8 votes

Against economics

25 comments

  1. [24]
    skybrian
    (edited )
    Link
    From the article: The essay is by David Graeber, author of Debt: The First 5000 Years

    From the article:

    Before long, the Bank of England (the British equivalent of the Federal Reserve, whose economists are most free to speak their minds since they are not formally part of the government) rolled out an elaborate official report called “Money Creation in the Modern Economy,” replete with videos and animations, making the same point: existing economics textbooks, and particularly the reigning monetarist orthodoxy, are wrong. The heterodox economists are right. Private banks create money. Central banks like the Bank of England create money as well, but monetarists are entirely wrong to insist that their proper function is to control the money supply. In fact, central banks do not in any sense control the money supply; their main function is to set the interest rate—to determine how much private banks can charge for the money they create. Almost all public debate on these subjects is therefore based on false premises. For example, if what the Bank of England was saying were true, government borrowing didn’t divert funds from the private sector; it created entirely new money that had not existed before.

    One might have imagined that such an admission would create something of a splash, and in certain restricted circles, it did. Central banks in Norway, Switzerland, and Germany quickly put out similar papers. Back in the UK, the immediate media response was simply silence. The Bank of England report has never, to my knowledge, been so much as mentioned on the BBC or any other TV news outlet. Newspaper columnists continued to write as if monetarism was self-evidently correct. Politicians continued to be grilled about where they would find the cash for social programs. It was as if a kind of entente cordiale had been established, in which the technocrats would be allowed to live in one theoretical universe, while politicians and news commentators would continue to exist in an entirely different one.

    The essay is by David Graeber, author of Debt: The First 5000 Years

    3 votes
    1. [23]
      Artrax
      Link Parent
      WTF, the whole first paragraph does not make any sense and is complete garbage: Money supply includes both the money created by the central bank and private banks. This is the definition of the...

      WTF, the whole first paragraph does not make any sense and is complete garbage: Money supply includes both the money created by the central bank and private banks. This is the definition of the term "Money supply" that you will in fact find in every econ textbook. This is an A-Class Strawmen, build to win over people who maybe managed to read the first 10 pages of an econ textbook and than gave up because they were confused by the terms (Which either the author exploits or is one of).
      Also, no one follows Monetarism 100% since like every Idea in a science, some parts are outdated. And no central bank in the world strictly follows Monetarism but they still use some of the findings from friedmann (there's a reason he's got a econ nobel prize, oh sorry, it's "Nobel Memorial Prize in Economic Sciences").
      But what did the FED and ECB do during the 2008/9 Recession? Quantitative Easing, a term the author probably didn't even heard before.

      government borrowing didn’t divert funds from the private sector; it created entirely new money that had not existed before.

      Doesn't mean that you don't have to pay it back. And either this guy's arguing for more borrowing from the private sector, which just increases the amount of money that the state has to pay to not be viewed as bankrupt (and future governments can't spend) or for creating new central bank money, which would in fact increase inflation (most likely, depending on the circumstances, like everything in econ).

      politicians continued to be grilled about where they would find the cash for social programs.

      How the hell did we get from "private banks create money" to this?

      Who the **** is this dude arguing against? His college econ-prof that he didn't get along with and let him fail class (apparently with a good reason) ?
      This dude doesn't understand money creation, money supply, the responsibilities of central banks and the tools they have and therefore doesn't have the slightest cue what "monetarism" even means. He probably only heard that it was invented by friedman, and friedman=Pinochet=bad, therefor monetarism=bad.

      btw. I'm not generally arguing against government spending, social security, etc. .
      I'm arguing against stupid arguments. If we as a society decide to increase our social programs, that it is necessary that everyone knows in what way it will affect different things and also to implement it the most efficient way.

      5 votes
      1. [6]
        Deimos
        Link Parent
        Tone down the level of aggressiveness and insults. If you have legitimate criticisms, you can make them just as well without peppering in attacks on the author and over-dramatic indignation. Those...

        Tone down the level of aggressiveness and insults. If you have legitimate criticisms, you can make them just as well without peppering in attacks on the author and over-dramatic indignation. Those add nothing of value.

        9 votes
        1. SantalBlush
          Link Parent
          I've seen several posts on the front page broadly disparaging the discipline of economics. It takes a great deal of work to engage with all of the vague criticisms that are usually contained in...

          I've seen several posts on the front page broadly disparaging the discipline of economics. It takes a great deal of work to engage with all of the vague criticisms that are usually contained in these articles, and eventually the minority of people on Tildes who have more than an introductory-level understanding of econ. will give up trying. Who will that leave to discuss these pieces, then? People who have little or no understanding of the field. And that's dangerous. That is the means by which we get antivaxxers and climate change deniers, people who claim that rigor is overrated and that there exists a cabal of elitists who just "can't handle the truth" about their field. It is anti-intellectual, regardless of where one sits on the political spectrum.

          For what it's worth, I have an MA in applied econ. I have wasted too much of my life trying to debate libertarians and anarcho-capitalists on the internet, and I'm disappointed to see the same edgy, low-effort complaints about the field being promoted here. So I share the apparent frustration of the above poster.

          7 votes
        2. [4]
          Artrax
          Link Parent
          While I agree with you, I feel heavily insulted by the shear stupidity that some people put out into the public with the assertiveness of a nobel price winner. I have by no means an academic...

          While I agree with you, I feel heavily insulted by the shear stupidity that some people put out into the public with the assertiveness of a nobel price winner. I have by no means an academic background in econ, but before I spill out something into the public, I at least try do to some research. And if I don't know enough about something, I keep my mouth shut so that people that know more than me can have a more constructive dialog.

          1 vote
          1. [2]
            deciduous
            Link Parent
            This article is largely based on the ideas put forward in this book by the political economist Robert Skidelsky. Graeber is an author of a well-recieved book on the history of economics and...

            I have by no means an academic background in econ, but before I spill out something into the public, I at least try do to some research. And if I don't know enough about something, I keep my mouth shut so that people that know more than me can have a more constructive dialog.

            This article is largely based on the ideas put forward in this book by the political economist Robert Skidelsky.

            Graeber is an author of a well-recieved book on the history of economics and commerce and he is writing about a book by a well respected economist. There has been far more research and knowledge put into this article than you have.

            7 votes
            1. Artrax
              Link Parent
              lol robert skidelsky is a historian. Writing a three part biography about Keynes isn't an academic qualification. This dude has never written a scientific paper in his whole life, not even in any...

              lol robert skidelsky is a historian. Writing a three part biography about Keynes isn't an academic qualification. This dude has never written a scientific paper in his whole life, not even in any other social science.

              graeber is well respected for his work in anthropology, but I've never seen him being credited as a good economist by any other redeemed figure in academic econ

              1 vote
          2. skybrian
            Link Parent
            The article is certainly assertive, pushes heterodox views, and the title is exaggerated. (I considered changing it but went with the original.) But I doubt very much that the author hasn't done...

            The article is certainly assertive, pushes heterodox views, and the title is exaggerated. (I considered changing it but went with the original.)

            But I doubt very much that the author hasn't done the research. I expect it's that he disagrees with much of it, and he's explaining his point of view in strong terms that are pretty unfair to opposing views.

            It's still an interesting essay and point of view, though, and I am interested in how money works. How about you? You might try the link to the Bank of England overview of the credit-based view of it.

            I'd also be interested in hearing how you think money works.

            4 votes
      2. [8]
        NaraVara
        (edited )
        Link Parent
        I don't understand what the first paragraph has to do with the criticism you're making. Graber doesn't seem to disagree: The author is a professor of anthropology at the London School of Economics...

        Money supply includes both the money created by the central bank and private banks. This is the definition of the term "Money supply" that you will in fact find in every econ textbook.

        I don't understand what the first paragraph has to do with the criticism you're making. Graber doesn't seem to disagree:

        Private banks create money. Central banks like the Bank of England create money as well, but monetarists are entirely wrong to insist that their proper function is to control the money supply.

        This is an A-Class Strawmen, build to win over people who maybe managed to read the first 10 pages of an econ textbook and than gave up because they were confused by the terms (Which either the author exploits or is one of).

        The author is a professor of anthropology at the London School of Economics and wrote a seminal book about Debt that follows the entire history of money and commerce. I highly recommend it. He brings a very heterodox perspective to traditional Econ. that is informed by more sociological and political science knowledge.

        Doesn't mean that you don't have to pay it back.

        Thinking of government spending in terms of a checking account starts to get weird, because the government can functionally loan money to itself and pay it back. He's basically obliquely referencing MMT, the idea being that government spending puts money into the economy, taxation pulls it out, and this is the primary driver of monetary inflation rather than fractional reserve banking.

        And either this guy's arguing for more borrowing from the private sector, which just increases the amount of money that the state has to pay to not be viewed as bankrupt (and future governments can't spend) or for creating new central bank money, which would in fact increase inflation

        There's a lot of stuff that goes into whether or not it creates inflation. There is plenty of value that the government can do that would potentially improve factor productivity to a point that improves productivity faster than inflation can bring the prices down. This is a real possibility in a world of robots and automation.

        6 votes
        1. [7]
          Artrax
          Link Parent
          There lies the problem. He's probably a great anthropologist, but he's as good in econ as most economists are good in anthropology. Also, being a professor at a university that has "economics" in...

          Professor of Anthropology

          There lies the problem. He's probably a great anthropologist, but he's as good in econ as most economists are good in anthropology. Also, being a professor at a university that has "economics" in it's name doesn't mean you understand economics.

          Also, MMT has been thoroughly debunked by numerous economists, I'll just leave this Link here.
          MMT at best makes simplified, trivial statements, at worst, it's just wrong.

          6 votes
          1. [5]
            NaraVara
            Link Parent
            I’m sorry, but this is credentialist bullshit. Graeber is an extremely well respected academic and polymath and his book, Debt, is assigned reading in many economics courses. Economics, as a...

            There lies the problem. He's probably a great anthropologist, but he's as good in econ as most economists are good in anthropology.

            I’m sorry, but this is credentialist bullshit. Graeber is an extremely well respected academic and polymath and his book, Debt, is assigned reading in many economics courses.

            Economics, as a field, is lousy with lazy assumptions and biases and is long overdue for a serious shakeup. They routinely ignore the findings and insights of other branches of the social sciences and many political scientists (my field) make a joke out of identifying econ papers that rediscover some very basic political science concepts and present it like a novel insight. I’m sure anthropologists have this experience as well. It’s not a one way street. Economists are routinely worse at understanding other fields than those fields are at understanding Econ. There is a general culture of contemptuousness towards other sources of knowledge within the field.

            And while these tendencies are a little pronounced among published economists, it is extremely pronounced among lay or pop economics.

            Also, MMT has been thoroughly debunked by numerous economists, I'll just leave this Link here.

            Again, this is the laziness of the discipline talking and the general inability to grok heterodox concepts that question first principles. The blog you’re linking provides little to dispel this.

            MMT at best makes simplified, trivial statements, at worst, it's just wrong.

            Ironically, people say this about orthodox neoclassical/neoliberal economists too.

            7 votes
            1. [4]
              Artrax
              Link Parent
              For example?

              lousy with lazy assumptions

              For example?

              2 votes
              1. [3]
                NaraVara
                Link Parent
                Conflation of money with utility and then utility with welfare is an especially pernicious one. The rational actor assumption is also not really borne out by social psychology at nearly the level...

                Conflation of money with utility and then utility with welfare is an especially pernicious one.

                The rational actor assumption is also not really borne out by social psychology at nearly the level it would need to be for most policy guidance.

                And then there is the total disregard for most contemporary sociological or political science research. . .

                1. [2]
                  Artrax
                  Link Parent
                  lmao, non of these are assumptions that are actually held in academic econ. They might be teached in econ 101 classes because it makes some things easier to understand, in some cases it might be a...

                  lmao, non of these are assumptions that are actually held in academic econ.
                  They might be teached in econ 101 classes because it makes some things easier to understand, in some cases it might be a acceptable approximation, but it's definitely not what is actually believed to be true.

                  Conflation of money with utility and then utility with welfare is an especially pernicious one.

                  Where did you get this one?

                  Rational actor assumption

                  You've ever heard of game theory? Or microeconomics in general?
                  The rational actor assumption is one of the dumbest strawmens about econ

                  2 votes
                  1. NaraVara
                    (edited )
                    Link Parent
                    There is a big difference between what people know intellectually versus how they actually think and believe in practice. That's why they're lazy habits of thinking. They're taken as "acceptable...

                    in some cases it might be a acceptable approximation, but it's definitely not what is actually believed to be true.

                    There is a big difference between what people know intellectually versus how they actually think and believe in practice. That's why they're lazy habits of thinking. They're taken as "acceptable approximations" way more often than they're actually acceptable and I'm frankly very surprised you think nobody takes it for granted in "academic Econ" (whatever you mean by that).

                    Moreover, "academic econ" is a small sliver of the actual econ as it is practiced in the policy and finance realms. It is, by definition, in exploratory/ideation mode rather than actual practice. So trying to exculpate the discipline based on its least representative practitioners isn't really going to work.

                    You've ever heard of game theory? Or microeconomics in general?

                    Both of these are based on the rational actor assumption with some minor caveats. It's really just behavioral Econ that doesn't go with it whole hog, and it's not surprising that this is the only field within Econ. that actually puts out worthwhile research anymore. It's also, not surprising, that this branch has the least influence on actual policy.

          2. skybrian
            (edited )
            Link Parent
            While I don't agree with everything, I think that link (Debunking Modern Monetary Theory (MMT) & Understanding it First) is quite a good explanation and takedown. Thanks for sharing it! However,...

            While I don't agree with everything, I think that link (Debunking Modern Monetary Theory (MMT) & Understanding it First) is quite a good explanation and takedown. Thanks for sharing it!

            However, there is a through-the-looking-glass quality to this alternate approach to explaining money that I find appealing. If done right, I don't think it actually leads to conclusions that are much different from standard economic theory. But I wouldn't say it's trivial, it's a useful alternate approach.

            I'm reminded of how in math, there are often different ways of looking at the same thing (geometric reasoning versus manipulating equations, for example). A problem may be easier to solve using one approach than another. Or consider the Copenhagen versus Many-Worlds interpretation of quantum physics, which as far as I know are just different philosophies for the same math.

            If you use a different theory and get to different conclusions, both can't be right, and you'll have to see which agrees with reality better. If they end up in the same place, that's more reassuring, and you have another tool in the toolbox.

            Before dismissing this altogether, I wonder if you might look at the Bank of England's explanation of money creation? Maybe I should have shared that instead.

      3. [3]
        onyxleopard
        (edited )
        Link Parent
        I get the sense that this author doesn’t trust traditional economists or economics texts because the economic models produced by the field don’t seem to be reliable enough. This paragraph...

        This is the definition of the term "Money supply" that you will in fact find in every econ textbook.

        I get the sense that this author doesn’t trust traditional economists or economics texts because the economic models produced by the field don’t seem to be reliable enough.

        One expects a certain institutional lag. Mainstream economists nowadays might not be particularly good at predicting financial crashes, facilitating general prosperity, or coming up with models for preventing climate change, but when it comes to establishing themselves in positions of intellectual authority, unaffected by such failings, their success is unparalleled. One would have to look at the history of religions to find anything like it. To this day, economics continues to be taught not as a story of arguments—not, like any other social science, as a welter of often warring theoretical perspectives—but rather as something more like physics, the gradual realization of universal, unimpeachable mathematical truths. “Heterodox” theories of economics do, of course, exist (institutionalist, Marxist, feminist, “Austrian,” post-Keynesian…), but their exponents have been almost completely locked out of what are considered “serious” departments, and even outright rebellions by economics students (from the post-autistic economics movement in France to post-crash economics in Britain) have largely failed to force them into the core curriculum.

        This paragraph resonated with me, though relegating economics to the theoretical status of mathematics and physics (and commensurately further away from direct policy) seems like a good thing to me. If your science can’t make useful predictions, maybe you should work on improving it more before we go around using your predictions to make decisions that have profound effects on real peoples’ lives?

        Nobody would accept a space program trying to do a moonshot using a geocentric model of the solar system. Nobody would accept engineers building dams without having accurate models of hydrostatic pressure. Why is it acceptable for economists to dictate policy when they can’t show experimental results that back up their models?

        2 votes
        1. [2]
          Artrax
          Link Parent
          Well, they do. Have you ever read an econ paper? I mean, how am I supposed to prove you wrong? Link you a batch of econ papers? Also, do you even know what scientific methods are? Experiments are...

          Well, they do.
          Have you ever read an econ paper?
          I mean, how am I supposed to prove you wrong? Link you a batch of econ papers?
          Also, do you even know what scientific methods are?
          Experiments are definitely one method viable to biologist or chemists, but for fields like psychology, epidemiology or econ. You can't simply create to separate countries with separate economies, give them different starting parameters and then examine what happens.
          You rather have to make case studies, examine data already present and try to find correlations that are likely to be true under the given data set.

          ALL statements in econ are only true with a certain probability, like all other statements in other sciences.
          I get that people often forget that, and for sure, some economists take themselves a bit to serious, but that's it. Just because sciences advances, scientific consensus shifts, old ideas that were believed to be definitely true turn out to be false (like the idea that Minimum wage lowers employment levels ), doesn't mean you should replace an entire science with bullshit backed up by nothing but hot air and wild dreams.

          1 vote
          1. onyxleopard
            Link Parent
            Yes, which is what separates the social sciences from others. I feel like you’re just making the same argument as me and reaching a different conclusion. How can we find common ground if we don’t...

            Experiments are definitely one method viable to biologist or chemists, but for fields like psychology, epidemiology or econ. You can't simply create to separate countries with separate economies, give them different starting parameters and then examine what happens.

            Yes, which is what separates the social sciences from others.

            Just because sciences advances, scientific consensus shifts, old ideas that were believed to be definitely true turn out to be false (like the idea that Minimum wage lowers employment levels ), doesn't mean you should replace an entire science with bullshit backed up by nothing but hot air and wild dreams.

            I feel like you’re just making the same argument as me and reaching a different conclusion. How can we find common ground if we don’t seem to share the same starting premises?

            2 votes
      4. [4]
        Litmus2336
        Link Parent
        I am not a fan of the how the homo/heterodox split of economics is handled. If scientists developed a new theory of gravity that conflicted with Newton's we would not see articles called "Against...

        I am not a fan of the how the homo/heterodox split of economics is handled. If scientists developed a new theory of gravity that conflicted with Newton's we would not see articles called "Against Science"

        1. onyxleopard
          Link Parent
          The analogy would be "Against Physics" (where it is commonly accepted that "Physics" is metonymous for "Newtonian Physics"). Scientific fields eating themselves in order to make progress is,...

          The analogy would be "Against Physics" (where it is commonly accepted that "Physics" is metonymous for "Newtonian Physics"). Scientific fields eating themselves in order to make progress is, generally, the only way that scientific progress is made after a field has stalled.

          3 votes
        2. [2]
          Artrax
          Link Parent
          No one has a problem with alternating views on society or econ. Krugman is a well respected economist. But If you come up with a new theory of gravity you have to show real world data making it...

          No one has a problem with alternating views on society or econ. Krugman is a well respected economist. But If you come up with a new theory of gravity you have to show real world data making it likely that your model is superior than the already existing ones. And MMTlers don't do that, the just insist that they are right and 150 years of research are wrong

          1 vote
          1. Litmus2336
            Link Parent
            I'm not a MMTer, I definitely am a Krugman fan. All I'm saying is that some people treat economics like it's some partisan hack job when I think it's clearly a legitimate social science.

            I'm not a MMTer, I definitely am a Krugman fan. All I'm saying is that some people treat economics like it's some partisan hack job when I think it's clearly a legitimate social science.

            2 votes
      5. skybrian
        Link Parent
        It's definitely heterodox but I think understanding the money supply is sort of like the Monty Hall problem in that it's pretty confusing for most people. I'm not sure this explanation is right,...

        It's definitely heterodox but I think understanding the money supply is sort of like the Monty Hall problem in that it's pretty confusing for most people. I'm not sure this explanation is right, but if it's wrong, it seems like fun thinking through exactly why it's wrong.

        Or at least, I think so. Maybe I'm weird.