What is it that we get from economists besides affirmation of the power of money?

Assurances that common sense has no place in economic policy, and that the hoi polloi shouldn’t believe their own lyin’ eyes?

Shame on you masaccio. You are not supposed to question the assumptions of your betters. Just because almost all market imperfections benefit the already wealthy & powerful at the expense of the ‘small’ people, is no reason why you should embarrass the PTB by pointing to market imperfections.

if there is introduced into a general equilibrium system a constraint which prevents the attainment of one of the Paretian conditions, the other Paretian conditions, although still attainable, are, in general, no longer desirable.

This reminds me of the medical report which read Operation: successful, Complications: Patient died.

The curve represents optimum conditions. So it actually defines the limit of the system. But its shape or even the idea that you can define its shape rests on the assumptions that all pertinent variables are definable, quantifiable, and independent, and that you can create a function from them that defines not simply the curve, but the system. But, in fact, none of these conditions are met. This is a pure exercise in BS.

All of this seems like the long way round of saying that in a finite system there are trade offs. What it misses is that the system is dynamic and there can be unintended consequences to interventions. This does not mean that there should be no interventions but rather intervention is a necessary part of the dynamic to keep the system functioning.

The biggest rot in economic theory is Pareto’s definition of “welfare” and his “Pareto optimality,” in which the distribution of goods (wealth) is “optimal” if and only if all voluntary trades have been completed — the fact that one person might be a billionaire while everyone else is starving is irrelevant to “welfare” according to economists’ definition. Pareto was fascism’s version of Karl Marx; he was Mussolini’s favorite philosopher, but he also produced this definition of “welfare” at the base of economic theory. According to his definition, the distribution of wealth is irrelevant to “welfare,” and a society in which one person owns all the wealth including everyone else as his slaves is indistinguishable in terms of “welfare” from one with the same total amount of wealth and in which everyone is approximately equally wealthy. It’s no wonder Mussolini honored Pareto, but why do economists? Why does non-Marxian economic theory base itself upon fascism? Why do economists in so-called democratic countries slip fascism in at the base of their thinking and of their profession? Why does the public think that economists are more scientific than witch-doctors? Economics as it stands and as it has stood is a “scientific” hoax.

There are actually many more problems with the notion of Pareto Optimality, the most glaring of which is that it doesn’t consider “initial endowments,” rather taking them as given. So, if for example A owns 99% of the wealth and B 1%, all it can consider is ways in which both can trade among each other to improve the mix of goods of their 99% and 1% respectively; perhaps part of B’s “bundle of goods” is cigarettes that A can trade for bread, is the famous example used. But in the end the distribution of wealth remains 99% and 1%, and neoclassicals consider that to be “optimal”. A redistribution of resources in which that imbalance does not exist is off the table. Furthermore, neoclassicals do not consider the POWER that comes from such an imbalance: B must work for A, on terms suitable to A (i.e., subsistence wages) because A owns all of the productive resources. POWER and STRUCTURAL COERCION is not considered in neoclassical economics, all trades are considered “free” and “equal”: you have x quantity of good G, I have x quantity of good H, and we trade among each other in the absence of any coercion (i.e., the need to survive from day to day). As a Marxist political economist I am obviously biased against what we call “bourgeois economics,” but in my opinion neoclassical economics offers us explanations favoring the position of the rich. (Edit: I hadn’t seen cettel’s post, much of whoich I agree with, when I started my own.)

The nature of neoclassical economics (the conservative economics taught mainly in the US) is often not understood: it is NOT an explanation of how capitalism works, only Marxian theory tries to do that; rather, neoclassical economics is simply a model of how trades take place among traders whose initial endowments are already taken as given. Most importantly, neoclassical economics is an “individualist” theory, by which I mean not a theory meant to help the individual person but rather one in which all social explanations (unemployment, poverty, etc) MUST proceed through explanations of individual behavior. There is no society as such, just a collection of isolated individuals. And that has important consequences for social theory, what you term “slipping fascism into the base of their thinking” may be one of them.

I agree with both you and reddflagg. Rhinehardt takes a couple of whacks at this nonsense, but I think it is far more pernicious than he does.

His post on Kaldor-Hicks is harsher, but he isn’t willing to call out the profession for its intellectual dishonesty.

The shape of the curve is fascinating. I wonder why it looks like that. I can imagine plenty of others which would make a lot more sense.

Its intellectual dishonesty is scandalous, and I am puzzled at why “liberal” economists, such as Paul Krugman, don’t publicly condemn their field as the sellout to the aristocracy that it is. Pareto was thoroughly committed to the existing distribution of wealth, and this means he was throughly committed to the aristocracy. He came up with the most devilish rationalization for the rights of aristocrats, and the whored profession of economists just built upon and extended his concept of “welfare.”

terrific piece as usual masaccio, my contribution;

He says that economists agree that in a perfectly competitive market, given an initial allocation of money, the market will automatically reallocate resources between A and B until happiness reaches an Optimal Pareto point, somewhere on that curve.

he’s wrong, economists don’t agree on that, although there are those who make believe there is such a market or even such a hypothetical market.

there is no such thing, neither in reality or hypothetical

there is no natural re-allocation of assets, those that can take do take, those that cannot take…well they can’t.

in other words, as a group gains power they will gain exponentially more then their allocation

simple stuff here and quite contrary to any of the pseudo economists who make believe there is such thing as a market that corrects itself

that’s a nice post, I have something to add, notice my bold

The nature of neoclassical economics (the conservative economics taught mainly in the US) is often not understood: it is NOT an explanation of how capitalism works, only Marxian theory tries to do that; rather, neoclassical economics is simply a model of how trades take place among traders whose initial endowments are already taken as given

it’s not a model of how trades actually take place it’s only “a model” in the plastic and glue sense, this model is a fantasy, a fabrication that they claim can happen if they only allow it

of course it can’t happen, it’s a plastic and glue model not a real life practical model

Krugman doesn’t rebel against neoclassical economics because he actually believes in it. Krugman sees economic theory as the explanation of how to allocate scarce resources (resources are always assumed to be scarce because wants are always unmeetable, “more is better”). One of his famous articles from the Eighties, for example, discussed a notorious huge trash heap in Manila where entire families had grown up living there and scavenging the garbage. Krugman said this is a good thing, because it provided them with resources, and that the practice should not be ended. Redistributing wealth in the Philippines was not considered by him, despite the fact that they are more than self-sufficient in food production but most of the wealth to buy it with goes to a tiny sliver of society (a more unequal distribution even than the US). “Initial endowments” are not considered.

Its a great insight into the brain of a money grubber though, where happiness or unhappiness results from an allocation of dollars. it takes no account of other things like how those dollars might be spent tearing up our natural environment which for biological entities has to have something to do with “happiness”. or the non stop upheval and destrution of communities which happens for every generation since the industrial era started. or everything and anything else thats not counting money.

Right, your edit is correct, it isn’t an explanation of anything we actually see, anything tangible.

I am puzzled at why “liberal” economists, such as Paul Krugman, don’t publicly condemn their field as the sellout to the aristocracy that it is

As I often write, Krugman is an Establishment liberal. He is a member of our aristocracy. I call them elites. He will criticize specific aspects of the Establishment, some of its programs and policies, but he will never push his analysis if it is likely to challenge the Establishment as a whole.

PS: an alternative way of defining “optimum welfare” would be as follows:

First, we should recognize that under Pareto’s “optimality,” $1,000 increase in the wealth of someone whose net worth is $1,000 is equal in “welfare” terms to $1,000 increase in the wealth of someone whose net worth is $1,000,000,000 (a billion dollars). But such an example of application of Pareto optimality makes the hoax which is economic theory too obvious, and so economists don’t talk about it.

Second, we should consider as an alternative the ratios that are involved, rather than the property which is being exchanged, so that (for example) a 10% increase in net worth is equal regardless of how wealthy a person is in absolute dollar-terms. For example, a $100 increase in wealth of a person who owns only $1,000 is equal to a ten-million-dollar increase in wealth of a person who owns a billion dollars. This change in the formula for calculating “welfare” would transform economic theory into something that at least approximates reality. The implications would be revolutionary, and the hoax upon the basis of which economists (and all other conservatives) view economic matters would become past history; economics would finally start to become a science, no longer just a way of mathematizing Adam Smith’s “invisible hand” of God.

ten-million-dollar increase in wealth of a person who owns a billion dollars.

that would be one hundred million to maintain the proper ratio

There are no “interpersonal comparisons” in neoclassical economics: they emphasize that they are a science, and science does not, in their view, allow for value judgments. Saying that an equal distribution would be better is a value judgment in their view, not science. What rubbish, eh?

Love this post masaccio, you won’t see a discussion of Pareto Optimality on HP, and if you did 500 Obamabots would be jumping all over us to stop the discussion, “don’t let the perfect be the enemy of Pareto Optimality” or some other rubbish. Don’t kid yourselves, Obamarahma is a believer in Pareto Optimality, and a not very sophisticated one at that.

Reddflagg’s “Initial endowments are not considered” is another way of phrasing the unrealism I criticize in economics, but I don’t know whether that way of expressing the hoax will get through to most people, who accept “initial endowments” as God-given, rather than as results from the human system of government, culture, society, and economy. I think that the simple mathematical examples I offered, of ratios and of dollar-amounts, makes the point more clearly. But regardless of how the point is expressed, what rots economic theory is its being under the boot of the aristocracy, who finance chairs of economics, and who control the corporations which hire economists. It’s all a fraud.

I love the part where the economists measure the happiness of A, plot it on a graph, then do the same with B, etc.

In software design, we use the design element, “Then a Miracle Happens.”

Reddflagg’s “There are no ‘interpersonal comparisons’ in neoclassical economics: they emphasize that they are a science” does accurately state the way economists rationalize their fascism as being “scientific.” However, a real science makes comparisons all the time and cannot exist without doing so. What economists are hiding is that interpersonal comparisons are implicit in Pareto optimality, only not talked about. Pareto optimality, by its implicit rejection of the importance of the distribution of wealth, is implicitly accepting the existing distribution of wealth, with all of the interpersonal comparisons being simply not discussed and therefore not analyzed as being relevant to optimality. Censoring interpersonal comparisons doesn’t make economics scientific; analyzing interpersonal comparisons is essential to any authentic science of “scarcity,” and (as was pointed out in the case of Krugman) economists do publicly acknowledge that they study scarcity. The reality is that, at the present pre-scientific phase of the development of the profession of economics, economists are either fascists or else they are communists; but a scientific economics (a realistic economic theory, which will be useful for the devising of policy in an authentic democracy, neither fascist nor communist) does not yet exist, and hasn’t even yet started.

Strange that a curve like that should both be optimum and limiting at the same time. Generally, curves describing the interaction of a range of variables have a defined optimum point or even an area under the curve that is optimum.

In the days of analog photography, one film processing company named themselves “Sometimes the Magic Works”, abbreviated to “Magic Works”.

Scared me a bit to use them! Damn magic has to work 100%!

When I studied Pareto and other utility curves in my first or second course in econ it was presented by the TA/Prof as a sales concept – making the largest number of customers happy – Samuelson’s book was the course book and Samuelson was down the hall – but no one suggested it was the basis one would choose to design a countries – or a section of a countries – economic system. Indeed it was noted that “happy” was impossible to determine and changes day to day, so one falls back on accept and do not take arms in a revolution.

Indeed it was pointed out that if one individual had a million apples and everybody else only had one apple then it would still be Pareto efficient so long as there is no way for the individual to get a million and one apples without it making everyone else poorer. If he could get a million and one apples without it making other people less well off then it could be described as Pareto efficient, because the one person that lost his apple did not see the loss as making him poorer (less happy). Of course the pot is made larger for all of us by giving the rich more was what Reagan sold as a way to get past the fellow who now had no apple.

My take away was it was impossible to measure “poorer” or “happy” if we had to allow for being anti-abortion or anti-civil rights as being able to add to ones riches as a replacement for that apple. No one ever suggested that making the fellow with a million apples give up half was required – indeed to require that would be acting like a commie – acting un-American – at which point I went back to thinking about how taking from others requires only that “they accept and do not take arms in a revolution” to be Pareto efficient. Now I left econ a few years later for math and physics, so I differ to all that see an error in how I view Pareto – I am sure I mis-understood.

Does no one here think that it is more realistic to equate a ten percent increase in a poor person’s wealth to a ten percent increase in a rich person’s wealth, than it is to equate $1,000 added to the wealth of both persons?

Pareto defined welfare on the latter basis; I define it on the former; both are implicitly concerning “happiness” and are implicitly comparing happiness. But what do you think? Which is more alike — the increase in happiness of a poor person and of a rich person that’s due to a 10% increase in wealth; or the increase in happiness of both persons that’s due to a $1,000 increase in wealth of each?

Of course the pot is made larger for all of us by giving the rich more was what Reagan sold as a way to get past the fellow who now had no apple.

This is another assumption in liberal/ neoclassical theory, that inequality should be favored if it makes everyone better off, what John Rawls calls “the difference principle”. Lets take the distribution of one commodity, sandwiches (let’s say subway sandwiches to make it more real) between your household and that of you neighbor. Which distribution would you prefer: one in which both you and your neighbor get 1 sandwich per month, or one in which you get 10 sandwiches per month and your neighbor gets 100? The second is unequal, but liberal theory argues that you should still prefer that distribution because you are better off than the one of pure equality. You don’t care how many sandwiches your neighbor has, only how many you have. Importantly, the difference is assumed to be explainable due to differential talents, and the idea is that giving the wealthy incentives to use their superior talents helps all of us poor, talentless peons. There really is an assumption amongst liberals that the poor ARE poor and the rich ARE rich because of an unequal distribution of talents. Again, however, the problem is that all individuals are considered in isolation, with the determination of distribution rewards completely isolated: you get what you get (and deserve) because of your talents, your neighbor get what he gets (and deserves) because of his talents. What isn’t considered is the power that comes with an unequal distribution. Imagine that instead of sandwiches that it is a distribution of guns and you can see how power changes the question.

I agree that percentages are more equitable. I think there are other ways to think about this, but I haven’t been able to articulate them clearly.

Economics is no science.

1. There is no hypothesis, That is a model of the whole system (nothing similar to the Grand Unified Models in physics)
2. There is no proof the models reflect any part of the real system.
3. There is no way to test the hypothesis.
4. There are no experiments on the models.
5. There are no measured results of these test.

I had been thinking about Rawls in this context. The biggest problem with his theories is that we need to insure a minimum standard of many things for everyone. Suppose we take health care instead of sandwiches. It doesn’t matter how much the neighbor has, but sometimes it really matters how much you have.

This stuff doesn’t lend itself to equations.

Again I say, why do we pay attention to these people?

I could tell you that money talks and the rest of us walk. We don’t need to pay the likes of Larry Summers and the entire Chicago School to tell us that.

“Princeton economics professor, Uwe Rhinehardt, says that the principles used by economists to prescribe social policy are flawed.”
_________________

Real economists don’t “prescribe” social policy, they describe how economics actually works, for instance economists like Menger, von Mises, Hayek and Rothbard. Even Marx didn’t prescribe economics and social policy, he described it and predicted its development as inevitable. So, if you’re a Marxist, just sit back and relax, utopia is on its way.

Hmm, your argument betrays the turning of not very many pages of Marx. If any.

Good post and comments.

From The Communist Manifesto:

“The development of Modern Industry, therefore, cuts from under its feet the very foundation on which the bourgeoisie produces and appropriates products. What the bourgeoisie therefore produces, above all, are its own grave-diggers. Its fall and the victory of the proletariat are equally inevitable.”

A healthy family’s economy is basically communist: mother and father put their earnings into a common pool, draw from that common pool to finance purchases, and share a common standard of living with their children – is this “inevitable” – or is it better that the father controls all because of the power of being the largest human in the room – or because he has the “talent” by way of strength to do heavier labor.

Mhm. Just keep in mind that the Manifesto is a popularization of their theories, and only 44 pages long, unlike Capital, a mature work and over 3k pages long if you include Theories of Surplus Value. But even in the Manifesto he emphasizes the need for struggle as both a way to both keep their wages from falling below subsistence, but more importantly, to gain the experience and knowledge necessary to go beyond capitalism:

“Now and then the workers are victorious, but only for a time. The real fruit of their battle lies, not in the immediate result, but in the ever expanding union of the workers.”

He expands on that later in “Value Price and Profit.” Were the workers to cease their resistance to a lowering of wages and working conditions:

they would be degraded to one level mass of broken wretches past salvation, gradually becoming accustomed to a lower and lower standard of living [and by] cowardly giving way in their every-day conflict with capital, they would certainly disqualify themselves for the initiating of any larger movement.”

However, while the working class must continue its efforts to improve wages and working conditions, it must not lose sight of the larger issue:

[T]he working class ought not to exaggerate to themselves the ultimate working out of these every-day struggles. They ought not to forget that they are fighting with effects, but not the causes of those effects; that they are retarding the downward movement, but not changing its direction; that they are applying palliatives, not curing the malady. They ought, therefore, not to be exclusively absorbed in these unavoidable guerilla fights incessantly springing up from the ever-ceasing encroachments of capital or changes of the market. They ought to understand that, with all the miseries it imposes on them, the present system simultaneously engenders the material conditions and the social forms necessary for an economical reconstruction of society. Instead of the conservative motto, “A fair day’s wages for a fair day’s work!” they ought to inscribe on their banner the revolutionary watchword, “Abolition of the wages system!”

Now, if communism were simply inevitable destiny, why would Marx emphasize (and participate in) active struggle? Because communism is NOT inevitable, the alternative is a form of barbarism.

Right now, it looks like Marx was half right. The life is being sucked out of the bourgeoisie. But it wasn’t the proletariat that did them in, it was the Upper Class, the Plutocrats.

Hmm, I’m not sure that I agree with that distinction. We don’t really have a feudal monarchy here, and a true bourgeois is not someone who builds up a business from scratch through his own work and continues to perform work, that is really the definition of the traditional middle class. Rather, a bourgeois (capitalist) is a person who can live entirely off of someone else’s work, who lives without working at all, within capitalism. That is who the MOTU are. As for the failure of the working class to push the bourgeosie aside: I blame that on us, the intellectuals, who have not played our role of providing the critical theory necessary to move beyond capitalism, half of the story along with the self-education that comes to workers through struggle.

So you modestly classify yourself as an intellectual, rather than a worker. Are the intellectuals, who apparently are not part of the work force, in a similar parasitic position to the bourgeoisie? And if even through struggle the workers by themselves are unable to grasp the critical theories of communism and move past capitalism, how indeed is the process inevitable?

…why would you assume that workers are not intellectuals, and vice versa?

Exactly. I have a PhD but my father was an over-the-road truck driver/ Teamster for 40 years, and while I have in the past been a college professor I worked as a truck driver to put myself though school, and still occasionally drive a truck to survive. So Mr. Nailhead, don’t tell me someone cannot be an intellectual and working-class (someone who, lacking sufficient resources MUST [not simply can or does] sell his/her ability to perform labor to a capitalist in order to survive). The problem is that in all the time I spent working on a PhD. the only other working-class person I met was a German. But in fact Marx and Engels were not working class either. One need not be a worker to be a working class intellectual, simply serve the needs of the working class, but I think it helps to have both.

The theory of how revolutionary consciousness develops in workers is that it requires BOTH active struggle for immediate gains (strikes and other direct action) and critical theory. Intellectuals play a small but critical role in the latter.

Then having a PhD automatically makes you an intellectual?

Not being the conservative anti-intellectual you apparently are I do not understand your fascination with the term, it isn’t evaluative like “beautiful”. I am using it in the sense that Europeans use it, in the same way as “scientist” entails working in science, or that being trained to drive a truck and driving a truck automatically makes me a “truck driver.” I take it that you were alive during the Eisenhower administration- do you call those with actual knowledge (that can be used to frustrate your ambitions) “eggheads”?