James Galbraith asks, in Project Syndicate, 'what is left of Cambridge Economics?' The answer is there was never anything to it in the first place. Cambridge was a place where some economists pretended to be Leftists in the hope that this would be rewarded by the State or else left alone in their Ivory tower as an eminence grice to a bunch of careerists . Then it became clear that such rewards or careers were paltry things. The main job of a Don is to try to stop adolescents from masturbating incessantly. Also, bore the shit out of them till they quit Skool and get a boring job which, however, pays more than an academic gig.
Galbraith writes-
In Cogs and Monsters, Coyle seeks to advance an engaged, policy-relevant vision of economics drawn from the work of leading academics in the field.
So, the thing is worthless shite. 'Leading academic', in Econ, means ill-paid cunt. Billionaires may understand econ. But then again they may not bother. Fish don't spend a lot of time understanding water. If they did, they'd drown.
The implication is that the pieces are there and need only to be assembled. “For economics itself,” she tells us, “the agenda is clear”:
Get a little money by publishing tedious shite.
“We need to build on the work that already exists to incorporate as standard externalities, non-linearities, tipping points, and self-fulfilling (or self-averting) dynamics.
Why bother? The result will be just as useless. Why not build something useful instead- like a chicken coop? Keeping chickens which lay eggs makes an actual contribution to the economy. Boring the pants off undergrads is less socially useful than laying eggs.
We need to revive and rethink welfare economics. ...
why not alchemy? That way everybody could get a nice pot of gold.
We need a modern approach to the public provision and regulation of information goods,
why not just invite the Chinese to take over the Government?
applying the rich literature on asymmetric information. ...
which militates for bourgeois strategies, not leftist shite.
And we need to put the social, not the individual, at the heart of the study of economics ...”
but the heart of econ is stupid shit.
Dismissing macroeconomists as “forecasters” (harsh, but not completely wrong),
forecasting is useful. This cretin considers it 'harsh' to be called a useful person.
Coyle would prefer to dwell on the applied microeconomics that preoccupies most academic economists nowadays.
They should content with themselves with saying 'Boo to Neo-Liberalism. Varoufakis isn't a cretin at all.' Why pretend to know math and be smart? Jeff Bezos will simply hire you and pay you a lot of money if you aren't a stupid nutter
This dodge allows her to quote John Maynard Keynes on numerous side issues without having to account for the fact that he himself repudiated micro theory. Having shunted Keynes onto an intellectual siding, Coyle argues that it is microeconomists who have advanced the field beyond the simple doctrines of 40 years back; it is they who are now on the cusp of making economics into something useful.
Being useful is bad. Economists should be totally useless. Varoufakis is Galbraith's hero.
THE MICRO PERSPECTIVE
One can understand and even sympathize with Coyle’s project. The real world has overtaken Friedrich von Hayek and his lead disciple, former British Prime Minister Margaret Thatcher. Today’s profound inequalities are becoming politically unacceptable.
Which is how come a billionaire became President and would have remained so but for COVID
Financial crises are endemic, and now climate change is upon us, too.
Because financial crises aint what they used to be. Climate change, however, is scaring the pants off us. Marx was wrong about how Capitalism will end. Ultimately, a fragile ecology may compel a Socialism of frugality- not plenty, which is what Marx envisaged.
The free-market, deregulate-and-privatize verities of Coyle’s professional youth have lost their appeal.
Not really. It was the private sector, not the CDC, or some other Government Agency which came up with the COVID vaccine. Deregulating Pharma has never looked more appealing.
But as Coyle points out, the discipline is still exceptionally disciplined. Academic success demands publication in one of only five “top” journals, all of which are tightly controlled by acolytes of the mainstream orthodoxy.
Because 'top' journals will be mainstream. Stuff nobody reads will be plenty unorthodox.
For most economists today, the only practical way to get ahead is to build on (and therefore accept) that orthodoxy.
Unless they discover something useful in which case they will get plenty of money from the private sector.
Deference, even sycophancy, is required. Thus, Coyle herself recites from the catechism: “What markets do brilliantly, nevertheless, is coordinate the use of resources in a process of discovery and challenge. The information signaled by the prices set by demand and supply is a wonderful coordinating device.”
On open markets- sure. Putin's shenanigans have caused energy prices to rise. This in turn will drive investment in clean energy. People who wear climate sceptics and who felt entitled to buy gas guzzlers and mine crypto are having to change their obnoxious habits.
To be sure, the modern applied microeconomics that Coyle celebrates is scattered and diverse, often without the crisp self-assurance of free-market legionaries from decades past. It makes room for those who question the axioms of “rational” economic calculation, showing by experiment that real people’s decision-making bears little resemblance to textbook predictions.
Because of cognitive costs or 'the free energy principle' which is probably linked to regret minimization.
The new microeconomists point to problems such as pervasive “asymmetric information” – a favorite theme of the very progressive neoclassical economist Joseph E. Stiglitz.
One may simply speak of uncorrelated asymmetries which is what makes 'bourgeois strategies' eusocial. You are better placed to know what you like and to change how hard you work or whether you will act diligently and honestly. If you are buying or selling on open markets, you have no incentive to behave strategically.
Others emphasize common flaws and sources of friction in markets – sticky wages, sticky prices, monopoly power – while still others focus on social costs and the provision of public goods.
The German style 'Historical' or 'Institutional' School was once quite influential in America. It can be more useful in analyzing Societies which don't have an individualistic ethic or which are pursuing a joint project of a nationalistic or ideological kind.
And yet all these “departures” still hew to the orthodoxy that treats perfectly informed, fully rational, price-adjusting buyers and sellers in perfectly competitive markets as the ideal type.
Nobody has any objection to getting to the mathematical optimum if that can be costlessly done. However, for all practical purposes, moving in the right direction is good enough. I want to be an ideal British gentleman but am happy if I can pass an hour in polite company without farting or mentioning my hemorrhoids.
It doesn’t seem to matter that the ideal type doesn’t exist anywhere in practice and never has.
It's a target to aim at. A true British gentleman does not ask any Doctor present to examine his hemorrhoids- more particularly if they happen to be a Doctor of Philosophy. Also the Queen Gor' Bless 'er isn't actually a drag artiste. Who knew?
The presumed purpose of economic policy is to iron out all the flaws so that the world will behave “as if” it conformed to the ideal.
Economic policy is about steering Society to a better state- one where more is achieved with available scarce resources. I'm kidding. Economic policy is about guys who are shit at economics getting paid a little money to justify whatever scam the politicians happen to be running.
A characteristic manifestation of this belief structure is the fashionable idea of “new antitrust,” which prescribes breaking up companies like Facebook, Google, and Amazon in order to ensure price competition in those industries.
This is about pretending to shake down an oligarchy while actually creating further barriers to entry and reducing their cost for acquiring genuine innovators entering the market. On the other hand, maybe China will get to Quantum AI first in which case Communism will triumph without any help from 'useful idiots'.
Another example is advocacy of carbon pricing as a mechanism to slow global warming.
The problem with global carbon trading is all you'll get is global carbon fraud.
And even more pernicious is the case for “flexible labor markets” as a cure for joblessness.
Very true. The jobless will definitely be hired if they are paid lots of money and can't be fired even if they shit on the bosses desk.
On this last point, Coyle writes that “both the Greek and Italian economies are widely thought to be hamstrung by an accumulation of regulations at the expense of competition, innovation and economic growth.” (Note the passive voice: “are widely thought.”)
Because Coyle is posing as a leftist.
Mainstream economists may indeed think such things; but they are wrong. The Greek labor market was wholly deregulated a decade ago by IMF fiat.
Not wholly but it is true that since 2010, collective agreements have become non-binding and the minimum real wage has fallen. However, there was some reform even previously, from the Nineties onward, on EU insistence.
What disappeared was not unemployment but formal work and the middle class.
Surely a good thing? Leftists are supposed to hate the petit bourgeoisie.
Moreover, there is ample evidence that what is really good for jobs is union-driven wage solidarity, as practiced over the years in Scandinavia, Austria, and at times in Ireland.
Scandinavian workers rejected 'solidarity wages' in the Seventies. As for the Austrians- aren't they all Nazis?
This fact has eluded mainstream economics and will continue to do so, because articles advancing such insights cannot get published in the “top five” journals.
But you can deface the walls of public toilets with 'Eat the Rich!' type insights.
Coyle subscribes to the grand illusion that price adjustment is the economy’s prime mover.
Unless prices are rigid and you have Quantity adjustment instead. But with floating exchange rates, open economies with a lot of intra-industry trade, domestic price rigidity doesn't matter too much. Had the Greeks had their own currency, they would have had much less austerity.
But as the Cambridge Keynesian economist Nicholas Kaldor noted in his slim 1985 book, Economics without Equilibrium, “the intuitive belief that prices are the key to everything” is simply wrong.
Not really. The fact is, I can't get a job as a Beyonce impersonator because I charge 10,000 dollars an hour. I need to lower my rate to minus 10,000 dollars an hour to get a gig. Prices are the key to whether you are unemployed- because your productivity is less than the prevailing wage- or whether your business goes bankrupt- because people can buy stuff you produce more cheaply from a rival.
The foundation on which Coyle places modern mainstream economics is a myth. As Kaldor put it:
“... the important conclusion is that the signal that causes an economic ‘agent’ to do something different – produce more or produce less, or switch his manufacturing facilities from some varieties to others – is always a quantity signal, not a price signal. ... In the actual adjustment of supply and demand, prices play only a very subordinate role, if any.”
What motivates the 'quantity signal'? The answer is utility in relation to price. But if what you sell is cheap and you get a 'quantity signal' that people want to buy more of your stuff, this does not necessarily mean you will produce more. Indeed, you can produce less and laugh derisively at the people in the queue till they understand they need to bribe you or coopt you into a network of influence. Thus, where 'quantity signals' alone arise, you are likely to have a black market or a shadowy 'nomenklatura' which gets everything at the official price while ordinary people get nothing. This is 'repressed inflation'. The problem is that smart peeps run away from it.
When I attended the University of Cambridge in 1974-75, I read Keynes
whose ideas were repudiated 3 years later by Jim Callaghan as Prime Minister
met Piero Sraffa,
who was useless
listened to Joan Robinson,
who was mad. She thought North Korea was doing better than South Korea
and studied with Kaldor,
who thought Money was endogenous- which it would be if Knightian Uncertainty did not obtain.
Luigi Pasinetti,
a bright guy who should have settled in America. Britain was becoming less and less important. Cambridge soon ceased to matter to even the City of London though, no doubt, some Indians and other such wogs, continued to genuflect to its stupidity.
Richard Goodwin,
A bright American mathematical Marxist. Apparently he and Haldane, while working in India, came up with the 'class struggle model' where the proletariat are the wolves and the capitalists are the sheep. Leftist politics means that in the short run the proles grow fat eating the rich. Then the rich run away or disappear. The proles starve. They'd have been better off being docile.
Ajit Singh,
A Sardar, however Marxist, can never be wholly useless. Still, there are exceptions.
Wynne Godley,
Who had good instincts but he wasn't considered mathsy enough. Still, as 'the Cassandra of the Fens', he was listened to by some in the City.
Robin Marris,
a nice man, who became disillusioned with Trade Union militancy, which was slavishly supported by the Left, in the Seventies.
and Adrian Wood.
again a nice guy. He worked with the World Bank on China and Turkey in the early Eighties. He is shunned by the rest of the Development Econ cabal because the bastard didn't get that his job was to fuck up the economies of colored folk or white folk who happen to have names like Muhammad.
Back then, it was understood at Cambridge that markets do nothing like what Coyle claims they do.
But, by the mid-Seventies, it was understood- at least here in London- that Cambridge Economists do nothing useful even if they are truthful Cassandras. This is because the Left won't listen to them while the Right thinks they are a bunch of knee-jerk virtue signalers. What Harold Wilson's first administration showed was that the working class don't give a shit about equality. They wanted boozy holidays in Franco's Spain.
Just as Einstein had erased Euclid’s axiom of parallels,
Nonsense! There are Euclidean spaces just as there already were non-Euclidean spaces. Einstein showed that our universe is non-Euclidean. No 'axiom' was erased.
Keynes’s General Theory had long since obliterated the supply curves for labor and saving,
No. The General Theory merely showed that you could have a 'liquidity trap' and that expectations or 'animal spirits' could cause the Aggregate Supply curve to shift inward faster than and extension down it.
thereby eliminating the supposed markets for labor and capital.
This would be news for people who work for Temp Agencies or Banks. Either you raise wages or interest rates to attract more workers or savers or else you lose market share to your rivals and eventually go bust.
It followed that the prices of production were set by costs (mostly labor costs and interest rates),
but 'labor costs' are a 'price' which is termed 'wages' and interest rates too are the 'price' of foregoing immediate consumption. Still, there can be a liquidity trap or else there could be a fall in participation for exogenous reasons.
while quantities were determined by effective demand. Markets were not treated as if they were magical.
But Keynes was treated as an Oracle.
It was obvious that most resources and components did not move under the influence of an invisible hand.
Yes they did. Suppose Cambridge had told these economists that henceforth they would be paid at the same rate as janitors. Also, they would have to clean the toilets. What would have happened? The economists would have fucked off to where the pay and conditions were better. That's the invisible hand at work.
Rather, they moved according to contracts between companies on terms set by negotiation, as had been the case for more than a hundred years.
But those contracts included price information. They embodied the invisible hand. It is not the case that the guys at ICI said 'we've always done business with this company. They now propose to pay us not in pound sterling but with a pound of shit. We have to accept their proposal because we are forbidden from letting the invisible hand guide us into selling to some new company which is prepared to pay the going rate.'
Technology was managed by organizations – mostly by large corporations – in what was sometimes called “the new industrial state.”
the title of a book by his dad. Who at that time would have thought that IBM and Polaroid and Xerox and Hoover and so forth would not continue to dominate their respective fields? Did anybody dream of a day when South Korea would make the best TVs and Taiwan would dominate in silicon chips?
But the Cambridge school of economics that understood these things has died out.
Because the Seventies happened. The loony Left didn't need a bunch of posh 'useful idiots' to provide a camouflage for them. Then Thatcher did to the Unions what Heath had been unable to. Suddenly, nobody needed to bother with virtue signaling on behalf of the proles.
It was targeted in the great intellectual purge of the Thatcher era,
What purge? Nobody had heard of her Econ guru- a working class lad named Alan Walters- while the New Statesman (which was widely read at the time) and the Guardian and so forth gave plenty of space to Left Liberal economists. The problem was that the proles read the Sun- or, if they could not read- gawked at the topless Page 3 girls. I speak from personal experience.
and it was pried from its footholds in North America by early-stage McCarthyism,
Goodwin had indeed fled McCarthyism.
Reaganism, the MIT self-proclaimed Keynesians, and the Chicago School. Only a few scattered survivors remain today.
But they tend to be very very old.
But while the economics discipline has changed, the real world is still as it was.
Really? My memory of China, in 1985, was that it was as poor as India and with a much much smaller technocratic managerial class. Indeed, Indian MBAs were being appointed CEOs in America from the Nineties onward. But China did smart things. It encouraged price flexibility in high value adding industries while keeping prices stable, even if this meant increasing subsidies, for things bought by the very poor.
It is not the never-never land described by Milton Friedman, Robert Lucas, or Hayek, nor could it ever have been.
Marx and Keynes and Robinson and so forth had their own never-never lands. Given a choice, the Hayekian is less obnoxious because bureaucrats have less power.
Coyle recapitulates Kaldor on two key points: the importance of product differentiation and what economists call “increasing returns.”
A point also made by Alan Walters using empirical data.
But she describes the seemingly unmanageable complexity posed by “dozens of mobile phone packages, and [choices to] eat vegan or gluten-free in high street fast-food outlets” as proof, along neoclassical lines, of the impossibility of socialism. (A trip to China might have disabused her of this view.)
More particularly if she was foolish enough to speak up for the Uighurs or Tibetans or the citizens of Hong Kong. The reality of a Socialism which isn't just pi-jaw is 're-education' in a prison camp.
In real life, as Kaldor noted, large organizations plan for diversity by maintaining inventories of inputs, not of finished goods, so that they can respond to changes in the demanded quantities of different items:
“Even the manufacturer of standard articles is likely to sell numerous varieties of the same commodity (think of shoes, cameras, detective novels, refrigerators and cookers) all of which make use of much the same materials but are of a somewhat different design. ... In all these cases the possession of a large ‘input stock’ puts the manufacturer in a far more favorable position to satisfy his customers than possession of output stocks.”
Does this point really need to be made? It is obvious that a pizza place or burger joint has an inventory of 'inputs' whereas its output is determined by what customers choose from the menu.
It is not such a hard problem. Companies, not markets, overcome the challenge of product diversity all the time.
So do individuals. We 'internalize externalities'. When I feel like eating a sandwich, I don't invite tenders for performing the job. I wait till the end of the episode of She-Hulk that I'm binge watching and press pause and then go to the kitchen to fix myself that sandwich.
One need only abandon the notion that anything substantial depends on price signals.
Very true. If your boss says 'henceforth, instead of money, I will pay you with a pound of dog poo', you should not quit your job. Also, if the price of your Netflix subscription rises to 10,000,000 dollars a month you shouldn't switch to Amazon Prime. Nothing substantial depends on price signals- except the difference between eating dog poo and dying and being able to buy proper food, and thus stay alive, with the money you earn.
The question is why something that Kaldor emphasized back in the 1980s is not appreciated by an economist at the same university 40 years later.
The answer is that businesses know if they have increasing returns. They don't need a Professor to tell them about it. However, short term there are diminishing returns. To get to the increasing returns you have to burn more money than your rivals. There is a 'natural monopoly' and getting to be that natural monopolist is like winning the Squid Games. The race doesn't automatically go to the swift. Deeper pockets or greater ruthlessness may be the deciding factor.
“Economics,” Coyle correctly argues, “needs to have at its heart increasing returns and the kind of dynamics they imply.
But those dynamics are unknowable save in a very general way. We know a particular industry is going towards natural monopoly. We don't know which firm will be that monopolist. Worse, we can't be sure there isn't a 'disruptive' technology around the corner. Knightian Uncertainty has increased because Science has branched out and burgeoned in an amazing manner. This implies increased 'regret minimization' and greater volatility in open markets.
The characteristics of a knowledge economy are distinctive.” But this “vibrant area of research … is not yet the mainstream benchmark, and still less so in the lecture hall or the corridors of power.”
Because it is obvious that Knightian Uncertainty has increased.
As it happens, here is Kaldor on the same topic:
“The progress of knowledge ... is very often the result gained from experience – learning by doing. And as the great American economist, Allyn Young, emphasized in his famous paper ‘Increasing Returns and Economic Progress,’ published shortly before his early death in the winter of 1928-1929 – a paper which for reasons that are not clear to me did not have the influence in his native country that it so clearly deserved – once we allow for increasing returns the laws of economics take on quite a different appearance.”
The problem with 'learning by doing, under increasing returns, ' is that there is an 'accelerator effect' whereby everything gets done quickly and then nothing happens till the next big up-swing. This means there is institutional amnesia. What was learnt can be forgotten. Apparently something like this happened with America's H-bomb program. More generally, if you look at Atomic energy- increasing returns in the Fifties and Sixties gave way to prohibitive cost spirals in later decades. We may have forgotten how to 'build back better'. It would be cheaper to just give the contract to the Chinese.
Young saw almost a century ago, and Kaldor emphasized 40 years back, that increasing returns generate cumulative causation: the advancing gains of leaders over laggards produce increasingly extreme inequalities and disequilibrium.
Which are exported to primary producers giving rise to immeserizing growth in the third world. The problem is that the solution concept is not robust. Things can turn to shit very very quickly.
Having reinvented these ideas, Coyle’s treatment of increasing returns in the digital age is the most perceptive part of Cogs and Monsters.
What is the point about being perceptive about stuff everybody else has understood since the Nineties?
She also is admirably aware of the problem of “data bias,” especially the prevalence of a priori category schemes in surveys that implicitly determine what economists choose to study,
but that's a function of grant availability. What has changed- at least in America- is that PhD students are encouraged to develop quantitative skills and apply them to things useful (or apparently so) to industry. Then Jeff Bezos takes his pick and his sloppy seconds end up competing for tenure.
even though they are not necessarily material to the processes that need to be understood. (This particular problem has preoccupied me for decades, underlying my work on the measurement of inequality and much else.)
The problem with measuring inequality, like the problem with continually measuring the size of your dick, is that it does not change anything. Voters don't give a fuck about inequality or Palestine or Tibet or whatever other shibboleth tenured Professors have to pretend to care about.
Ultimately, these issues lead us right back not only to Keynes but also to his “circus” of peers such as Kaldor, Sraffa, and Robinson.
So studying worthless shite leads you back to guys who fell behind the times and became irrelevant many many moons ago. Why not say 'ultimately, these issues lead us right back to Moses and the Ten Commandments. We need to replace 'don't fuck your neighbor's wife or camel' with 'do talk bollocks incessantly about how economists are just not out of touch with reality enough.'
These earlier Cambridge economists did not develop “forecasting models,” and macro-policy prescriptions were, for them, a sideline.
So, they just liked talking for the sake of talking. A meteorologist who says 'The Weather should become nicer' won't get paid. We need guys who can predict hurricanes and shit.
They and their successors (above all Pasinetti, who continues to publish in his 90s), practiced a unified theoretical economics that encompassed money, banking, production, employment and unemployment, market power, international trade, industrial corporations, and technological change.
Why stop there? Why not incorporate ghosts and goblins and She-Hulk, attorney at Law?
Coyle’s belief in a distinctive applied microeconomics based on markets and price signals is an artifact of the “neoclassical synthesis” constructed in post-war Cambridge. It was here – in Cambridge, Massachusetts – that MIT and Harvard economists bifurcated the discipline, reduced Keynes’s thinking to formulas, and set the stage for the Chicago cult of rational “microfoundations.”
Sadly, the 'affluent society' was created by ignoring these dudes. Galbraith tried to persuade Kennedy to go down the 'Keynesian' path of boosting Government spending rather than cutting taxes. He failed. Nixon was the first, and last, Keynesian President. The 'Nixon shock' was a fucking disaster. Keynesianism can only work if Governments can jail Teamsters who break wage-price policies or else it has to have very strict exchange controls and a regulatory framework- e.g. American domestic petroleum policy in the Seventies- which nobody can understand.
In view of increasing returns and data bias – trends that have been accelerated by artificial intelligence in the digital age – Coyle concludes that “economics needs to change.”
Academic econ can't change very much because of tenure. Actual econ does change to earn a living from the market. But big data has improved what is essentially 'Chartist' forecasting. It hasn't greatly improved macroeconomic modelling.
She is surely right about that. But it is impossible for economics to advance as long as it remains anchored to the mainstream bedrock on which Coyle’s own training was based.
So, this dude is saying 'Coyle's book is shit. Her brains were buggered to buggery coz she studied Econ. Don't study Econ in Collidge coz it is bound to be 'anchored' in some stupid, obsolete, shite.'
Cumulative intellectual causation, theoretical evolution, and the development of ideas suited to new conditions will continue to be blocked.
Only if you study this worthless shite. On the other hand, having a sheepskin in boring shite advertises your sycophancy and high tolerance for spending the rest of your life doing boring and mainly useless shite.
Keynes, Kaldor, and their Cambridge colleagues understood this perfectly.
Why didn't they quit the Academy, if that was really the case? Silly question. They needed a pay packet.
Yet, despite the brilliance of their intellectual firmament,
Ramsey was brilliant. But he died young.
only Keynes merits a quotation in Coyle’s book.
He could be quite witty. Also he made money in financial markets- though he lost money too.
Kaldor gets a footnote on an irrelevant point, and the rest are not mentioned at all. Cambridge has forgotten Cambridge, and it is poorer for it.
But that 'forgotten Cambridge' played its path in making Britain relatively poorer. That is why its mavens were assigned to the oubliette of virtue signaling wankery.
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