Mainstream economics — an obscurantist and harmful waste of time

Published by Anonymous (not verified) on Sat, 15/06/2019 - 11:32pm in



One may perhaps, distinguish between obscure writers and obscurantist writers. The former aim at truth, but do not respect the norms for arriving at truth, such as focusing on causality, acting as the Devil’s Advocate, and generating falsifiable hypotheses. The latter do not aim at truth, and often scorn the very idea that there is […]

So much for ‘independent’ central banks …

Published by Anonymous (not verified) on Sat, 15/06/2019 - 10:49pm in



Or, manque de chance, un tiers environ des banquiers centraux de la planète sont issus du secteur bancaire et financier, et cette proportion augmente (« How Do Central Bank Governors Matter ? Regulation and the Financial Sector », Ariell Reshef et Prachi Mishra, Journal of Money, Credit and Banking, vol. 51, n° 2-3, mars et avril 2019). Même tendance chez les […]

On Enthusiasm and Expected Utility in Grouchy

Published by Anonymous (not verified) on Sat, 15/06/2019 - 1:05am in

Last year I wrote post (recall) about Sophie Grouchy's analysis of enthusiasm and inserted her into a historical narrative. Shortly thereafter I received a long letter from my friend the mathematical economist, M.A. Khan, showing fatal flaws in my analysis and sketching an alternative interpretation. One nice feature of these digressions, is that every day I can make a fresh start at thinking. What follows is very indebted to his (unpublished) letter.* I rely on Sandrine Bergès' excellent translation (which is available to order from OUP USA today!)

Grouchy turns to enthusiasm in Letter 3 of Letters on Sympathy (LS) when she confronts a possible objection, “the effect here is too great for its cause, and you will no doubt ask yourself why personal sympathy is sometimes so strong while its motives are so weak and nebulous.” (p. 79) The objection relies on a principle, what I like to call David Hume’s ninth rule of causal reasoning, that causes and their effects must be proportional.[1] This principle is assumed throughout Hume’s science of man, and explicitly articulated in his essay “Of Interest:” “An effect always holds proportion with its cause,”. Grouchy does not object to the principle.

The objection amounts to the idea that in describing and explaining various social phenomena, Grouchy has been illicitly appealing to personal sympathy. Personal sympathy (“sympathie individuelle”) is a directed sympathy at a particular person. The reason why the appeal is thought to be illicit (by the hypothetical objection) is that such directed sympathy appears to be ungrounded in the motives said to cause it. These causes are too weak to explain the intense directed sympathy. So, the effect is out of proportion with its cause(s).

Grouchy meets the objection by appealing to enthusiasm, which fills the ‘proportionality’ gap: “enthusiasm, mixing with our soul’s first observations, extends those observations beyond the point to which our factual knowledge alone is able to bring them.” (79) The response to the objection is by no means self-explanatory.[2]

Enthusiasm is the kind of mental or imaginative mechanism that adds, as it were, causal heft to motives such that these are proportionate to an effect like directed sympathy. It does so by reaching beyond the observed facts. In other words, enthusiasm discloses possibilities. The effect of a person in the grip of enthusiasm, and the motives that occasion them,[4] is “intense and sudden personal sympathies.” (LS 3; I use ‘occasion’ rather than ‘trigger’ because it is not the motives that cause enthusiasm, but the person to which sympathy is directed or our aspirations pertaining to that person.) So far so good.

But one may well wonder if this explanation does not simply push the problem back a level. What is enthusiasm such that it can play this role? Grouchy’s response is extraordinarily subtle (that is, this is the passage I screwed up last year):

Enthusiasm comes from the degree to which our soul is able to represent to itself, at the same time and in an indeterminate manner, all the pleasures or all the pains we would gain from a particular situation, or from a certain person and our relationship with him or her.  This picture brings together in one instant what should in reality span months, years, and sometimes an entire lifetime. Enthusiasm, therefore, conceives of its object in an exaggerated sort of way; and because it presents the mind with a greater number of objects than it is able to consider distinctly, it is always vague in some respects. (L3, 79-80)

Enthusiasm is itself the effect of mental representations of anticipated, future utility attached to a situation or a person and our relationship to it or him/her. (For other posts on Grouchy's political economy, see here; here; here). First a point about  terminology. When Grouchy uses ‘utility’ in LS, she tends to mean -- in common with the usage of Hume, Smith, and Beccaria -- of ‘public interest.’ While there are consequentialist elements in her moral psychology, she is not a Benthamite utilitarian. So, the use of ‘utility’ is anachronistic and potentially misleading.[3] Second, in the passage Grouchy uses ‘enthusiasm’ to refer to (i) the effect of the mental representation and (ii) the feeling associated with the representation. Later she argues that (iii) when enthusiasm has become habitual, she uses it to refer to a disposition.

It is not immediately clear what Grouchy means to convey with the claim that the representation (of such future utility) comes in degrees.  Perhaps she means to suggest that the more determinate or (to put it in the idiom of the age) clear and distinct  the representation becomes the more enthusiastic we may be. Of course, by her lights, the representation can never be fully clear or distinct (or determinate); in her work on demagogues this matters a lot (recall; and also here). For, “enthusiasm…presents the mind with a greater number of objects than it is able to consider distinctly.” These ‘objects’ turn out to be future states of affairs of a particular kind.

For, the content of the representation is itself something of an impossible idealization of utility: it compresses in time (“it brings together in one instant what should in reality span months, years, and sometimes an entire lifetime”); and it represents, perhaps, mutually exclusive (logical) possibilities (“all the pleasures or all the pains we would gain”). Either way, enthusiasm is in one sense not truth apt. It “exaggerates.”

In her analysis, Grouchy then makes an important distinction between how the enthusiastic representation is experienced by the person under its sway and the person theorizing it.[**] This becomes clear when she describes one of the effects of enthusiasm on “our sensitivity.” It is “subject to another form of amplification born out the multiplication of pains and pleasures we imagine.” Our (enthusiasm, that is) representation of future utility produces “fears and desires” that are “either impossible in reality or at least cannot be found together.” Crucially, “”in the midst of our soul’s turmoil, we cannot untangle this impossibility.” But from the theoretical vantage point she adopts, one can discern “there is even actual error involved here.” That is, conceptually, she anticipates the recently popular distinction between experienced and decision utility (see Kahneman et al). 

As noted above, Grouchy also treats habituated enthusiasm as a “disposition:” “if a circumstance or a person has provoked it in us on several occasions, that person or circumstance retains the power of provoking it, independent even of our thinking about it, and we can then consider enthusiasm as a passion of the soul.” (LS 3; later, in LS 5 she emphasizes the role of enthusiasm in reinforcing habit (p. 109.) That is to say, the triggering cause of enthusiasm need not be present actually in order for the mental mechanism to do its work. Merely representing the trigger may lead a predisposed or habituated mind to represent future utility associated with that person/situation.

Grouchy is here presupposing something like a Humean associative mechanism.[10] In particular, she relies on resemblance: “enthusiasm toward certain qualities disposes us to sudden and rash sympathy for the people in whom we think we recognize them.” (80) Here enthusiasm has the effect of intensifying (directed) sympathy for the whole (person) based on properties/features (“qualities”) of it (the person). We may say then that the disposition of enthusiasm is a cognitive heuristic likely to be error prone.

Grouchy is clear that the tendency  toward enthusiasm  is ground in three personality traits:

  1. The strength of imagination, which embraces with more or less haste great displays of sensations and events.
  2. The strength of sensitivity, which is more or less affected by those displays and preserves them with more or less constancy.

By ‘sensitivity’ Grouchy means something like a property of our bodies that facilitates our capacity to experience the world through the senses. The third trait is our tendency to reflect on the triggering cause, which prepares “our hearts…to feel affection” toward the triggering cause. This tendency is a consequence of “the need or desire to find an object for this affection.”

So, she agrees with Adam Smith (recall yesterday's post) that enthusiasm is the cause (and effect) of emotional intensification. But, while Smith makes the kind of enthusiasm in a person be a consequence of their moral character, for Grouchy enthusiasm is a consequence of (morally) generic character traits such as imagination, sensitivity, and our longings. As she sums up her own argument (with a competing account of sympathy), “I have shown how moral pains and pleasures are born out of physical sympathy that has become personal, strengthened by diverse circumstances, rendered more active and energetic by enthusiasm.” 

But the key difference with Smith is that for Grouchy, enthusiasm is a representational phenomenon with considerable cognitive complexity and that is essentially connected to the future-orientation of agents and their hopes/aspirations connected to other persons and situations. From this it follows, and this is another important difference with Smith, that Grouchy links enthusiasm to a wider range of social phenomena (including love and demagoguery). 

*So, here I ought to absolve him from what follows. But perhaps he shares some measure of blame for any remaining mistakes?

[1] See also Christopher J Berry "Hume on the Customary Causes of Industry, Knowledge and Humanity" in Essays on Hume, Smith, and The Scottish Enlightenment, Edinburgh: Edinburgh University Press, 2018, chapter 11.

[2] In Letter 5, she explicitly calls attention to the “preceding letters about particular sympathy and the effects of enthusiasm.” This reveals that the argument (of at least letters 3-5) of LS is, in part, cumulative.

[3] Having said that, as Sandrine Bergès  has argued, there are good reasons to believe that she was familiar with Bentham’s early work. (See p. 14 of the edition.)

[**] Adam Smith also makes some such distinction between the perspective of the agent and theorist, but his account of individual well-being is not proto-utilitarian (see Schliesser 2017: 240).

On the use and misuse of randomisation

Published by Anonymous (not verified) on Fri, 14/06/2019 - 6:11pm in



‘Ideally controlled experiments’ tell us with certainty what causes what effects — but only given the right ‘closures.’ Making appropriate extrapolations from (ideal, accidental, natural or quasi) experiments to different settings, populations or target systems, is not easy. “It works there” is no evidence for “it will work here”. Causes deduced in an experimental setting […]

Select Australian privatisations: lessons for industry and consumers

Published by Anonymous (not verified) on Fri, 14/06/2019 - 6:30am in



The $45 billion from the Telstra sale is now increasingly surpassed by the NBN's costs of $51 billion and counting (ABC 2018).

I don’t care what label you put on Labour’s Fiscal Credibility Rule. I do care that it’s not something the left should be doing

Published by Anonymous (not verified) on Thu, 13/06/2019 - 4:44pm in

Simon Wren-Lewis has written a response to criticism of Labour’s Fiscal Credibility Rule (FCR) in the New Statesman. Simon co-authored this rule with Jonathan Portes. He has as a result, ‘skin in the game’. And what, it seems, he most objects to is that the rule is called neoliberal by its opponents in the modern monetary theory (MMT) community. He names Bill Mitchell as his prime opponent, but I suspect I am on the list. Simon says:

But why do many MMTers, as they are known, call Labour’s rule neoliberal? To understand this, you have to understand that MMT is far from just another school of macroeconomics.

MMT is also a political movement of the left. Mitchell himself supports Lexit. This movement is therefore indignant that a Corbyn-led Labour Party has adopted a rule that is derived from mainstream economics, rather than MMT. Their aim is to win a political as well as an economic battle. Pretty much anything is fair game in this political battle, including describing those like myself who defend Labour’s fiscal rule as neoliberal.

I will not quote at length as to why Simon has this view. Instead I will argue that I think Simon is really missing the point in what he says, which is entirely framed within a neoclassical economic framework. Let’s leave the apparently inflammatory ‘neoliberal’ term aside. The issue can as easily be addressed using the word neoclassical instead. Saying that, let me explain why Simon is still wrong.

The reason is that many on the left do not accept the assumptions of neoclassical economics. We do not think growth is what economics is all about. The climate crisis guarantees it cannot be. Nor do we think that economics is all about balancing equations. It glaringly obviously isn’t, but for neoclassical economics that is the almost entire focus of attention. And what that implies is that the confidence that Simon thinks we should place in a system that out-sources economic policy to a committee that thinks life can be reduced to a series of formulas is misplaced: most of us would rather such people were not in charge.

There is in this another issue of importance to the left that Simon really does not appear to appreciate. This is that many of the left do not trust bankers. There is ample evidence for not doing so, from the 2008 financial crisis to the fact that bankers do undoubtedly have a different set of priorities to most in society. Again, in that case to expect people to have confidence in a system that presumes bankers, who alongside neoclassical economists are the other half of the Monetary Policy Committee, will exercise best judgement on behalf of society is pushing credibility beyond a limit that many on the left could not accept.

Add in to this a third concern, which is that it is not unelected committees but elected politicians who should be exercising judgement on issues as vital as economic policy and Simon’s assumption that we should accept that economists know best is on decidedly shaky ground. It really is time he recognised this.

I also do think he needs to drop another claim, which is that modern monetary theory (MMT) promotes solutions that are the same as standard macro theory when it is assumed that fiscal policy is in use. That is not true, but regrettably Simon is blind as to the reason why so I need to explain them.

Simon argues that because MMT says deficits can be run in a downturn and so does his fiscal rule that they would produce the same outcome. But that is not true. They would not. That is because the assumptions are fundamentally different. Neoclassical economics assumes that raising tax precedes spend in the economy. And it assumes that the constraint on what can be achieved within the economy is the availability of money. MMT does not see the world that way. It assumes spend precedes tax, and shows why. And it assumes that the constraint on what can be achieved is not money - because a country like the UK with its own currency and central bank has no theoretical constraint on the amount of money available to its government - and that real physical constraints, of which full employment is currently thought to be the most significant - are what really define the limits to what can be achieved within an economy. That such wildly different assumptions might provide the same outcomes is very unlikely.

Simon suggests otherwise, and I think (I genuinely have to surmise) that this is because he thinks that because MMT and neoclassical economics are, in his opinion, based on the same set of economic accounting identities (we’re back to formulas, again) running them in forward or reverse - which is about as much difference as he sees between the two systems - will produce the same outcomes, some specific occasions that he notes being excepted.

I strongly disagree. And the evidence is really not hard to find. Simon’s FCR was published by Labour in a document that included this claim to justify its use:

While there are exceptional times when shocks from the private sector mean that government has to step in to help, everybody knows that if you’re putting the rent on the credit card month after month, things needs 
to change.

There is no way on earth that MMT could ever be framed in that way. And that is not a minor issue: it’s seismic. Simon claims that his rule is effectively apolitical by suggesting that MMT is, in contrast, deeply political. Leaving aside the fact that all economics is political, by definition, since all decisions on the allocation of resources are, Simon’s apparent inability to recognise that his rule is being used to support Labour’s use of the same neoliberal narrative that David Cameron popularised is worrying, because that is what is happening. Labour’s fiscal credibility rule is simply being sold as a way of achieving the neoliberal objective of constraint government. That blows Simon’s claim apart.

And this does matter. And that is precisely because no fiscal rule ever written has been complied with. Events always overcome them. But the mindset that they encourage does make a massive difference. Simon’s rule says bankers, money and the conventional focus of neoclassical economics - which has the intention of keeping wealth owners happy - should be the focus of economics. And the wording of Labour’s framing of that rule confirms that to be the case. MMT would have an entirely different focus. The aim would be full employment, the creation of gainful employment and maintaining moderate inflation within these constraints. That is a completely different framing for economic policy.

So what in that case if Simon thinks there are some similarities in the formulation of the theory of each model? The point is that those formulas imply the adoption of very different policy outcomes. I am sorry if Simon cannot see that. But the fact that many neoclassical economists (for which read the vast majority of economists) can also not see that difference also indicates why the economics they espouse - however it is labelled - is not an appropriate basis for the economics of a left of centre government in the UK. And I would suggest that the mindset of MMT does provide a suitable basis for the economic policy of such a government. And that is why I think Simon is wrong, and so is Labour to use his Rule, which is going to seriously constrain what it can do for the people of this country.

On poverty

Published by Anonymous (not verified) on Thu, 13/06/2019 - 12:39pm in



In our country, and others like them, at election times, and indeed pretty well all the time, poverty is seen as being somehow wrong in principle, and my political party or yours will end it, or at least reduce it.

Wren-Lewis vs MMT

Published by Anonymous (not verified) on Wed, 12/06/2019 - 5:43pm in



Simon Wren-Lewis is obviously upset because some MMTers have called his economic policy proposals (providing the theoretical foundation for Labour’s Fiscal Credibility Rule) “neoliberal”. Neoliberal or not, what he does have to say about MMT and his own mainstream economics makes it clear what the debate really comes down to: MMT’s key idea is that […]

Rory Stewart would be a threat to the economic well-being of everyone in this country

Published by Anonymous (not verified) on Wed, 12/06/2019 - 5:35pm in



There are those who, it seems, think that Rory Stewart is indication that there is still sense in the Conservative Party. I wish to assure them that they are wrong.

Stewart has written on tax, fiscal rules and related issues in the FT this morning. He criticised the spending and tax plans of all his leadership rivals and had this to say:

I am both a Conservative and a fiscal conservative. If I am lucky enough to be chosen as the next UK prime minister, my priority will be to secure the long-term sustainability of Britain’s public finances.

It was a portent of what was to follow. Like this:

So, although I have made my priorities clear — above all in education, productivity and broadband and infrastructure in the north of the country — I am not committing any money until it is clear that there is money is available. And I am not promising tax cuts.

So, the household economy analogy prevails then. And it gets worse when it comes to fiscal rules:

I will set clear rules to maintain discipline in spending. The current UK fiscal rule is far too complicated: it incorporates commitments to hit four overlapping targets over three different timeframes.

Ultimately, the stability of the public finances rests on one thing: a sustainable path for public-sector net debt. I will, therefore, introduce a new and simpler fiscal rule: that public-sector net debt as a percentage of GDP will decline each year over the three years of the next spending review.

This new rule will be more easily monitored by investors, taxpayers, and the Office for Budget Responsibility. It will allow for more appropriate flexibility in the underlying budgets. It will also establish a clear and disciplined framework allowing us to put to work the results of the work the UK has done to reduce the deficit and debt since 2010 without jeopardising fiscal stability.

With a growing economy, debt reduction is the minimum the electorate should expect from a Conservative government, and I challenge the other contenders to meet this promise.

This rule is, to be polite, economically illiterate. For example, it can be achieved by letting inflation run away: this always reduces debt as a proportion of GDP. I suspect that is not the plan.

And the goal can also be achieved by growth: increase GDP and on this basis the debt need not fall. Again, I suspect that is not the Stewart plan.

More worryingly, the reverse is also true: when GDP stagnates, inflation struggles to be much and the economy is in the doldrums this plan demands harsh austerity. There is no room for compromise.

I criticise Labour's fiscal rule, but it is a paragon of virtue compared to this rule which is intended to impose severe cuts on the economy whenever a stimulus is needed. This is an economic rule from the 1920s and 1930s, designed to deliver depressions and not recessions, and to impose misery on ordinary people through no fault of their own and solely because of the economic illiteracy of those who might rule them.

Rory Stewart is very definitely a fiscal conservative. And that makes him a threat to the well-being of everyone in this country.

Labour’s fiscal credibility rule, again

Published by Anonymous (not verified) on Wed, 12/06/2019 - 4:58pm in


Economics, Labour

I am aware that Simon Wren-Lewis has written a new price on Labour's Fiscal Credibility Rule for the New Statesman. As usual, I fundamentally disagree with him, but a response will take more time than I have this morning, and will have to follow.

Howard Reed wrote a good comment on the piece though on Facebook and offers what might be called a middle ground view. I thought it worth sharing:

Very interesting discussion of Labour’s fiscal credibility rule by Simon Wren-Lewis. This is a topic that James Meadway and Richard Murphy among others, have written about intelligently in recent months. My own view (FWIW) is:

- the Labour FCR is better than any previous attempts at such a rule (e.g. the current rules drawn up by Osborne, the New Labour rules, the 1980s MTFS, etc)

- my preference would be for a very loose rule which effectively just says “govt debt should not be allowed to grow explosively” and - linked to this - “govt debt should be reduced when financing debt becomes an unacceptable burden”. In other words focus on debt, not deficits. Note also that financing costs are extremely low at the moment - suggesting significant room for expansion

- Having said that, I accept James’s arguments that the FCR doesn’t unduly constraint a Corbyn govt’s freedom of fiscal manoeuvre (particularly if a wide definition of ‘investment spending’) is used

- running persistent deficits doesn’t necessarily increase debt/GDP as this depends on the inflation rate and the growth rate of real GDP. If we accept a higher equilibrium inflation rate, or we can get higher growth, then the economy can run persistent deficits without increasing debt/GDP.

- I think the dichotomy Simon presents between using interest rates vs taxes for macroeconomic management is misplaced; a combination of both works best (and in fact this was the pre-monetarist paradigm used in 1945-1976 or thereabouts; fiscal policy for demand management with monetary policy in a supporting role).

Thoughts welcome!

The floor is yours....