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What Was Lost When Political Economy Became Economics?

Discussion in 'Economics, Business, and Taxes' started by georgephillip, May 17, 2015.

  1. georgephillip

    georgephillip Governor

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    In the first segment of a six part interview, Economist Ha-Joon Chang tells TRNN producer Lynn Fries he believes eliminating the political aspect of economics was done to free the discipline of ethical judgments and ideological biases:

    "FRIES: What we call economics used to be called political economy. So let's start there, with the story behind changing the name of the discipline. Tell us about that.

    "CHANG: Yes. In the beginning, economics was called political economy. Adam Smith, David Ricardo, these people never wrote any, anything on economics. They all wrote on political economy.

    "In the late 19th century, early 20th century the then-rising school of economics, Neoclassical economics, which is today's dominant school of economics, decided that they want to become scientists. You know, in modern world the title of science has a great aura, because after all, that progress in scientific knowledge is what has built the modern world. So if you can call yourself scientist, you immediately get much greater credibility. And, I mean, that, this is what the Neoclassical economists have aimed to achieve since the late 19th century.

    "And the most important thing they did at the beginning to achieve this goal was to rename the subject.

    "So it wasn't political economy anymore, because when you say politics, you're already implying that people may disagree, you know. But if you're a, a scientist, you cannot have that kind of disagreement.

    "So it was really important to get rid of that word politics from the name of the subject so that they can now claim that this is free of ethical judgments, this is free of political disagreement, and therefore there is a science like physics or chemistry."

    Are markets more like gravity or political constructs like courts?

    http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=13830
     
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  2. Lukey

    Lukey Senator

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    Considering that economists are better at dissecting what happened in the past than they are at predicting what's up ahead, they are more like anthropologists than meteorologists (who have a better forecasting record than economists even though it's laughable).
     
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    Last edited: May 18, 2015
  3. fairsheet

    fairsheet Senator

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    For a quick and concise understanding of the limits of the science of Economics, google "the dismal science".
     
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  4. The Sage of Main Street

    The Sage of Main Street Governor

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    Economists are toy rats for the fat cats to play with. When the Plutocrats go "Me! Me! Me!" the rest of us go "Ow! Ow! Ow!"
     
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  5. fairsheet

    fairsheet Senator

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    As a holder of a BA in "Political Economy", I'll suggest that there is some truth to your cite. "Political Economy" can be said to've morphed into pure "Economics", but.....Economics only "replaced" Political Economy for a historically short period of human time.

    In relatively short order, the shortcomings of Economics became apparent to all. Since then, Political Economy has been revived and exists parallel to Economics.

    Funny aside....there were and still are, a lot of people who're convinced that Political Economy (and "Consumer Reports") are fronts for "Marxists"!
     
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  6. georgephillip

    georgephillip Governor

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    "Ha-Joon Chang, a Korean native, has taught at the Faculty of Economics, University of Cambridge, since 1990. He has worked as a consultant for numerous international organizations, including various UN agencies, the World Bank, and the Asian Development Bank. A best selling author, his latest book is Economics: the User's Guide. He has published 11 other books, including Kicking Away the Ladder, winner of the 2003 Myrdal Prize. In 2005, Ha-Joon Chang was awarded the 2005 Leontief Prize for Advancing the Frontiers of Economic Thought."

    ^^^If the economist being interviewed in this series is correct, one possible explanation for the dismal record you mention stems from the discipline's fixation on only one of at least nine major schools of economics:

    "FRIES: So of the nine major schools of economic thought that you go into in The User's Guide, one of them, one approach, the Neoclassical approach, dominates economics today. You name it, our universities, the government, international institutions. So let's talk about that approach. Tell us about the strengths and weaknesses in Neoclassical economics..."

    "However there are crucial weaknesses. You know, in trying to make it very logical and scientific, in their view, Neoclassical economists have adopted this very narrow view of individuals. And this narrow view is also very unrealistic because it is assumed that people are basically very rational and very self-seeking. Now, at one level, you know, people might say, oh, you can make some unrealistic assumptions and still derive meaningful results.

    "But this is wrong, because when you have wrong assumptions about people, you might produce decent results in a very specific context in which you made that assumption. But as soon as you try to apply to elsewhere, the thing breaks down.

    "I mean, the great example is the recent global financial crisis. I mean, the whole regulatory relaxation was based on this view that people are rational. They are capable of taking care of themselves. And therefore we should just let them do whatever they want. And the result was a collective insanity that almost destroyed our economies. So I mean, this assumption of rational and self-seeking agents might look quite innocent, but it can actually have devastating consequences."

    http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=13836
     
  7. georgephillip

    georgephillip Governor

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    There does seem to be some controversy over the precise origin of "the dismal science," but the tensions between population and food supply seem relevant to serfs or slaves.

    "DEFINITION of 'Dismal Science'
    A term coined by Scottish writer, essayist and historian Thomas Carlyle to describe the discipline of economics. The term dismal science was inspired by T. R. Malthus' gloomy prediction that population would always grow faster than food, dooming mankind to unending poverty and hardship.

    INVESTOPEDIA EXPLAINS 'Dismal Science'
    "Exactly what inspired the term has been a subject of debate. Those who doubt the story say that Carlyle was reacting not to Malthus but economists such as John Stuart Mill, who argued that institutions, not race, explained why some nations were rich and others poor. Carlyle attacked Mill, not for supporting Malthus' predictions about the dire consequences of population growth, but for supporting the emancipation of slaves. It was the discipline's assumption that people are basically all the same and thus entitled to liberty that led Carlyle to label the study of economics 'the dismal science'. The connection was so well known throughout the 19th century, that even cartoonists would refer to it knowing that their audience would understand the reference."

    Read more: http://www.investopedia.com/terms/d/dismalscience.asp#ixzz3aXQkc5z8
    Follow us: @Investopedia on Twitter
     
  8. fairsheet

    fairsheet Senator

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    As to the origins of "dismal science"?....I can't say. But, I can speak to its relevance. It goes beyond just Malthus. It was actually a pretty broad coalition of economic "scientists" in the context almost, of a generally acknowledged "truth", that humanity WOULD come to an end, on a virtual date certain. The idea was that "economics" could calculate, collate, and cogitate a sufficient number of factors around population growth and those things humans relied upon, such that they could figure out pretty much exactly when that would happen.

    They settled on a date. Please don't ask what it was! Suffice to say that that date came and went, a long long time ago. That was the point at which the Economic's "science balloon" burst. There was no way the "science" of Economics could possibly factor in the human element - in this case, humanity's drive and ability to innovate and survive.
     
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  9. fairsheet

    fairsheet Senator

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    You make a good point...sort of..Economics absolutely can "predict" the future, as long as it's allowed to illuminate all the necessary qualifiers, and/or that it actually does so. In simpler terms, "IF this happens, that will happen".
     
  10. Lukey

    Lukey Senator

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    Even then it's difficult. Something that resulted from something else before may or may not result the same way at another time. The economy is made up of people and by definition that parameter changes over time. That's why keeping the economy as clean and simple as possible via free(r) markets gives the best consistent results.
     
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  11. Lukey

    Lukey Senator

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    As for the "global financial crisis" - that was an artifact of poor US economic policy so attributing it to some failure of regulatory oversight is a political weighting of the evidence designed to come to a political conclusion. These sorts of economic "interpretations" driving decisions about past events and policy does more harm than good.
     
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  12. georgephillip

    georgephillip Governor

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    How do you explain today's Neoclassical economists' reliance on methodological individualism as its "official" methodology if not as an attempt to use a scientific approach to explain how social phenomena must result from individual human actions?
    http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=13836
     
  13. georgephillip

    georgephillip Governor

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    What percentage of an $8 trillion housing bubble that burst in 2007 is attributable to "poor US economic policy" compared to the percentage that was due to an epidemic of mortgage fraud the government (FBI) began warning about in 2004?
     
  14. Lukey

    Lukey Senator

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    All of it. The mortgage fraud was not the cause of the crisis.
     
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  15. fairsheet

    fairsheet Senator

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    Note that your Mr. Joon is doing exactly what he's accusing economists of. He's making sweeping conclusions about the entire pool of economists, based on his impressions of individual economists.

    As to your question though...I really don't know what "Neo" in terms of "classical", means. Frankly, I tend to find the "neo" thing to be overused. Having said that, I'll use it. Perhaps we can think of the science of Economics itself, being "Neo"....a Neo-science?

    IF that's the case, then we're remiss when we set to judging Economics by the traditional "rules" of science. Think of the climate science. The science knows that the "global warming consensus" is real and valid. But, you'd be hardpressed to find any self-respecting climate scientist who will attribute any individual climatic event, to the "gwc". That's of course, due to the "rules" of science. They have sufficient data to support the overall consensus, but not to support it in the context of an individual event.

    Yet of course, we DO see "scientists" on media like "Fox", offering up sweeping conclusions that're ridiculous in terms of the data available and unavailable to them. They do so, because people want for them to do so, and are willing to pay them for it.

    Perhaps then....as it's a "neo-science", this phenomena applies to a much broader section of economists? In essence, we REQUIRE them to offer up "answers", even as per the traditional rules, they lack sufficient data to give them to us. But...do we care? We're like the people who now demand 10-day weather reports even as the science isn't much good at all, much more than 3 days out!

    Alas, a climate scientist can make a living doing his science thing - per the traditional rules - at least within academia. But, who's going to pay an Economics professor to tell everyone he doesn't know what the hell he's talking about?

    Still....there ARE Economists out there who.....even if we allow that all they're doing is guessing, are pretty damned good guessers!
     
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  16. georgephillip

    georgephillip Governor

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    http://en.wikipedia.org/wiki/Subprime_mortgage_crisis
    "A proximate cause (of the crisis) was the rise in subprime lending. The percentage of lower-quality subprime mortgages originated during a given year rose from the historical 8% or lower range to approximately 20% from 2004 to 2006, with much higher ratios in some parts of the U.S.[6][7]"

    Subprime mortgages fattened the bottom lines of private originators, many operating outside the regulated banking system, through Wall Street's securitization model, not because of "poor US economic policy."
     
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  17. Lukey

    Lukey Senator

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    The rise in sub-prime lending was NOT all fraudulent, so that hardly suggests that mortgage fraud "caused" the crisis. There were mal-incentives in US government policies that favored housing development, including interest rates kept artificially low for too long by the Fed. It was a mess but likely could have been written down without the whole system collapsing if it hadn't been for the Bush administration's disastrous decision to bail out Bear Sterns and then six weeks later refuse the same treatment to Lehman Brothers. Markets lost the ability to rationally price mortgage paper and the bad effects of that spilled over into the entire commercial paper market and the system froze up from a lack of bids, which rendered almost every bank technically bankrupt, because the idiotic Sarbanes Oxley law required them to mark their assets to a market that disappeared almost overnight. So that is why I say bad policy was the cause, because it was.
     
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  18. The Sage of Main Street

    The Sage of Main Street Governor

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    PROMETHEUS BOUND
    It is a primitive and defective science, like alchemy. It is also a captive science, controlled by the ruling class or its heirs such as Marx and Engels
    The factor it is missing in its analysis is creative human resources. All wealth comes from a few people, but they are intimidated into giving it up to unevolved aggressive predators at the top.
     
  19. fairsheet

    fairsheet Senator

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    Baloney. If we accept your angle, we concede that we're helpless victims of the "ruling class". I don't concede that. Some Economists are "tools" of someone other than me. Some aren't. It's my responsibility to make the distinction. BTW....those that AREN'T my friends, aren't necessarily wrong because of it. And, my friends aren't always right! Damn...I'm left with making that distinction as well.
     
  20. georgephillip

    georgephillip Governor

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    That market disappeared because the non-depository banking system produced millions of mortgages based on widespread "accounting control fraud" by lenders and loan purchasers:
    Friday, September 17, 2004 Posted: 5:44 PM EDT (2144 GMT)
    [​IMG]
    WASHINGTON (CNN) -- Rampant fraud in the mortgage industry has increased so sharply that the FBI warned Friday of an 'epidemic' of financial crimes which, if not curtailed, could become 'the next S&L crisis.'"
    http://www.cnn.com/2004/LAW/09/17/mortgage.fraud/
     

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