things people think they know but do not (ignorance based on error);
- All the things of which people are not aware that, in fact, they do know (intuition);
- All the things people are not supposed to know but could find helpful (taboo);
- All the things too painful to know (psychological suppression of memory); and
- All the things, of which people are not aware that they do not know (ignorance-squared).
Of particular interest is the latter (ignorance-squared). There is nothing necessarily negative about the fact that we proceed through life unaware of most of what there is to know. What is argued however, is that neoclassical economists promote ignorance-squared. So as not to suggest this promotion is solely limited to economists, the reader is referred to an analogous process for physical science, as discussed by Olwell (1996). There are many obvious reasons why this process exists, some of which are intuitive. Although a query as to "why this is the case is notoriously slippery in that it reflects an appeal for simplistic reductionism, an explanatory form of reductionism can offer a prioritised list of causal explanations.
To illustrate, there are numerous reasons for promoting ignorance-squared. Given the search costs combined with specialisation, there is only so much time to devote to methodological issues. Therefore, the dominant paradigm will draw the attention of most scholars. Moreover, the more a system (of thought) is entrenched, and the longer the time it has been operating, the more difficult and expensive it becomes to change that system (Collingridge 1980). Likewise, the more a person has invested in the training required to be admitted to the neoclassical coterie, the more it is in that person's interest to prevent the depreciation of knowledge threatened by alternative modes of discourse. Another reason may be the appeal of elegant mathematically constructed neoclassical axioms. For instance, Einstein's theory of relativity became the standard textbook theory of gravitation in the 1920s. Yet, it wasn't until the 1950s that radar and radio astronomy became sophisticated enough to generate and test the theory via precise predictions with experimental uncertainties less than one percent. The general acceptance of the theory in the intervening 30 years had been largely attributed to its beauty (Weinberg 1992: 98), similar to the dominance of general equilibrium theory in economics in the second half of the twentieth century. Given the conceptual apparatus of ignorance-squared, let us now examine the production of economic knowledge that incorporates simultaneously, the production of ignorance.
Economic Knowledge
"The aim of scientific discourse is profoundly argumentative and not merely expository; [that] the goal is to persuade readers, to convince them of the validity and importance of the work, and to motivate them to acknowledge the force of the contribution by explicitly accepting and building upon it" (Charney 1993:204)
Neoclassical economists normally treat economic instability as the effect of exogenous, stochastic factors even though nonlinear economics suggests that what may previously have been considered exogenous, or random, may more likely be endogenous to capitalist social formations. As such, economic fluctuations are seen as created by the processes of capitalism itself (Baumol and Benhabib 1989; Savit 1988). This is certainly not a new idea. Marx, Keynes, Hicks, Harrod, Kaldor and Hayek all considered causes for instability which were endogenous (Zarnowitz 1985). And in most of these cases the instability was created by a nonlinear feedback process such as the Keynesian "formation of expectations" (Gans 1991:42). Generally speaking, a nonlinear system must be understood in its totality, which means taking into account a variety of constraints, boundary conditions and initial conditions. These supplementary aspects of the problem must be included in the study of linear systems, too; but (in neoclassical economics) they enter in a rather trivially assumed and incidental way (Davies and Gribbin 1992: 25 and 40).
Examination of empirically defined problems, such as unemployment or inflation, also reflects irreconcilable differences in the frameworks or worldviews with which these problems are analysed. Those who believe that the free market is inherently stable and coordinated, with instability the result of exogenous shocks, largely fall into the neoclassical camp. Those who see endogenous factors, such as uncertainty or exploitation at work promoting instability, will normally be those working in a tributary rather than the mainstream (Brown 1981:457-58). With reference to instability, the crucial issue at odds between the groups is that of equilibrium or the tendency thereto.
Equilibrium theory itself has a number of integral constituents which, while not exclusive, include rationality, consumer and producer optimisation, malleable capital, decreasing returns, and constant returns to scale, all of which propound the pre-eminence of the tendency to equilibrium in capitalist goods, factor and money markets.
The 'rational' consumer of the mainstream economist is a working assumption that was meant to free economists from dependence on psychology (Simon 1976:131; Tversky and Kahneman 1987). The dilemma is that the assumption of rationality as intertemporally optimising is often confused with, and regularly presented as, real, purposive behaviour. In fact, the living consumer in historical time routinely makes decisions in undefined contexts. They muddle through, they adapt, they copy, they try what worked in the past, they gamble, they take uncalculated risks, they engage in costly altruistic activities, and regularly make unpredictable, even unexplainable, decisions (Sandven 1995).
One of the favourite diagrams of producer optimisation in the neoclassical text is the isoquant, showing a given output produced by different combinations of capital and labour. Different points on the isoquant represent different techniques of production, with differing capital-labour ratios. This continues to be presented to students even though neoclassical economics have themselves admitted that there is no possible way to measure aggregate capital independent of distribution, (Harcourt 1975:5-9; Robinson 1987), that much production takes place with fixed factor ratios, and that what are most often lumpy decisions are not reversible in practice (Robinson 1980:220).
The inscription of supply and demand into mathematical equations is generated by the assumption of "diminishing returns". It is becoming more evident that it is "increasing returns" which will better help us "to understand the messiness, the upheaval, and the spontaneous self-organisation of the world" (Waldrop 1992:18, 35; Arthur, 1990). The concept of increasing returns is not new in itself (Arrow 1962; Helpman 1984; Kaldor 1981 and Young 1969). What is new is that Arthur, following Kaldor’s example, places the concept within the context of nonlinearty, instability and disequilibrium. In his work Arthur divides up the profession into two world views, the neoclassical and the 'new' economics: neoclassical economics is based on diminishing returns; 19th century deterministic dynamics approaching equilibrium; homogeneous factors; no externalities; and is structurally simplistic around the concepts of supply and demand. Alternatively, 'new' economics introduces increasing returns; is evolutionary; focuses on heterogeneity and externalities; and is structurally complex and ever changing (Waldrop 1992:38; Bak and Chen 1991). Most students graduate, only having come into pedagogical contact with the former worldview.
A few neoclassical theorists have broke part of the mould and are incorporating increasing returns into the analysis of international trade and growth theory (Helpman and Krugman 1985; Krugman 1986; and Romer 1986). However, Romer, for example, makes it evident that he is not straying beyond the boundaries, by designing his analysis as, "…a well-specified competitive equilibrium model of growth. Despite the presence of increasing returns a competitive equilibrium with externalities will exist…and is capable of explaining historical growth in the absence of government intervention" (Romer 1986: 1003-1004). Nowhere does he emphasise that increasing returns also implies a downward sloping supply function and the potential of resulting disequilibrium.
We are left with the pre-eminence of equilibrium economics when the balance of supplies and demands on all spot and futures markets takes place simultaneously, (Hicks 1939; Arrow 1971; and Debreu 1959). In this purely competitive, certain, optimising world of general equilibrium, pure profits are zero. Before students are permitted to achieve this level of sophistication, they must first go through the partial equilibrium components of marginal cost and revenue relationships.
As long ago as the 1930s, a number of economists, Means (1935), Hall and Hitch (1939), then Lester (1946) and Kaplan, Dirlam and Lanzillotti (1958) all cast serious doubt on the general applicability of the conventional equilibrium analysis of price, (Mueller 1992:151). The mainstream methodological counter-proposition was that it was not important that individuals did not consciously maximise. Rather, it was only necessary that they act as if they did (Machlup 1946; Friedman 1953; Kahn 1959).
More recently, Nitzan and Bichler point out (1995 454-455) that modern corporations are not even "acting as if" they equilibrate marginal cost-marginal revenue to maximise profits. Rather, they attempt to "beat the average". References to the "average" or "normal" pervade the business literature - from the analysis of stock performance, through the stacking of country growth rates and risk premia, to the ranking of corporate profitability. In these terms, according to Nitzan and Bichler, the primary goal becomes "differential pecuniary accumulation", through which the corporation seeks to control a "larger share of the societal surplus". Consequently, success has less to do with the intuitively convincing textbook equality between marginal cost and marginal revenue, than with the capture of external contested income, thereby redistributing the available social surplus.
As is evident from the above discussion, "whenever (conventional) economics is used or thought about, equilibrium is a central organising idea" (Hahn 1982). Two fundamental assumptions of the equilibrium model in economics are 'timelessness' and 'certainty' (Kornai 1971:19-23). Neoclassical theory deals largely in logical time, which is a period during which whatever needs to happen, will happen (Henry 1983/84:219). Historical time is assumed away, implying that neoclassical economic theory has universal applicability (Georgescu-Roegen 1971:134-140).
Conterminously, neoclassical theory reduces uncertainty to a logical construct in which rational expectations are put forward in order to conform to the demands of equilibration. In contrast, "expectational" time has been the subject of attention for tributary economic paradigms in which the future is created and is not the function of deterministic assumptions of rationality (Carvalho 1983/84:269). According to Shackle, "(E)xpectational time is an aspect of a decision-maker's effort to choose a course of action in the face of uncertainty about the outcome which would flow from this course or that" (Shackle 1968:67).
One neoclassical defence is to suggest that equilibrium is only a tendency towards which the system is moving. However, Weintraub (1991) reveals the manner whereby econometricians, such as Negishi, maintain that the equilibrium contained in a model is real and intuitively justified. They do this by appealing to the "reality out there…in which it is known that the economy is fairly shock-proof….We know from experience that prices usually do not explode to infinity or contract to zero…" (Negishi 1962:638-639).
Hutchison has insisted that even "(T)he assumption of a tendency towards equilibrium implies…the assumption of a tendency towards perfect expectations, competitive conditions and the disappearance of money" (Hutchison 1938:107). Change, not rest is the characteristic 'state' of capitalism. "The essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process that is in continual disequilibrium. It may seem strange that anyone can fail to see so obvious a fact long ago emphasised by Karl Marx" (Schumpeter 1976:82).
We are left then, as noted in the assertion of Samuels, with mostly irrelevant elegance and techniques. Intricate optimisation techniques and equilibrium conditions are heaped on a small set of assumptions (Mueller 1992:159). A few methodologists, such as Hutchison, Blaug, Friedman, Caldwell and McCloskey, over the years have attempted to broaden the discussion by seeking methodological norms for both applied and theoretical economists. Hutchison and Blaug, in line with Popper's dicta, (Hutchison 1938; Blaug 1980; Popper 1959) advocated the adoption of a 'falsificationist' methodology; Friedman affirmed the benefits to be derived by economists from what has been identified by others as "methodological instrumentalism" (Friedman 1953; Caldwell 1982: 173-178); Caldwell has pushed the gentility of 'pluralism' (Caldwell 1988); and more recently, McCloskey (1986) has asked economists (in a most complicated and discursive manner) to refine their 'rhetoric' (Mäki 1995; McCloskey 1995). Why haven’t neoclassical economists paid much attention?
Economic Method and Social Interests
One might presume that neoclassical economists would most recently have given a sympathetic hearing to McCloskey’s overture for more fruitful exchange in the pursuit of knowledge. On the contrary, to a large degree McCloskey's plea for communicative rhetoric has been ignored, presumably because they have little need or desire to communicate with their heterogeneous disciplinary associates.
This lack of desire to engage in conversation with others is then passed on to the next generation. The motivated tendency to tailor one's opinions in accordance with perceived audience preferences has been long recognised by social psychologists as a feature of the process whereby people, in general, form their judgments (Kruglanski 1991:227). The perceived audience for most graduate students is their neoclassical mentors.
In other words, McCloskey cannot have both meaningful rhetoric and neoclassical economics. If economists are not articulate, then in terms of their own theory, either they are not optimisers and are passing up a profitable opportunity, or something in their preference, endowments or technology makes articulateness unprofitable (Kurdas and Majewski 1994:341). Presuming that economists follow their own optimising logic, then the lack of need for a more pluralist articulation has to do with their control over symbolic representation. It should be remembered that, in ideological conflict, any concession of politeness will contain political concessions as well (Bordieu 1977).
As Mayhew, and Beed and Beed suggest, the exercise of ideological power drives a portion of the full non-neoclassical transcript underground, in this instance to less reputable heterogeneous journals. In mainstream discourse, the subordinates (academic workers and students) tend to reveal only what is "safe" and "appropriate"; that which is delineated by the dominant paradigm or its ideological purveyors. Total subordinate revelation is only forthcoming in student or worker newspapers or "less reputable" heterogeneous journals, all treated with condescending contempt by the orthodoxy.
University departments, professional journals and peers form an institutional web, which provides for the career potential of any aspirant to the profession (North 1990:95). The proficiency shown in neoclassical tools, concepts and language becomes the hallmark of identification and quality. The Krueger Commission on Graduate Education, established in the United States to report on tertiary education standards in 1990, reported that department procedures "bias the selection towards good technicians, rather than good potential economists". This implies that graduate education de-emphasises creativity and problem solving as the student requires "little or no knowledge of economic problems and institutions" (Krueger 1991:1040-42). Consequently, ignorance is promoted as a qualitative manifestation of a "good economist". The result is that the dominion of organic intellectuals, representing a class position and propounding its symbolic representation, is solidified. In order to join this coterie one must accept and disseminate the ideological and political constituents of class power that it represents.
There is much more than McCloskey would have us understand. Economics is constructed around more than subjective differences of epistemology, methodological preference or appreciation of elegant techniques; the differences at the core are also political. Neoclassical economics has represented, for two hundred years, the political self-representation of autonomous, self-subsistent, and self-interest-optimising individuals. The populist works of Friedman (1962) in Capitalism and Freedom, or the more adrenalin-pumping stuff of Ayn Rand (1952 and 1957) in The Fountainhead and Atlas Shrugged provide adroit examples of the ideological and political content in the grasp of the "Invisible Hand". It is here where the connection between promoting ignorance-squared and ideological construction is entwined.
Ideological Construction
And your education! Is not that also social, and determined by the social conditions under which you educate, by the intervention, direct or indirect, of society, by means of schools, etc? (Marx 1976: 502).
The gadfly Socrates continues to epitomise the courage of seeking knowledge (Plato 1956). The attraction of Socrates is that, through his didacticism, we come to realise that the greatest knowledge we can possess is the awareness of our boundless, fathomless ignorance.
Questioning, wondering, doubting, revising and collaborating are all practices which Socrates and now McCloskey (1985) would proffer to those interested in expanding the breadth of our knowledge through communication. Yet, students, and many of their preceptors, do not know that they do not know that capital cannot be measured; that utility is metaphysical; that optimisation is non-falsifiable; that capitalism is inherently unstable; or that, as Ricardo discovered, when we say 'supply and demand' we are explaining nothing (Dobb 1975: 52 and 119). The incentive remains not to find out; or at the very least, not to recognise the numerous serious-minded non-neoclassical economists who take all of the above for granted! Rather, mainstream protagonists spend time proving to each other that what they are doing is what they should be doing; and then convincing the disciples that what they should be doing is what their mentors are doing, ie., producing "acceptable" knowledge. The entire process is justified from within by noting that economists are all optimising their utility functions (Becker 1975).
A student may actually accept what s/he is taught as normal, even justifiable, as part of the social order. Another may reject the information as "unreal", "incomplete", "too abstract", "not relevant", or "not falsifiable" and yet have no "realistic" option to present as a critical counter-claim. In either case, to survive, to pass the course, to increase their potential material enhancement upon graduation, both types of student must internalise and become technically proficient with what is served up. At the level of ideas, this symbolic production and re-production of both knowledge and ignorance-squared is replicated, with or without conscious consent (Gramsci 1971:passim).
This process of ideological domination is portrayed through the solidification of ignorance-squared. It portrays, as well, a struggle over the appropriation of symbols, a struggle over how the past and present shall be understood and labelled, a struggle to identify causes and assess blame (Parkin 1971: 79-102). By disseminating a paradigmatic discourse and the concepts to go with it as well as defining the standards of what is legitimate, a symbolic climate is created that prevents subordinates from thinking their way free. Thinking "free", is used in the sense that acts are dialectically interactive with intentions, neither consciousness nor action being "unmoved movers" (Scott 1985: xvii and 38-39).
Conclusion
Ultimately, economic knowledge, like life, is a process and is none too solid. But then as Ivan Ilych came to see, neither are we, when, no matter how vigorously he tried to drive thoughts away, they continued to confront him (Tolstoy 1967:280-281). No matter how hard neoclassical economists try to drive away the world of complexity, it too continues to confront them. Yet, to the frustration of "heterogeneous" antagonists the neoclassical paradigm remains dominant, blatantly promoting ignorance-squared. Elegance and technique have replaced relevance. What has been shown herein is that the production of that elegance has involved the opportunity cost of simultaneously producing ignorance. Ignorance-squared is replicated amongst students given the social interests of those dominant in the paradigm. This process of producing ignorance becomes entwined with the promotion of ideology to the detriment of us all. McCloskey importunes the deaf, for dialogue with more relevant tributaries of the mainstream is not in the interests of those presently in control.
The best advice rhetorically should be exactly the opposite provided by McCloskey. Neoclassical economists should accept the advice of Frederick von Hayek's distant cousin, Wittgenstein, who, in the final sentence of the Tractatus Logico-Philosophicus, wrote: "Whereof one cannot speak, thereof one must be silent" (Monk 1991:156 and 224). However, as it has been argued, the ability to speak and to be heard is based on much more than methodological propositions. They are, as well, functions of social interests and ideological power.
The clearest example of contemporary trend for the abandonment of the ‘scientific method’ in favor of either religious or secular faith-systems has resulted in social and economic catastrophes throughout human history. Perhaps one of the best known recent examples of a ‘secular faith-system’ that replaced the ‘scientific method’ occurred in Soviet Russia, following the death of V.I. Lenin and the rise of J. Stalin – and the creation of a ‘new biology’ that accompanied the collectivization of agriculture, the initiation of the ‘purge trials’ and the implementation of the First Five Year Plan (1928-32). The chief architect of the ‘new biology’ was Trofim D. Lysenko [Трофим Дисвич Лысéнко] (1898-1976) and the ‘new biology’ came to be known as Lysnkoism. Lysenko, born to a Ukrainian peasant family, was educated at the Kiev Agricultural Institute and worked as an agricultural researcher at an agricultural experimental station in Azerbaijan during the mid- to late-1920s. In 1927 the official Soviet newspaper, Pravda (Правда or ‘truth’) proclaimed that T.D. Lysenko had
discovered a method to fertilize fields without using fertilizers or minerals, and
that he had proved that a winter crop of peas could be grown in Azerbaijan,
‘turning the barren fields of the Transcaucasus green in winter, so that cattle will
not perish from poor feeding crop of peas, and the peasant Turk will live through
the winter without trembling for tomorrow… (www.en.wikipedia.org/wiki/Trofim_
Lysenko.)
The use of the media to proclaim ‘scientific truth’ and establish a ‘politically correct’ set of scientific dogma to advance the goals of the Communist Party of the Soviet Union (CPSU), and enforced by the power of the state through it’s ‘apparatchiki’ [аппаратчики] (including the NKVD, forbearer of the KGB or state security [secret] police) does not conform to the Baconian ‘Scientific Method.’ Rather, this process is more akin to what John Milton had written in his Areopagitca (1644) “…the famous Galileo grown old, a prisoner of the Inquisition, for thinking in Astronomy otherwise than the Franciscan and Dominican licensers thought.” (See: Boorstin, 1983, 317.)
Lysenko was the archetypal ‘scientific hero’ of the Soviet system, the intellectual counterpart of Aleksandr Stakhanov (Алекср Стаханов) the ‘industrial hero’ for whom the Stakhanovite movement (1935) was named. (For various Soviet terms, see: ‘Glossary – Soviet Union;’ available at: //fas.org/irp/world/Russia/su_glos.html.) Such a pantheon of ‘Saints’ of ‘scientific socialism’ provided evidence on the ability of ‘Soviet Man’ to overcome the economic and technological constraints imposed by Nature on the Soviet Union, especially its ‘continental’ and subhumid climates. The ‘science’ of Lysenko was based primarily on the work of Lamarck, the ‘theory’ of “Inheritance of Acquired Characteristics,” as the ‘driver of evolution’. Hummm … I guess that this means that my children will inherit ALL of the knowledge that I have acquired during my lifetime! As an example of Lysenkoism, his ‘scientific’ methodology has been reported:
… primary procedure was a mixture of so-called ‘vernalization’ (by which Lysenko
generally meant anything he did to plant seeds and tubers) as well as hybridization.
During one period, for example, he picked a spring wheat with a short ‘stage of
vernalization’ but a long ‘light stage,’ which he crossed with another variety of wheat
with a long ‘stage of vernalization’ and a short ‘light stage.’ He did not explain what
was meant by these stages. Lysenko then concluded on the basis of his stage theory that
he knew in advance that the cross would produce offspring that would ripen sooner
and as such yield more than their parents and thus did not have to test many plants
through their generations. Though scientifically unsound on a number of levels,
Soviet journalists and agricultural officials [‘apparatchiki’ (аппаратчики)] were
delighted with Lysenko’s claims, as they sped up laboratory work and cheapened it
considerably. Lysenko was given his own journals, Vernalization, in 1935, with which
he generally bragged about forthcoming successes. [www.en.wikipedia.org/wiki/
Trofim_Lysenko), emphasis added]
The substitution of Lysenkoism for the ‘scientific method’ has a number of sources, several have already been cited above, but all find their origins in the pretenses of Karl Marx (1818 - 1883) and Frederick Engels (1820 - 1895). Marxism is an economic/political system based on a mystical ‘faith’ in the Hegelian dialectical view of history. Friedrich Engels in his, Dialectics of Nature indicates all is explicable in terms of the ‘struggle of opposites’ – the ‘laws of dialectics,’ the most general laws, which may be reduced to three:
-- the law of the transformation of the quantity into quality and vice versa;
-- the law of the interpenetration of opposites; and
-- the law of the negation of the negation.
All of this nonsense sounds like the religious mystical speculations, such as the ‘coincidentia oppositorum’ of late medieval writers, including Nicholas Cusanus (St. Francis of Assisi and St. Bonaventure), or an exercise in alchemy, as described by Carl G. Jung:
The alchemist’s endeavours to unite the opposites culminate in the ‘chymical
marriage,’ the supreme act of union in which the work reaches its consummation.
(1963, Mysterium Coniunctionis, 89)
Russell Madden has chronicled a number of recent examples of the betrayal of the ‘scientific method’ and “The Resurrection of Lysenko” (//home.earthlink.net~rdmadden/ webdocs/Ressurrection_of_Lysenko.html.) Quoting Robert Conquest’s, The Great Terror (1990, 296), who noted, “The triumph of Lysenkoism was the most extraordinary of all indications of the intellectual degeneracy of the Party mind…, Madden observed:
While no scientist in our country has been jailed or murdered due to his beliefs, the
same insidious seeds of intellectual destruction committed in the name of political
agendas have taken root in our society – and in some instances even been nourished
by government officials and policies. Under Soviet style Lysenkoism, it became
evident that ‘[w]hen encouraged by the political system, quackery prevailed and ‘good’
scientists deferred to politically imposed scientific truth.’ In recent years, a similar
substitution of politics for reality as one’s standard for truth has made itself evident in
such areas as environmentalism, economics, and medicine (in its research on gun
ownership, cigarettes, and drugs). [Emphasis added]
Madden is not alone in his criticism of the ‘betrayal of the scientific method’ and the substitution for it of ‘junk science’. A representative, but far from exhaustive list of other examples, include:
Deveey. 1980. “Human Population,” Scientific American
John Maddox. The Doomsday Syndrome.
Julian Simon. Hoodwinking the Nation.
Michael Fumento. 1993. Science Under Siege.
John Stossel. 2004. Give Me a Break: How I Exposed Hucksters, Cheats, and Scam
Artists and Became the Scourge of the Liberal Media…. Perennial Currents.
Madden continues with:
The pattern of distortions, omissions, and lies continues to expand in ripples as
faulty or fraudulent [sic] research is selected by politically motivated individuals
and used to advance their goals of political control. In press releases and in the
halls of government, these falsehoods are passed along to a public which often
lacks the knowledge or ability to recognize and refute the pronouncements handed
down by authorities they are instructed to trust. The issue is not simply reasonable
disagreements over interpretations of data and theories. As did their earlier brethren,
the proponents of modern-day Lysenkoism seek ‘to change…human attitudes…by
the use of naked police power,’ i.e., by appealing to government and its monopoly
on force rather than persuasion to achieve their ends.
It is well known in economics that individuals and groups have a tendency to pursue their own self-interest. Often this is accomplished by pursuing ‘rent-seeking behaviors’ – Zoltan J. Acs and Daniel A. Gerlowski have defined ‘rent-seeking’ as: “
An attempt by some interested party to alter the allocation of rents in a contractual
agreement; in general, does not create value within the organization. (1996.
Managerial Economics and Organization, 448)
In their chapter, “Distribution, Rents, and Efficiency,” they have defined ‘rents’ as:
…benefits earned by an economic resource that exceed what the resource
could willingly earn else where. (221)
They continue by defining ‘economic rents’ as:
…the benefits from an activity going to a resource in excess of what is
needed to attract that resource to that activity. (222)
And, somewhat later,
… it is useful to think in terms of rents as being captured by some entity;
both economic and quasi-rents are said to ‘go’ to some factor of production
or, equivalently, to some party of the exchange.
In a competitive economy, there are no economic rents. The reason is clear.
In a competitive setting, positive economic profits attract entrants who
eliminate all rents in the long run. The obvious exception is, of course,
whether a factor of production is in inelastic (that is, fixed) supply, in which
case rents may exist in the long run. (226)
So, how does all of this ‘economic theory’ about ‘rents’ and ‘rent-seeking behavior’ relate to the betrayal of the ‘scientific method’? Well, it helps us understand the ‘how’ and ‘why’ of both private and public decision-making thereby providing a system of incentives or disincentives, culminating in the abandonment of the ‘scientific method’. Gwartney and Stroup – Principle # 1 Alawys and everywhere incentives matter.
... ... ...
Capitalism is inherently unstable, i.e., is beset periodically by economic crises, known variously
as – ‘economic downturns’, ‘recessions’, ‘depressions’, or ‘crashes’. The so-called ‘market-instability’ is deemed to be a flaw in the free-market system and, therefore needs to be ‘corrected’ by the direct intervention of ‘the brightest and the best’ (aka* the self-appointed, intellectually superior bureaucrats employed by the government.) This idea had it origins in the pessimistic writings of Thomas Malthus [especially his: Principles of Political Economy, 2nd Ed. 1836] and was popularized by Karl Marx and Friedrich Engels [see: below]. These views were accepted as proven by John Maynard Keynes and those who adopted his theory, thereby justifying ever greater interventionist government policies. [See: J.M. Keynes. The General Theory of Employment, Interest and Money (1936/1964)]
John Micklethwait and Adrian Wooldridge, in their widely heralded book, The Company: A Short History of Revolutionary Idea (2003), in describing the rise of the ‘modern company’ have identified several conditions essential for their founding: “First”, they note:
was the idea of shares that could be sold on the open market.… the naval
capitalism of the sixteenth and seventeenth centuries dramatically expended
the idea, bringing stock exchanges in its wake. The other idea, which had
occasionally surfaced before was limited liability. Colonization was so risky
that the only way to raise large sums of money from investor was to protect
them.
The first chartered joint-stock company was the Muscovy Company, which
was finally given its charter in 1555. [the reign of Ivan IV or Ivan Groznii]
…the Company was given a temporary monopoly over trade routes to the
Russian port [Archangelsk]…. The company was able to raise enough money
to finance the long journey to Russia by selling tradable shares. (18, emphasis
added)
An essential question that you must ask yourself is: ‘Just who had the power and authority to grant “a temporary monopoly over trade routes”?’ For a broader view on the issue of ‘monopoly’ and its source, see: Alan Greenspan. 1961. “Antitrust,” in Ayn Rand. 1967. Capitalism: The Unknown Ideal. New York: Signet Book, 63-71. Greenspan in his discussion of the ‘westward expansion of railroads’ in the 1860s, and the initiation of governmental regulations, has written:
In the name of ‘public policy’ it was, therefore, decided to subsidize the
railroads in their move to the West….
As might be expected, the subsidies attracted the kind of promoters who
always exist on the fringe of the business community and who are constantly
seeking an ‘easy deal.’ Many of the western railroads were shabbily built:
they were not constructed to carry traffic, but to acquire land grants.
The western railroads were true monopolies in the textbook sense of the word.
They could, and did, behave with an aura of arbitrary power. But that power
was not derived from a free market. It stemmed from governmental subsidies
and government restrictions…. (64-5)
…. In the meantime, however, an ominous turning point had taken place in our
economic history: the Interstate Commerce Act of 1887.
That Act was not necessitated by the ‘evils’ of the free market. Like subsequent
Legislation controlling business, the Act was an attempt to remedy the economic
distortions which prior government interventions had created, but which were
blamed on the free market. (65, emphasis added)
At this juncture it is appropriate to add some observations made by the Nobel Laureate, James M. Buchanan, that provide further evidence buttressing Greenspan’s point:
From Wicksell, Buchanan concluded that governments are not
efficient, purely altruistic entities that effortlessly correct market
imperfections. Instead, governments are aggregates of individuals
pursuing private rather than the public interest through regulations
and tax laws. These private interests create wasteful lobbying
efforts known as rent seeking. (Emphasis added)
Public choice economists support strong legal rules that constrain
rent-seeking special interests from undermining an appropriate public-
goods process.
At first glance, public choice theory seems to be nothing more than
common sense: Governments are collections of individuals whose
interaction is determined by the same self-interest that motivates
people in the private sector. The simple view that government is a
collective decision-making process that altruistically solves social
problems has a long and, according to Buchanan, romantic tradition
both in political theory and in economics….his public finance models
lie outside the neoclassical mainstream belief in the collective problem-
solving model and in measurable, explicit opportunity costs… A pure
subjective-cost approach denies that the actual costs of any action can
ever be known, even by the decisionmaker(s), because the act of choice
is itself cost, subjectively perceived. A theorist adhering to this doctrine
would not carry out any benefit-cost analysis, as costs are inherently not
observable and, therefore, not measurable… (Emphasis in the original)
As many economists came to doubt the efficacy of large, state-funded
programs, they saw public choice theory as a way to examine what has
come to be known as government failure. For decades following Arthur
Cecil Pigou’s famous book The Economics of Welfare, economists saw
government as a disinterested agency that could correct market failures.
Buchanan and other public choice theorists altered the debate by
proposing that government may not really correct problems in the market-
place because of the wealth trading, or rent seeking, that occurs during
the legislative process… (Emphasis added)
Influenced by what he considered the government’s overreaching in the
1960s, Buchanan believes the closer a person can come to self-sufficiency,
the better off he is. (Emphasis added) [Robert L. Formaini. “James M.
Buchanan – The Creation of Public Choice Theory,” Economic
Insights, 8 (2); available at: www.dallasfed.org/research/ei/ei0302,
emphasis added.]
There are three critical points in Formaini’s review of Buchanan’s approach to economic relationships: (i) politicians/bureaucrats are self-interested, not altruistic, decision-makers [‘public servants’, as they like to call themselves]; (ii) as such, they engage in ‘rent-seeking’ behaviors by trading favors (e.g., legislation that benefits small cohesive ‘special interest groups’ at the expense of the majority of the citizens); and (iii) claims that government intervention in the market place to correct so-called ‘market-failures’ result in ‘government failure’…note the similarity to Greenspan’s conclusions, cited above: “an attempt to remedy the economic distortions which prior government interventions had created, but which were blamed on the free market.
Somewhat later, Micklethwait and Wooldridge have observed that such a joint-stock, limited liability company played a major role in the founding of the United States –
The Virginia Company duly raised funds from seven-hundred-odd
Elizabethan ‘adventurers,’ including Sir Francis Bacon – and
produced, in return, no profits.
…. The risks of investing in voyages to the spiceries of Indonesia
would be akin to the risks of investing in space exploration today.
(19)
After several failed British attempts to send ventures to the East Indies,
It was hardly surprising that the Dutch merchants decided that state-
sponsored collusion was preferable to this. The monopoly that they
eventually secured from the state in 1602 – the Dutch East India
Company, alternatively known as the VOC (for Vereenigde Oost-
Indische Compagnie) or the Seventeen (after its seventeen-strong
board) – became the model for all chartered firms. The VOC’s
charter also explicitly told investors that they had limited liability.
Dutch investors were the first to trade their shares at a regular stock
Exchange in 1611…. All the Amsterdam hub needed to prove its
capitalistic credentials was a market crash, which duly arrived with
tulip mania in 1636-1637. (20, emphasis added)
There are several points that must be pointed out explicitly in this discourse: (i) in any economic system, regardless of its organizational structure, production involves risk taking (even in a subsistence economy, as noted by game theory); and (ii) once again, there is a tendency for equating capitalism with “a market crash.” A little thought on the matter reveals that ‘risk’ applies to all economic systems because it arises out of ‘uncertainty’. This is a well-known relationship since Frank H. Knight published his seminal work, Risk, Uncertainty, and Profit (1921), but has been ignored in a most irresponsible manner. [For a brief summary of Frank Knight and his contributions, see: Robert L. Formaini. “Frank H. Knight – Origins of the Chicago School of Economics,” Economic Insights, 7 (3); available at: www.dallasfed.org/research/ei/ei0203.html.] ‘Uncertainty’ arises from an inability ‘to know’ or ‘predict’, with any degree precision, the outcome of an event or series of interrelated events as they unfold through time. ‘Risk’, on the other hand, is, to some extent or in some manner, “susceptible of measurement.” More specifically, Knight has made the following distinction:
Hence the problem of profit is one way of looking at the problem of the
contrast between perfect competition and actual competition….
… the problem of profit…have arisen from a confusion of ideas which
goes deep down into the foundations of our thinking. The key to the whole
tangle will be found to lie in the notion of risk or uncertainty and the
ambiguities concealed therein…. (19)
But Uncertainty must be taken in a sense radically distinct from the
familiar notion of Risk, from which it has never been precisely
separated. The term ‘risk,’ as loosely used in everyday speech and in
economic discussion, really covers two things which, functionally at
least, in their causal relations to the phenomena of economic organization,
are categorically different…. The essential fact is that ‘risk’ means in some
cases a quantity susceptible of measurement, while at other times it is some-
thing distinctly not of this character; and there are far-reaching and crucial
differences in the bearings of the phenomenon depending on which of the
two is really present and operating. There are two other ambiguities in the
term ‘risk’ as well, which will be pointed out; but this is the most important.
It will appear that a measurable uncertainty, or ‘risk’ proper, as we shall use
the term, is so far different from an unmeasurable one that it is not in effect
an uncertainty at all. We shall accordingly restrict the term ‘uncertainty’ to
cases of the non-quantitive (sic) type. It is this ‘true’ uncertainty, and not risk,
as has been argued, which forms the basis of a valid theory of profit and
accounts for the divergence between actual and theoretical competition.
(19-20)
Much later, Knight demonstrates the ‘who-and-why’ of the knowledge/risk/uncertainty phenomena:
…changes in conditions give rise to profit by upsetting anticipations and
producing a divergence between costs and selling price, which would
otherwise be equalized by competition If all changes were to take place
in accordance with invariable and universally known laws, they could be
foreseen for and indefinite period in advance of their occurrence, and would
not upset the perfect apportionment of product values among the contributing
agencies, and profit (or loss) would not arise. Hence it is our imperfect
knowledge of the future, a consequence of change, not change as such, which
is crucial for the understanding of our problem…. (198, emphasis added)
…it is unnecessary to perfect, profitless imputation that particular occurrences
be foreseeable, if only all the alternative possibilities are known and the
profitability of the occurrence of each can be accurately ascertained. Even
though the business man could not know in advance the results of individual
ventures, he could operate and base his competitive offers upon accurate
foreknowledge of the future if quantitative knowledge of the probability of
every possible outcome can be had….knowledge is in a sense variable in
degree and that the practical problem may relate to the degree of knowledge
rather than to its presence or absence in toto. (198-199).
Via email:
The Financial Crisis and the Systemic Failure of Academic Economics, by David Colander, Hans Föllmer, Armin Haas, Michael Goldberg, Katarina Juselius, Alan Kirman, and Thomas Lux: [From the conclusion] ..."We believe that economics has been trapped in a sub-optimal equilibrium in which much of its research efforts are not directed towards the most prevalent needs of society. Paradoxically self-reinforcing feedback effects within the profession may have led to the dominance of a paradigm that has no solid methodological basis and whose empirical performance is, to say the least, modest. Defining away the most prevalent economic problems of modern economies and failing to communicate the limitations and assumptions of its popular models, the economics profession bears some responsibility for the current crisis. It has failed in its duty to society to provide as much insight as possible into the workings of the economy and in providing warnings about the tools it created. It has also been reluctant to emphasize the limitations of its analysis. We believe that the failure to even envisage the current problems of the worldwide financial system and the inability of standard macro and finance models to provide any insight into ongoing events make a strong case for a major reorientation in these areas and a reconsideration of their basic premises."
Scientists across America are celebrating the passing of the Bush administration as the end of a dark age, a bleak stretch in which research budgets shrank and everything — stem cells, sex education, climate change, and the very origins of the Grand Canyon — became a point of conflict.
... ... ...
The last time Canada let its research spending slide in the mid-1990s, the country lost so many scientists it wiped out entire departments.
Heather Munroe-Blum, principal of McGill University in Montreal, was head of research at U of T during those dark days and saw top academics in field after field pack their bags and head south.
"It was heartbreaking," she said.
The losses spurred the university community to lobby the Liberal government to give them the money to stem the tide. Those efforts paid off. Between 1997 and 2005, annual federal funding for university research more than tripled to more than $2.5-billion from $793,000.
The crisis also prompted the government to create programs to bolster the country's research expertise, such as the Canada Foundation for Innovation, which funds research infrastructure, and the Canada Research Chairs, which now support 2,000 scholars across the country.
(These programs have since become models of interest to other governments, including the Obama administration.)
The investments also triggered a building boom as state-of-the-art facilities sprang up in major cities. Before long, foreign talent followed.
Leah Cowen, an infectious diseases specialist, came to U of T from the Massachusetts Institute of Technology. Neuroscientist Evelyn Lambe left Yale University. Noted stem cell scientist Gordon Keller, a returning Canadian, left New York to take the helm at the McEwen Centre for Regenerative Medicine in Toronto. Dan Goldowitz left an endowed position at the University of Tennessee to become a Canada Research Chair in developmental neuro-genetics at UBC.
"The biggest reason for me leaving was the Bush administration … they were anti-intellectual, intolerant and the NIH pay line was plummeting," said Dr. Goldowitz, who arrived in Vancouver in 2007.
"There just seemed to be a bigger commitment at UBC and Canada-wide for research generally."
Dr. Giaever landed a Canada Research Chair in chemical genetics that came with a generous five-year package to launch her own lab at U of T's sparkling new Terrence Donnelly Centre for Cellular and Biomolecular Research — a light and airy glass tower that won the 2008 Governor General's Medal in Architecture.
She calls it a "world-class facility" but said the biggest draw north "were the world-class collaborators."
Her husband received a tenured position through U of T's Banting and Best Department of Medical Research and both became assistant professors. They had every reason to believe they had picked the greener pastures. At the CIHR, approvals for grant applications were running in the 20 per cent range, said Dr. Nislow, just as it once had at the NIH.
But only two years into their arrival here, they have sensed winds of change in Canada's research climate — and the breezes aren't warm.
"We're seeing top scientists here having trouble getting funding," Dr. Giaever said. "Not funding renewals tends to have a much greater impact" since it could mean the closing of a lab, people losing jobs and research stopping in midstream.
"If Obama pumps up science, maybe Canada will follow suit. If not, maybe all these people Canada attracted might move."
Our new hero Elizabeth Warren (we had always liked her posts at Credit Slips, and it's to see her kicking ass and taking names) pointed to a paper "Bullshit Promises," by Curtis Bridgeman and Karen Sandrik. It looks at the concept of "bullshit" as defined by philosopher Harry Frankfurt and discusses the implications for contract law.
For those not familiar with Frankfurt's construct, (and I wasn't), bullshit is different than lying. Lying takes place when an individual says something he knows to be untrue. Bullshit is when the speaker is indifferent to the truth. Frankfurt's example is when a politician goes on about how "our great and blessed country....created a new beginning for mankind." The candidate may or may not believe it, and in this case, he isn't saying it to be believed, he is saying it to curry favor with voters.The authors explain:
The defining characteristic of bullshit, for Frankfurt, is that it is speech that holds itself out as describing reality, but fails to live up to the accepted standards of how we go about making such descriptions. It is not its actual truth or falsity that determines whether a statement is bullshit, but rather whether it is made with or without regard for its truth or falsity.I have a particularly keen interest in topics like this because I am distressed with the many and varied forms of dishonest that take place routinely in our culture. Not only is there resigned acceptance of much of it, but even worse, people don't even seem to notice when it happens.
I don't mean the sort of white lies that will be with us ever and always to smooth over interpersonal relations (although research has found that they are amazingly common, with study subjects telling 20 to 30 lies a day). It's the skirting the edge of truth in business and public life that sets my teeth on edge.
Maybe I am just showing myself to be old-fashioned, but when I started out for myself nearly 20 years ago, pretty much everything was on a handshake basis, even though I would always paper it up. I've seen a decline in those sorts of situations over the years, and my colleagues have had similar experiences. In recent years, I've had a few situations where people have attempted to retrade deals radically at the 11th hour, even with a paper trail and authorizations, almost for sport, just to see what they could get away with.
As an aside, maybe that's why Clint Eastwood remains so popular. He has come to play anachronistic, cranky (most recently, in Gran Torino, bigoted) old men, who are nevertheless appealing because they adhere rigidly to antique, unabashedly masculine notions of honor, in particular, living up to one's word.
I wonder how the decay started. Politicians have always been famous for exaggerating, but Lyndon Banes Johnson took discourse down a notch (he lied so unabashedly that reporters, historically loath to say anything bad about a sitting President, started openly about a "credibility gap"). But I believe that it is commercial speech that has fostered a willingness to cut corners with the truth.
I could go on at length, but I will stop with a couple of examples. One of the mainstays of commercials is to show smiling, sometimes ecstatic or giddy, people using the product. Is a better cake mix or floor cleaner really going to make you feel all that good? No, but the images say they will. And because the distortion/overpromise is non-verbal, it's harder to parse it out and look at it clinically. That is why TV is so remarkably effective.
Another is the pervasiveness of "gotcha" practices, which are particularly popular in financial services. Rebates that have such elaborate protocols that it is clear that the company went to some length to come up with ways to reject completed forms. "Free" checking accounts that are anything but (say, a minimum balance, or only a few month no-fee period). As we discussed earlier this evening, revocable "fixed interest rate for the life of the balance" credit card offers. And then we just have good old fashioned bad faith dealing. I have taken to recording the dates and details of medical claims I submit to my insurer, Cigna, because they routinely throw them out. Two years ago, every single item I sent to them wound up in the system. Now, anywhere from 20% to 35% go missing. But I can't prove that they are systematically and deliberately "losing" claims, even though that is clearly what they are up to.
Now the list above could all be called lies, made with an intent to deceive. But we have related bullshit. I once went to a focus group (I do so out of professional curiosity) which was to test consumer reactions to a proposed advertising message for a health insurance company. I cannot recall the exact wording, but all the messages said explicitly that the insurer would put the patient's interest first, be proactive, caring, etc. I took issue, saying the ad themes were rubbish, no insurer acted that way and they would have to turn their business model on its head to do so (ironically, the insurer was CIgna).
The person running the session kept trying to force me into agreement: "But if a company were to do this, how would you feel about it?" The session leader refused to hear that if I saw an advertisement so wildly at variance with the truth, it would annoy me rather than make we think better of the company. So we have bullshit market research leading to dishonest ad campaigns.
Back to the paper for some legal highlights:
Most courts require an actual intent to deceive the promisee rather than just a lack of an intention to perform. A paradigm case would be Max Bialystock from the musical The Producers, who sold 1,000% interest in a musical, planning to make sure the musical was so bad that there would be no profits to divide so that no one would discover his fraud....
In a world of standard-form contracts, however, consumers are faced with what is arguably a much more widespread problem than lying promises. Parties with great bargaining power who deal primarily in standard-form contracts need not lie in order to get the benefits of lying. Instead, what parties can do – as we will see, what they often actually do – is to avoid making a lying promise simply by making more nuanced promises that fall short of committing them to any particular course of conduct. To be sure, these parties use the words of promising, but then they elsewhere reserve the right to cancel the contract at any time or to change its terms unilaterally.
The paper then has a very informative discussion of some of the many tricks that credit card companies play (did you know that it takes PhD level reading skills to parse the interest rate language in credit card agreements?). Cell phone companies are also devious:....every major cell phone company has been careful not to commit itself to a particular course of performance by reserving broad rights for itself in the terms and conditions.61 For example, Verizon states that the consumer’s service is “subject” to its business practices, procedures and policies, which may be changed at any time without notice.62 Verizon then proceeds to state that “we can also change prices and any other conditions in this agreement.”63 Likewise, AT&T’s has a similar clause: “We many change any terms, conditions, rates, fees, expenses, or charges regarding your service at any time.” Again, like the credit card companies, cell phone companies are not making outright lies so long as they do not have a plan in place to increase the rates at the time of advertising the plan. But they are also not subjecting themselves to the norms of promising even as they use words that would suggest otherwise. While the consumer is committed, the cellphone company can do what it likes.While these two industries are arguably the worst offenders, similar bad practices are common elsewhere.
The authors content that the protections under current law against such practices are too weak and suggest some modest reforms that could rein them in a great deal.
Since the recession is caused by rich people deciding not to work, the solution, of course, is to cut capital gains taxes to they'll stop lounging around and do something productive:
Laffer-able, Marion Maneker, BP Cafe: ...Art Laffer ... was on Fast Money... The segment was on the proposed Obama tax cuts. Laffer didn’t think much of them. Instead, he wondered aloud, what if the government proposed a 6-month income tax moratorium: how great a stimulus would that be? After all, Laffer reasoned, freeing citizens from the undue burden of taxes would get them all out working harder and spending money.
Really? Did anyone on the panel believe that Americans of all income levels are sitting on the couch–or lounging out by the pool–instead of working because they’re unhappy with their income tax? They’re knocking off early because the marginal rates are too high and they’d prefer the leisure time to the minimal extra money? Fascinating. Unemployment moving toward double digits and the greatest white-collar restructuring in 15 years all because of onerous income taxes?
Sure, he’s a guest on the show–they’re being polite, right?–but not one of the traders said a word about this preposterous idea. They just nodded their heads in agreement and kept the bobbing up as Laffer launched into his idea that capital gains should not be taxed at all.
The slam against the Obama cuts was that the money would go into the mattress, not stimulate the economy. ... But why would the wealthy be any different? Cut their income tax or capital gains and they’ll put the money in the mattress right now too.
Not that cutting the capital gains tax would do anything to move money off the sidelines. Where would it go? What productive use would it be put to?
I’d share the segment with you but there’s no clip of his appearance on the CNBC site and the short post on the segment on Fast Money’s page is covered by an intrusive pop up. Maybe they’ve finally gotten a sense of shame for promoting this voodoo.
This tries to use a stabilization argument to implement a growth policy, which is a bad idea. We can debate whether cutting capital gains taxes is a good way to promote economic growth in the long-run, but it's clear that cutting the capital gains tax is a lousy short-run stimulus program. Even if it does promote new investment, and again that is a point that can be debated even in good times, in bad times it's hard to imagine a cut in capital gains motivating new investment when the economic outlook is so poor and so uncertain. In addition, you run into the same "are the projects shovel ready" problem you run into with public spending. For the most part, they aren't shovel ready and planning and constructing new investments, e.g. building a new production line, is not something that happens overnight. But no matter, the real goal here isn't stabilization anyway, and the long-run growth arguments are mostly a vehicle for obtaining the real goal: tax cuts for the wealthy. I hope Democrats don't give into this nonsense as they continue to compromise to get something passed.
Update: In comments to another post, where I agree that some type of tax cut may be needed as part of the stimulus package, and also say that "I am not thinking of the trickle down variety,"pgl says:
Tax cuts for the well to do - who are not borrowing constrained - will likely have NO aggregate demand stimulus effect as I have often argued (aka either Life Cycle or Ricardian Equivalence) models so if this is what the Republican Party have in mind - it is based on hogwash economics. Tax cuts for the working poor, however, may be a good idea as these households will consume much of the tax cut. I think this is what Obama has in mind. If your argument is that we should go with the kind of tax cuts Obama campaigned on - I agree. But tax cuts for Bill Gates is just stupid from a Keynesian point of view.
Update: And speaking of tax cuts of questionable value as a stimulus measure, Dean Baker:
More Money for Robert Rubin, Beat the Press: It looks like President-elect Obama is picking up President Clinton's promise to end welfare as we know it. Back in those pre-welfare reform days, welfare checks went to poor families. Welfare as we know it now seems to involve giving taxpayer dollars to Citigroup and other banks.
The media seem to have largely overlooked the Citigroup tax credit in their discussion of the latest items in President Obama's stimulus proposal. According to the Washington Post, the proposal will allow companies to write off current losses against taxes paid over the last 4-5 years, not just 2 years, as in current law.
There are relatively few companies that could benefit from this tax break since most companies will not have losses so large that they would need more than two years of tax payments to balance them against. But, really big losers, like Robert Rubin's Citigroup, and other badly failing financial institutions, are losing much more money in 2008 and 2009 than they earned in 2006 and 2007.
Did the political connections of Robert Rubin and others in the financial industry have anything to do with the decision of Obama's economic team to be so generous to them? I don't have an answer to that question, but the media should be asking it.
At best, I suppose you could argue this is a backdoor method of recapitalizing struggling financial institutions, but even then there are better ways to provide for recapitalization.
Politicization of science - Wikipedia, the free encyclopedia
Keeping up with the Joneses - Wikipedia, the free encyclopedia
Bulling, groupthink, and workplace mobbing in higher education
Politics & Science - Investigating the State of Science Under the Bush Administration
Science, Pseudoscience, and Irrationalism
The Anatomy of Science
- Science and Pseudoscience
- What is a Theory?
- Replicability
- What is Proof in Science?
- What Pseudoscience Tells us About Science
- Does Science Find Truth?
- Trisecting the Angle
- With Friends Like These...Dumb Remarks by Scientists that Pseudoscientists Love
- So You Want To Test Your Perpetual Motion Machine?
The Anatomy of Pseudoscience and Irrationalism
- The Great Silly Season: 1965-1981
- The Anti-Science Movement of the 1960's and 1970's
- On Post-Modernist Philosophy of Science
- Why Does Anti-Intellectualism Exist?
- The Appeal of Pseudoscience
- "Self-Appointed Experts"
- Bad Logic
- Bad Data
- When the Cranks Rule
- When Scientists Drift Into Pseudoscience
- With Friends Like These...Dumb Remarks by Scientists that Pseudoscientists Love
- Abelard for Today
- Attack Logic, Not Data
- Dutch's Rules of Just About Everything
- 21st Century Geocentrism
The Great Plagiarism Witch Hunt
General
Philosophy of Science Resources a very nice collection of links
Philosophy of Science magazine
The Bell Curve
Fraud
Etc
NFSD University of Florida Disaster Handbook Guide
[March 20, 1999] On the side of angels -- FEED stance on the new anti-darvinism
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So, imagine tens of millions of American consumers, cut off from their credit cards and cable TV brainwashing for several months by economic necessity, and then being coaxed back into the consumerist fold. This culture looks horrible from the outside, and once you've been detoxed for a few months, you're an outsider.
I'm stingy, not because I don't enjoy fine things, but because virtually nothing you can afford to buy in this country lives up to the promises.
January 11, 2009 3:12 AM
Nixon disillusioned me forever. I've never trusted a politician since. As to advertising, credit cards, banks, television, etc., they all seem to have been deceptive pretty much my whole life.
Same as it ever was, really.
January 11, 2009 3:25 AM
The point is it got worse before Nixon, and appears correlated with the popularity of TV. Weirdly, Johnson and Nixon kept lyin' when the footage from VIetnam made it hard to pretend things were going well there. So we've now had nearly four decades of pols getting more clever about handling the media.
And commercials are getting ever more manipulative. I spent two years in Oz, and it was refreshing how straightforward (and often wry) their commercials are. Ours have very weird video game and dream type images, often bizarre and not funny irony. It almost seems as if a very disturbed psyche is behind some of our stuff. And I suspect a lot of research has gone into it and has ascertained that it is effective.
January 11, 2009 3:37 AM
Ask a question to a person with authority about a clarification in a spec, may educe a response, but try and get them to sign off on it. I've seen contracts ripped up with the statement of go a head and do some thing about it we have better solicitors. In the building boom over here, I have watched as the old and knowledgeable members of the industry have be replaced with increasingly younger and more malleable individuals with little ethical behaver evident in their still maturing brains.
Ex sample to my point, Young man walks on to construction site, new khaki slacks, fashionable new black shoes, Ralph L Oxford shirt and eyes wide with pride. I greet him with a G'Day and what can I do for you, his response was Hi I'm the new site supervisor (his type would run 5 to 20 jobs depending on size). I jokingly say you guys just keep getting younger every day and his response was "well we are bringing a new youthful energy into the market". Well after I picked my jaw off he floor, I wished him luck in his new position and got back to my work. My head was filled with pictures of him in a room full of dopplegangers, just down loading what ever some construction/sales Mgr puts in front of them and send them out the door to make life hell for everyone else and all for a company cell phone/car and a title they can bullshit about at the pub to get girls and impress mates lool.
Society is sick and its the criminals, wolfs in lambs skins, sales, advertising, profit at all costs, politicians for personal gain that are the root of it.
Yes Yves, I agree with you 110% fix this component in the equation and then things will start to function with more rational behaver for everyones benefit.
Skippy
January 11, 2009 3:53 AM
For other literary examples see "Huckleberry Finn" (the Duke and the King); or Nabokov "Nicolai Gogol" (1944).
The term "poshlost" that Nabokov uses is a nuanced version of 'bullshit'. Fake ad promises are pretty much at the core of it. You can see Nabokov pursuing that from magazines & film (40s) through to TV (50s and 60s).
Ideal exchange for fake happiness? Fake money.
Easy to see why bullshit peaks might coincide with debt bubbles.