Map of life expectancy at birth from Global Education Project.

Friday, November 19, 2010

World of Illusion

I'm reading Joseph Stiglitz's book Freefall: America, Free Markets, and the Sinking of the Global Economy. (WW Norton and Company, 2010)

This isn't a review, per se -- I haven't even finished it -- but some reflections. Stiglitz is a prominent economist -- indeed a winner of the phony "Nobel Prize" that economists give each other -- so it's comforting to see him agreeing with what I have maintained here all along.

Stiglitz says, quite directly, what I have also said, that economics, as taught, practiced and promulgated, is a form of theology, not a science. This is a specialized use of the word theology, by both of us. Economists don't talk about God, but they use the methodology of theologians. Theologians begin with received truths, purported facts written down in scripture or declared by priestly authorities, and construct edifices of thought on these assumptions. Some of their effort is devoted to spinning out consequences, whether descriptive, explanatory, or prescriptive (i.e. moral) from their assumptions. Some of their effort is devoted to vindicating the assumptions in spite of the manifest failure of observable reality to correspond to them. For example, the problem of theodicy - how can God be all powerful, just and compassionate, given that the world does not exhibit justice or goodness?

Economists proceed in exactly the same manner. They make a large number of assumptions, all of which happen to be rather obviously false. They build an elaborate edifice of theory based on those assumptions. Then they forget that the assumptions are false and insist that reality corresponds to their theory, even though anyone can see that it does not. Many of the people who engage in this sort of exercise are among the most prominent academics. They receive salaries much higher than professors in other disciplines, they receive high level political appointments, and their absurd beliefs are central to much of the political and policy discourse in the United States and elsewhere in the world.

The prevailing central assertion of these theologians for many decades has been that an entity called the "Free Market" efficiently allocates resources and maximizes prosperity, is "self-correcting," i.e. it maintains itself in an "equilibrium state" from which goodness flows, and it works best when government intervenes the least. Taxes and regulations can only damage its mystic perfection.

To be sure, they admit that in exceptional circumstances, so-called "market failures" can occur. Here and there we may need to tweak things a bit. But these exceptions can best be understood in light of the prevailing truth of the God-like Free Market.

This is unalloyed, irredeemable nonsense. No such entity as this so-called "Free Market" exists, has ever existed, or ever could exist. Markets are social constructions, not forces of nature. In wealthy, technologically advanced and complex societies such as ours, markets are creatures of government, and they depend on continual, sustained and massive government action and intervention to exist and to function. They are not self-correcting, they do not allocate resources efficiently, they do not maximize prosperity, especially when regulation is minimal. The question is not whether they are regulated, but rather how -- for whose benefit.

I will say more about this in coming days. For now, I will leave us with this. We are trapped in a discourse that takes the word of these charlatans -- and I mean you, Alan Greenspan, and Greg Mankiw -- as genius. In fact, the technical term for it is bullshit. A couple of basic points. Lower taxes are not associated with higher economic growth. Reduced regulation is not associated with higher economic growth. Cutting taxes and regulation does not cause there to be more jobs or more national income. These assertions are indeed, as George W. Bush said, "Economics 101," and they are also false.


robin andrea said...

You remind me that one of my first administrative jobs on the UC campus was in the Economics Department. I advised the graduate students on how to stay on track, how to apply for funding, etc. That part was fine, but the faculty were insane. They made no sense. They longed to be a "hard" science, but I left that department knowing they'd always be flaccid.

Anonymous said...

“Free market” ideology or religion is a construct that was explicitly set up (perhaps not consciously so by some of the original theorists, it is easy to go spinning off into silly schemas when you expect your audience to listen of be admiring) to favor those in power. Market relations - in the simplest sense of an exchange of goods, or goods / services / other contracts for money, or chits is some form, or whatever - are regulated by power and dominance of one party over another, and that holds in fish markets ‘à la criée’ (auction kind of thing), second hand sellers of anything such as lemony cars, Madoff taking money to ‘invest’, the US hawking its mortgage backed securities to Deutsche Bank.

As anyone can see when the free market voodoo doesn’t quite do the trick, those in power rapidly abandon it and deny or hedge on the ‘free market’ BS to turn to regulation, aka nationalization and saddling the tax payers or workers with massive debts, see Ireland for ex. They feel no contradiction. That is because they never believed in their theory in the first place. It was just piece-meal silliness with ponderous footnotes constructed to legitimize the ‘profit motive’ - allowing the more top dogs to justify their actions and be pious, all clean hands, about their gains. Worked a treat!

Those ‘gains‘ ultimately come from depleting the environment, basically free inputs (oil, logging, mining, etc.), the exploitation of labor, propaganda and trickery.