Ian Tresman, who is a fairly regular commentator on this blog has said this morning in a comment that:
After World War II when Britain was effectively broke, the country invested in infrastructure, replacing slums, building 4.5 million homes (which you could buy on a single salary with a 25-year fixed-rate mortgage at just 3.5%), founded the welfare state and the National Health Service.
Britain prospered. Not only did the country spend, but it invested in producing something tangible for itself and its future. Today, shareholders expect their dividends, with nothing produced or invested, and infrastructure deliberately neglected. It should be a simple lesson to learn, but greed has no moral compass.
Ian is right. That it what happened.
He is also right as to why it is not happening now.
His comment reminded me of the recent article, or mea culpa, posted by the IMF and written by veteran economist and Nobel prize winner, Angus Deaton, in which he said:
In contrast to economists from Adam Smith and Karl Marx through John Maynard Keynes, Friedrich Hayek, and even Milton Friedman, [current economists] have largely stopped thinking about ethics and about what constitutes human well-being. We are technocrats who focus on efficiency. We get little training about the ends of economics, on the meaning of well-being—welfare economics has long since vanished from the curriculum—or on what philosophers say about equality. When pressed, we usually fall back on an income-based utilitarianism. We often equate well-being with money or consumption, missing much of what matters to people. In current economic thinking, individuals matter much more than relationships between people in families or in communities.
Angus Deaton is also right. It seemingly took a long time for him to reach this point, but at least he has.
Note the inflection point that Angus Deaton refers to. He says that Keynes, and even Milton Friedman, understood the importance of ethics in the study of economics. Now, as is obvious, he is not so sure that we do. That leads to the obvious question of what happened to create this change?
The answer is straightforward. It is that the rise of econometrics, with its profoundly simplistic, wrong, and antisocial assumptions created this change.
Although I am sure that most economists would like to suggest otherwise, they are really not very good at mathematics. They can only handle rather simple, limited variable equations. Complexity pretty much passes them by. So, to make their models work they assume that we live in a simple, limited variable world when we actually live in a complex one that they are incapable of modelling. The result has been that economic ideas suited to a world that does not exist have been imposed upon us at enormous cost to us all. This is what neoliberal economics has exploited to destroy well-being.
When thinking about this, I am always reminded of the eponymous character in the film Educating Rita, made many years ago now and played outstandingly well by Julie Walters. Sitting in a pub with her family, she says, almost as an aside, “ There must be a better song to sing.” She was in search of ideas that explained life in ways then unknown to her. When it comes to economics, we are in need of better explanations. There must, in other words, be a better song, or songs, to sing.
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The search for ‘efficiency’ is a dangerous one. It is a well known phenomenon in control theory that the closer you run a system to its theoretical maximum efficiency, the more dramatic are the smash-ups when something goes wrong. We see this every day when a minor crash on an overloaded motorway leads to hours of tailbacks, we see it regularly in the NHS when winter comes. We saw it in 2008 when global finance melted down. Let’s stop searching for perfect efficiency, and instead allow ourselves breathing space in everyday life. In the real world, that will be far more efficient.
I agree, emtirely
We have forgotten the importance of organisational slack
In a former career as a structural design engineer at the time (in the 90s) when finite element analysis was “increasing efficiency” of designs, it was impressed upon me by the older engineers in the design office that in addition to design code safety factors, one must never forget to include a “sleep at night” safety factor. The steel doesn’t know how you’ve designed it, and it’s not going to support more load because you’ve calculated its capacity more accurately.
Efficiency is really a race to the bottom and it only offers something when you can do it and someone else can’t. Think Formula 1. If everyone has a new trick design, then no one has an advantage, but they all spend huge amounts of money to get there. In a motorsport it’s acceptable as the “cost” of racing, but in society the cost is often very real and impact on livelihoods, at best with job losses and at worst with cuts in essential services.
We create systems that are “efficient” when they work perfectly but are fragile. “Slack” is resilience, which is often underrated, or not even measured or evaluated at all.
We need systems that work well enough in good conditions, but that can also deal with the unexpected and overcome problems.
We are particularly bad at predicting what might happen, good or bad – either ignoring the future and then being surprised when our superbly “efficient” optimal system falls over at the first bump in the road – not so efficient now, eh? – while avoiding the temptation to cautiously create an over engineered 100 tonne tank that cannot actually move. None of this is rocket science but it does require some knowledge of human psychology, even anthropology.
Any system can fail, but most do not fail gracefully.
Especially now…
In conversation with a structural engineer…
“We all know one and one make two, but we’ll call it five to be on the safe side.”
I had a conversation with a structural engineer once who was working on bridge design. He explained me all the calculations that they did on stress factors and how they came up with the estimated load that any bridge could carry. So, I asked, is that the standard to which you make the bridge? The answer was that of course it was not – they doubled all the load factors just to make sure. But that was 30 years ago. Maybe it’s all different now.
Ian’s absolutely right, of course, not that many people younger than a certain age realise this.
And it’s certainly good to read that someone like Deaton admits to the narrowness of thinking that’s become a feature of economics. Hopefully, he belatedly realises the damage this has done.
And as I’ve noted on your blog on previous occasions, you’re correct too about the appalling impact the rise and resultant domination of econometrics has had on the ‘profession’.
Indeed, I witnessed it first hand as someone new to academia in the 1990s. When I started, political economy, micro and macro economics and various more focused areas of economics was the norm (e.g. European economics). And in fact my first degree, although called ‘public administration’, focused on politics, government and economics in equal measure. But by the mid 1990s the economics department had introduced econometrics, which was compulsory for anyone wishing to study politics and/or economics.
But it wasn’t just that. At the same time pressure increased from university management to drop – or seriously revise – any subject that could be seen as ‘left wing’. So, out went any course/module that had any mention of Marx or any other supposedly ‘left wing’ thinker in the title or subject matter and courses had to be revised accordingly. Political economy also fell foul of the same ‘diktat’, first being revised and then dropped altogether (and this was a course that routinely recruited over 100 students from across social science subjects onto the second year option, as opposed to econometric which in my experience most people – particularly studying politics, sociology, etc – loathed.
Ultimately, the result was that over a relatively short period the type and interest of students studying (and teaching) economics changed such that by the end of the 1990s it was unusual to get many economics students taking politics and other social science modules.
The result of this ‘siloisation’ as I would see it, and impact on politics and people – and societies more generally – have been plain to see for decades now, and sadly, I see no great movement to change as it suits too many people with money and power.
Thanks
Ivan says “At the same time pressure increased from university management to drop – or seriously revise – any subject that could be seen as ‘left wing’. So, out went any course/module that had any mention of Marx or any other supposedly ‘left wing’ thinker in the title or subject matter and courses had to be revised accordingly.”
I very recently came across the economist Branko Milanovich, who has just published a book reviewing the ethical stances of some prominent economists since the 18th C. ‘Visions of Inequality’.
(reviewed here in Prospect magazine: https://www.prospectmagazine.co.uk/culture/65444/visions-of-inequality-by-branko-milanovic-review-ricardo-marx-kuznets )
His conclusion, expressed on X/twitter seems to be that he considers Adam Smith, darling of the right wing free marketeers, to be probably more ‘left wing’ than Marx. I watched a video of a talk he gave about Smith earlier this year, hoping for some new information, but in essence he said little more than in the 2013 paper l(inked to below) which was cited by a commenter on this blog a few years ago.
http://dboucoyannis.weebly.com/uploads/1/3/9/3/13938365/smith_paper_oct_2013.pdf
I had cause to look up the economic teachings of Wesleyan Methodism, as favoured by the Grantham grocer’s daughter, to find that a key precept of Wesley’s teaching was to share what one gained with the poor. An ethical position, like Smith’s which has become divorced from the originator’s principles and quietly forgotten.
Thanks
Out of curiosity I googled “econometrics” it came up with this gem from udel.edu;
‘Econometrics provides estimation and testing methods that enable a researcher to prove almost anything and to make any model look good. A prominent example of a test that enables anyone to prove anything is the Johansen test for cointegration, which (fortunately) has gone the way of the dinosaurs’.
🙂
Yes, we are rather ‘missing something’ and my feeling is that Iain McGilchrist also talks about that missing something, in so far as he puts forward the view that the current world view (in the west, that is) is dominated by the left hemisphere brain’s thinking. Worth listening to, imho
https://youtu.be/AuQ4Hi7YdgU?si=76RM4IxdSRFDgrBo
Thanks
Exactly. Attlee managed to get the country back on its feet after the war. Which has slowly become eroded by forty years of Tory failure and corruption and privatised water companies polluting the rivers and lakes and beaches and seas and fourteen years of Tory failure.
I have just recovered from myeloma cancer and can’t praise my local Kingston NHS hospital and gp enough.
Go well, literally
There’s ethics there alright except it’s largely for wealthy capitalists. You can see this if you bother to analyse in a very widespread way the amount of handouts given to the market as a consequence of government creation of money. For example, this ranges from financial bailouts, topping up inadequate wages, and ensuring the workforce is healthy and educated. There is much more!
Do economists think first about “efficiency”? Efficiency of what? Efficiency for whom?
Efficiency in supply chains? Chains with no redundancy because if is more efficient (i.e, cheaper). As long as they work. Global supply chains fed by JIT. So if the supply break down through some break-down in a long, long global chain (pandemic, war, natural disaster); it collapses in a heap. The price sky rockets and huge profits are made for the few.
Efficiency in energy supplies? Supplies with no redundancy because if is more efficient (i.e, cheaper). As long as they work. Global energy supply for the UK. So if the supply break down through some break-down (pandemic, war, natural disaster, dependence on enemies of Britain for supply); prices soar, supply collapses in a heap; and the price sky rockets for the supplier and huge profits are made for the few. And the system rolls on unchanged, because it is “efficient”.
Efficiency in engineering? Cut all redundancy because if is more efficient (i.e, cheaper). As long as they work. So if the equipment breaks down it collapses in a heap.
Efficiency in equity? Operate on minimum possible corporate equity (i.e, cheaper). Load up with cheap debt, and make maximum (rip -off) profits for a few rentiers. It doesn’t matter if it doesn’t work. If you are a small business, you go to the wall and it does not matter; but if you are big enough (too big to fail, or in a monopoly sector), you can always rely on the Government for bail out, and fall back on the public sector, when it all goes wrong. The Government is blamed for the consequences, the ideology of “efficiency” in economics remains intact for economic theorists who spend their time protecting the reputation of their weak discipline for their efficiency, and that is all that matters.
The word encompassing all this is resilience
Mr Goddard,
Absolutely right; but I used the word ‘redundancy’ because it represents how resilience is engineered into our systems; and ‘redundancy’ represents so well the way economists attempt to engineer redundancy out of the ir solutions. The only ‘redundancy’ in redundancy, is the redundancy of economists; whom have rarely ever been known to solve any problem they address; indeed typically, they make things worse: a lot worse.
Economics is fast making itself a redundant discipline.
As part of a discussion about different ways to run an economy I used to show my HE and A-level students a 10 minute extract of a Milton Friedman lecture with him explaining that the only responsibility for a business was to make money for its shareholders.
Companies should keep within the law but other concepts like ethical behaviour, corporate responsibility and being a good neighbour should be ignored.
The response of students was remarkably consistent. Most found Friedman’s ideas repulsive, completely in opposition to their own ideas of fairness and how to be a decent human being.
A small number loved what they were hearing and Friedman’s macho posturing, it seemed to chime with something deep within them.
It would be fascinating to know how they all got on in life.
Indeed…
I refused to have people like that as clients
Their first aim was not to pay me what I was worth for a start
Why would I wamnt to work for them?
Several years ago, as part of my climate change MSc., I studied a module on economics. I could clearly see how the thinking of ‘Chicago school’ economists was influencing the policies of George Osborne who was Chancellor at the time so was interested to better understand the subject.
I read, and listened, and watched, and asked questions and read more. Months and years of study but I still couldn’t ‘get it’. I was frustrated, I thought I must be stupid. Then slowly it started to dawn on me……it’s not me! The models and assumptions used by contemporary mainstream economists were so fundamentally flawed and so divorced from actual human behaviour and actual physical and natural parameters that they were useless.
What was even more shocking to discover was that rather than change these models and challenge these assumptions, economists, policymakers, politicians, think tanks and journalists were attempting to manipulate people to behave more like they were ‘supposed to’ in the models.
As someone from a ‘hard science’ background I find the predominance of economics to be deeply alarming. We desperately need to sideline the technocrats and introduce more sophisticated multi disciplinary economics theories that place in their centre real natural parameters and actual human needs and behaviours.
Spot on
I had this realisation when I was 19
Its shaped a great deal of what I have done since
Joe, I completely agree; I recall the same responses. I remember walking out of an economics lecture in disgust. Neoliberal economics has had an appalling effect on the standard of debate in economics; sophistry and humbug predominate.
Couldn’t agree more Joe. As a fellow hard scientist I remain astonished that something so important to our everyday lives and the future of the planet is underpinned by ‘theory’ on a par with phlogiston, the ether, intelligent design and Flat Eartherism.
To borrow the words of Pauli, mainstream economics is “not even wrong”.
🙂
I started my Economics degree at UCL in 1979. It was a well-rounded course including options in Psychology, Computer Science, Marxism, Economics of Welfare, Planning and Labour. Yes there was some stats including Econometrics but even those who hadn’t done A level Maths could cope with it. There were joint hons with Geography and History. Now it’s just straight Economics and you need A* Maths to get in. It produced some successful people from my year including John Whittingdale MP and Sir Daniel Moynihan. They wouldn’t get in now and I’m sure they wouldn’t want to given the course. Ok they taught us a load of nonsense about money (I’ve previously mentioned this) but we learned how to manage a successful economy for all.
It’s all equations about risks now. No use to anyone unless you want to be a banker. Economics needs to get back to basics. Keynesian policies to make the economy work better for everyone and a heavy emphasis on ethics and climate change.
I started in 76
I was not bad at maths, but if that had been what the course was about I would never have done it
This is why things like the COREEcon project are so important. Economics need not be like this.
Peter May has unearthed an article by Prem Sikka -he sings a good song: https://www.progressivepulse.org/economics/labour-is-no-student-of-the-modern-monetary-theory
Very good
Starmer and Reeves are not stupid. They must accept the basic principles of MMT. They wouldn’t risk supporting it as they have no need with the poll lead and as Reagan famously said in politics “if you’re explaining you’re losing”. I think they should stick with the mantra that a 5% deficit of GDP is acceptable and they’ll aim for that.
How did you get to that number?
Why not relate matters to full employment?
If I was Starmer and you were Reeves we were actually managing the economy we would base it on full employment. However, they’re trying to win an election and the misinformed public wouldn’t buy it. 5% sounds and is reasonable
I really don’t agree
And it is their job to persuade the public
You obviously have more confidence in the public’s ability to grasp the concept of MMT than I do. I really hope I get proved wrong.
A little light hearted aside.
I had several counselling clients from a local organisation who had the same boss. He was fond of the phrase ‘I run a tight ship’ which mean he micro-managed and criticised staff while he spouted what they called ‘management speak’ while loading more tasks on them and setting targets.
I told one of them that the phrase came from the time they used ropes made from natural material which could stretch when wet. Some captains would tighten the ropes holding the sails so they would catch more of the wind. The problem was that a sudden squall could catch them and with no ‘give’, carry away the sails or even the masts and leave wallowing; maybe even broached to-turned sideways to the wind, a desperate situation. ( I read Hornblower books.)
The last client I had from that place told me of a staff meeting where the boss had used that phrase and one of them said that it was originally dangerous practice used by hard driving captains. The story had evidently been passed around the office. Then another explained it and a third agreed. Unused to being contradicted, the manager became confused and flustered. The client said he had become more reasonable since.
The thing is, plausible though it sounds, I made it up to suggest the need for some slack in the system, thus encouraging him to think about his situation. I did tell the person that it was a theory. I couldn’t lie.
The Lord moves in mysterious ways.
🙂
I enjoyed Hornblower many years ago. Was I a teenager?
“A Better Song to Sing” sounds like a good title for your next book !
I hadn’t thought of that
“If I Had A Hammer” would be the Bank of England’s choice in all circumstances.
The BoE do “have a hammer” and as a result they always see nails as the best solution to any problem.
The BoE has a hammer and sees nails as the solution to all problems: hammering in the nails as they crucify the poor and vulnerable.
(It’s Holy Week for me and I have Friday in prospect!)
Re the title idea. It’s already been used by a god-bothering work – so perhaps might not hit the intended note. Nice thought though and a great Willy Russell line.
Shame…but so very different does it matter?
Theoretical efficiency is no substitute for practical effectiveness.
Does “homo economicus” every wonder what the true costs of putting money values on everything are?
Do economists even have that existential inquisitiveness ?
No, because it is quite literally bred out of them at university.
Ironically, the “father” of economics, had a deep moral interest in what was meant by living a “good” life. In fact, he thought his other book, The Moral Sentiments, was the more important.
‘A better song to sing’
As a non-economist, I’ve been reading the book “Contending views in economics” by John T Harvey to widen my knowledge of the subject. I’m impressed by the content and how things could be so different.
IMO The current paradigm is specifically designed to support and enhance the wealth creation of the rich and powerful . The rest of us are also runs. The system has been hijacked and immigration is being used as the smokescreen.
As said elsewhere, 1945 and the Clement Attlee government did what we need now.
Maybe econometrics has indeed been used to provide a veil of quasi science over the neoclassical model etc.
But dont throw the baby out with the bath water – t can be worth using maths (along with flow charts etc) to formalise how the MMT system works under varying explicit assumptions
eg
Very Simple Mathematical Model of MMT (Modern Monetary Theory) by Yahuhito Tanaka
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3905694
Maths has its uses
I use it. Indeed, my wife sometimes accuses me of ‘talking maths’ when seeking to explain things. But it is just another tool, not the purpose of the discipline.
I have added the paper to my reading list
The abstract is totally logical
With reference to efficiency in bridge design, the recent collision of a ship with a bridge (built in 1977) in Baltimore, in which virtually the entire bridge fell in the river, might be relevant.
What about ship design? I claim no expertise here (and am happy to be corrected), but I understand the conventional standard used to be twin screw (built-in redundancy, at a cost); but is now single screw; presumably because nothing can go wrong …..
Agreed
That makes no sense
Oops, sorry, I just realised you’ve already mentioned the Baltimore Bridge in another post!
Since you address ethics and philosophy (and by implication, religious or faith perspectives) by contrast with “economic efficiency”; and since for most Christians it’s Holy Week, I’ll note the scripture (in fact Jewish law; and repeated elsewhere):
“When you reap the harvest of your land, do not reap to the very edges of your field or gather the gleanings of your harvest. Do not go over your vineyard a second time or pick up the grapes that have fallen. Leave them for the poor and the foreigner.” (Leviticus 19:9+10)
And that’s before we get onto jubilee, debt cancellations and resets, fresh starts etc (and a sort of universal capital allocation, ie. land).
Something that those Trump-supporting US “Christians” probably never read; or simply ignored as not “the gospel”. Err?!
And also not in the playbook of Netanyahu and co…
Indeed
In his indispensable book The Destiny of Civilisation, Michael Hudson emphasises that there are
alternatives to the neoliberal finance capitalism now dominant, and he argues that western civilisation is at a critical fork. One path leads to (continued ) neoliberalism /neo feudalism , dominated by a rentier oligarchy ruling over the indebted many. An alternative path lies, he argues, in moving toward a broadly mixed-economy industrial capitalism, with checks and balances, leading to socialism. He tracks how the theories of the ‘classical’ economists ( Smith, Ricardo, Mill ) tended toward socialism i.e. to the need to protect populations, via the provision of health, education, housing , pensions, as essential parts of the economic ( and social ) progress they envisaged. He then unfolds how neoliberal ideology derailed this movement ,or tendency, and rentier capitalism took its place. Those reading this blog will know of course that a ‘rentier regime’ as it has been called, is an economy organised around income-generating assets; income generated by virtue of ownership/control of a scarce asset of some kind.
The role of government needs a radical shift, away from that of protecting and encouraging the rentiers, as does the one we have in Westminster, toward protecting society from them. Rentier interests pose the biggest threat to our society, and are the greatest challenge facing every nation today. I understand that Prof. Hudson has deployed these arguments in his consultancy work in China , warning of the path the Chinese economy should avoid taking at all costs, in the future .
I wish I could see a glimmer of hope on the ideological horizon to suggest that the radical shift required is even faintly visible.
Voting Green, and encouraging the Greens to greatly improve their grasp of current political economy will have to do.
Thanks
Thanks for yet another (!) interesting book/author to look up. “Sometime”…
However, I doubt that a simple turn (back?) to a path towards socialism is a foundation for future wellbeing for all. Firstly, it’s almost always based on a model of industrial production with unsustainable use of energy and other resources (and often a naive use of GDP rather than wellbeing indicators); but secondly and more crucially, human nature being what it is and without the right institutions, ie a radical reform of political economy, so-called socialism simply replaces one oligarchic class with another (see Animal Farm). That’s a key analysis in Richard Wolff and Stephen Resnick’s “Contending Economic Theories” in which they identify soviet-style economics as ‘state capitalism’. The oligarchy of financial rentiers is replaced by a bureaucratic oligarchy of apparatchiks, the nomenklatura who control the flow of resources and extract their own greater benefits from it. (The rapid flip from that to a rentier capitalist oligarchy after the collapse of the USSR illustrates how close they are.)
Only with robust, devolved, local and participatory democratic control of resources and flows, can there be real ‘levelling up’ (and down, for some!). Some large-scale enterprises and public services, advanced research and the like, would be centralised, but much else would be localised, commons, mutual and similar (still with space for profit and entrepreneurs who get rewards – not just medals! – but without the rights to monopoly extraction that characterise such as the tech unicorns these days).
You hit on my concern about socialism
It is focussed too much on material prosperity and that is not sustainable
Thanks Richard
Traditional socialism seems to be fighting 20th (even 19th!) century issues and problems; and socialists of that sort (some of them still in the Labour party!) are too materialist and mechanistic. And some simply criticise, usually on some ‘class analysis’ without a comprehensive or inspiring vision of a better future.
I agree
“Western governments are making it clear that they ultimately do not care about democracy, or liberty, or rights, or universalism, or international law. It’s just naked capital accumulation and imperialism all the way down. That’s what they have to offer the world.”
“It is difficult to avoid the conclusion that – all the faux humanitarian rhetoric and stunts aside – it is the official policy of the Biden administration to enable Israel to ethnically cleanse Palestine. It seems that is the horrifying reality we are contending with.”
“Thatcher’s mantra, “there is no alternative”, was always a totalitarian message. Your dreams of universal services, living wages, economic democracy, an end to imperialist wars… these things are *feasible* but not permissible, and if you try we will crush you.”
Post-growth ecological economics – MMT, money creation and how it can be harnessed to achieve social objectives.
Jason Hickel
@jasonhickel
Highly recommended for fearless post-binary thinking across issues, disciplines and contexts.
Thanks
Re Jason Hickel and degrowth:
Re Jason Hickel and degrowth:
Jason Hickel presents a lot of good arguments.
He ‘debated’ with Michael Jacobs (a “colleague” of Richard at Sheffield, but he’s in the Social Policy research group; and is close to Labour leadership (still I think?) having previously had some SPAd role in Westminster).
This link is from Forum for New Economy, a German group; although I thought I heard them at the 2023 FoD Festival of Debate in Sheffield…)
https://newforum.org/en/arguing-for-degrowth-whats-the-evidence/
Jacobs seems to support a “green growth and decoupling from resource consumption/extraction” agenda. My view: decoupling is impossible long-term, due to rebound effects (or the Jevons paradox).
In this year’s FoD, there’s an event with Olivia Blake (Sheffield Hallam MP and hoping to be reelected) on achieving green goals and social objectives, on 16 May (but unfortunately seems only in the room, not live streamed: it may be recorded and put up later):
https://festivalofdebate.com/2024/can-the-green-new-deal-fix-the-cost-of-living-crisis
Blake is a “GND Champion”, but what that means in the Starmerite LINO TCP and how much traction she’ll get on policy, who knows?
I admit that Michael Jacobs and I are nit intellectually close
Colin McCulloch – many thanks for the link to New Forum, interesting and useful.