Map of life expectancy at birth from Global Education Project.

Wednesday, June 18, 2008

Economics is Bullshit -- cont.

It's true - I just can't leave this subject alone. But it's important -- really important. The bogus worldview of economists is embedded so deeply in our political culture that most people don't even perceive it. Journalists, politicians, and most thoughtful, well-educated people think it's reality, not ideology. Economics professors fill the heads of college freshmen with pure garbage and nobody tries to stop them. Most offensive of all, to me, are the economists I keep hearing on NPR and reading in the NYT claiming that there's is the only really scientific social science, a claim based as far as I can tell on their extensive use of mathematics, whereas the precise opposite is true. Garbage in, garbage out. (And by the way, sociologists use math almost as much. Just sayin'.)

Anyway, I've taken on some of the absurd propositions of market theory previously. Today I want to talk about what is generally put forth as the basic measure of prosperity, the Gross Domestic Product. When the GDP is growing rapidly, the economy is said to be "healthy," and we're all supposed to be happy. If it's stagnant or shrinking, we're all supposed to be suffering. I first heard the GDP deconstructed by Hazel Henderson in 1979. She was right then, and she's still right today. Jonathan Rowe is notably carrying the torch today, but his insights are not at all new.

GDP is an attempt to measure the amount of money that changes hands for goods and services, legally. When it goes up, that's supposed to be good. One key reason why that presumption is false goes back to one of the critical - and utterly false -- assumptions of economic theory, which is that transactions have no externalities, that all of the costs and benefits to humanity are captured in the transaction between the seller and the buyer. Another reason why it is false is the related false assumption of economic theory, which is that the economy is a closed system, when in fact it exists in both a social and a natural context.

GDP grows when more people gamble away their life's savings and their homes in Atlantic City and Las Vegas, or drink themselves to death. Every dollar they put in the slot machine or lay on the bar is a plus. GDP grows when the pollution from power plants and automobile exhaust and factory smokestacks cause cancer and heart disease and the people have to get surgery and chemotherapy, the cost of which is counted as a positive value in GDP. Every barrel of oil that's pumped out of the ground and sold for $135 is that much more GDP. That the oil is gone forever results in no subtraction. When the hurricane destroyed New Orleans, every penny spent on demolishing houses and stashing people in trailers was added to GDP. The destruction was not subtracted.

In short, the GDP classifies costs and harms as benefits. And it classifies every expenditure as equal in social value, whether it's for a billionaire's private jet or a basic diet for 10,000 children. If 90% of the people are impoverished, it can go up just as easily as if everyone's needs are met. If we are destroying our heritage, be it of topsoil or drinking water or timber or the very atmosphere of the planet, everything we destroy is counted as profit. If we are destroying our social order, and people are suffering from addiction, and mental illness, everything we spend to try to fix them, or more likely to arrest and incarcerate them, is counted as a benefit. So are the bombs and missiles and bullets we use to kill people in Iraq and Afghanistan, and the secret dungeons we maintain around the world. It's all good. It's all part of economic growth.

Just ask an economist.


Anonymous said...

Absolute lies and nonsense, I have never seen such a poorly thought out, incredibly ignorant blog post in my life. Economics is a purely value neutral subject, it has absolutely fuck all to do with ideology. Almost every unproven sentence in this post is absolutely flat out wrong,

Anonymous said...

For instance, this paragraph:

GDP is an attempt to measure the amount of money that changes hands for goods and services, legally. When it goes up, that's supposed to be good. One key reason why that presumption is false goes back to one of the critical - and utterly false -- assumptions of economic theory, which is that transactions have no externalities, that all of the costs and benefits to humanity are captured in the transaction between the seller and the buyer. Another reason why it is false is the related false assumption of economic theory, which is that the economy is a closed system, when in fact it exists in both a social and a natural context.

Is an absolute, flat out fucking lie. No economist has ever, ever, ever, ever, ever said anything even approaching this. No economist equates a strong GDP with a healthy economy. In fact, one of the first things you learn in fucking first year minor economics for fucks sake is that a large GDP has absolutely fuck all to do with a healthy economy. Learn what the fuck you are talking about before you whine about it. Posting absolute outright lies to the extent that you actually post the absolute fucking opposite of what is true is absolutely despicable.

Anonymous said...

No, what he says about economists insisting that theirs is a closed system is absolutely true!

Try saying that the economy exists WITHIN the ecosystem to World Bank officials who are much better than you at controlling your emotions, and they will cock their head to one side and say something like "that's not the right way to look at it!"

Economists have subordinated themselves to emotional ideology so much that simply stating the output of matter and energy from business production must be accounted for will get you laughed out of their teaparties. Because they simply cannot do so. Neoclassical economists (all you Miltonites) are not scientists, and could never be.

Matter and energy? What could those natural science terms have to do with mainstream economics? Nothing, and that's why it is a farse to think that statisticians with a political agenda can even MEASURE complex global economies. It was already evident they could not PREDICT a damn thing in the 200 years since Adam Smith's publication, and with this latest crisis it becomes obvious that they can't even accurately measure a system that has become more complicated, not simpler with globalization.

Anonymous said...

Unfortunately, what the blog post says is indeed correct. And alas, the problems indentified cannot be shoved away by using the f-word... (I have often seen attempts to tackle fundamental economic issues by discussants making very emotional statements, yet that does not really make things clearer.)

The problems mentioned are highly relevant, as GDP has become a pretty magic figure in economists' brains. Remember, the compilation of GDP is in fact still very young (SNA 1968 was the first global methodological framework). While orginally just the changes of GDP were looked at closely - in order to determine whether an economy is on the rise or rather in a slump - nowadays heavy attention is paid to the LEVEL of GDP. This was actually not the original intention of this statistical magnitude. Hence, I would say, the statistic GDP has been politically kidnapped in order to do things with it which it was not meant to be used for.

Besides the correctness or incorrectness of GDP, we have some more problems in economic teaching that need to be considered. Welfare has something to do with distribution of income. Why? Because if half of the population is starving while the other half is living like emperors, we cannot say that "the economy" is doing well. "The economy" in such a context is a non-existing entity, as the two worlds of the starving individuals and the lush-life individuals have nothing in common except for the country boundaries they live within. What is striking is that for many decades the question of income distribution was a no-no. Economists were not supposed to speak about it. All focus was on growth, not on how to share the fruits of prosperity. As a result, global development aid programs simply did not work. World Bank, IMF, development banks and bilateral programs, they all talk about poverty eradication, yet without working on the sticky topics, it can't be done. You will find surprisingly many UNDP economists from Africa who will tell you that Africa does actually not need ressources from abroad it rather needs to manage its existing ressources in a fair way.

Anonymous said...

Economics is bullshit as all the world can now see. The so called 'hidden hands of the market' were nothing more than a bunch of swindlers on Wall St selling garbage dressed up in pretty packages called CDOs. In fact those 'hidden hands' turned out to be in OUR POCKETS picking our pockets as the BAILOUT SHOWED . And don't forget government. Government largely drives the market . They decide how to waste huge amounts of money on stuff like Wars, weapons etc. The money system has clearly FAILED because the money did not reflect produced goods or related services . It was mostly DEBT money .
oh well back to bartering ..

Anonymous said...

Actually the post while not perfect is correct on several key points. 1.) What the economy produces is a normative question that economics doesn't address. Under economic theory what people want i.e. buy is what is good for the economy. Thus, a porno is just as valuabled as an educational documentary. This problem is worse when one considers how advertising manipulates the psychology of buyers into believing that a person needs or should want said item being advertised. 2.) The question of distribution of wealth is never addressed under the market theory we currently follow. Under utilitarian principles it's quite obvious that 10,000$ has significantly more value to one with no money than it does for a millionare. This problem is even worse in a society in which 1% of the country has over half the wealth. Also, economic theory fails to address the issue of Kapital accumulation. Owning a machine that produces more output than a man is more profitable than working. This Kapital is used to replace workers. Economist will say well people can redirect their labor to specialize in building Kapital instead of working with their hands. Well the thing is Machines can build Machines. Owners of Machines make more money, buy more machines and make more money. Machines act no longer strictly as a compliment to human production but more as a substitute for human production. This in turn causes workers to make less and for aggregate demand to decrease, because 1% of the population regardless of wealth canno produce and consume the same amount of goods as a society with more equal income welath distribution. Capitalism is both immoral and inefficient in a society such as ours.

Anonymous said...

well this is 2011 and the jury is in VERDICT?- Economics is bullshit as charged
The useless banksters got bailed out by the government( damn commie banksters) and generously gave themselves outrageous bonuses out of tax money for THEIR trouble. Economic rationalists look like the biggest fools ever to breathe and waste fresh air while we are the biggest suckers for tolerating their nonsense. Folks, its ok to be cruel to your pet economist

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Anonymous said...

I'm an economics undergraduate and I'll have you know our professors spend a considerable amount of time outlining the shortcomings of GDP and what GDP is not. So your proposition that economics is bullshit and that they are all in la-la land about the limits of GDP is crap. Anyone with an economics education can tell that positive economic growth doesn't automatically mean increased well-being.

That aside, you might be interested in looking at behavioural economics, biosphere/biophysical economics, ecological economics and the numerous heterodox schools of economics. The issues you've outlined are real issues that HAVE BEEN NOTICED by economists, and the discipline is on the way to (hopefully) addressing them.

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Unknown said...

John Von Neumann derided the idea of economics as a science. I'll take his word over Mr "F#(K" in every sentence.

Face it, economics is bullshit. Have you heard of the "terrible kid" theorem? ha ha ha ha ha ha ha ha ha ha.... sheesh. What a load.

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Anonymous said...

All the people panning Economics as a bullshit subject obviously have no idea of what it actually is. You're major point seems to be how economists equate economic growth to positive societal developments. This is absolute garbage. Ever heard of economic development? No economist considers GDP growth as a definite positive indicator, only a probable one. What you seek lies in its trickle down effect. GDP is not considered the flow of cash in an economy otherwise known as liquidity. GDP can be measured a few ways but namely the total production of goods and services over a period of time. Of course such goods and services may be harmful to society. A prime example would be the massive GDP boost during the WW2 from the production of war munitions. However, this did no translate to economic development as it did not improve the lives of people at home. Economists acknowledge this. It factors all the externalities you seem to complain about such income inequality, ecological degradation, as well as the intricacies of poverty rate, literacy rate, etc... The fact is even your arguments are simply self-defeating because the study of economics actually admits its own fallibility despite its strict logic. That is why it is called not-an-exact-science.

Spudster said...

Economics DOES account for environmental damage. It's called an "externality" and is defined as a social harm that doesn't affect market profits.

This is why in Economics we discuss policy measures such as a carbon tax--where by putting a *price* on an externality like Carbon, we can naturally force markets to adjust and not cause that harm anymore.

A lot of the problems that are occurring are not *because* of Economics, but rather, government policies that attempt to use Economics as a justification for inequality, etc.

Anonymous said...

You're view on economics is right on the "money" - I was taught in the school of economics an opposing view but I see your point.

One big HURRAY!

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Unknown said...

I would like to support your views and embrace you for being right to the POINT. Economics and Finance are all bullshit. I have spent 8 years on financial markets, trading daily, read many books in the field, worked in the financial industry and on the trading desk of one of the FHL banks in USA. The problem is just like you said, it is the way how GDP is measured and many other variables, my favorite inflation, and social progress, and measuring it in terms of money (paper) rather than efficiency units (productivity), is the difference between fake growth (no growth) and real growth. But if it were in efficiency units we will be in much lower "GDP" level. And Economic growth is exponential as the speed of technological advancement progresses, which is the only one that drives economic growth and not capital. But many people in the field are ignorant, since they don't have a developed logic, or better brainwashed by the academics. I have had tough conversation with coworkers and have cost some of my friends the friendship with me since I see their loss not mine. Economics and Finance are modern ways of cheating and lying by the few over the masses to keep social peace. 2008 proved how fragile is this system, just an empty bubble, where no one owns anything at all actually, let alone CAPITAL assets or cash.

Edward said...

This post is phenomenal! I always knew, based on life experience and general education, that economics was a flawed and value-laden system (as opposed to the hard science that economists purport it to be), but could never articulate its shortcomings. This post (and many of the comments) brilliantly articulates the many shortcomings of modern day economics.

Unknown said...

"No economist has ever said GDP blah blah blah"

in response:
"The gross domestic product (GDP) is one of the primary indicators used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period; you can think of it as the size of the economy.Oct 24, 2016" (
[presumably not written by a bunch of liberal pinko socialist commies]

"Gross domestic product (GDP) is a monetary measure of the market value of all final goods and services produced in a period (quarterly or yearly). Nominal GDP estimates are commonly used to determine the economic performance of a whole country or region, and to make international comparisons. Nominal GDP per capita does not, however, reflect differences in the cost of living and the inflation rates of the countries; therefore using a GDP PPP per capita basis is arguably more useful when comparing differences in living standards between nations."
[also presumably not (wholly) written by a(n entire) bunch of (neo)liberal pinko socialist commies]

Love and hugs,
A liberal pinko socialist non-commie.