Ethical Issues. Again.

Just when I thought it was safe to re-engage with economics I stumble across two more reasons for my blood to boil. Economics is – not to put too fine a point on it – a rotten profession. As in ethically rotten. Not all economists of course. Some try to tell the truth. Or rather not to lie. Others just plod on teaching from texts that omit crucial information.

As in there is no way, no way at all, to tell whether a demand curve actually slopes downwards in the way we are all taught.

No way.

But is that rather crucial fact ever mentioned to undergraduates? Call me skeptical.

There are great complications with the derivation of even this most basic of all economic concepts. Sure it sounds about right. But it cannot be proved. Cannot. Getting rid of those nice neat curves would muck up so much of what economics includes that, in the name of simplicity, the profession continues to ignore the theoretical rot in its foundation and chug on as if all is well.

It isn’t.

It isn’t ethical to teach something that is what amounts to a gut feel as if it were a cast iron law.

I have been reminded of thus by reading Jonathan Schlefer’s book “The Assumptions Economists Make”. It’s worth a read. But be prepared to emerge angry at economists. The tell a lot of fibs and use the concept of simplification as a way of obscuring how little they know, or can prove, about economies.

In his chapter entitled “Utopia” Schlefer tries very hard to give a balanced view of neoclassical theory. He actually has me changing my perception of Stanley Jevons, who comes across as fully aware of the theoretical bind encountered when we move from notions of utility, a vague and murky concept at the best of times, to demand. He be never drew demand curves – they were first used by Marshall a few years later – but he was careful to limit expectations. Nonetheless healing with the Walras and Menger, laid the groundwork for the steady move into unreality by subsequent theorists all of whom, it appears, were intent on making economics more “scientific” and consequently determined to use ever more complicated math in order to appear rigorous.

I have nothing against math. But it ought to elucidate not obfuscate. It ought to help not hinder enquiry. It ought to highlight areas that need to be worked on, not create an image of a project completed despite its errors.

I think truly rigorous theorists know all this.

That makes things worse.

Sometimes I get the feeling that economists chuckle away in private over the horrendous tales they tell. But in public they close ranks and pretend to know something profound.

That won’t do.

It won’t do at all.

It is not wrong to disclose how little you know. Or to reveal the seams of weakness in your current theories. That’s called being scientific. It is how we progress. We correct the problems. We improve the knowledge by being transparent about what we don’t know and inviting others to fill the gaps.

Economists may, or may not, do this in private. They may have a good laugh at the remarkable gaping holes in their theories. And they may well chuckle over the way in which their textbooks don’t even mention these issues.

Ha Ha. The jokes on the public. And the students who emerge thinking they have acquired deep solid insights that are merely whimsical assumptions made along the way in order to “simplify”. Because it feels right.

Thank goodness society does’t look to economics for serious, life changing advice.

Oh. Wait.

The ethical alarm bells should be ringing. But they’re not.

Which is well described in a second book: Charles Ferguson’s “Predator Nation: Corporate Criminals, Political Corruption, and the Hijacking of America.” He is the person who borough us the movie “The Inside Job”, and this book is a continuation of that same theme in more detail.

What galled me about the movie, and galls me even more when I read it again, is the shameful way in which academia has been blurred into the overall elite that runs the country for its own ends. Some very high profile economists are nothing but well paid consultants or advocates. It is impossible – because economics has no ethical rules worth a lick – to tell whether these professors are teaching, researching, or advocating. Or all of the above. They slide from public positions of immense influence back into equally prestigious teaching posts with an oily slickness that corrodes their ethical standing while enriching their bank accounts in equal measure. Both political parties are involved. And for every industry you can find a high profile professor who, it just so happens, has just researched who wonderful that industry is. Or would be if only the government would leave it well alone. Such happy coincidences abound in economics. Apparently.

Read this – I have extracted it from Ferguson’s book:

“The ascendancy of the US capital markets . . . has improved the allocation of capital and risk throughout the US economy. . . . [The benefits include] enhanced stability of the US banking system . . .more jobs and higher wages . . . less frequent and milder [recessions] . . . a revolution in housing finance.”

“The capital markets have helped make the housing market less volatile. . . . ‘Credit crunches’ of the sort that periodically shut off the supply of funds to home buyers, and crushed the homebuilding industry . . . are a thing of the past.”

“The revolution in housing finance has also led to another radical transformation that has been important in making the economy less cyclical.”

“We believe that the economic performance of the United States over the past decade provides strong evidence of the benefits of well-developed capital markets.”

They are quotes from an article written by Glenn Hubbard and William Dudley in 2004. They reveal a shocking lack of understanding and a wrongheaded faith in market magic totally belied by subsequent events. This was advocacy of deregulation. It could not be justified by theory. Not if true rigor was applied. There were no caveats. No references to the weaknesses in the theory. No caveat emptor clauses.

Hubbard remains as Dean of Columbias’s business school and sits on multiple corporate boards. Dudley succeeded Geithner as head of the New York Fed, where he opined at great length on economic policy. So both retain huge influence. And make good money form their supposed expertise. An expertise that has been exposed in the most brutal way to be suspect.

In what other profession can one fail so openly and completely and continue to practice at its apogee? And be rewarded so well for being so wrong?

What other subject tolerates the omission of key information from its textbooks?

What other subject seeks to keep its students ignorant rather than open them to the limits of its knowledge?

What other subject sells its product as science when in fact it is simply organized opinion?

Can we even call economics a “discipline” when it appears more the consequence of a meandering conversation designed to arrive at a predetermined answer?

And it’s not enough for the notable exceptions to all this to claim they are fighting the good fight. They need to be more thorough in their rejection of the ethical lapses of their colleagues and more strong willed in their attempts to reestablish a good name for economics.

Because at present there isn’t one.