Economic Orthodoxy = Intellectual Dishonesty

In a recent post, Tom Hickey (courtesy of Clonal Antibody) drew attention to a talk from a few years ago by Bernard Lietaer. It sheds light on the uphill battle involved in taking on the orthodoxy when it comes to money. It seems very clear that the orthodoxy does not believe its own nonsense but rather is motivated mainly by careerism, or worse.

Tom linked to a short snippet of Lietaer’s talk that referred directly to chartalism. Lietaer is not a modern monetary theorist, as he himself makes clear, but the entire talk makes for interesting viewing. There are about six minutes in particular, in the third video-part of the talk, that I think are worth watching. I have embedded it at the end of this post. (The other four parts are also available on youtube.)

Around the same time as Lietaer’s talk, there was a good post that discussed it. Some choice excerpts:

… One day [Lietaer] encountered the head of the BIS who told him “I have read your book.” This was followed by a question: “Why are you working in a central bank?” Lietaer responded that his aspiration was to improve the functioning of the system. To this the BIS head asserted that institutions of the system, including the BIS, IMF, World Bank and all central banks exist for only one purpose and that is to keep the system operating as it is; not to improve it. That is, to keep the system frozen as it was when the institutions were granted the existing set of powers. They therefore constitute what Lietaer termed an unseen lobby for the status quo. …

… Krugman asked [Lietaer], “Didn’t they warn you about not touching the monetary system? If you insist on talking about it, it will kill you academically. It takes a university economist completely out of the system of peer approvals that culminates for a few in the prize given by the central bank of Sweden in honor of Alfred Nobel.” …

… A very important observation made by Lietaer in the video lecture is that chartalism has never been academically challenged. In other words, the taboo is effective as an instrument of the unseen lobby.

There is specific mention of UMKC both in the talk by Lietaer and the post linked to above. The author of the post writes:

… A reinforcing anecdote relative to the taboo and lobby was related to me by Michael Hudson, one of whose titles is “Distinguished Research Professor of Economics, UMKC”. I once asked him what kinds of challenges he receives from other economists to his views. He replied that he doesn’t get any. “They know I am right, and they concede it, but then go back to business as usual ‘because it’s a job’.”

 

33 thoughts on “Economic Orthodoxy = Intellectual Dishonesty

  1. Seems me very probable that the fate of “economy” as a wannabe (?) “science” will be very much that of “alchemy”, “astrology”, “phlogiston theory”, etc…

    Of course, saying this I do not meanto be disrespectful to the scientists that see themselves as economists.

    It is just that they seem to be outnumbered beyond hope.

  2. Peter,

    I wonder if you have ever read or heard Jeff Schmidt’s book – Disciplined Minds – A radio reading of the book can be found at Unwelcome Guests

    A book about the social agenda of the process of professional training, and how it is used to promote orthodoxy by detecting and weeding out candidates with the most critical view and by exerting pressure on the rest to obey their instructors and abandon a social agenda or efforts to reform injustices. So that they, in turn, can squeeze the life out of the next generation. Shortly after writing this book, Jeff Schmidt was fired from his position as Editor of the academic journal, Physics Today.

  3. CA: Thanks for the link. I have never read (or listened to) the book, but will now. It looks very interesting. I vaguely recall hearing of the book, or maybe the legal proceedings, in the past, probably on one of the MMT-related blogs, but for some reason I never followed it up. Cheers.

  4. Peter,

    you might also find this show interesting What Economics Can’t Tell You About Money

    A set of sideways looks at money. We begin with an interview of David Hawkes on a range of ideas about the ‘magic’ of money, its ability to promote materialism and alienate humans from their work. Then, and audio version of Robin Upton’s 2011 presentation, “What Economics Can’t Tell You About Money”, followed by a radio adaptation of the film On Modern Servitude.

  5. This is very similar to what happens in normative religions between the senior clergy and the scholars. The senior clergy know that the scholars are correct, and may even admit it privately, but they publicly maintain the “pious fraud” that protects their investment in the status quo and they whack the scholars that get out of line, at least to the degree they are able. But if any of the laity question the clergy based on what scholars have said, they get a stock answer about heresy with the implied threat that carries.

  6. PG, this comment has really stuck with me:

    Seems me very probable that the fate of “economy” as a wannabe (?) “science” will be very much that of “alchemy”, “astrology”, “phlogiston theory”, etc.

    Well said. I guess Tom is also making a similar point.

    CA and Trixie, thanks for the interesting links. They will keep me busy.

  7. This is and will be the case as long as economists that count in the Establishment, that is, who determine the normal paradigm, insist on modeling economics on physics. Thus, economists that reject ergodicity and general equilibrium are ruled out of the game as serious players.

    If mainstream economists took a cue from those realizing that economics is more a social science than a hard science, then there could be progress. Many argue that the social sciences are scientific rather than sciences like physics because they haven’t developed normal paradigms that determine what “normal science” is and therefore what scientists should be doing. Rather, many approaches and views are competitive in the social sciences, and much of the scientific works is based on limited studies rather than sweeping theories. Doing economics is much more like this.

    Moreover, economics is inherently bound up in philosophy to the degree it is normative. Many have also observed that economics as practiced is inherently normative in that it’s many non-empirical assumptions are based on values, norms, and preferences. Ignoring or denying this does not make it go away.

    One of the problems with economics is that the philosophy of economics is underdeveloped, and to the degree that critiques exist they are ignored by the economics profession unless they are friendly toward orthodoxy.

    If economists want a normal paradigm, then the should look to the life sciences rather than physics or chemistry. The theory of evolution is the normal paradigm in life science, and economists would do well to consider adopting it, like economic anthropologists already do.

  8. (Rummages through your fridge, shakes up a bottle of Dr. Pepper and replaces it unopened, flips through your mail, reads your email, listens to your voice mail…yawns and falls asleep)

  9. Jrbarch, thanks. But I will say, you are more spiritually evolved than I will ever be. I have NO idea what you are talking about. I’m trying though! 🙂

  10. Well, inside of myself Trixie, I have no idea what the word ‘spiritual’ means. I’m just me.

    Whatever I am made of, everybody and everything else is made of it too! You are you: absolutely unique! Like every human being. I think all of our differences are just mind-born: in my lexicon ‘vapour’!!!

    It’s Life itself, existence that really interests me …. if in the beginning there was nothing, then nothing would be!! Whatever that Unbounded Principle, that Energy that forever WAS, IS, will BE actually is – it is known through feeling, not thought. I wish I knew how to say it clearly!! I have never met a personal God either, and I don’t think one will ever knock on my door; and I would rather know than spend my life believing … I know what I can feel inside of me … that’s all I am. It’s the only thing I have met in this life that I would say is ‘real’.

    I usually get a laugh out of reading your comments!! Love the irreverence and the humour – should be lots more of it!!! Just about everything human beings do on this planet is pretty funny (if it wasn’t so bloody stupid and dangerous)!!

    Cheers Trixie …

  11. “spiritual” is usually contrasted with “material.” What is “spiritual” is what is non-material, that is, not available to the senses or describable based on abstractions from sense experience line extension and can be represented quantitively in terms of variables involving space/time/mass/energy. This includes most of what human beings regard as important in life — values, meaning, aspiration, knowledge, and a host of other things that transcend the material and make it worthwhile, in addition to making civilization and culture possible. Basically the spiritual is about quality, which is “subjective,” and the material is about quantity, which is “objective.” Subject and object are the poles of dualistic consciousness. Therefore, the spiritual also includes consciousness as the source of subjective and objective.

  12. peterc – hope you don’t mind this little side discussion, chewing up paid for electronic space….

    So, is it fair enough to tweak what you said Tom:

    I am conscious and also a consciousness. I have a physical body (space suit). Within the consciousness that I am I ‘feel’ the presence of something that has no dimensions (what words do I use??). Going inside and feeling it, exploring it, allowing it to shine upon me like the sun does the daisies in a sweet meadow – fulfills me as a human being, because the energy of it completely fills the heart. Mind stands still!

    Because ‘That’ exists the space suit exists and the consciousness (quality~subjective) exists. From ‘That’ comes the breath that keeps the space suit (quantity_objective) alive and the consciousness conscious.
    Withdraw the breath and the whole thing collapses. (Reminder to celebrate each day)!!

    So tweaking your last sentence: ‘That’ (spiritual) as the source of consciousness and objective?? But not denying that the whole continuum is both ‘That’, spiritual and objective at the same time??

    It’s almost like another word for consciousness is energy (quality)??

  13. Awww, thanks jrbarch.

    I think of PeterC as the kindest communist I’ve ever known. As opposed to the zero communists I’ve never known. But you’ve got to be the kindest, most compassionate person on the internet.

    So here’s the deal: I’ll keep entertaining. You keep talking about…um, that which I am incapable of understanding. For lack of a word. I always listen.

    And don’t worry about Peter. Right now, we OWN this joint. He forgot his password, I just know it.

  14. Energy is that which produces change. Intelligence is that which orders change in terms of variant relationships, e.g., as expressed in mathematics as equations and science as functions relating independent and dependent variables. This is the dimension of change.

    What is that which does not change? The content of consiousness changes but does consciousness change? The trace of the unchanging in consciousness is the “I,” which remains the same “I’ throughout life in spite of changes of the body, emotions, thought, environment, etc.

    We identify “I,” that is self, with personality, mind and body. But is this identification the actual “I-ness,” which everyone apprehends as self?

    Follow the “I” to its source in “I-ness,” and then find the source of “I-ness” in “is-ness.”

    Why is this important in the world of change, e.g., socially, politically, and economically, for example. As one realizes greater and greater degrees of the oneness of being, then ego, that is, the limited “I,” recedes before the increasing awareness of the “horizon” of being. As result, egocentricity manifesting as self-interest, self-importance, self-centeredness and the rest of the self-…’s gives way to greater freedom from limitation and brings the capacity for appreciating the interconnectedness of being through universal love.

  15. peterc – hope you don’t mind this little side discussion, chewing up paid for electronic space….

    Not at all. I’m enjoying the discussion. Sorry my own productivity is down at the moment.

  16. This fundamentally important post and linked materials finally answer the question which was gnawing me for the last 3 years – yes “they” do know that the current monetary system is screwed up and that the economic system must be unstable.

    There is no conspiracy just vested interests. I don’t doubt that the real decision makers (the politicians) are dumb – they don’t understand anything. However central bankers and sneaky economic advisors probably know what’s going on.

    Both Steve Keen and Warren Mosler expressed in the past the view that Paul Krugman “didn’t get it”.

    The most likely answer is – Krugman reacted so furiously to Steve’s mild critique because he probably knows what is going on, he knows that there is no such a thing as a liquidity trap and that what is killing the economy is debt deleveraging leading to destruction of purchasing power. This leads to a lock-up of the economy at a low level of capacity utilisation. The negative flow of money caused by debt repayment / destruction of bank deposits can only be compensated by either running trade / current account surplus (globally impossible if debt deleveraging happens in multiple countries) or by running budget deficits of the appropriate size (the MMT solution).

    The second question which has been answered by this post is why the Chinese had to fiddle while running their budget deficit of the appropriate size (15% in 2009) by telling state-owned banks to “lend” money to local governments and selling bonds to god knows whom. The answer is – they had to finance government spending covertly so that they did not upset the “consensus” among international financial institutions.
    Reference: http://blogs.reuters.com/breakingviews/2010/03/03/chinas-state-budget-deficit-is-tip-of-iceberg/

    They also know what they are doing. They haven’t unlearned Kalecki. I believe they will succeed in the long run when everyone else will be dead.

  17. @Adam (ak)

    Yes.

    And as Michael Pettis has pointed out, Chinese “lending” is really a fiscal operation in disguise, since if necessary it will be treated as a capital infusion, which is really what it is.

    Similar to the way US creation of govt money (non-govt NFA) through deficit spending is masked to appear to be govt borrowing the money from the private sector through the sale of “debt” to finance its spending in excess of what is “funded through taxation.”

  18. Tom Hickey says: 5 May 2012 at 2:37 AM


    Energy is that which produces change. Intelligence is that which orders
    change in terms of variant relationships, e.g., as expressed in mathematics as equations and science as functions relating independent and dependent variables. This is the dimension of change.

    I guess I think of Intelligence as the human being; synonym consciousness. Within the intelligence (consciousness) there is a faculty called intellect. There is another faculty called ‘the heart’. The heart learns through feeling. When we are children we learn everything through feeling – then we go to school and are taught that the mind is the most important faculty. I don’t think this is correct in terms of our existence. We are in essence, feeling machines (that can also think)! The little ‘I’ is mind-born, as is desire. I think we may agree that the true self (the Intelligence or consciousness, the Witness) dwells within the heart of a human being, as it survives all of the little ‘I’s (7, 14, 21, …. etc – snapshots in time)!


    What is that which does not change? The content of consiousness changes but does consciousness change? The trace of the unchanging in
    consciousness is the “I,” which remains the same “I’ throughout life in spite of changes of the body, emotions, thought, environment, etc.

    I think I would say the unchanging is ‘That’ (and ‘That’ can only be felt, not thought about) – although we human beings are silly enough to try and put it into our creativity. If the consciousness and ‘That’ merge then there is nothing there to appreciate and enjoy ‘That’ …. the little ‘I’ is just a sideshow (which most people are happy to pursue)??


    We identify “I,” that is self, with personality, mind and body. But is this
    identification the actual “I-ness,” which everyone apprehends as self?
    Follow the “I” to its source in “I-ness,” and then find the source of “I-ness” in “is-ness.”

    So, I am thinking there that I would say it as: follow the heart and follow the thirst within the heart, because within the heart of every human being dwells ‘That’ …. and the self that can ‘feel’ and ‘see’ its beauty.


    Why is this important in the world of change, e.g., socially, politically, and economically, for example. As one realizes greater and greater degrees of the oneness of being, then ego, that is, the limited “I,” recedes before the increasing awareness of the “horizon” of being. As result, egocentricity manifesting as self-interest, self-importance, self-centeredness and the rest of the self-…’s gives way to greater freedom from limitation and brings the capacity for appreciating the interconnectedness of being through universal love.

    Yes, it rubs off …. one can always hope that that will help!!! Have to see it to believe it in terms of the whole world. How do you convince people that what they are looking for is Peace; and it’s already inside of them?? They’re all so busy chasing Krishnamurti’s “few golden balls that are rolled through this world”. It’s what we teach our children in those ‘schools’ …..

  19. A good follow up to this blog would be an explanation of why Basel III is bank propaganda. Banking capital varies in a pro-cyclical way and therefore Basel III is an inherently unstable control mechanism. Basel III constraints would only come into play when it’s already too late. It’s only purpose appears to be convincing the general public that banks are no longer a risk to capitalism. Inherent instability of positive feedback is well understood in engineering.

    http://en.wikipedia.org/wiki/Stability_theory

    A better control of leverage would be to tax loans proportionally to the quantity of loans that a bank has made. This would introduce negative feedback which would stabilise lending because tax would be proportional to quantity of debt. I don’t particularly care what happens to the tax but if this causes issues with government spending, it would be possible to create a ‘monetary tax’ going to central banks which could regulate government receipts if necessary.

  20. Hey PeterC and Co:

    “In summary, then, the role of rising inequality in creating the economic crisis of 2008 is debatable; it probably did play an important role, if nothing else than by encouraging the financial deregulation that set the stage for crisis. What seems very clear to us, however, is that rising inequality played a central role in causing an ineffective response once crisis hit. (…) And rising inequality also gave rise to what we have called a Dark Age of macroeconomics”.

    Guess who wrote that?

  21. Krugman and somebody. (?) Good comment. It does put things in a little more perspective.

    The way I see it, what is written in that passage is no threat to orthodoxy, orthodox careers or to capitalism. Nor is it destructive of orthodoxy to allow that deficits may be appropriate in the neoclassical short run. Being honest about the monetary system, on the other hand, is threatening. Also, Krugman’s “Dark Age of macroeconomics” includes the freshwater economists but conveniently exonerates the saltwater grouping.

    Needless to say, I prefer Krugman and Stiglitz to the freshwater economists, and agree with a lot of what they write as far as it goes. I focus more on Krugman than the freshwater economists because he does more to preserve the orthodoxy and capitalism at a time when it should be challenged. The freshwater economists have little credibility in the wake of the crisis. They will bide their time and re-emerge if and when the orthodoxy comes out the other side still largely intact.

  22. Yeah, my comment obviously is not personal. I find his writing style enjoyable and likeable except that I do not think he deals fairly with opposing viewpoints (e.g. MMT).

  23. That distinction between freshwater and saltwater reminds me of crocs… 🙂

    Frankly, I don’t know which, but I do know one of them is aggressive, while the other is not.

    Either way, I wouldn’t enter in a swimming pool with either.

  24. Stability theory was mainstream in engineering in the 1930s. My understanding is that it wasn’t adopted in economics till the 1970s and it only came out of the shadows because of the 2008 crash. This is like economists refusing to use a computer for 80 years. There’s another group of people that are still using static equilibrium systems, medical Doctors. The mainstream model of the endocrine system is a static equilibrium model. The endocrine system seems like another candidate for the application of stability theory. Medical Doctors and economists appear to have a few things in common; you are slow to change beliefs, you place great emphasis on the academic system and you are self-regulated. From the standpoint of engineers, it appears that economists and medical Doctors both have institutional problems that frustrate change. Engineers on the other hand are at the forefront of technological change and anyone who can’t or won’t change has to find a different profession.

    Mainstream analysis of the guilds is that the guilds controlled supply in order to extract rent. That sounds very much like a description of banks. It’s quite possible that the institutional problems are due to relationships between banks, central banks, government, regulators and academic institutions. A simple diagram would probably explain these relationships very easily. From an institutional perspective, economics appears to have become a contemporary guild system structured in order to preserve banking.

    My view is that a sociologist needs to do a thorough review of the institutional problems of the banking system. Toby Chambers has blogged about this in the UK and is constantly creating petitions on state capture. Unfortunately his blogs are a bit dead (sorry Toby). You can find him easily by searching for [“Toby Chambers” “State Capture”]. My personal view is that you need a sociologist to look at this rather than an economist.

  25. It’s easier to disguise the shell game now due to the financialization of the economy. Under feudalism, where there wasn’t much money in the system and it wasn’t that important economically wrt to land rights, the land-owning aristocracy (rentiers) took the surplus in kind, i.e., so many bushels of grain, etc. Here the rents were tangible and obviously unjust since the land-owner did nothing to actually merit ownership other than please the monarch, or have ancestors that did generations previously.

    When the West switch to a predominantly capitalistic industrial economy rather than a feudalistic agricultural one, this expropriation of surplus as rent got masked and the emerging field that would become economics rationalized it.

    But it just the same old system in new clothes. Where does the capital actually come from. It was obvious in the case of land in feudal times, but less obvious in the case of capital. But it is pretty much the same, in that government is ultimately responsible for money creation and the system for allocating it, just as the monarchs of old allocated land under feudalism. Both system were then rationalized, e.g, divine right of kings for feudalism and economic “liberalism” in the case of capitalism.

  26. Hacky the Hufrex pointed me to this Blog

    Thanks very much

    The Enterprising spirits lives within, but am so frustrated now with a system, that is rigged against those with a free spirit.

    http://worldeconomicreconstructionfoundation.blogspot.co.uk/2012/05/economic-solution-for-world-economy.html

    Your thoughts and comments would be most welcome as we may watch the castle now burn and resurrect the dead from the ashes to bring new life to the world.

    Amen

  27. Janne: Thanks for the link. It is appreciated. I hope you don’t mind that I edited out the body of Professor Syll’s post. I suspect he would prefer readers to visit his own blog to read it in full.

    For others, the post linked to by Janne is one in a series that can be found at the professor’s blog. Tom Hickey has also drawn attention to the series at MNE.

Leave a Reply

Your email address will not be published. Required fields are marked *