FIRST TELL NO UNTRUTHAN ETHICAL CODE FOR ECONOMISTS

© Alan Freeman

Jilin University 26 October 2016

Where to find more

https://geopoliticaleconomy.academia.edu/AlanFreemanwww.hetecon.net

http://www.post-crasheconomics.com www.Copejournal.com

www.geopoliticaleconomy.ca

Two traditions in the critique of economics

•Criticism of ‘orthodox’ economics (mainly Europe – Elsner, Lee, Chick etc)• It produces untrue statements• It doesn’t allow any challenges or differences (‘Heterodoxy’)

•Request for ‘economic ethics’ (mainly in USA – DeMartino, Zingales)•Most professions have a concept of ‘doing right’•Often expressed in notions of ethical conduct or responsibility•Best known example is medicine (Hippocratic Oath: ‘first do no harm’) •But lawyers, engineers, accountants have codes of conduct•Only economics says ‘we don’t need ethics’

DeMartino and ‘econogenic harm’•Analogy with medical profession• Iatrogenic harm is ‘harm done by doctors’•For example recommending surgery or medicine that kills the patient

•Econogenic harm is ‘harm done by economists’•The principle of studying potential harmful effects•The principle of patient autonomy

•Rejection of the Hicks-Kaldor criterion•This says ‘harm must be balanced by good’•But there is economic harm for which no amount of good can compensate•For example climate change

The pluralist movement•Started with 1992 declaration in American Economic Review (Hodgson et al) •Against ‘single thought’•Called for a diversity of approaches•2001 formation of Association for Heterodox Economics (AHE)•The Royal Economic Society rejected heterodox papers just because it did not

agree with them – did not judge their merit•The AHE said ‘heterodox economists should judge heterodox contributions’•Student movements (PAE, PCES, ISIP, Rethinking)•World Association for Economics (Fullbrook) 12,000+ members worldwide

I argue these are the same basic idea

A ‘good economist’ always considers a range of views

A good economic advisor always explains the alternativesA good economic researcher always investigates alternative hypotheses

A good economics department hires many theorists of different ideasA good journal publishes diverse answers to the questions it addresses

To do otherwise is harmful

It is therefore unethical

What is ethics?•Ethics means ‘doing good’ – but it also means ‘not doing bad’•DeMartino (2015) uses example of medical ethics•Hippocrates, founder of medicine: ‘First do no harm’• In other words, don’t make things worse•The patient already has a medicine provider: it’s called a body•Better no treatment than a bad treatment

•So how do economists do harm?•By giving advice which makes things worse •That is, advice which leads to harmful consequences•What kind of advice leads to harmful consequences?

NOT AS EASY AS IT SOUNDS

THE PROBLEM OF ‘ORTHODOX HETERODOXY’

They produced the wrong answer….

Orthodox economics

So let’s produce the right answer instead

Heterodox Economics

A simple answer that doesn’t work

Orthodox Keynesianism

Orthodox Marxism

Orthodox Institutionalism

Sounds great, eh? Every economist thinks ‘things would be better if they did it my way’ But….

Do not make a new orthodoxy; get rid of all orthodoxy- including ‘heterodox orthodoxy’

Economists don’t leave room for doubt

They claim there is only one possible answer

And only one correct theory

And only one correct version of that theory

The case for pluralism

Monotheoreticism• Research into the ‘practice of economics’• Lee, Lee and Harvey, Elsner, Freeman, Association for Heterodox Economics (AHE)

• Selection for conformity• Economics departments recruited and promoted only one type of theory• Journals published only one theoretical analysis• Research funding was only given to ‘mainstream’ economic theory

• The result is that difference is eliminated• People that publish successfully are recruited and promoted• They then become ‘judges’ for awarding funding, work and publications• The ‘peer review’ process becomes ‘peer selection’

• At the end, the whole economics profession is teaching only one idea

• And that idea is wrong!

Against heterodox orthodoxyThe problem of interpretation

•What is taught today as ‘Keynesianism’ is not what Keynes actually said•For example Keynes argued for ‘the euthanasia of the rentier’•And for ‘the socialisation of investment’•What is taught is ‘Bastard Keynesianism’ (Robinson)

•What is promoted in the West as ‘Marxism’ is not what Marx actually said•Most Western Marxism interprets Marx as an equilibrium theorist

(Steedman, Sweezy)•But Marx opposed this reasoning (Freeman/Carchedi, Freeman/Kliman)• It leads to an theory of capitalism in which crisis cannot happen (Freeman,

Desai, Kliman)

Inductive Pluralism in Interpretation• It’s not enough to teach ‘Marxism’ or ‘Keynesianism’;recognise different

interpretations of Marx and Keynes• Bortkiewicz/Sweezy/Morishima • ‘New Solution’ (Mohun, Dumenil)• Simultaneous Single-System (Moseley, Callari-Wolff-Roberts)• Temporal Single System or TSSI (Freeman/Kliman/Carchedi/Ramos/Potts)

• This is not relativism• One can decide if an interpretation is good by means of evidence (induction)• Stigler Criterion (Kliman): does it make sense of the text?

• This is not dogmatism• Dogmatism says ‘what Marx says must be right because Marx says it’• Pluralism says ‘In order to discover if Marx was right, we must know what he really said’

Inductive pluralism in facts• At the entrance to Renmin University is the advice ‘seek truth in facts’

• Everyone has battles about ‘the facts’; but facts are interpreted according to theory

• Therefore, one must allow every theory to express the facts according to its own system of classification and evidence-gathering

• This is not relativism either

We choose the theory that makes the most sense of all the facts, using the interpretation of the theory advanced as a hypothesis

and using the inductive presentation of the facts advanced as an evidence-gathering method

This is what science consists of

IMF Evaluation Office (2001)

“The IMF’s ability to correctly identify the mounting risks was hindered by a high degree of groupthink, intellectual capture, a general mind-set that a major financial crisis in large advanced economies was unlikely, and incomplete

analytical approaches”

Alan Greenspan

“In recent decades, a vast risk management and pricing system has evolved … A Nobel Prize was awarded for the

discovery of the pricing model that underpins much of the advance in derivatives markets. This modern risk

management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of

last year. ”

Colander et al (2009)

“If one browses through the academic macroeconomics and finance literature, ‘systemic crisis’ appears like an otherworldly event that is absent from economic models. Most models, by

design, offer no immediate handle on how to think about or deal with this recurring phenomenon. In our hour of greatest need,

societies around the world are left to grope in the dark without a theory. That, to us, is a systemic failure of the economics

profession. ”

Buiter (2009)

“In both the New Classical and New Keynesian approaches to monetary theory (and to aggregative macroeconomics in general), the strongest version of the efficient

markets hypothesis (EMH) was maintained. This is the hypothesis that asset prices aggregate and fully reflect all relevant fundamental information, and thus provide the

proper signals for resource allocation. Even during the seventies, eighties, nineties and noughties before 2007, the manifest failure of the EMH in many key asset

markets was obvious to virtually all those whose cognitive abilities had not been warped by a modern Anglo-American Ph.D. education. But most of the profession

continued to swallow the EMH hook, line and sinker, although there were influential advocates of reason throughout, including James Tobin, Robert Shiller, George

Akerlof, Hyman Minsky, Joseph Stiglitz and behaviourist approaches to finance. The influence of the heterodox approaches ... was, however, strictly limited ”

“We were inspired to start the society when hearing about the 2011 Bank of England Conference – ‘Are Economics Graduates Fit for Purpose?’

At this event, leading economists from the public and private sphere came together to discuss whether economics undergraduates were being taught the right things in light of the Financial Crisis … However, as the conference

took place its effect on the syllabus was minimal at most. It was not immediately thought that the crash called for a new approach within

economics. However, the BoE conference called this conclusion into question.

Post-Crash Economics Society

We in Manchester were intrigued and excited to hear about this event. The economics we were learning seemed separate from the economic reality that the world was facing, and from the crisis that had made many of us

interested in economics to begin with. Through our own research, we began to learn more about economics. We

examined how its mainstream had begun to be dominated by a certain kind of economics, often referred to as neoclassical, at the expense of

other approaches. It was decided to set up a society that would bring this discussion to

Manchester.

Event participants 400

“

We are committed to campaigning for a change in the syllabus itself. Whilst we believe events and discussion are extremely valuable, most

students won’t receive the economics education they require unless the content of their degrees change.

As a society, we are committed to pluralism within economics. We believe that the mainstream within the discipline has excluded all dissenting

opinion, and the crisis is arguably the ultimate price of this exclusion.

Alternative approaches such as Post-Keynesian, Marxist, and Austrian economics (as well as many others) have been marginalised. The same

can be said of the history of the discipline.

“

facebook group 1200

Students are routinely taught that only one form of economics is ‘scientific’ and ‘correct’. Complacency was therefore sure to

arise, and the failure of so many mainstream economists to see the crisis appears to vindicate these worries.

We hope to challenge this outlook that credits only one form of economics, and want to create an academic environment

within economics that never rests on its laurels, and invites intrigue and critical thinking from students.

“

World Economics Association 12000

WHAT IS THE CONNECTION BETWEEN

ETHICS AND PLURALISM?

Examples of harm done by economists• 1982 and the debt crisis• ‘Washington Consensus’/neoliberalism: deregulate, privatise, drop protection• It clearly didn’t work: poverty got worse, economies did not grow

• Shock Therapy• Advice given: introduce market rapidly, so fast that it’s impossible to change• Russia suffered more social and population damage than in the war

•2008 Crash• Economic theory of ‘Efficient Markets’ said it could not happen• Policymakers removed controls on the banks• Millions of lives were ruined

The problem defined•Producing wrong answers is not unethical. It happens all the time•Until bacilli were discovered, people did not know many causes of disease•This does not mean than all doctors before Pasteur were unethical or did no good.

•What’s wrong is to insist on a wrong answer, when a better answer is available•There were alternatives to neoliberalism and shock therapy – eg the Chinese road•The theory that allowed China to develop was available•But the IMF said ‘there is only one answer’

• It is also wrong to insist that we know the truth, when we don’t have sufficient grounds•The ‘Efficient Markets Hypothesis’ was a hypothesis, not a confirmed theory•But policymakers were advised to deregulate banking controls ‘because it is true’

What does it mean ‘to tell an untruth’?•It means to insist that something is true when we cannot be certain•The IMF did not say ‘we advise you to privatise but you have a choice’•They said ‘unless you privatise, we won’t give you credit’

•They justified this harmful conduct by saying ‘this is economic truth’•This was unethical for two reasons•They did not consider the alternatives•They did not give any choice to the countries they advised

Later, it was discovered to be wrong•Most development theorists acknowledge ‘Washington Consensus’ was wrong•Even the IMF is changing the advice it gives and calls for ‘fiscal stimulus’•Geoffrey Sachs, architect of shock therapy, recognises it failed•Alan Greenspan confessed ‘everything I believed to be true’ was wrong•For decades, economics taught that high interest rates were the only basis for

sound growth •Now, interest rates are at a record low

-Colander et al 2009

What exactly went wrong?•Most basic point: the advice was wrong because it was untrue.•Harm is done when people take harmful actions•But if they believe it’s the right thing to do, is it wrong?•The harm then arises because the belief was wrong•So where did they get the belief from?•From the economists•So the economists have responsibility for the harm

Could the economists have given better advice?•Perhaps: they could have said ‘follow Deng Xiaoping’•But at the time, did they know this was right?•They had good grounds but could not be certain•Only now, with China’s success, has the ‘hypothesis’ been proven•Even now, there are many consequences we do not know the answer to•We only find out in practice•So the discovery of economic truth is the business of all society

– not just the economists

ECONOMICS: A SOCIAL PROBLEM

REGULATORY CAPTURE AND THE REFORM OF ECONOMICS

Why are economists allowed to do harm?• Formal justification: ‘we only give advice’: It’s up to you whether you take it • But in the 1980s if you wanted IMF loans, you had to take the advice• Shock therapy was to ensure people had no chance to refuse the advice

• Actually, it’s enshrined in doctrine of ‘normative and positive’

• It’s also caused by separating economic from social knowledge (Desai)

• The root problem: the claim to know positive truth when the truth is not yet known

• The ‘cult of the expert’ (Zingales)

Positivism as a religious body of doctrine•Economic and social knowledge cannot be positive•Because the outcome of any decision depends on free will of the actors

•Positivism says we have to accept economic destiny as if it were a natural force•They disguise phenomena that really result from human decisions•And present them as ‘inevitable’•For example ‘the Law of the Market’•For example ‘Globalisation’

•They present human decisions as an alienated force•This is actually a religious mode of discourse• In fact, economics is a religion

Regulatory capture•Politicians find it convenient to hide behind their economists•They hire economists to tell people what they already decided to do•Monetarism was an obscure cult until Thatcher•She found the economists she wanted and promoted them•In the same way, the leading international bodies (IMF etc) were

actually overturned (Todaro: ‘neoliberal counterrevolution’)•Orthodoxy and monotheoreticism are imposed by classes who

receive justification from the answers that these theories give

Really, it’s a form of corruption

Adair Turner (head of financial regulation)

“the whole efficient market theory, Washington consensus, free market deregulation system” was so dominant that it was

somewhat like a “religion”. This gave rise to “regulatory capture through the intellectual zeitgeist”

(Tett 2009)

You get the economics you pay for

•Cui Bono•Countries that benefitted from IMF policy were the lender nations•Countries that benefitted from shock therapy were the Europeans

and Americans who took over East European and Russian markets•People that benefitted from bank deregulation were the banks

•Society has to be protected against regulatory capture of economics•Code of ethics is a protection for society•Code of ethics is a protection for economists

Elements of a code

First tell no untruthAdmit when you don’t know the answerMake public the alternative answersMake clear the theory you are usingMake clear the interpretation you are usingState presuppositions (EMH/Ricardo/Say)Let the people make the judgement, not the economist

谢谢https://geopoliticaleconomy.academia.edu/AlanFreeman

www.hetecon.nethttp://www.post-crasheconomics.com

www.Copejournal.com www.geopoliticaleconomy.ca