The Pseudoscience of Economics

According to wikipedia,
"Pseudoscience is a claim, belief, or practice which is presented as scientific, but does not adhere
to a valid scientific method, lacks supporting evidence or plausibility, cannot be reliably tested, or
otherwise lacks scientific status. Pseudoscience is often characterized by the use of vague,
exaggerated or unprovable claims, an over-reliance on confirmation rather than rigorous
attempts at refutation, a lack of openness to evaluation by other experts, and a general absence of
systematic processes to rationally develop theories."
I think economics satisfies most of these criteria. For example, economists love presenting their
work as scientific (see Lazear) however, many of their theories cannot be reliable tested, because
people's "utility" functions simply cannot be measured in any sense, so any conclusions derived
from those functions are totally bogus. Moreover, pseudoscience is characterised by "exaggerated
or unprovable" claims, which is true of economics as well. The impact of minimum wages on
unemployment for example is hugely exaggerated, even though reality shows the effects to be
negligible if that. The same with the so called "disincentive" effects of high rates of marginal
taxation.
There's clearly an overreliance on confirmation rather than refutation, as Card and Kreuger
found evidence of publication bias with respect to minimum wage studies, with papers showing a
statistical significant effect of the minimum wage on unemployment more likely to be published
than those showing no effect.
There is clearly "a lack of openness to evaluation by other experts,", since whenever scholars
from other disciplines try to debunk economic theories, they're called left wing idiots. When
other heterodox economists like Steve Keen criticise economics, they're called cranks, without
any attempt to rationally debate their arguments.

Modern economics is obsessed with modelling. An overwhelming majority of academic papers on

the subject work like so: they take data, and use data to construct formal mathematical models of
economic processes. Models mostly describe a situation, and describe how that situation would be
changed by a given set of events; a very simple example is that as the supply of a good diminishes,
its price will increase. Another is that deficit spending increases the national income. A
mathematical model is a predictive tool created to demonstrate the outcome of events in a
massively simplified alternate universe.
As someone who rather enjoys voyages of the imagination, the use of mathematical models in
economics is intriguing. The pretension that through using formal mathematical techniques and
process we can not only accurately understand, but accurately predict the result of changes in
the economy is highly seductive. After all, we can accurately predict the future, right?
Wrong. The wonderful and terrible and confounding thing about our world is that it is a deeply
unpredictable place, at least in the economic sphere where each number (for instance “aggregate
demand” or “aggregate supply”) in an equation may loosely refer to millions of huge, complex
and dynamic events. When you’re using huge simplifications to describe reality, those
simplifications may miss the important details, and your projections may go askew.
Not all modelling is equal. Newton’s model of gravitation (since superseded by Einstein’s
relativity) makes relatively accurate predictions about how gravitation works, and what would
happen to an object dropped 500 metres above the Earth. NASA used Newton’s equations to fly
to the Moon. Of course, even in physics there are occasionally divergences and oddities (which is
why there are quite often unrepeatable or anomalous experimental results, for instance the recent
experiment that seemed to show neutrinos travelling faster than the speed of light). So economics
— with its fixation on creating models of situations, and using these models to attempt to predict
the future, mimics physics, chemistry and biology, where data is collected, and used to produce
theories of physical processes which allow a modestly accurate representation of the future.
The key qualitative difference, though, is that mathematical economic theories don’t accurately
predict the future. Ben Bernanke — the chairman of the Federal Reserve, and one of the most-
cited academic economists in the world told the world that subprime housing was contained. That is
the economic equivalent of Stephen Hawking telling the world that a meteorite is going to miss the
Earth, when it is really going to hit. Physicists can very accurately model the trajectories of rocks
in space. But economists cannot accurately model the trajectories of prices, employment and
interest rates down on the rocky ground.
The thing that I believe modern economists are most useful for is pointing out the glaring flaws in
everyone else’s theories. Steve Keen has made a public name for himself by publishing a book
entitled debunking economics, in which he explains the glaring and various flaws in modern
economic modelling (DSGE, New Classical, etc).
Economics is a complex and multi-faceted subjects. Economists must be in some measure,
philosophers, historians, linguists, mathematicians, statisticians, political scientists, sociologists
and psychologists, and many other things. The trouble is that at some stage in the last century the
multi-faceted multi-dimensional economics (like that Xenophon) was hijacked by mathematicians
who tried to turn this huge and delicate subject into an equation. Yet economics — and economic
decisions, from the macro to the micro level — is a human subject. It is subtle and psychological
and sporadic. A human subject requires human language, human emotion, human intuition.
The grand theoretical-mathematical approach to economics is fundamentally flawed. Trying to
smudge the human reality of economics and politics into cold mathematical shackles is
degenerative.
So what to do if you want to understand the economy?
Follow the data,consider the history (similarities and differences between the past and the
present) and explain your conclusions simply, as you would to a child. Consider philosophical
definitions: what is money? What is demand? What is supply? What is value? How does demand
affect supply? What are the global patterns of trade? Why have they emerged this way and not
an alternative way? Consider possibilities. Admit the limitations of your knowledge and explore
the boundaries. Stop forcing the construction of absolutes, grand frameworks, grand theories. No
theory will ever be robust to everything nature will throw at it, but simple microeconomic
heuristics (opportunity cost, cost-benefit analysis) combined with data-focussed historical
analysis may be more robust than cold, dead mathematics.
As Heraclitus noted: No man ever steps in the same river twice
No two situations are identical. And in this universe even tiny differences can have huge effects on
the outcome of a situation. This is the butterfly effect, a term coined by Edward Lorenz,
and derived from the theoretical example of a hurricane’s formation being contingent on whether
or not a distant butterfly had flapped its wings several weeks before.
The pseudo-scientific school of mathematical economics hungers and craves for a perfect world,
where each river is the same, where there is no butterfly effect, where human preferences are
expressed in equation form, where there is no subtlety or ambiguity or uncertainty.
It is a dreamworld constructed by and for people with Asperger’s Syndrome.
http://www.zerohedge.com/news/guest-post-pseudoscience-economics

The subject area covered by economics can be divided into three broad categories: "Economic"
behavior, human material interactions, and the theory of value. In all three areas, economic
theory fails to accurately describe, model, or predict the real world, and is in conflict with the
best understanding provided by noneconomic disciplines.

First, as a behavioral science, economics assumes that people are fairly rational, well-informed
agents working in their own self-interest, with little or no concern for the effects of their actions
on others or on society as a whole. Many economists would put this even more strongly, claiming
that people are highly rational, and fully (and equally) informed. Not only is this view very
culturally narrow, being applicable primarily to western societies of the last 200 or so years, it
isn't even accurate within its cultural limits. Numerous studies (not to mention empirical
observation) demonstrate that people are not very rational, are often not well-informed, and are
certainly not equally informed. Consider a counter-example to the economic viewpoint:
advertising. If the economic view of human behavior were correct, advertisements would do
nothing more than provide accurate, useful information in order to convince consumers that it
makes sense to buy the product being advertised. There would be no place for such irrational
factors as emotional appeals, brand loyalty, sex, and so on. Clearly, this does not describe most
mass media advertising. What's going on? Either emotional, non-rational advertising works --
which can only be true if consumer behavior is not rational -- or else such advertising doesn't
work -- in which case producers are behaving irrationally by continuing to employ ineffective
sales methods. Even in very simplified situations, such as experimental studies of economic
behavior, people seldom behave in a fully rational manner.

Economics as the study of human material interactions hardly exists at all. All economic
transactions involve the transportation or transformation of matter and energy (even if only to
alter the information content). The laws of physics and biology, most especially the limit laws
(such as the laws of thermodynamics), must apply to any such interactions. Yet most economists
are oblivious to such matters. The few who are aware either argue that the limit laws do not
apply to economics (the most notorious proponent of this viewpoint is Julian Simon), or just get it
wrong. (e.g., by asserting that any economic activity will increase the entropy of the earth. Since
the earth is not a thermodynamically closed system, activity will not necessarily increase the
earth's entropy, although it must increase the entropy of the universe as a whole.)
http://www.god-and-country.info/EconIntro.html
Economics as Pseudoscience

Daniel Johnson, Salem-News.com

Modern economics is based almost entirely on myths first pronounced by the 18th century moral
philosopher, Adam Smith.

(CALGARY, Alberta) - I’ve been collecting quotes about, and insights into, economics since the
1970s. In fact, one of the first articles I ever published was "Superstition in Economics", in
Humanist in Canada in 1974. Here is an outline of what I’ve accumulated so far.
If any field of study is a pseudoscience, it's economics. As Leonard Silk, late economics columnist
for the New York Times (an economist himself) once wrote:

"Economists try to do what all scientists do—observe certain aspects of the natural or social
world, gather data to measure those aspects, construct theories to explain the data, and test the
theories against reality to validate or invalidate them. On the whole, however, economists do a
weak job at all this. They commonly spend vast amounts of time observing each other's articles
rather than reality. Their data are poor, and they devote little time to improving them. Their
theories are rigid and mechanistic. And they rarely discard them unless some academic or
government position is at stake." (Economics in Plain English)

Or the late Harvard economist John Kenneth Galbraith:

“Economists, on the whole, think well of what they do themselves and much less well of what
their professional colleagues do. If a scholar probes deeply into a small section of the subject, he
is fairly certain to mistrust, as superficial, the man who ranges more widely. The latter, in turn,
will think the specialist lacking in vision or what is called reach. By knowing ever more about
ever less, he will seem to risk becoming quite ignorant. Those who are mathematically inclined
see others in retreat from rigor. The others think those who manipulate symbols impractical. The
statisticians believe those who prove points deductively to be dangerously intuitive. But, by their
colleagues, those who are controlled by numbers are often thought unduly cautious or even dull.
It is exceedingly fortunate for the psychic health of the profession that inadequacy lies so
uniformly with others. The situation in the other social sciences is said to be equally satisfactory.”
(The New Industrial State)

What Invisible Hand?

Modern economics is based almost entirely on myths first pronounced by the 18th century moral
philosopher, Adam Smith. His most famous myth is that the market is ruled by an Invisible
Hand. In The Wealth of Nations (1776) he wrote that an individual

“generally, indeed, neither intends to promote the public interest, nor knows how much he is
promoting it. By preferring the support of domestic to that of foreign industry he intends only his
own security; and by directing that industry in such a manner as its produce may be of the
greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an
invisible hand to promote an end which was no part of his intention….By pursuing his own
interest he frequently promotes that of the society more effectually than when he really intends to
promote it. I have never known much good done by those who affected to trade for the public
good.”

But, says philosopher Joseph Heath, seventeenth century philosopher Thomas Hobbes

“noticed—as many of us have—that when left to their own devices, people have a tendency to
make a mess of things. His genius lay in the discovery that we do not necessarily make these
messes because we set out to harm one another. Often the mess occurs simply because our
attempts to secure our own self-interest are collectively self-defeating. So if our ‘natural’
inclination is to mind our own business and look after our own interests, then life in a ‘state of
nature’ would be unbearable.”

Smith was writing during a mercantilist period, even before the Industrial Revolution had begun.

His ideas on economics are completely taken out of context and do not, can not, apply in the 21st
century. This does not negate his importance as a moral philosopher, as shown in his otherwise
neglected Theory of Moral Sentiments.

Unpredictability in economics
Economics historian Stephen Mihm gives us an initial perspective:

“Recessions are signal events in any modern economy. And yet remarkably, the profession of
economics is quite bad at predicting them. A recent study looked at “consensus forecasts” (the
predictions of large groups of economists) that were made in advance of 60 different national
recessions that hit around the world in the ’90s: in 97 percent of the cases, the study found, the
economists failed to predict the coming contraction a year in advance. On those rare occasions
when economists did successfully predict recessions, they significantly underestimated the
severity of the downturns. Worse, many of the economists failed to anticipate recessions that
occurred as soon as two months later.”

In the same vein, Galbraith calls the Federal Reserve System the
"most prestigious form of fraud, our most elegant escape from reality…it has had a record
against inflation and notably against recession of deep and unrelieved inconsequence….The belief
that anything as complex, as diverse and by its nature personally so important as money can be
guided by well-discussed but painless decisions emanating from a pleasant, unobtrusive building
in the nation's capital belongs not to the real world but to that of hope and imagination. Here our
most implausible and most cherished escape from reality. No one should deny those participating
their innocently acquired prestige, their sense of personal competence, their largely innocent
enjoyment of what in economic effect is a well-established fraud. Perhaps we should let their
ineffective role be accepted and forgiven." (Economics of Innocent Fraud)
Going on to say that
“Those employed or self-employed who tell of the future financial performance of an industry or
firm, given the unpredictable but controlling influence of the larger economy, do not know and
normally do not know that they do not know. Predictions from a financial firm, Wall Street
economist or financial advisor as the economic prospect for a corporation—recession, scheduled
recovery or a continuing economic boom—are thought to reflect economic and financial
expertise. And there is no easy denial of an expert’s foresight. Past accidental success and an
ample display of charts, equations and self-confidence affirm depth of perception. Thus the
fraud. Correction awaits.”
Recall that the current recession was predicted by no economists at all. If any did, their voices
were not heard.
What is economics?
In The Unnatural Nature of Science, Lewis Wolpert wrote: “The Nobel laureate [in economics]
James Meade would like his tombstone to bear this epitaph: ‘He tried to understand economics
all his life, but common sense kept getting in the way’.”
Joseph Heath:
“Markets really are efficient, vastly more efficient than any other form of economic organization.
The pursuit of profit, under proper conditions, does generate collective benefits—win-win
outcomes. Markets are quite amazing. But because this sounds so unlikely, the fans of global
capitalism have had a marked tendency to overstate their case. After all, it is hard to imagine that
haggling, price-gouging, profit-seeking, personal enrichment, usury, or any of the other rough-
and-tumble practices of the marketplace have beneficial social consequences. Self-interest is
usually bad. Why should this be any exception? As a result, proponents of the marketplace have
been very reticent to admit that the market pattern of organization has any flaws or limitations.
When combined with the utopian streak of many right-wing economists, this has given the debate
over markets unnecessarily ideological and often quasi-religious overtones.”

“In a properly structured market, firms should be indifferent to environmental regulation. The
problem is that markets are often not properly structured. As long as oil companies were making
leaded fuel, they were not paying the true cost that the manufacture of their product imposed
upon society. This is because of the negative externality—the airborne lead emissions. As a result,
society was consuming ‘too much’ gas. Eliminating the externality should therefore reduce total
demand for gasoline and increase the demand for other fuel sources. This is why the oil
companies and refiners were opposed. They were profiting from the public bad. Thus opposition
from business to regulation is often a sign that the regulation is a good idea and is likely to
improve the overall efficiency of the economy.”
Milton Friedman:
“The major lesson of the Great Depression that has affected our lives is the wrong lesson, a
misinterpretation of the Great Depression. There is no doubt that the major lesson [was] you…
could not count on the private enterprise system to maintain prosperity and that you had to rely
heavily on government to play a major role. If you take the period before 1929, so far as public
opinion in general is concerned, government was regarded as a necessary evil. I think here was
widespread support for the kind of views that Jefferson had expressed a century and a half
earlier on the virtues of small government and of limiting the role of government. The Great
Depression changed that because the lesson that the public at large learned from the Great
Depression was that it was the result of a failure of business, a failure of capitalism,…and that in
order to be safe in the future they would have to rely much more heavily on government. That
was the lesson that was in fact learned from the Depression….[I]n my opinion, the lesson that
should have been learned, the right lesson, was that government let them down. That it was
mismanagement of the money system that produced it and not a failure of the market system.”

Some things never change

In 1960, Vance Packard wrote in The Waste Makers:

“A survey by insurance companies revealed that the average American family was about three
months from bankruptcy. That was its cushion against disaster after two decades of unparalleled
prosperity. For millions of families—especially for many living in suburban subdivisions—the
brink of disaster was much closer. They were so pressed in meeting their host of monthly
instalment charges that they were stopping smoking temporarily or putting their wives to work
or seeking debt-consolidation loans, or all three.”
Overall, the situation is worse today for almost everyone.

Vision in economics
In the 1950s Senator Joseph S. Clark of Pennsylvania said:

“The goal of our economy is not the production of more consumer goods at all. The goal of our
economy is to provide an environment in which every American family can have a good house for
living and shelter, a good school to which to sent the children, good transportation facilities and
good opportunities for cultural and spiritual advancement.”

But just the opposite situation has evolved. Galbraith:

“The economy is geared to the least urgent set of human values. It would be far more secure if it
were based on the whole range of need.”
“The income men derive from producing things of slight consequence is of great consequence to
them. The production reflects the high total utility of a livelihood to a person. For this reason,
although there is conventional wisdom to deny it, income and employment rather than goods
have become our basic economic concern.”

This, he says, is because

“The individual serves the industrial system not by supplying it with savings and the resulting
capital; he serves it by consuming its products. On no other activity, religious, political or moral,
is he so elaborately and skilfully and expensively instructed.”

Charles (Charlie) Brower

As BBDO president Charles H. Brower said in the 1950s: “The house of advertising is a mighty
fortress in our economy….Pull down advertising, and a frightening number of things will fall
with it.”

In our society it has become difficult, well nigh impossible, to step away from the system and live
even a partial non-capitalist life. As Galbraith went on to say:

“As does the voter, the buyer has the right to exercise independent choice, to opt out. This some
do; they resort to a lifestyle outside the system that is thought eccentric, even slightly insane. The
existence and exercise of such choice does not lessen the force of market persuasion. Economics
as taught and believed lags well behind the reality in all but the business schools.”

”Charity leads to the exploitation of the moral by the immoral”

Here are three observations by philosopher Joseph Heath from his 2001 book The Efficient
Society:

“The fact that we are forced to pay taxes rubs some people the wrong way. But this is inevitable
whenever it is necessary to do something as a group. In the case of the condominium association,
people have no choice but to pay for the security guard at the front desk. In the case of the state,
people have no choice but to pay for the [police]. In both cases, the freedom that is being
restricted is nothing other than the freedom to free-ride. And that’s a freedom we’re all better off
not having.”

Stranger than fiction

“The material prosperity of Americans is due to the relatively unrestricted operations of the
market economy in their society. It can cost a lot of money to make buildings beautiful. Once they
are built, their beauty can be enjoyed for free by anyone who happens to pass by. Thus the
enjoyment we all get from beautiful surroundings is largely a positive externality. As we have
seen, market economies systematically underproduce goods with positive externalities. And so
beauty suffers.”

“When I was living in Chicago, I once passed a homeless man on my way to school. It was the
middle of winter, and he had no shoes. It made me feel ill. In some people, this feeling is strong
enough that they are willing to donate some of their own money to charity in order to help relieve
such suffering. Unfortunately, the fact that this preference is felt so strongly in some quarters
gives others an opportunity to free-ride. People who don’t care much about other people can get
away with not donating anything to charity. They still get all the benefits that poor relief
generates—in terms of improved environment and security—yet pay none of the costs. Thus
charity leads to the exploitation of the moral by the immoral.”

Economics as ideology

Joseph Heath’s first impression of economics was that it was a “crude right-wing ideology”. He
says that as he learned more about economics, “a number of studies have since shown that
studying economics can actually make you a bad person.” He added in a footnote that “in
fairness, I should point out that these studies do not show that studying economics makes you a
bad person. It may just be that bad people are more likely to be attracted to the study of
economics. Anyhow, the truth probably lies somewhere in between.”

Milton Friedman: “The state might come back. The only reason free markets have a ghost of a
chance is that they are so much more efficient than any other form of organization. When you
argue for free markets, you are arguing against the trend. When something goes wrong, the
natural tendency is to say, ‘by God, we need to pass a law and do something’.”

The idea that free markets “are so much more efficient” is an unsubstantiated, never proven
assumption. As British writer Frances Wheen points out in Idiot Proof):

“there is no evidence for the contention that simple laissez-faireis the prerequisite for trade and
prosperity. The IMF may say so, but its own figures tell a different story. Its report on ‘The
World Economy in the Twentieth Century’, published in May 2000, includes a graph—printed
very small, perhaps in the hope that no one would notice—which shows that the period between
1950 and 1973 was by far the most successful of the twentieth century. This was an era
characterized by capital controls, fixed exchange rates, strong trade unions, a large public sector,
and a general acceptance of government’s role in demand management. The average annual
growth in ‘per capita real GDP’ through the world was 2.9 percent—precisely twice as high as
the average rate since then.”
In fact, writes Heath,

“There is a tendency in our society to overestimate how easy it is to put together a market. We
are sometimes told that markets will spring up naturally whenever people are left free to trade.
Nothing could be further from the truth. Markets are extremely sophisticated legal constructions.
Furthermore, getting them to work properly requires people to think about their society in a very
counter-intuitive way. As a result, markets represent a very unobvious and improbable
institutional development (If they weren’t so unobvious people would have thought of them long
ago.) The central virtue of markets is that they allow individuals to organize productive activities
using far less information than any other type of economic institution. They allow us, in a sense,
to solve the basic problems of our economy without actually working out a solution. Precisely
how they do this is the question that has fascinated economists for the last two hundred years.”

In his book Capitalism and Freedom, conservative Nobel economist Milton Friedman argued
that “a central element in the development of collectivist sentiment…has been a belief in equality
as a social goal and a willingness to use the arm of the state to promote it.” What is the
justification for state intervention? he asked. “The ethical principle that would directly justify the
distribution of income in a free market is, ‘To each according to what he and the instruments he
owns produces.’ The operation of even this principle implicitly depends on state action. Property
rights are matters of law and social convention. As we have seen, their definition and enforcement
is one of the primary functions of the state. The final distribution of income and wealth under the
full operation of this principle may well depend markedly on the rules of property adopted.”

Simon-Henri Linguet, a lawyer in pre-Revolutionary France, was disbarred from practice

because he was critical of both the law and property. He said:

Jacques Necker

“Laws are destined above all to safeguard property. Now as one can take away much more from
the man who has than from the man who has not, they are obviously a guarantee accorded the
rich against the poor. It is difficult to believe, and yet it is clearly demonstrable, that the laws are
in some respects a conspiracy against the majority of the human race.”

Jacques Necker, controller of finances, was fired on the eve of the French Revolution: “Almost all
civil institutions have been made by property owners. One might say that a small number of men,
having divided the earth among themselves, made laws as a union and guarantee against the
multitude.”

In Emile, the French philosopher Jean-Jacques Rousseau wrote: “The universal spirit of laws in
all countries is to favour the stronger against the weaker, and those who have against those who
have nothing; this disadvantage is inevitable and without exception.”
This is echoed today by no less a personage than Col. Muammar el-Qaddafi (Libyan dictator as
of this writing) who said in his Green Book: “This is genuine democracy, but in reality the strong
always rule.”

In The Social Contract Rousseau said that the 17th century thinkers, Hugo Grotius (jurist) and
Thomas Hobbes (philosopher) “show us the human race divided into herds of cattle, each with a
master who preserves it only in order to devour its members.”

Economics of a “Christian” nation

Joseph Heath wrote:

“St. Matthew had a number of good lines. My favourite is his somewhat infamous principle of
justice: ‘To everyone who has will be given, and he will have abundance, but from him who has
not, even that he has will be taken away. Throw out the unprofitable servant into the outer
darkness, where there will be weeping and gnashing of teeth’. This passage occurs in the so-called
‘parable of the talents’, in which Jesus appears to endorse a number of very dubious moral
principles.”

Conclusion: The original affluent society

In the 1960s, anthropologist Marshall Sahlins argued that our society had “erected a shrine to the
Unattainable: Infinite Needs,” submitting to capitalist discipline and competition to earn money
so we can chase those infinite needs by buying things we don’t really want. We could learn
something, Sahlins suggested, from the pre-agricultural, hunter-gatherers of ten thousand years
ago. “The world’s most primitive people,” he wrote, “have few possessions but they are not poor.”
This only sounds like a paradox, for Sahlins went on to point out that foragers typically worked
twenty-one to thirty-five hours per week. Hunter-gatherers did not have cars or TVs, but they did
not know they were supposed to want them. Their means were few but their needs were fewer,
making them, in Sahlins view “the original affluent society.”

This is a somewhat simplistic observation but it contains the kernel of a profound truth. Their
lives, by our standards, were short and in many ways uncomfortable (understatement?). If they
had had medicines and medical techniques that would have rid them of curable diseases and let
them live longer and more comfortably, there still would have been no need for them to pursue
useless material goods. Excess consumption is an artificial situation promoted by the capitalist
system, i.e., by property owners whose only goal is to increase their property and maintain their
dominance over their workers.

As Galbraith wrote:
 “To be guided by the belief that everyone should work a standard week and year—is to make
the needs of the industrial system, not the opportunity of the individual to fashion his own
existence, the ruling social concern. Men who speak of liberty should allow and even encourage
it.”

Daniel Johnson was born near the midpoint of the twentieth century in Calgary, Alberta. In his
teens he knew he was going to be a writer, which is why he was one of only a handful of boys in
his high school typing class — a skill he knew was going to be necessary. He defines himself as a
social reformer, not a left winger, the latter being an ideological label which, he says, is why he is
not an ideologue. From 1975 to 1981 he was reporter, photographer, then editor of the weekly
Airdrie Echo. For more than ten years after that he worked with Peter C. Newman, Canada’s top
business writer (notably on a series of books, The Canadian Establishment). Through this period
Daniel also did some national radio and TV broadcasting. He gave up journalism in the early
1980s because he had no interest in being a hack writer for the mainstream media and became a
software developer and programmer. He retired from computers last year and is now back to
doing what he loves — writing and trying to make the world a better place

http://www.salem-news.com/articles/february242011/economic-pseudoscience-dj.ph
Economic theory claims to describe how economies maximize, or fail to maximize, value. Yet
philosophers have demonstrated (as most economists will readily admit) that economists don't
really know what they are talking about when the talk about value. Economic theory has been
reformulated in various ways to try to circumvent this problem. But most such fixes are nothing
more than circumlocutions, substitutions of other words or phrases for "value".
There are also other, more technical, issues (e.g., economic theory is oriented toward static
equilibrium models while the real world involves dynamic, ongoing processes; "proofs" of
economic theories often rely on fixed-point theorems which require the absurd assumption that
all economic quantities are continuous; and so on.)
All the above criticism would be, if not negated, at least blunted, if economic theory were actually
useful, if it could predict or help us to understand events in the real-world economy. This is where
it becomes most obvious that economics is a pseudoscience. In science, theories and models are
tested against reality. If they are contradicted by confirmed events, theories are either modified
or rejected. In the long run there is a winnowing out process which selects one or a few theories
as being most probably correct. In a pseudoscience, no such winnowing out occurs: when
confronted with strong evidence against a pseudoscientific theory, either the evidence is dismissed
or reinterpreted to conform to theory, or the theory is reinterpreted to make it consistent with the
data. Abandonment of the theory is never even an option. There has been no winnowing out of
economic theories. When an "impossible" event occurs (e.g., "stagflation"), data or theory is
simply reinterpreted to conform to the new situation.

Economics has all the earmarks of a pseudoscience. I believe it is leading us astray

and should be abandoned, and that we should try to develop a true science of
economy.
http://www.god-and-country.info/EconIntro.html
http://www.econjobrumors.com/topic/economists-is-a-pseudoscience
Corporate crime: basic economics
Unlearning Economics says that capitalism gives us "institutionalized law-breaking":
Corporations have long history of force, fraud and theft...In a system based on private
accumulation, they will use their profits to corrupt the legal system, hijack public
funds, get the best lawyers, and make their operations as opaque as possible to avoid
prosecution, no matter the charge. None of this is a bug of capitalism; it is a feature.

If this sounds like a lefty rant, it shouldn't. It's just elementary economics.
This tells us that firms supply things up to the point at which the marginal benefit equals the
marginal cost. But this doesn't merely apply to the supply of goods and services. As Gary Becker
showed (pdf) it also applies to crime. Companies (like individuals) will commit crime up to the
point at which the benefit of doing so - higher profits - exceeds the cost. In the amoral world of
econ 101, the cost is the penalty for being caught (criminal punishment plus loss of business from
irate customers), multiplied by the probability of being caught*.
We should, then, expect there to be a positive level of corporate crime and bad behaviour: fraud,
money-laundering, breach of health and safety laws, the silencing of critics and so on.
However, it's not just companies for whom the optimum level of crime is positive. The same is
true for society as a whole, because the cost of detecting and prosecuting some crimes might
exceed the social cost of their commission; there is a reason why the government doesn't employ
the whole population as policemen. As David Friedman wrote:
Theft is inefficient—but spending a hundred dollars to prevent a ten-dollar theft is
still more inefficient. Reducing theft to zero would almost certainly cost more than it
would be worth. What we want, from the standpoint of economic efficiency, is the
optimal level of theft. We want to increase our expenditures on law enforcement only
as long as one more dollar spent catching and punishing thieves reduces the net cost of
theft by more than a dollar. Beyond that point, additional reductions in theft cost
more than they are worth.

But here's the thing. The relative cost of investigating corporate crime is very often high; 90
officers are employed by Operation Weeting, for example.If Stephen Green didn't know about
HSBC's dealings with money launderers, what chance would the average plod have of finding
out?
Given these costs**, we'd expect scarce policing resources to be directed towards lower cost
activities such as arresting cyclists.
We would therefore expect companies to commit crime and the state to tolerate this, up to a
point. You don't have to be a leftist to see this. You just need to know very basic economics.
* In a world where morality matters, we can add to the cost term a "psychic cost" of the sense of
shame and guilt of doing bad things. But there's no reason, a priori, to assume that this psychic cost
is so high as to prevent all crime.
** One caveat here is that public outrage about corporate crime might increase the benefits to the
state of devoting more resource to its detection. But efficiency requires that such resources be
sufficient to placate public anger, not that they be sufficient to prevent all crime.
http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2012/07/corporate-crime-
basic-economics.html

Readers Comments
I hate the way economists model issues like crime using their overly simplistic "cost-benefit"
marginalist framework. As a sociologist we understand that crime doesn't just occur in a
vacuum, but is influenced and moulded by deep seated socioeconomic and cultural factors that
interact with the existing structure of society. Economists treat criminals as making a "choice" to
commit crime, which fits well with the neoliberal ideology of taking personal responsibility for
your actions (which they use to bash the "underclass").
Where in the economic model of crime is the influences of class, power relations, social
conditioning and propaganda (benefit claimants are criminals, but corporate tax avoiders are
not)? This is why the rest of the social scientists despise economics as a discipline. It strips away
all relevant aspects of a particular topic, and what remains is a ridiculous conception of human
motivations, and based on the behavioural assumptions imposed on homo economicus, you model
his actions based on simple heuristics that bare no relation to the real world.

And UnlearningEcon's point about socialism not being as good as capitalism in terms of capitalist
objectives is spot on, and is something the neoliberal economics profession choose not to get. This
is why we get bogus criticisms about socialism that complain that it doesn't achieve allocative or
productive efficiency, or that it doesn't offer consumer choice, that trade is restricted, that
economic growth is disappointing etc.
Well, that is not the purpose of socialism. Only economists believe in infinite exponential growth
in a world of finite natural resources. Socialists don't care about economic growth, the point of
socialism is to help man achieve his true potential, unhindered by class divisions or social
disadvantages. This self realisation of man is not dependent on consumer choice or economic
growth, or efficient market production.
A socialist system is based on the mantra of "From each according to his ability, to each
according to his need". The aim is not acccumulation and exploitation, two goals that capitalism
is undoubtedly the market leader in.

Could be incorporated into the model, but it's the same way economists incorporate altruism into
models of utility maximisation. It makes the concept of utility maximisation pointless, because
you can simply justify anything in terms of utility maximisation or (in terms of crime) include all
sorts of factors into the marginalist cost-benefit computation. But this is not how real people
behave, and it individualises concepts like class, culture, stigma when in reality they are
interconnected.

"I hate the way economists model issues like crime using their overly simplistic "cost-benefit"
marginalist framework."
I hate the way people make gigantic generalisations against millions of people, despite not
actually knowing what they're talking about.
"As a sociologist we understand that crime doesn't just occur in a vacuum, but is influenced and
moulded by deep seated socioeconomic and cultural factors that interact with the existing
structure of society."
I would say that I hate the way sociologists love to point out the obvious and obfuscate with
obnoxious and fundamentally uninteresting rhetoric, but I'm not as unbearably smug as you as
to make such a gigantic generalisation.
"(which they use to bash the "underclass")."
More insane, unsourced, unjustified hyperbole.
"Where in the economic model of crime is the influences of class, power relations, social
conditioning and propaganda (benefit claimants are criminals, but corporate tax avoiders are
not)?"
Which economic model? I don't see any reason why any of these can't be included in an economic
model. You seem to be attacking Chris for explaining how corporations might commit a crime
because it is in their interests to. The fact that he didn't mention class or propaganda seems like
an unbelievably mundane and trivial critique, he did nothing to actively exclude these factors as
being a potential explanation, just offered a motivation for their crime.
"This is why the rest of the social scientists despise economics as a discipline."
I would say that almost everyone despises sociologists for their unbearable intellectual
masturbation consisting of mostly non rigorous verbiage, but again.. generalisations and all.
" you model his actions based on simple heuristics that bare no relation to the real world."
Really? I don't think it's unrealistic to think of firms looking at the risks and rewards to crime,
and choosing to commit crime based on these factors. I actually know people who have
committed white collar crime (tax fraud); they obsessed about the risks in a meticulous fashion,
Chris' approach seems to appropriately fit in here, whereas propaganda or class does not seem to
offer an insightful explanations for his action in this case.
Of course this is just an anecdote, it can't match your... oh wait, you used literally nothing; not a
single shred of evidence to support any of your claims, just rhetoric. You must be the worst
ambassador for your discipline I have ever seen. Keep it up.

I wasn't attacking Chris at all, but the way economists model complex socioeconomic problems
like crime in such a reductionist, atomistic manner which completely ignores the social context in
which such phenomena is observed. If we followed the economists' way of modelling crime, it
appears to occur in a vacuum, which is totally divorced from reality.
You mention sociologists point out the obvious, and yet economists don't seem to take into
account the theories that sociologists have produced on topics that both disciplines study. If our
insights are obvious and yet economists ignore them, what does that say about economics?
You claim that my line about bashing the underclass is unjustified hyperbole. I simply ask you to
read any of the main newspapers and its frequent attacks against the "underclass" or "chav"
population of the country. They may use coarser language, but the underlying philosophy is
based on this idea that individuals make a concious choice to commit crime (promoted by
economics), and therefore deserve all the opprobrium heaped on them by the right wing media.
They, like economists like Becker, fail to point out that the so called "criminal underclass" are
actually subject to many social and cultural pressures and have suffered immensely due to an
unjust economic system, so in some ways are also victims.
The fact that you criticise sociology for intellectual masturbation is hilarious, given that same
criticism is much more relevant for economics. Your discipline comes out with paper after paper
using obscure, arcane mathematics to "prove" to yourselves that your theorems are actually
correct if you assume about 100 different things. At least sociologists study topics that are
relevant to people in the real world.
You mention "non rigorous verbiage". Well, perhaps our way of studying social phenomena is
not rigorous, but neither are economists' mathematical models. The economist Yanis Varoufakis
says this in his introduction to his blog,
"Quite clearly economics was only interested in putting together simplistic mathematical models.
Worse still, the mathematics utilised were third rate and, consequently, the economic thinking
that emanated from it was atrocious."
My final retort to your post is related to your belief that the concepts I mention (class, power
relations etc) can be included into economic models. Let's ignore for the time being the fact that
the way these concepts are included make the models unfalsifiable and therefore unscientific. A
more fundamental point would be why, in the economics of crime literature, are these concepts
not included if they are so easy to incorporate? IMO, it's probably because economists are simply
in the pay of neoliberal corporate interests and therefore decide to self censor themselves so as
not to upset their paymasters.

Mainstream Economics is a Cult

Posted on June 30, 2012 by WashingtonsBlog

Neoclassical Economics Is Based on Myth

Neoclassical economics is a cult which ignores reality in favor of shared myths.

Economics professor Michael Hudson writes:
[One Nobel prize winning economist stated,] “In pointing out the consequences of a
set of abstract assumptions, one need not be committed unduly as to the relation
between reality and these assumptions.”

This attitude did not deter him from drawing policy conclusions affecting the material
world in which real people live….

Typical of this now widespread attitude is the textbook Microeconomics by William

Vickery, winner of the 1997 Nobel Economics Prize:

“Economic theory proper, indeed, is nothing more than a system of logical

relations between certain sets of assumptions and the conclusions derived
from them… The validity of a theory proper does not depend on the
correspondence or lack of it between the assumptions of the theory or its
conclusions and observations in the real world. A theory as an internally
consistent system is valid if the conclusions follow logically from its
 premises, and the fact that neither the premises nor the conclusions
correspond to reality may show that the theory is not very useful, but does
not invalidate it. In any pure theory, all propositions are essentially
tautological, in the sense that the results are implicit in the assumptions
made.”

Such disdain for empirical verification is not found in the physical sciences.

“Our models show there is no chance of water”

Neoclassical economists created the mega-banks, thinking that bigger was better. They pretend
that it’s better to help the big banks than the people, debt doesn’t exist, high levels of leverage are
good, artificially low interest rates are fine, bubbles are great, fraud should be covered up, and
insolvent institutions propped up.
Indeed, even after a brief period of questioning their myths – after the 2008 economic crisis
proved their core assumptions wrong – they have quickly regressed into their old ways.

Economics professor Steve Keen notes:

Neoclassical economics has become a religion. Because it has a mathematical veneer,
and I emphasize the word veneer, they actually believe it’s true. Once you believe
something is true, you’re locked into its way of thinking unless there’s something that
can break in from the outside and destroy that confidence.

Paul Heyne said:

The arguments of economists legitimate social and economic arrangements by
providing these arrangements with quasi-religious justification. Economists are thus
doing theology while for the most part unaware of that fact.

Economics professor Bill Black told me:

The amount of fraud that drove the Wall Street bubble and its collapse and caused the
Great Depression is contested [keep reading to see what Black means]. The Pecora
investigation found widespread manipulation of earnings, conflicts of interest, and
insider abuse by the nation’s most elite financial leaders. John Kenneth Galbraith’s
work documented these abuses. Theoclassical economic accounts, however, ignore or
excuse these abuses.

Black explains:
[Neoclassical economists believed that] fraud is impossible because securities markets
are “efficient” and act as if they were guided by an “invisible hand.” Markets cannot
be efficient if there is accounting control fraud, so we know (on the basis of circular
reasoning) that securities fraud cannot exist. Indeed, when [mainstream economists]
try to explain why the securities markets automatically exclude frauds their faith-
based logic becomes even more humorous.

Alex Andrews notes in the Guardian:

Greenspan’s confession [that his assumption that fraud is not a big problem for the
 economy was totally wrong] was seen by many for precisely what it was: a crisis of
faith, the faith that unrestricted free markets would always act benevolently. [Note: As
we show below, neoclassical economists do not really believe in free markets. As such,
they are blind cultists, rather than thinking people of faith.] It revealed what a few
had been arguing for some time, that the character of neoliberal economics is
essentially religious. This is counter-intuitive. Surely the policy of Greenspan and
others is based on an understanding of the science of economics, particularly in the
mainstream neoclassical form that is most often taught in universities around the
world? It is certainly the case that neoclassical economics appears scientific. This is
because it deploys huge quantities of complex mathematics, giving it the veneer of
being what it has long hoped to be, a kind of social physics.

Equations prove free markets work, but only in a sterile world of mathematical abstraction
that relies on ridiculous assumptions such as perfectly competitive markets. It is little
surprise then that Jean-Philippe Bouchaud, writing in the journal Nature, calls for a
“scientific revolution” in economics.

Once economics loses its status as science, its religious aspects become more obvious. Robert
H Nelson has spent his career trying to show that economics is religious in character.
Through “the gospel of efficiency” after the second world war, Nelson argues that
economists promised progress, a removal of sin, heaven on earth. Economists play the role
of priests, defining good and bad behaviours that make this salvation possible.

It is clear that this is a market theodicy, justifying the ways of the market to men. When
neoliberal politicians warn against governments interfering in the market, lest the
irrational and temporary will of the electorate interfere with the “spontaneous order” of
markets, this now seems like a dire warning that we must not “play God” and attempt to
control the mysteries of the market that in our finitude, our “bounded rationality”, we
cannot properly fathom.

Harpers noted in 2005 that neoclassical economics – underneath it’s veneer of math and science –
is actually a twisted form of Protestant religion in disguise:
Economics, as channeled by its popular avatars in media and politics, is the cosmology
and the theodicy of our contemporary culture. More than religion itself, more than
literature, more than cable television, it is economics that offers the dominant creation
narrative of our society, depicting the relation of each of us to the universe we inhabit,
the relation of human beings to God. And the story it tells is a marvelous one. In it an
enormous multitude of strangers, all individuals, all striving alone, are nevertheless all
bound together in a beautiful and natural pattern of existence: the market. This
understanding of markets—not as artifacts of human civilization but as phenomena of
nature—now serves as the unquestioned foundation of nearly all political and social
debate.

Economics departments around the world are overwhelmingly populated by economists of

one particular stripe. Within the field they are called “neoclassical” economists, and their
approach to the discipline was developed over the course of the nineteenth century.
Neoclassical economics tends to downplay the importance of human institutions, seeing
instead a system of flows and exchanges that are governed by an inherent equilibrium.
Predicated on the belief that markets operate in a scientifically knowable fashion, it sees
them as self-regulating mathematical miracles, as delicate ecosystems best left alone.

If there is a whiff of creationism around this idea, it is no accident. By the time the term
“economics” first emerged, in the 1870s, it was evangelical Christianity that had done the
most to spur the field on toward its present scientific self-certainty.

When evangelical Christianity first grew into a powerful movement, between 1800 and
1850, studies of wealth and trade were called “political economy.” The two books at the
center of this new learning were Adam Smith’s Wealth of Nations (1776) and David
Ricardo’s Principles of Political Economy and Taxation (1817).

Ricardo concluded that the interests of different groups within an economy—owners,

investors, renters, laborers—would always be in conflict with one another. Ricardo’s
credibility with the capitalists was unquestionable: he was not a philosopher like Adam
Smith but a successful stockbroker who had retired young on his earnings. But his view of
capitalism made it seem that a harmonious society was a thing of the past: class conflict was
part of the modern world, and the gentle old England of squire and farmer was over.

The group that bridled most against these pessimistic elements of Smith and Ricardo was
the evangelicals. These were middle-class reformers who wanted to reshape Protestant
doctrine. For them it was unthinkable that capitalism led to class conflict, for that would
mean that God had created a world at war with itself. The evangelicals believed in a
providential God, one who built a logical and orderly universe, and they saw the new
industrial economy as a fulfillment of God’s plan. The free market, they believed, was a
perfectly designed instrument to reward good Christian behavior and to punish and
humiliate the unrepentant.

At the center of this early evangelical doctrine was the idea of original sin: we were all born
stained by corruption and fleshly desire, and the true purpose of earthly life was to redeem
this. The trials of economic life—the sweat of hard labor, the fear of poverty, the self-denial
involved in saving—were earthly tests of sinfulness and virtue. While evangelicals believed
salvation was ultimately possible only through conversion and faith, they saw the pain of
earthly life as means of atonement for original sin.

The extreme among them urged mortification of the flesh and would scold anyone who took
pleasure in food, drink, or good company. Moreover, they regarded poverty as part of a
divine program. Evangelicals interpreted the mental anguish of poverty and debt, and the
physical agony of hunger or cold, as natural spurs to prick the conscience of sinners. They
believed that the suffering of the poor would provoke remorse, reflection, and ultimately the
conversion that would change their fate. In other words, poor people were poor for a
reason, and helping them out of poverty would endanger their mortal souls. It was the
evangelicals who began to see the business mogul as an heroic figure, his wealth a triumph
of righteous will. The stockbroker, who to Adam Smith had been a suspicious and somewhat
twisted character, was for nineteenth-century evangelicals a spiritual victor.
By the 1820s evangelicals were a dominant force in British economic policy.Victorian
evangelicals took a similar approach to the crisis in Ireland between 1845 and 1850 …the
potato famine.

The phrase “political economy” itself began to connote a cruel disregard for human
suffering. And so a generation later, when the next phase of capitalist boosterism emerged,
the term “political economy” was simply junked. The new field was called “economics.”
What had got the political economists into trouble a generation before was the perception,
from a public dominated by Dickens readers, that “political economy” was mostly about
politics—about imposing a zealous ideology of the market. Economics was devised, instead,
as a science, a field of objective knowledge with iron mathematical laws. Remodeling
economics along the lines of physics insulated the new discipline from any charges filed on
moral or sentimental grounds. William Stanley Jevons made this case in 1871, comparing
the “Theory of Economy” to “the science of Statical Mechanics” (i.e., physics) and arguing
that “the Laws of Exchange” in the marketplace “resemble the Laws of Equilibrium.”

Today we often think of science and religion as standing in opposition, but the “scientific”
turn made by Jevons and his fellows only served to enshrine the faith of their evangelical
predecessors. The evangelicals believed that the market was a divine system, guided by
spiritual laws. The “scientific” economists saw the market as a natural system, a principle
of equilibrium produced in the balance of individual souls.

U.S. policy debate, both in Congress and in the press, proceeds today as if the neoclassical
theory of the free market were incontrovertible, endorsed by science and ordained by God.
But markets are not spontaneous features of nature; they are creations of human
civilization, like, for example, skating rinks.

The claim that markets are products of higher-order law, products of nature or of divine
will, simply lends legitimacy to one particularly extreme view of politics and society.

Similarly, Philip Pilkington writes:

Taken at a very base level, the notion that there is an ‘invisible hand’ that irons out
inconsistencies and increases the efficiency of the production and circulation of goods
is basically the same claim that Hegel made about history being moved by a force
called Reason. (Indeed, Adam Smith was one of Hegel’s references, perhaps even one
of his key references). This claim, when made by either Smith or Hegel, can be traced
back in turn to the Protestant tradition of predestination. The reasoning here is
absolutely metaphysical and like the metaphysicians of yore it carries with it a moral
lesson to be passed on to disciples.

Economists make huge generalisations about the people they study. They assume, for
example, a single consumer that consumes the same goods and then projects this onto all
consumers.

This is pure metaphysical reasoning. The economists concoct an idea in their heads which
they then use to construct a theoretical edifice which falls apart when the original idea is
shown to be false. They then derive a sort of ‘moral code’ from this construct which tells
people how they should behave. In this case, students are told that this is how people should
behave if they are to produce efficiently and effectively.

How is this different from the shaman who makes up a myth about the origins of the tribe
and then derives moral lessons from this myth that he then teaches to the tribes-people? It’s
not.

Economic ideas – such as the myth of the ‘single consumer’ – serve the function of ‘limiting
principles’ for the way people in our contemporary society are allowed to think about the
world. To think outside these ‘symbolic boundaries’ is not to be taken seriously. And yet,
these boundaries are simply metaphysical constructs built up by economists and then
disseminated to the population at large as a type of moral system.

Economics, then, is the totem – its simple moral lessons, the taboos. And this is how we in
the modern world organise our thoughts and actions.

Adam Smith’s ‘hidden hand’ – is the direct descendent of Protestant predestination.

Economics has become, once again, a metaphysical doctrine boiled down to a few crass
moralisms that are spoon-fed to the educated public.

It is really a subtle way of telling people what to do and assuring them that such authority is
founded on some sort of Natural or Divine Law.

In policy circles today economists play the role of the court-priest. They deploy their
esoteric and impenetrable ‘knowledge’ to tell policymakers what they should and should
not do. To constrain economists to simply explain how the system works is to give them a
role closer to that of the lawyer. The policymaker consults a lawyer to figure out what he or
she can or cannot do and then makes a decision from there. Similarly, he or she might
consult the economist, if the latter was seen as an operational role rather than as that of a
seer.

This would, of course, threaten the role of the economist in society today. One can imagine
that it is rather nice to be thought of as a divine, laying down metaphysical principles about
the ‘inner’ workings of the world and deriving from these timeless truths and moral
certainties that we mere mortals can then submit to. So, one can also imagine that these
preachers and their flocks will respond to such a challenge with moral outrage. It is the
outrage of a priest who has been told that his God is an invention, concocted in his mind to
be used as leverage over his fellow men.

Neoclassical Economists Do NOT Believe in a Free Market

While many of the above quotes claim that neoclassical economists worship the free market, this
is not actually true.
As I’ve previously noted:
When Mahatma Gandhi was asked what he thought about Western civilization, he
answered: I think it would be a good idea.
I feel the same way about free market capitalism.

It would be a good idea, but it is not what we have now. Instead, we have either socialism,
fascism or a type of looting.

If people want to criticize capitalism and propose an alternative, that is fine . . . but only if
they understand what free market capitalism is and acknowledge that America has not
practiced free market capitalism for some time.

People pointing to the Western economies and saying that capitalism doesn’t work is as
incorrect as pointing to Stalin’s murder of millions of innocent people and blaming it on
socialism. Without the government’s creation of the too big to fail banks, Fed’s intervention
in interest rates and the markets, government-created moral hazard emboldening casino-
style speculation, corruption of government officials, creation of a system of government-
sponsored rating agencies which had at its core a model of bribery, and other government-
induced distortions of the free market, things wouldn’t have gotten nearly as bad.

Being against capitalism because of the mess we’ve gotten in would be like Gandhi saying
that he is against Western civilization because of the way the British behaved towards India.

And – in the same way that the village shaman was often enlisted to promote and justify the
chief’s power as being divinely-ordained and unquestionable, many of today’s neoclassical
economists justify the acts of the ruling political class as being “economically sound”, even when
such acts are antithetical to free market economics.
Postscript 1: Of course, for free market economics to become a real science, it will have to take into
account realities such as imperfect information, externalities, the ability of powerful criminals to
warp markets, people’s behavioral idiosyncrasies and other real world factors.
Postscript 2: Just as it is unfair to blame the behavior of a crazy cult leader on religion as a whole, it
is improper to blame our broken economic system on free market capitalism. It is the neoclassical
economists who have broken our system.
http://www.washingtonsblog.com/2012/06/mainstream-economics-is-a-cult.html

John F. Kennedy and All Those "isms"

Laura Knight-Jadczyk
SOTT.net
Comment: This is the fifth in a series of articles written in 2006 commemorating the 43rd
anniversary of the assassination of JFK that we are carrying every weekday as we approach the
45th Anniversary of that tragedy for mankind.

It's been said that you can always recognize a man's true character by the people he surrounds
himself with. Obama's leading foreign and domestic policy advisors and likely administration
members are prominent members of the Council On Foreign Relations.

Mike Whitney describes the CFR as "the corporate-banking brotherhood which believes the
wealth of the world should be divided among themselves regardless of the suffering or
destruction it may cause."

As an example, one of those advisors and CFR members, Madelaine Albright is no exception:
When asked by CBS's 60 Minutes about the effects of sanctions: "We have heard that
half a million children have died. I mean, that's more children than died in Hiroshima.
And, you know, is the price worth it?" Albright replied: "I think this is a very hard
choice, but the price - we think the price is worth it."

'Change we can believe in' may be severely constrained by advisors with no conscience or
remorse, intent on expanding America's imperialism, totalitarianism and preserving the
currently destructive version of 'free market' capitalism.

John F. Kennedy and All Those "isms"

Today, I want to come back to my JFK project. Twelve days from now is the 43rd anniversary of
the assassination - a virtual coup d'etat effected by Corporate America and its various
connections. As I mentioned when I began this little series in commemoration of John F.
Kennedy, a close and careful study of American history reveals that the American system was set
up to promote the rule of the rich. It was Calvinism with a kick, and that kick was that it
appealed to deviant persons without conscience for whom it seems the Capitalistic system was
invented.

Just to make the point, allow me to present some web definitions of Capitalism for your
consideration:
Although nowadays there are ideological capitalists - people who support a set of ideas
about the economic benefits and importance of "free markets" - the term capitalism
was first used to describe a system of private investment and industry with little
governmental control which emerged, without an ideological basis, in the Netherlands
and Britain in the 17th and 18th centuries. A "capitalist" was an individual who
invested money (or capital) in a given business venture. Source

An economic system in which the means of production are privately owned and
controlled and which is characterized by competition and the profit motive. Source

Capitalism is an economic theory which stresses that control of the means of

producing economic goods in a society should reside in the hands of those who invest
the capital for production. Private ownership and free enterprise is supposed to lead
to more efficiency, lower prices, better products. Adam Smith popularized this theory
in his 1776 book The Wealth of Nations. Source

An economic system in which capital is mostly owned by private individuals and

corporations. Contrasts with communism. Source

An economic system built upon the profit motive. Capitalism depends upon private
individuals or companies investing money in order to make profits. In Marxist
analysis, these profits are secured by exploiting workers who provide their labour.
Source
 Capitalism is an economic system characterized by private ownership of property and
well-developed financial institutions. Capitalism allows individual initiation, business
competition, inheritance, and profit earning. Source

Now, in order to be fair, let's look at the definitions for Communism, the dreaded Capitalist
Threat:
An economic theory which stresses that the control of the means of producing
economic goods in a society should reside in the hands of those who invest their labor
for production. In its ideal form, social classes cease to exist, there is no coercive
governmental structures, and everyone lives in abundance without supervision from a
ruling class. Karl Marx and Friedrich Engels popularized this theory in their 1848
Communist Manifesto. Source

An economic or political system based on the sharing of all work and property by the
whole community. Source

An economic system in which capital is owned by private government. Contrasts with

capitalism. Source

a totalitarian system of government in which a single authoritarian party controls

state-owned means of production with the professed aim of establishing a stateless
society. Source

a system of government in which the state plans and controls the economy and a
single, often authoritarian party holds power, claiming to make progress toward a
higher social order in which all goods are equally shared by the people." Source

Socialism:
A system based on public ownership of the means of production and distribution of
wealth. Source

An "economic, social and political doctrine which expresses the struggle for the equal
distribution of wealth by eliminating private property and the exploitative ruling
class. In practice, such a distribution of wealth is achieved by social ownership of the
means of production, exchange and diffusion." (7) Source

The view that the government should own and control major industries. Source

is any of various theories or systems of social organization in which the means of

producing and distributing goods is owned collectively or by a centralized government
that often plans and controls the economy." Source

the theory or system of the ownership and operation of the means of production and
distribution by society rather than by private individuals, with all members of the
community coerced to share in the work and the products. In Marxism, the transition
phase between capitalism and communism, defined as "abolition of private property."
Source
Can't leave out Fascism:
The name comes from the Latin fasces - a bundle of rods with a projecting axe, which
was the symbol of authority in ancient Rome. The term was applied by Mussolini to
his movement after his rise to power in 1922. The Fascists were viciously anti-
Communist and anti- liberal and, once in power, relied on an authoritarian state
apparatus. They also used emotive slogans and old prejudices (for example, against
the Jews) to bolster the leader's strongman appeal. Source

A social and political ideology with the primary guiding principle that the state or
nation is the highest priority, rather than personal or individual freedoms. Source

a totalitarian political system led by a single dictator who allows no opposition,

promoting an aggressive nationalism and often racism. Source

Political philosophy that became predominant in Italy and then Germany during the
1920s and 1930s; attacked weakness of democracy, corruption of capitalism; promised
vigorous foreign and military programs; undertook state control of economy to reduce
social friction. (p. 870) Source

a term used particularly to describe the nationalistic and totalitarian regimes of

Benito Mussolini (Italy, 1922-45), Adolf Hitler (Germany, 1933-45) and Francisco
Franco (Spain, 1939-75). Source

An extreme form of nationalism that played on fears of communism and rejected

individual freedom, liberal individualism, democracy, and limitations on the state.
Source

The above definitions are by no means exhaustive. I think it is obvious to any thinking person
that each of these ideologies are more or less extreme in one direction or the other and any one of
them, practiced across the board in any society, is going to create problems.

Capitalism as practiced in America has proven to be a colossal failure. Communism as practiced

in Russia and elsewhere has proven to be a disaster. Fascism as practiced in German and Italy
was a catastrophe for the whole world. Socialism in the strictest sense isn't any better than the
rest.

The problem is, it seems, that the people making up these social theories are deviants, plain and
simple. Andzrej Lobaczewski writes about this problem as follows:
Schizoidia, or schizoidal psychopathy, was isolated by [Emil Kraepelin, one of the]
creators of modern psychiatry. From the beginning, it was treated as a lighter form of
the same hereditary taint which is the cause of susceptibility to schizophrenia.
However, this latter connection could neither be confirmed nor denied with the help of
statistical analysis, and no biological test was then found which would have been able
to solve this dilemma. For practical reasons, we shall discuss schizoidia with no
further reference to this traditional relationship.

Literature provides us with descriptions of several varieties of this anomaly, whose

existence can be attributed either to changes in the genetic factor or to differences in
other individual characteristics of a non-pathological nature. Let us thus sketch these
sub-species' common features.

Carriers of this anomaly are hypersensitive and distrustful, while, at the same time,
pay little attention to the feelings of others. They tend to assume extreme positions,
and are eager to retaliate for minor offenses. Sometimes they are eccentric and odd.
Their poor sense of psychological situation and reality leads them to superimpose
erroneous, pejorative interpretations upon other people's intentions. They easily
become involved in activities which are ostensibly moral, but which actually inflict
damage upon themselves and others. Their impoverished psychological worldview
makes them typically pessimistic regarding human nature. We frequently find
expressions of their characteristic attitudes in their statements and writings: "Human
nature is so bad that order in human society can only be maintained by a strong power
created by highly qualified individuals in the name of some higher idea." Let us call this
typical expression the "schizoid declaration".

Human nature does in fact tend to be naughty, especially when the schizoids embitter
other people's lives. When they become wrapped up in situations of serious stress,
however, the schizoid's failings cause them to collapse easily. The capacity for thought
is thereupon characteristically stifled, and frequently the schizoids fall into reactive
psychotic states so similar in appearance to schizophrenia that they lead to
misdiagnoses.

The common factor in the varieties of this anomaly is a dull pallor of emotion and lack
of feeling for the psychological realities, an essential factor in basic intelligence. This
can be attributed to some incomplete quality of the instinctive substratum, which
works as though founded on shifting sand. Low emotional pressure enables them to
develop proper speculative reasoning, which is useful in non-humanistic spheres of
activity, but because of their one-sidedness, they tend to consider themselves
intellectually superior to "ordinary" people.

The quantitative frequency of this anomaly varies among races and nations: low
among Blacks, the highest among Jews. Estimates of this frequency range from
negligible up to 3%. In Poland it may be estimated as 0.7% of population. My
observations suggest this anomaly is autosomally hereditary.

A schizoid's ponerological activity should be evaluated in two aspects. On the small

scale, such people cause their families trouble, easily turn into tools of intrigue in the
hands of clever and unscrupulous individuals, and generally do a poor job of raising
children. Their tendency to see human reality in the doctrinaire and simplistic manner
they consider "proper" - i.e. "black or white" - transforms their frequently good
intentions into bad results. However, their ponerogenic role can have macrosocial
implications if their attitude toward human reality and their tendency to invent great
doctrines are put to paper and duplicated in large editions.

In spite of their typical deficits, or even an openly schizoidal declaration, their readers
do not realize what the authors' characters are really like. Ignorant of the true
condition of the author, such uninformed readers tend to interpret such works in a
manner corresponding to their own nature. The minds of normal people tend toward
 corrective interpretation due to the participation of their own richer, psychological
world view.

At the same time, many other readers critically reject such works with moral disgust
but without being aware of the specific cause.

An analysis of the role played by Karl Marx's works easily reveals all the above-
mentioned types of apperception and the social reactions which engendered animosity
between large groups of people.

When reading any of those disturbingly divisive works, we should examine them
carefully for any of these characteristic deficits, or even an openly formulated schizoid
declaration. Such a process will enable us to gain a proper critical distance from the
contents and make it easier to dig the potentially valuable elements out of the
doctrinaire material. If this is done by two or more people who represent greatly
divergent interpretations, their methods of perception will come closer together, and
the causes of dissent will dissipate. Such a project might be attempted as a
psychological experiment and for purposes of proper mental hygiene. [Political
Ponerology]

Notice the several references to a lack of psychological insight and apperception of reality; this is
the chief factor behind failed social systems: they do not take reality and real human beings into
account.

The ownership of property is important to human beings. Everyone wants - and needs - an
inviolate space to call their own. The old saying "a man's home is his castle" speaks to this
reality. Human beings also want to be able to give gifts to those they love, including things they
have accumulated in their lives; it is a form of immortality that a person can pass on a legacy to
their children in the form of the things they have loved and cherished. Such a psychological need
in the human being must be considered in forumlating a social system. So, obviously, socialism
and communism, if interpreted as something that negates private property, is never going to
work with real, living human beings.

At the same time, any system, such as Captialism, which is designed to concentrate money in the
hands of the most ruthless, also does not take human psychology into account. Oh, indeed, it
favors psychopathy, but it tends, over time, to exclude the achievements of human beings who
have conscience and feel responsibility to their fellow man. Lobaczewski expands on this problem
and the following should be read with the Capitalistic Great Society in mind:
Ever since human societies and civilizations have been created on our globe, people
have longed for happy times full of tranquility and justice, which would have allowed
everyone to herd his sheep in peace, search for fertile valleys, plow the earth, dig for
treasures, or build houses and palaces. Man desires peace so as to enjoy the benefits
accumulated by earlier generations and to proudly observe the growth of future ones
he has begotten. Sipping wine or mead in the meantime would be nice. He would like
to wander about, becoming familiar with other lands and people, or enjoy the star-
studded sky of the south, the colors of nature, and the faces and costumes of women.
He would also like to give free rein to his imagination and immortalize his name in
works of art, whether sculptured in marble or eternalized in myth and poetry.
From time immemorial, then, man has dreamed of a life in which the measured effort of
mind and muscle would be punctuated by well-deserved rest. He would like to learn
nature's laws so as to dominate her and take advantage of her gifts.

Man enlisted the natural power of animals in order to make his dreams come true, and
when this did not meet his needs, he turned to his own kind for this purpose, in part
depriving other humans of their humanity simply because he was more powerful.

Dreams of a happy and peaceful life thus gave rise to force over others, a force which
depraves the mind of its user. That is why man's dreams of happiness have not come true
throughout history. This hedonistic view of "happiness" contains the seeds of misery and
feed the eternal cycle whereby good times give birth to bad times, which in turn cause the
suffering and mental effort which produce experience, good sense, moderation, and a
certain amount of psychological knowledge, all virtues which serve to rebuild more
felicitous conditions of existence.

During good times, people progressively lose sight of the need for profound reflection,
introspection, knowledge of others, and an understanding of life's complicated laws. Is it
worth pondering the properties of human nature and man's flawed personality, whether
one's own or someone else's? Can we understand the creative meaning of suffering we have
not undergone ourselves, instead of taking the easy way out and blaming the victim? Any
excess mental effort seems like pointless labor if life's joys appear to be available for the
taking. A clever, liberal, and merry individual is a good sport; a more farsighted person
predicting dire results becomes a wet-blanket killjoy.

Perception of the truth about the real environment, especially an understanding of the
human personality and its values, ceases to be a virtue during the so-called "happy" times;
thoughtful doubters are decried as meddlers who cannot leave well enough alone. This, in
turn, leads to an impoverishment of psychological knowledge, the capacity of differentiating
the properties of human nature and personality, and the ability to mold minds creatively.
The cult of power thus supplants those mental values so essential for maintaining law and
order by peaceful means. A nation's enrichment or involution regarding its psychological
world view could be considered an indicator of whether its future will be good or bad.

During "good" times, the search for truth becomes uncomfortable because it reveals
inconvenient facts. It is better to think about easier and more pleasant things. Unconscious
elimination of data which are, or appear to be, inexpedient gradually turns into habit, and
then becomes a custom accepted by society at large. The problem is that any thought
process based on such truncated information cannot possibly give rise to correct
conclusions; it further leads to subconscious substitution of inconvenient premises by more
convenient ones, thereby approaching the boundaries of psychopathology.

Such contented periods for one group of people - often rooted in some injustice to other
people or nations - start to strangle the capacity for individual and societal consciousness;
subconscious factors take over a decisive role in life. Such a society, already infected by the
hysteroidal state, considers any perception of uncomfortable truth to be a sign of "ill-
breeding". J. G. Herder's iceberg is drowned in a sea of falsified unconsciousness; only the
tip of the iceberg is visible above the waves of life. Catastrophe waits in the wings. In such
times, the capacity for logical and disciplined thought, born of necessity during difficult
times, begins to fade. When communities lose the capacity for psychological reason and
moral criticism, the processes of the generation of evil are intensified at every social scale,
whether individual or macrosocial, until everything reverts to "bad" times. [Political
Ponerology]

John Kennedy seems to have been aware of these problems. He was a thinker, a philosopher, and
a man who had emerged from the common people, just one generation away. Yes, indeed, it was
the Captitalist system that had given his father the means of putting the family into the class of
the elite, but John Kennedy wasn't Joe Kennedy; he saw that changes needed to be made, and the
only way to make them was to bootstrap himself into position to do so by the very system he
sought to change. That was why he had to die. I don't think that Kennedy was desirous of
creating a completely socialist system, but he clearly saw that Capitalism wasn't doing what it
was supposed to do: to create a prosperous society across the board.

Today, let's look at John Kennedy's social views as described in Farewell America; how he
perceived the need to change the world for the most helpless and oppressed in American society.
This gives us the measure of the man: that he endeavored to find a way to bring up the
downtrodden and disadvantaged. Keep in mind also the fact that the United States of America
was the last "modern" country in the world to give up slavery as part of its economic system -
Capitalism.

http://www.sott.net/articles/show/124975-John-F-Kennedy-and-All-Those-isms-
http://www.webofdebt.com/articles/bankrupt-germany.php

Stalin's New Economic Policy

In the Soviet Union, Josef Stalin's planned economy had followed the New Economic Policy
(NEP) of 1921-28. NEP was in essence a mixed market economy; the main part of the market was
in state possession (banks, industries, foreign trade, etc), while the peripheral part was owned by
collective or private entrepreneurs. NEP, while successful, did not give the Soviet economy
sufficient growth in the capital-goods sectors (ie coal, steel and electricity, transportation, heavy
industry, etc), nor did it provide adequate food for the urban population even as the middle
peasantry managed to feed itself. To overcome such structural obstacles and to combat general
economic backwardness inherited from centuries of Czarist rule, Stalin introduced central
planning as a strategy of national survival.

Starting from 1928, the Soviet economy was put under a system of planning whereby all modes of
production were socialized and foreign trade was de-emphasized in favor of an autarkic system of
domestic demand and supply. The irony was that Soviet central planning adopted much of its
effective techniques from successful US experience. It was a system of planning focused solely on
unit end-results while externalizing social costs. The key distinction was that the Soviets rejected
and bypassed the corporate structure and replaced shareholders with state ownership. Stalin
brought about "revolution from above". Its main features were: strengthening of political
dictatorship in the name of the proletariat (equivalent to enhancing management authority in the
US in the name of shareholders), collectivizing kulak peasants (equivalent to agri-business
development in the US), emergency measure authority (equivalent to government bailouts and
regulations in the US), introduction of a five-year plan structure (adopted from US corporate
strategic planning) and rapid expansion of urban labor force (equivalent to urbanization in the
US), and tight state control over agriculture (equivalent to farm subsidy programs in the US),
heavy industry (equivalent to defense contracts in the US) and finance (equivalent to central
banking in the US). Between 1934 and 1936 the Soviet economy achieved a spectacular economic
growth rate that continued despite political purges of Trotskyites between 1936 and 1938.
Economic growth was unfortunately interrupted by war in 1941. German invasion of the Union
of Soviet Socialist Republics was not independent of apprehension of continued Soviet economic
success.

Propaganda works. It worked in the USSR, in Nazi Germany, in imperial Japan and in the
capitalist US, each to instill in the general public an acceptance of its system as being the suitable
one if not the best, despite visible shortcomings. It helped achieve optimal effectiveness and
stability in the overall economy in all these countries.

Nazi Germany provided another example of successful inter-war economic planning. One of the
main differences between the Nazi and the Soviet economic systems was that the Nazis' was a
mixed economy with strict state control while the Soviets' was a state-owned economy.
Furthermore, being heavily influenced by the ideas of Walter Rathenau (1867-1922), German
economic planners did not seek to build anew with revolutionary zeal as the Russians did, but
rather to reform, molding the existing form of decentralized capitalism into a more effective
centralized system with massive combines to support national aims.

http://www.atimes.com/atimes/Global_Economy/GE24Dj01.html