A Psychologist Critiques Economists
Economics fascinates me. It's the closest thing we have to a truly explanatory social science, and many of the theories that have been developed are truly useful and have helped many societies to prosper. I have to say, however, that it is probably the oddest science I have ever seen.
Economics is odd because it started out as an exercise in deduction, kind of like the Euclidean geometry you took in high school. Economists, like contemporary philosophers in their day, started out by making assumptions and deducing the consequences that followed from them. While this served economists well at the time, I think that the continued attachment to this obsolete way of interpreting reality is causing serious problems.
Most economists, and especially those of the rational expectations school, like to start out by assuming that human beings operate by rationally calculating their self-interest and then acting according to these rational calculations. As a psychologist, my reaction to that assumption is: Are you kidding? Have you ever MET a human being? Did you grow up on Mars? As a psychologist, I see people acting irrationally, making miscalculations, and operating against their self-interest so often, that the fundamental assumption of economic theory strikes me as obviously and patently absurd.
This would be very amusing except for the fact that economists make deductions about public policy based on this approach, and then convince policy makers to follow their recommendations.
This leads directly to the second problem with economics and its practitioners, which is strongly related to the first problem. The second problem is that many economists operate according to the rule: if the facts don't fit the theory, ignore the facts. Some readers may find this harsh, but the history of the debate about financial deregulation clearly shows this.
Anyone who reads economic history has to be impressed by the frequency of financial crises and resulting economic depressions, in all industrialized capitalist societies until the 1930s. Every generation or so there would be a pattern of bubble, crash, panic, depression; bubble, crash, panic, depression; over and over, again and again. Finally modern societies got fed up with this and strictly regulated their financial sectors. The result was that this pattern was broken, and we went several decades without repeating it.
Then in the 1990s, after most people who lived through the Great Depression had passed away, a number of economists began to assert that economic theory proved that unregulated financial markets would necessarily function optimally. This is as if physicists in Isaac Newton's time had asserted that his theory of gravity had proven that flying was impossible, despite the existence of birds. And so, despite the fact that their assertion was flatly contradicted by all historical experience with unregulated financial markets, economists convinced policy makers that they were right, and the financial markets were deregulated. Result: bubble, crash, panic, and now a possible depression. Omigod, who could ever have seen this coming?
History has clearly shown that a capitalist economy with an unregulated financial sector is like a car with no brakes. It crashes a lot. In the 1930s brakes were finally installed, and the car stopped crashing. In the 1990s some extremely smart people decided that the brakes were keeping the car from going as fast as it could have (Duh! That was the point) and succeeded in having the brakes removed. Result: the car has crashed again (D'oh!).
The scary thing is that several of the architects of deregulation are now going to be prominent in the Obama administration. Larry Summers was Treasury Secretary when much of this deregulation was enacted, and he still refuses to admit that this was a mistake. And he's the one that the others all look up to, the 'economist's economist'. Now I admit that Summers and many of his colleagues were very adept at dealing with financial crises in the rest of the world during the Clinton administration, and we do need that expertise right now. But with regard to preventing this in the future, the new Obama team strikes me as a group of confident, crack firefighters who also go around throwing cigarette butts in wastebaskets and knocking over candles.
So two related problems with economists have been presented: that they start their theories with unfounded assumptions and derive conclusions from them that do not accord with facts. What these two problems have in common is a willful disregard of reality.
And finally, this leads directly to the third problem with economics as a discipline, which is in my area of specialty: the motivations of the economists themselves. While I find the assumption of rational pursuit of self-interest to be not usually true for people in general, let us imagine for a minute that it is at least true of economists themselves. Unfortunately, if economists are constantly pursuing their own economic self-interest, then that means we can't trust what they say. Policy is constantly influenced by interest groups that are shopping in the marketplace for arguments to justify their agendas. Economists, meanwhile, are sellers of such arguments. According to economic theory, economists, if rationally pursuing their self-interest, will then sell their opinions to the highest bidders. Therefore, an unfortunate corollary of economic theory is that you shouldn't believe economists.
As a psychologist, it seems clear to me that all three problems are intertwined. The third problem gives economists incentives to generate and justify wrong ideas, and the first two problems give them methodological ways to do just that.
Very much related to all of the above is an amazing fact: economics has no code of ethics. Well of course not. A code of ethics would make rational pursuit of economic self-interest much more difficult.
As a psychologist I must be licensed by my state in order to practice, just like almost all other professions. As with all licensed professions, I have to follow the code of ethics for my profession, and if I violate it I could lose my license to practice. This system exists to prevent psychological malpractice. Clearly, the same should be true for economics. In fact, the lack of a written code of ethics for a profession so important to public policy yet so incredibly subject to conflicts of interest is really a scandal. It certainly seems to me that practicing economists are just as capable of economic malpractice as psychologists are of psychological malpractice. Therefore, they should have to have licenses to practice, meet continuing standards to keep them, and adhere to a written code of ethics specific to their profession.
Now, I am not saying that economists routinely say things that they know are not true. I actually believe that conscious lying is at most a minor part of the problem. The human ego has very powerful mechanisms for avoiding psychic pain, and will tend to construct reality in ways that minimize such pain. People don't enjoy knowing that they are bad, so they often construct reality in whatever ways are necessary for them to appear to be good.
We can observe this easily in ourselves. If we take a stance on an issue that we feel strongly about, and someone else offers a counterargument, what do we do? We instinctively look for arguments to bolster our position, so that we won't have to admit being wrong. This impulse is not driven by an attempt to see reality as it is, it is driven by a need to protect the ego from pain, in this case the pain of embarrassment.
Economists are extremely good at this form of self-protection. In my profession, in addition to a code of ethics, we also have a built-in awareness of this process, and attempt to correct for it. In psychotherapy we have a concept called countertransference, which refers to the feelings therapists have toward patients that may arise from the therapists own psychological issues. Therapists are trained and expected to monitor their countertransferences, and to seek supervision from other therapists to deal with them if they should become problematic. It certainly isn't foolproof, but at least we try.
I feel that economists, in addition to licenses and a code of ethics, should have a similar mechanism as a part of their training. Just as psychologists are trained and expected to examine their psychological issues for potential adverse impacts on their judgments, so economists should be trained and expected to examine their economic issues for adverse impacts on their thinking.
These are just a couple of suggestions, but the basic point should be restated. We rely a great deal on economists to tell us how to structure our economy, and lately this has not worked out so well. We need to ask why bad economic advice happens, and then do things to fix the problems.
Fascinating set of arguments you've laid out, in particular the way in which a lack of an ethics code (or any way to enforce it) dovetails with the purveying of economic advice to the advantage of the economists own self-interest. Thank goodness some of the younger economists seem to be taking psychology into account, especially with respect to the way investors may analyze information to their detriment - due to hopes or fears, etc.
Makes we wonder if more professions should hire psychologists as consultants. (for both the ethical and psychodynamic aspects)
I'm not sure I'd agree that economics is the most "scientific"of the social sciences. But maybe it thinks it is!
December 9, 2008 8:21 PM | Reply | Permalink
Thanks, TheraP. That's actually a great idea that psychologists could be hired out for their ethical advice. With the training we have in both motivation and ethics we would be well suited to that job. I'd love to try that. I wonder how you'd market it.
I'm pleased just like you are at the advent of behavioral economics, but it seems to me like the application of it is still mostly at the level of smaller issues. I don't think it is being applied like it should be at the level of issues on which economic ideology seems to dominate, (like financial regulation) as would be expected if self-interest, as I think, is driving things.
When I described economics as most 'scientific' I was really referring to the social sciences dealing with societies rather than with individuals, like sociology, anthropology, and the like. I do think psychology is able to be more scientific than these because controlled experiments can be done on individuals but not on societies. Thanks for commenting.
December 9, 2008 8:40 PM | Reply | Permalink
I agree that the behavioral economists are not looking at things in the manner we would do. But that there is a place for skills like ours, I see that as very valuable. See this blog of mine for an example of this in the political world:
http://www.talkingpointsmemo.com/cgi-bin/mt-current/mt.cgi?__mode=view&_type=entry&id=223742&blog_id=1622
I must admit that I come at this from a different stage in life than you. And from a different view of my role as a therapist. So... "marketing" ethics has an unholy ring to it, to my mind. Indeed I was almost going to put an ironic comment to my comment up above - about "gaining" from my proposal.
I think there will be work enough for you, Tom, maybe for me too if I choose to do more in private practice, once a national health care umbrella kicks in.
Yet, in terms of public service, that's how I view it, I would be pleased to provide ethics consultation, should that opportunity ever arise, but I would guess few among us would be tapped for such work - and thus we blog. (In my case, I spent 7 years on our state psychological association ethics committee, in addition to donating two years as a group leader for individuals harmed by therapists or clergy - sponsored by our local Mental Health Association, and other professional activities in that vein.)
Ethics is one of the things that drew me to our profession. I think psychodynamic understanding provides something extra to thinking about ethics. We have a lot to offer here. I suggest we do that as bloggers. Maybe I'm wrong, but the role of doing ethics consultation seems to be one to which one is nominated (or called) - not one you offer yourself up for. Certainly in our state no one can "volunteer" for the ethics committee. You are "named" to it. You end up doing a lot of work, for free. It's an honor. I say that in all humility - having been so honored. Indeed, for me, it represented the pinnacle of my professional life - in terms of an honor.
I'm not sure I could ever "sell" that type of honor. If you understand me.
I could give it away. But I could not sell it.
December 10, 2008 9:53 AM | Reply | Permalink
Hi again, TheraP. Aren't there people who are professional ethicists? I figure that if they're professionals, they must be getting paid for it. Now it is true that selling ethical advice could easily degenerate into something like the medieval Catholic Church selling indulgences, so you certainly have a point. BTW, I think your ethics committee is impressive, but what I think is even more so is your donating two years to counsel victims of abusive therapists and clergy. Props to you.
December 10, 2008 5:58 PM | Reply | Permalink
They're philosophers, Tom! Or maybe you're thinking "medical ethicists." Not sure what profession they start out from. Clearly hospitals have them.
It's hard to be proficient in every kind of ethics. It really helps to know the boundaries and ethical principles and psychodynamics. And there we could contribute. But you'd have to do a lot of free education first, I'd guess. Thus, I see more of a role for volunteering to monitor certain entities or people or whatever.
December 10, 2008 6:04 PM | Reply | Permalink
Mind you, the group met once a week. But thanks! I've seen some people individually as well.
December 10, 2008 6:06 PM | Reply | Permalink
Economics is as much a "science" as is psychology. That is to say neither discipline amounts to science.
December 9, 2008 10:35 PM | Reply | Permalink
With all due respect, Chris, I would argue that what defines a science is its adherence to the scientific method, and psychology does adhere to that. Hard scientists, such as physicists, chemists, and biologists, often tend to denigrate the social sciences, but I think this stems in part from not appreciating the limits that social scientists work under. Hard scientists are free to do whatever experiemtns they wish on their objects of study, social scientists are ethically constrained from doing many experiments because they would be harmful to subjects. In my opinion, this actually makes the social sciences much harder than the physical sciences, and I like them because of the challenges they present.
December 9, 2008 11:56 PM | Reply | Permalink
Here's another huge difference, Tom. "Results" in our field actually may "change" behavior. Thus making the results, over time, less valid. That doesn't happen in physics. Maybe it's more like "evolution" in biology though.
December 10, 2008 9:55 AM | Reply | Permalink
Tom,
I'll agree with you that the "hard" scientists don't understand the limitations that social scientists work under. I read Analog Science Fiction magazine even under its earier name, Astounding Science Fiction, and that was a constant refrain from the hard science types who published there. They once published my letter to the editor in rebuttal but totally garbled the key paragraph that made my point.
The ethical limitations on experiments are one part of the limitations on social science, but it has long been my opinion that the results of social science research are immediately fed back into the society that is being studied, thus frequently making any predictability developed by the science once again unpredictable.
When the subject of the science immediately incorporates the results of the science, you get a feedback loop that can be expected to perpetually frustrate reliably predictable theories from the science. That's a problem that the hard scientists work very hard to avoid. They can do it because they are not studying self-aware items.
As a long-time student of strategic management I have been a dilettante in both economics and psychology. The problem I have found with economics is that it has grown to be a form of applied mathematics, with the math designed to be suitable for making computer models. Economics has become a bag of tricks that it's practitioners are searching for new places to apply, rather than a science that attempts to explain the underlying patterns behind economic life. As such it is now a much better explanation of what can be done with mathematics and computers and not a very good explanation of what human beings really do.
When academic economics became a branch of applied mathematics and ceased to be political - economy a great deal of the explanatory power of economics was lost. That shift occurred in part because power cannot be measured in terms that can be mathematically modeled, yet every economic transaction is as much a power transaction as an economic one.
So for economists to mathematically model the economy, they must assume away all the power relations that are involved. It is that assumption by economists that has led to the idea that markets should be deregulated. Yet you cannot "assume away" the power imbalance involved when an individual deals with a massive corporation and come away with any realistic description of what is going on.
Please forgive the rant. I'll quit now. But I really appreciate the excellent post you published.
December 10, 2008 11:55 AM | Reply | Permalink
Richard, you state beautifully how that feedback loop works in the social sciences. I so agree!
December 10, 2008 1:27 PM | Reply | Permalink
Thanks very much, Richard. BTW, my dad introduced me to science fiction with Analog Science Fiction when I was young. I agree completely that economists have been overly seduced by the powers of math. Partly because among those powers is the ability to intimidate non-mathematicians into silence. Another factor is probably that a self-consistent mathematical model isn't going to be proven 'wrong' by colleagues if the only requirement is that it be self-consistent. The role of math in economics strikes me as similar to its role in string theory in particle physics. In string theory people got seduced by the math and weren't able to empirically test any theories resulting from it, and basically it occupied much of particle physics and went nowhere. Thanks again for commenting.
December 10, 2008 5:48 PM | Reply | Permalink
As one who suffered through the statistics courses, I can vouch for the science part.
December 10, 2008 10:55 AM | Reply | Permalink
Aren't Social Worker's trained in therapy and Psychologists trained in testing and assessment? How does having a PhD in Psychology qualify a person to do what an MSW is trained to do; therapy?
December 9, 2008 11:08 PM | Reply | Permalink
Mjeffn - to answer your question, Clinical Psychologists are trained in both testing and in therapy, but most of the training, probably about 80%, is in doing therapy. You may be thinking of School Psychologists, who have Masters degrees and work in school systems doing testing on students; they generally do not do any therapy. When people become Clinical Psychologists, which requires a doctoral degree, they almost always do it intending to be therapists. I'm a Clinical Psychologist in private practice, and I only do therapy, no testing, although I have taught college courses in psychological testing. I should mention that each state makes its own laws, but this is the way it is in every state that I am aware of.
December 9, 2008 11:44 PM | Reply | Permalink
I would echo Tom's answer. And add this. Social workers get less grad training in psychotherapy than we do. Unless they become psychoanalysts. In addition we get a lot of training in research methodology and must do research to get our degrees. Indeed in some ways when we do psych testing or even therapy, we are constantly testing hypotheses. Our testing background gives us another window onto thinking about how people tick. For example, given one of Tom's long posts, it was obvious to me how wonderfully he has integrated for himself the way of thinking about how people make decisions - using his understanding of psych testing.
December 10, 2008 9:59 AM | Reply | Permalink
Great post. Experimental economics (like experimental philosophy) is fairly young as an academic field, but I understand the results are fairly destructive of the rational actor model.
December 9, 2008 11:57 PM | Reply | Permalink
Thanks, Lux. From what little I know, I agree. I think this is a good way forward for economics.
December 10, 2008 6:33 AM | Reply | Permalink
The "Invisible Hand" goes non-rational. Tom Tomorrow via Krugman's Blog.
December 10, 2008 9:56 AM | Reply | Permalink
Ellen, that was absolutely hilarious. Everyone else on this thread, you should check out the Tom Tomorrow link above if you haven't seen it. Priceless, and perfect. Many thanks to Ellen.
December 10, 2008 5:52 PM | Reply | Permalink
See Tversky and Kahneman - or the reverse. Tons of stuff that relates here!
December 10, 2008 10:01 AM | Reply | Permalink
Tom. I'm trained in Economics. Good schools. (Some of 'em even had Psychology Depts.) And I "get" what you're saying, on all fronts, ok? That is, I "get" what you're complaining about. You wanna take a shot at Rational Expectations, or at Larry Summers? Be my guest. Because, yes, those ideas & attitudes exist. And in fact, they became more widespread during the 80's and 90's, perhaps particularly in the U.S.
But to write this up as though this is "Economics" is... bilge-water. 1st off, it's mostly talking about a particular school of economic thought. Which a lot of us within Economics thought, and said, was crap, from Day One. But the idea that these clowns "are" all of Economics, well, that's just nonsense. Read much Political Economy? Much Economic History? How about Economists from the Left? Think that all those people were just making up assumptions which they then manipulated in some grand, top-down, "Euclidian" manner? Where do Keynes and EP Thompson and Marx and AK Sen and JK Galbraith and Fred Hirsch and dozens of others fall within your system?
Just for example, all those past Depressions and Panics and such that you read about... who WROTE those histories? Any Economists? If so, I believe these are your choices. Either, A) Accept that they simply deduced these things from a set of assumptions (which means your views on economic history are as crap as their assumptions), or, B) Accept that not all Economists - and thus, the "profession" - are as you described.
Your 2nd bit, that Economists ignore the facts in favor of their theory? Well, some do. Or rather, all do, to some degree. But have you studied any History or Philosophy of Science? I have. Find many disciplines where this hasn't been the case, this battle between facts and theories? If so, do let me know. Because you'll have discovered a subject area unpopulated by human beings. I'm even willing to argue the "Hard" Sciences, but certainly, if you think Psychology has somehow escaped this human tendency, I'd be excited to know WHO exactly.
3rd, not all Economists believe in mono-motivational theories such as "self-interest." Again, you have a choice. If YOU yourself believe self-interest is this widespread, then you - and psychology - face the same problem. If you do NOT believe all are motivated by self-interest, then why are you ascribing this view to all economists? Because I can assure you, not all ecnomists think this, live like this, nor have they written that they do, nor do their theories depend on it.
Finally, let me put this one to you fairly bluntly, since your post was a bit casual in the rather harsh terms it slapped on a few hundreds of thousands of people and their work. (An interesting thing for a Psychologist to do, as an aside, but I'll let that one pass.) Let's walk through this.
- Universities have pumped out psychology grads these past decades, correct? X million grads, I would guess. And not all of them ended up simply performing good works for the poor.
- Some, in fact I'd hazard the word "many," ended up in... marketing departments of major corporations & governments. And in communications, public relations, advertising, branding, information services, etc.
- Would you consider it harsh if I said that these individuals had designed, mass communicated & high-pressure sold the most appalling set of lies in modern human history? If you wanted to find a machinery intent on hitting every primitive psychological button human beings have, on pounding home greed as a motivation, on being slick and glib and manipulative... why.... Thank you, Psychology Professionals Of The World!
I suspect you'll feel this last point a touch harsh. It is. I don't happen to hold Psychology responsible for that. Even though I think much of what is taught in those Depts is... crap. Why don't I flog Psychology for this? Because Economics, and Political Science and many other disciplines have fallen prey to the same sorts of lures, or power, and money and fame and hot female grad students. i.e. Most all disciplines I know have fallen prey to schools of "thought" which were, on closer analysis, complete & utter codswallop. It happens.
But each discipline, within itself, tends to hold a range of people, with a range of thoughts, proposing a range of testable or not so testable ideas, sometimes rewarded by the world, sometimes not.... Personally, I would strongly recommend this view as being both more psychologically healthy, and as bearing a much closer relationship to the "facts," as we know them.
December 10, 2008 12:30 AM | Reply | Permalink
Only in Canada, eh? Mmmm, pity.
Seriously, this was a nice counterpoint to Tom's post, which also had some great qualities.
It seems to me that despite a few comments derived from sheer frustration, Tom did a good job of pointing out that there's a system for rooting out Dangerous Assumptions in Psychology, and calling for a similar level of discipline in Economists, or at least in the Economists who make the big decisions that govern our lives. (It is pretty crazy that some of these Economists excuse the destruction they caused by saying they believed ordinary people are more rational than they actually are. Right, Al, Ayn and Bob. Nice try--we're stupid, but not stupid enough to think we're smart.)
Quinn on the other hand pointed out that the Dangerous Assumption system in Psychology is mostly voluntary and is only used by people treating individual patients--for some reason when a psychology student is hired by a marketing firm, the guiding principle of "first do no harm" is magically transformed into "caveat emptor." (I wonder if that's part of the reason why Psychologists get into such trouble with their peers when they stray into the big psych/self help arena, but I digress.)
I'd like to throw a question into the mix, which basically comes down to "Why isn't our economists humble?" I know there's nothing as convincing as conviction, but have we really become so tired of self-examination that we're willing to let people whose arrogance wholly eclipses their competence stand in the rubbish of their activities and keep talking as if they actually knew what we should do now?
I ask this only because I know that Obama is probably looking for continuity in his first few months of office, but by golly, by March we ought to be feeling the effect of some new ideas, from people who don't think their poop is ice cream if you know what I'm saying. How do we push for those new ideas? Because I don't think we can expect the current crop of folks to change their thinking anytime soon.
December 10, 2008 2:19 AM | Reply | Permalink
Couple of quick things first, Erica. 1) I'm not convinced there's much reality-testing or "rooting out" by any social science. Ever see a PoliSci Prof stretched on a rack? Ever wonder if the overall level of human happiness, satisfaction or well-being correlates with the level of Psychology consumed? ;-) (For that matter, it doesn't equate that well with economic growth either, so... more racks?)
2) Not sure Economists really own the lion's share of the blame for the financial crisis. A lot flowed from Finance, and them lil turtle dove firms had many a Business Grad, and many MANY more Mathematicians than anything else I hear, right? Most Economists have their boring little patches of study, and probably don't know a Derivative from a Good Novel.
Your main comment is one I ask pretty much daily - on humility. Well, an entire school of Economics just got pasted by reality. We probably won't see much humility from its leading voices. Just as we haven't seen many mea culpas on Iraq. The Profs with careers will stand their ground, just stare at their feet a bit more. What'll happen is the new students will track toward different parts of Economics. Good ole T. Kuhn was onto a bit of something with his work on that.
But where do we see humility at ALL in our society? Somehow, our entire population became short-termist, self-centered, debt-entranced (pick your fave slagging off term here.) We accepted lies, let a Constitution be shredded, pursued mass war against people based on lies (insert your fave sin here), and we dun 'em all.
Who's to blame? Who let this happen? Who encouraged the creation of people of this type? Ummmm... pretty much all of us. Want to blame Economists for the loss of home values? Ok, fair enough. But we also more than tripled the average square feet per person in recent decades. i.e. We bought too much house. Who encouraged that? The NYT Homes Section editors? And a few hundred million others of us, I'd guess.
Final note. I took two runs at Economics degrees. And both times, oceans apart, found it so stifling & inbred, I had to switch to other Depts to study the Economists I liked. So do I condemn that Dept? Hell yeah. But I found the same disease in Anthropology... and right across the Human Sciences... and wasted months looking for Depts which had the most open doors, open thinking. Religious Studies, oddly enough, I found to be good in one case. Politics in the other. Where my fave prof was - unbenownst to us - writing Krippendorf's Tribe (about an academic who fakes his Anthro research by letting his kids run wild in the backyard.) Plus... he was having a bit of a mental breakdown about what he had found in academia. But a damn sharp, and open, mind... and lots of fun when you got him talking about what he'd found in academia. ;-)
December 10, 2008 2:49 AM | Reply | Permalink
And yes... Red Rose. ;-)
December 10, 2008 2:51 AM | Reply | Permalink
Totally agree with you with regard to that one. Like totally. ;)
I find crushing homogeneity to be frikking everywhere. Even in these Internets, which is allegedly the last bastion for the free. Well, in some corners it really is, and I'm no talking 'bout porn etc. I'm talking 'bout thinking, ideas getting thrown about. A sense of the uncomfortable and sometimes wild disagreement. I like discomfort. It makes me think different thoughts.
As for turning this into a charge between economists and psychologists, ah well. I like this blogger, generally, and do read and rec. but this seems a simplistic polarization, and I'm not denying some of the complaints a la Summers et all. Just my two cents. ;)
ciao.
December 10, 2008 12:48 PM | Reply | Permalink
Thanks for commenting, Erica. You're spot on about what I'm trying to say. Dangerous Assumptions ARE the problem, and I think that people often make them for reasons that they are unaware of. As for Organizational Pyschologists who work in marketing, I've never worked with them, and I certainly do wonder what goes through their minds when they contemplate their place in the universe.
My post (and you get to this also) is mostly motivated by the news that many of the people who brought us the crisis are now going to solve it. This is like going to a mechanic for a tuneup, having the tuneup wreck your car, then going back to same mechanic. I agree with you that we we need new ideas, and that after a stimulus plan is passed this issue will move to the front burner. I think at that time many new ideas will be offered, if not by Obama's team then by others, and people will just have to push for them if they come from outsiders. I do think that Obama is intellectually curious enough to want outside ideas and to consider them.
December 10, 2008 7:57 AM | Reply | Permalink
Well, don't just bemoan Organizational Psych's, remember those anthropologists who worked for the CIA during our war with Viet Nam? They helped unpack and unravel the Hmong (just to name one culture...) and Nixon's bringing in Cambodia. Or even WWII and Japan. How about the ones who advised this government on torture and how to unpack the Arab mind? Not to mention how many anthropologists end up in advertising. Those people exist in every discipline. Even in medicine. Really.
December 10, 2008 12:55 PM | Reply | Permalink
When I say those people -- I don't mean just anthropologists. I mean people of that mindframe. Blighted by a form of cliquishness and insider's exceptionalism, and generally unchallenged. I've seen, over the years that even people who bemoan it end up in such closed systems and clubs. And isn't that what professions and departments are about in some sense? That's what Quinnesque was complaining of up thread.
December 10, 2008 1:03 PM | Reply | Permalink
I did a long comment on this Yva, especially homogeneity, because it triggered so many thoughts in me... but since it was wandering so far afield, decided (for once) to edit myself! Nonetheless, just to say... I feel as though the mental vice has been tightened down on all of us these past 25 years, and I'm utterly frustrated by how much energy it's taken to keep searching for the room to think, speak, act. And takes.
At which point I usually need something... loud. Shoes and socks, baby, socks and shoes.
Thanks for your comment though - maybe I'll post on it sometime, so we can air it out a bit. Or..... maybe better.... you could? ;-)
December 10, 2008 5:49 PM | Reply | Permalink
Tom,
I've been trying to watch Obama through the media (not a very reliable form of observation, I know) and it seems to me that he has a sense of strategic management that I have never seen in any President since LBJ. Strategic management has two separate processes, formulation and implementation. You come up with the ideas and you try to implement them.
Formulation is a lot more free-form than implementation. Implementation requires a great deal more experience to make it work, and that is where most strategies fail. A poorly formulated but well-implemented strategy is a lot more likely to succeed than a great strategy which is poorly implemented. And while the two processes are quite different, they feed back into each other so that they have to be done pretty much simultaneously.
What we have been watching during the transition is Obama's choices as implementers. Whether they will also be the formulators is an open question. I suspect (but don't know) that Obama will have a lot more idea people kicking in ways of getting stuff done. But we don't see that side of the formulation - implementation processes through the media because the media is all bound up in organizational charts. Also the media has very few competent managers writing or commenting.
It's Obama's openness to different ideas and his ability to drag out objections when he meets with groups that gives me great hope for Obama as a strategic manager. Right now he is hiring implementers, and they will be key to his success or failure, but the formulation of strategy will not be dropped on their shoulders and walked away from as George Bush as done.
Obama has walked into an unprecedented situation, and his ability to deal with the AWOL Bush during the collapse of the economy has been nothing short of amazing. It's also been quite subtle and something that the media hasn't picked up on to any significant extent. He is currently managing public expectations and the media as well as the transition, and doing it all without stepping on the Bush administration or appearing to blame them for their passivity and incompetence.
If he can do this as well as he has done, I am not concerned with whether some of the "old-hands" he is hiring will run off the reservation.
The problem with the federal government is that it tends to be a coalition of organizations, each with its own constituencies, goals and cultures. Bush has accepted this, sitting at the top and letting the various organizations like the Pentagon run on their own. Cheney actually managed those areas that he considered "his brief" but didn't step much outside foreign affairs, the military, economics and Intelligence. I think we are going to see a much greater centralization under Obama, in large part because he is capable of doing it and somewhat because the various problems that the conservatives have bequeathed him will force a lot of changes in government.
So overall I am not (yet) concerned about the old hands that Obama has been hiring. I see them as focused on the critical function of strategy implementation. (Strategy is called policy in government, of course.) We just don't see the structure of strategy formulation being built. The media is not sufficient subtle to pick up on that and it is more free-form anyway. We are going got have to depend on Obama's abilities to make the formulation function work, and the few indicators that I have seen suggest that he is quite capable of doing that.
Some time in the first half year or so in office, Obama is going to make one or two significant errors. I'm waiting to see how he handles them before I either relax or panic. Then we will know what we have in the new President.
Either way, we're stuck with him now anyway. Name one other candidate for President who could have handled this last three months as well? In my opinion, the closest would have been Hillary, and she is sufficiently old-school and surrounded by faithful retainers that I don't think she could have adapted as rapidly as Obama has.
This discussion is a bit like buying a car. For whatever reasons we have bought the car making half-formed decisions on incomplete information. Now that the decision is made all this discussion of the transition is the kind of self-justification the car buyer goes through for the several months after the decision has already been made.
Why bother? The decision has already been made. We just have to live with it now.
December 10, 2008 1:07 PM | Reply | Permalink
I love the way you laid that argument out! Very helpful, formulation vs implementation, and that he's hiring implementers - whereas he'll guide the formulation.
Thanks! I look forward to your continuing analysis here.
December 10, 2008 1:35 PM | Reply | Permalink
I'll be interested too. Formulating and implementing. There is also identifying the problem and then finding solutions to the problem. I've learned in my writing and with my clients who use different processes to try and state clearly what I think the problem is because I have a tendency to jump right to solutions.
But what happens if I perceive the problem of the economy as too much inequality from runaway CEO salaries that put too much funny money in the system? i.e. I prefer democracy and the wisdom of crowds and there isn't enough of it. But someone else says the problem is still too much constraint on individual liberty to accumulate all that extra dough and property ? i.e. He prefers the concept of elitism and the wisdom of the few?
The answer for me in the business world is to try and come up with a new idea out of conflicting views of the problem instead of a mushy compromise. And make it everybody's idea of a new creative solution.
December 10, 2008 5:39 PM | Reply | Permalink
Hi again, Richard. I really like your distinction between formulation and implementation, and I agree that it is somewhat comforting because Obama seems to be himself capable of doing a lot of the formulating himself. Actually, that distinction applies to how therapists work, although we use slightly different language. We make a formulation of a case, and have a general plan on how to conduct treatment, but the implementation often depends on the opportunities that the patient presents by her/his behavior. This makes it into an improvisational skill, which I think is a big part of implementation. Thanks again.
December 10, 2008 6:11 PM | Reply | Permalink
I agree with you that both Tom and Quinn make good companion pieces. It's like Oz. There are good witches and bad witches; good bankers and bad ones; good economists and bad ones; good psychologists and evil ones like Ewan Cameron that Naomi Klein starts her book out with. He was the shock doctor at McGill who in the 1950's experimented on his patients aka victims by trying to create a blank slate through shock. Then build their personalities back up. She equates his experiments with the Chicago Boys and the Friedman idea that when a whole country is in shock through natural or man made disaster, it's the best time to come in with free market ideas like getting rid of public schools, social security, nationalized natural resources etc.
December 10, 2008 11:05 AM | Reply | Permalink
Hey DKC. I tend to avoid most popular books on this sort of stuff, but Klein's I found myself reading and rereading, in chunks. For 25+ years there's been something deeply disturbing about what was coming out of the Chicago side of things, and it wasn't just Chile that set me off. The UK was one hell of an experiment, and what happened to those Northern cities was as much the creation of a Shock Doctrine as anything I've read. Maggie had her crackpot advisors and theorists, but the thing was, they were incredibly mean-spirited. That's what any human being would note about them. When I hit that place in '83, it took me about 6 months to pick my jaw up off the floor. Liverpool, Manchester, Newcastle... gone. They take great pride now in how these places have sprung back to life, but they too a wrecking ball to those people. And a lot never recovered.
And the fact that Klein's a compatriot doesn't hurt, eh? ;-)
December 10, 2008 11:41 AM | Reply | Permalink
Klein's book wasn't popular here when it came out. But it was internationally. Klein is that rare gem, an intellectual, an great investigative reporter, and an amazing story teller with incredible turns of phrases.
She calls Friedman and his antecedents and descendents "shapeshifters". Profound and simple explanation of how feudalism keeps reappearing in different shapes, but it's the same old flim flam and exploitation.
And Quinn, you are soooo right about the mean spiritedness of Maggie "there is no such thing as community" Thatcher. This is why I ask down the page what comes first? A mean spirited person looking for a rationale? Or a mean spirited theory luring people into its den?
I love the way Klein says that these ideas "slithered out of the basements" of McGill and U of Chicago.
Like you I read and re read her book. And I agree with John Le Carre. "It's scary as hell."
December 10, 2008 5:17 PM | Reply | Permalink
To extend your thoughts. I am sometimes fascinated by how bloggers here - at times - seem to "tune in" to common themes and there are companion blogs or comments, which, to my mind, seem more than just serendipity - as if some people are able to take a "weather reading" and report on it simultaneously from different perspectives or maybe it's like riding the jet stream together... so "catching the wind" so to speak.
I'm just fascinated by what occurs here in this blog, as well as in the world at large!
December 10, 2008 1:41 PM | Reply | Permalink
I like the jet stream image.
December 10, 2008 5:48 PM | Reply | Permalink
Good comments, Quinn, I wish I had stayed up a bit later to reply more quickly. Actually, I can see you're exectly the type of person in economics I'm NOT talking about. I probably should have qualified my post and said I was mostly talking about particular theories and theorists in economics. I'm actually a big fan of keynes, Amartya Sen, and economic historians in general, and feel that they hew fairly closely to the facts on the ground, and this is one of the best features of their work. And you are of course right that the policies enacted in the 1930s to break the cycles that led to depression were rooted in the work of economists, especially keynes.
My post is directed mainly not at those economists who are primarily researchers but at those who primarily influence public policy, because they are the more important actors in our political system. And I do believe that they, in contrast to their academic counterparts, are far more subject to conflicts of interest that probably unconsciously influence their thinking and policy recommendations. These are also the individuals for whom I think a licensing system and a code of ethics would be most important.
Regarding your comments about psychology, let me say a few things. My discipline has several divisions, the first of which is between research and practicing psychologists. Among practicing psychologists, who should be licensed, there are Clinical Psychologists and Counseling Psychologists, who treat patients, and Organizational Psychologists, who consult for or are emplyed by organizations, usually corporations. The latter group I actually can't claim to know a lot about, but much of what psychologists have done in advertising I find abhorrent. My own discipline, Clinical Psychology, has evolved its ethical practices from bitter experience. Early psychoananysts (who were actually psychiatrists rather than psychologists) often had sexual relationships with patients, and had rationalizations to justify this that I am sure they really believed. Earlier reasearch psychologists conducted experiments on human subjects that were truly horrifying (see Watson) and later ones conducted research that was still very problematic (like Milgram). Much of the ethical system that psychology has been forced to create has been in response to abuses by people in psychology and psychiatry. My point about psychology vs. economics is certainly not that psychology's practitioners are somehow naturally more ethical and less subject to deluding themselves. it is, rather, that psycholgy has been forced to confront many of its abuses and to institute systems to control them, and economics could learn from this experience.
December 10, 2008 7:07 AM | Reply | Permalink
But we were "forced" to do this, sadly, because of licensing boards and lawsuits. And a "license" is thus a good method of monitoring economists or other professions. Even politicians. Not sure that's ever gonna happen... but the truth is that we as psychologists have learned from bitter experience by our own bad apples. Psychologists who aided in torture... that's another huge shame in our profession! Thank goodness that's been changed. But it took a vote of the membership of the APA for that to happen!
December 10, 2008 10:10 AM | Reply | Permalink
It seems to me that quinn esq is engaged in a bit of a shell game -- that is, moving the shell to the edge of the table and dropping the hidden macroeconomists and their DSGE models into the palm of his hand, unseen by all.
While the economics profession may include a few economic historians of some status, it is the economists who argue for the application of the results of their mathematical models who affect our lives, today.
If one is to argue on behalf of the continuing auctoritas of these economists, then, one should be prepared to show that the models they use forecast the extraordinary economic situations we regularly (generationally) encounter -- the only situations we really care about.
Have they? I don't think so.
December 10, 2008 9:32 AM | Reply | Permalink
Oh Dear. The arrival of the Big Eye. Spooky, that. Makes my Soul Cough. ;-)
Ellen, you'll get no defense of the math-mania within economics from me. I nearly got tossed from one university for arguing so persistently (errr, loudly. Ok, and maybe some hitting.) against this nonsense. I'm not sure where I gave the slightest inadvertent hint that I was trying to get these clowns off, much less argue for their continuing authority. What have they produced? Errrm, in my authoritative opinion, 3 bags full. Of piffle.
Which made the "shell game" comment damn near absurd. which is usually a compliment from me, but this time... nope, just absurd. I disappeared macroeconomists (bold)? And a batch of general equilibrium models? Cool trick, must show it to myself sometime. Maybe it works better in Latin.
Here. Lemme say it again. With feeling. When the real math-heads wandered out of their right-wing freakshow labs, and entered policy-making, they became a public MENACE. Is that plainspoken enough? When they just sat in Economics Depts and played with their models, enjoying the "sheer beauty" of the math (as my least fave Walras-fanatic used to repeat, mumbling to himself) they were as harmless as, well... most other mumbling Profs.
Sane economists used to use models and recognize that the things were so slim, simple to the point of simplistic, that they had to flesh it out and wrap it round with just about every ounce of real-world, specific knowledge they had - plus spell out a bunch of value judgments - to come out with anything sensible by way of advice. Personally, I never found most of the economic models being developed to be of much value for the things I was interested in, so I went elsewhere.
But where you start talking bollocks (sans Latin) is with stuff like this, Ellen - "It is the economists who argue for the application of the results of their mathematical models who affect our lives, today." Oh? As for the non-math types, and all the economists who came before, I guess their ideas and all their works were overturned & tossed to the wind with their ashes. A Big Lebowski moment, and me not there to witness it. Damn.
Money, banks, firms, industrial structures, how we think of Depressions, the role of the State - I'd say the innovations and ideas of these cats have had some small ongoing affect on our lives, wouldn't you? C'mon, give it a try. Put it in bold if you like, but let's say it together... "History matters." And most of our economic history was not, as far as I remember, cranked out by some derivative-loving drone during the 1990's. Though sadly, they appear likely to write us a whole new chapter, the fools.
In short, if you think all their work and ideas have somehow wafted out of history, I'd say it is you, Ellen, who are playing the shell-game. I listed a few, you disappeared 'em.
That said, to go slightly meta here for a pomo, if this was a college bar, I'd have to ask... what the f*ck? It's like it's the first time you all have heard of schools of thought gittin' large and doin' damage. The first time facts have been tossed when they wouldn't fit theories. And the idea that economists somehow created this fabulous crash - the mad men in Tom T's future - wow. I need your drugs. Yah shure, they ran it all. In lab coats. With big whips. All the hedge funds had cruel economist overseers. And the Investment Banks, and the Regulators, and Fannie and Freddie, we knew nothing, the Economists knew everything. We were overpowered by their theories. Damn that Rational Expectations, we should have strangled it in its cradle. We... knew... nothing. We... couldn't help... but... go along. If only we'd had more chemists. Or psychologists. Or art history majors maybe. Then we could have stopped them.
Whereas the other disciplines? Apparently they were all sound-asleep, soft and snuggly in their lil bunny jumpers. The Wars, the Constitution, the Media Maw, all created by someone else.
While we in the MBA tidal wave, the nihilists in the English Dept, the psychs salving the wounded Wall St warriors... hands washed.
Priceless.
December 10, 2008 11:01 AM | Reply | Permalink
As a fellow psychologist (psychometrician actually) I share your thoughts about their false assumptions.
These assumptions can be seen in chemistry as well where they see gas molecules as dot's and there is even an aproximation of when their laws stop discribing a gas (when there are very few particles the individual behavior of the particles becomes of concern...).
The assumptions used in modern economics are a starting point for "ideal" aproximations for group behavior in the economy. (chemists call their gas laws "ideal gas laws".) Solving the problems of economy sould be centered around fine-tuning their assumptions to incorporate odd but systematic ways in which humans diverge from rational behavior. they should also adopt a minimum population size for aplying their "laws". Since the smaller the population the bigger the impact of individiual diverging from a law.
December 10, 2008 9:35 AM | Reply | Permalink
I personally very much appreciated quinn's efforts on this thread. I think they added an important caveat to the main post. I'm grateful, quinn!
December 10, 2008 10:13 AM | Reply | Permalink
Thanks Thera, and apologies to you, Tom and Ellen for my overly-sarcastic day. Breakfast should help..... ;-)
Two quick things. Here's one difficulty of licensing and ethics on Economics, as it affects public policy. These are ideas, and quite portable ones. They're all through Business and MBA Depts, for instance. Nothing to stop them from arguing exactly the same case, even running their models, and being hired in. Lots are already. A bit like trying to keep Psychological ideas licensed and bottled up. It's not quite the same as having a patient or even group of patients. I mean, could you find a way to license "Tough Love" or any of a dozen popular versions of how we should think, feel, love, act? I'm not sure.
Second, I tend to still skate over the top of what I really think about Economics, where we are, and where we need to go. I've followed my own muse on this, for 25 years, and I'd have to do a lot of breaking ideas down, before I could really get at how we need to build things up. But the ONE thing I am absolutely convinced of is that we... in all our developed nations... are in deep denial about what we're in, and how we created it. From the Churches to the Govt, the Advertising Agencies to the Realtors, from Finance to Law, from the Doctors and the Teachers to the Farmers and Soldiers... I believe we have al contributed to, and helped create, quite a monstrous machine.
But we're still at the earliest stages of coming to grips with it, with a lot of finger-pointing at the Financiers and Economists and Regulators and such going on. All deserved, but the ownership of this thing runs waaaaay beyond them. Who decided they needed "more house?" Who bought the chrome? Who moved away from family and friends for an extra $8k p.a.? Who bought the crap? Who made it? Who sold it? Who praised it?
We did.
And we need to get to the point of owning this, and fairly fast I think. We're in dangerous times. No time to persist in being fools about what's happened, who we are, what we've done, and what we need to do. Anyway. Cheers to all, and apologies again for the Grouch.
December 10, 2008 11:53 AM | Reply | Permalink
quinn, whatever "grouch" you're feeling in yourself, it's not coming across to me. Indeed, I am becoming your total fan and follower here! What I love is that you go straight to the "heart" of the matter and you don't skirt around the edges or get distracted by the small stuff.
I hope you'll continue to flesh this out. Not only how you're "seeing" what you're seeing, but how you can see the "heart" of the matter within the big picture. I kind of "get" what you're doing, because I think I'm doing something similar but from within a different disciplinary framework.
Your voice here is very valuable. Indeed, right now we seem to be assembling a very unique group, chipping away at things, like ants on an anthill. I suspect we don't even all know how or what we're creating here. But I sense a synergy. A very positive force.
It's beautiful to see!
December 10, 2008 1:49 PM | Reply | Permalink
Cosign.
December 11, 2008 3:58 AM | Reply | Permalink
Love this piece. Psychology is my real first love and was my undergrad major, but I went on in theatre and film instead. They are another way, though, of exploring the human psyche. Alan J. Pakula was a psychology major who became a great film director.
Anyway, I think your whole piece and especially the speeding car metaphor is brilliant and the call for some ethics review most needed. I have only one exception. I would cut out the following sentence
If you believe Naomi Klein and I do emphatically, they didn't really deal with the financial crises as cause them and then try to put their fingers in the dyke which eventually led to our being now up to our keisters in water holding on to what debris we can find.
Have you thought about the chicken and the egg? Are certain psychological types attracted to the very narrow self absorbed pseudo science of Friedman economics? John Kenneth Galbraith said that "the modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is the search for a superior moral justification for selfishness." Friedman economic theory appears to be more of a flim flam tent revival kind of idea than anything scientific. It's just feudalism wrapped up in new language. And as Galbraith says, it 'splains selfishness.
On the other hand Matt Ridley in "The Origins of Virtue: Human Instincts and the Evolution of Cooperation" tries to recapture the argument from the flim flammers by making the scientific case that humans are by instinct drawn to mutual aid and trust.
Living now in the West, I can attest to the fact that my rancher husband needs other cowboys to help brand and move his cattle. The West was won with barn raisings not the lone ranger.
December 10, 2008 10:36 AM | Reply | Permalink
Wow, I'm sure you're put your finger on something very important! Certainly this happens in the way therapists do therapy, the theories they prefer. It's hard for me to imagine this would not be true in other disciplines.
December 10, 2008 1:53 PM | Reply | Permalink
Thanks for the post! Lots of stuff in there that I have been thinking about lately, especially our short memories with the economy. I've been delving into our need to be right, and you have given me some more things to think about.
December 10, 2008 11:00 AM | Reply | Permalink
Galbraith again:
His son James Galbraith's book "The Predator State" is great. He's what I consider a good and ethical economist.
December 10, 2008 11:09 AM | Reply | Permalink
Hmmm, Galbraith... Klein... looks like we got ourselfs a Canuckophile here, boys. Dangerous.....
December 10, 2008 11:44 AM | Reply | Permalink
As someone who does economics forecasting, I'd like to critique a few things here.
Many economists would disagree with the word "explanatory" here. Economics describes phenomenological relationships, not necessarily causal ones. That is, economics relates how different factors can be modeled to relate, not necessarily that the causal relationship certainly exists.
The efficient market hypothesis is a good example of this. Very few economists really believe that the aggregate of market actors have perfect information about the value of a stock or option; what they will say is that treating market actors like they have perfect information actually works quite well in modeling (although not so much the last few months....)
This is not really that accurate. There was substantial evidence that deregulation worked. Many industries did substantially better with deregulation. The real question is what body of facts do you draw conclusions from. Many viewed the 30s as irrelevant, because they viewed the markets are fundamentally different now. This may appear as naive, but you have to draw the line somewhere. Is the Panic of 1837 relevant? What about the collapse of the Roman Empire? Those had substantially different causes, and the way markets worked were very different then.
In the end, economics is like many empirical studies. You study the data systematically, but determining the outliers is always a judgment call.
December 10, 2008 11:20 AM | Reply | Permalink
Quick folks! Over here! Loooook! Could it be? That rarest of things? An economist... with its humility INTACT?!!!
Oh happy day! ;-)
Thanks, Frog Leg. Good explanations. And the addition of the "although not so much the last few months" well-placed. Which does rather swing us around to Ellen's point, that these kinds of times are, in fact, the ones we probably care about most, eh? You know, a really bad economic car crash can wreck your whole decade....
December 10, 2008 11:34 AM | Reply | Permalink
. . . that treating market actors like they have perfect information actually works quite well in modeling (although not so much the last few months....)
Actually, what doesn't appear to work well is accepting the notion that intermediation requires borrowing short and lending long -- which is what got us (always gets us) into today's crisis.
Indeed, what with the monstrously huge pools of capital (pension plans, mutual funds, private equity, sovereign wealth, etc.) floating about, why do we need intermediation at all?
Note: Time to rid ourselves of the FDIC -- at least for any amount over a few month's worth of average household expenditures -- say, $10,000.
December 10, 2008 11:51 AM | Reply | Permalink
Why intermediation? Why... just as soon ask why the sky, the river, the grass in Spring!
Actually, ummm, yeah. It's a waste of space. I know a dude in Bangalore says he can handle it for us. $24/hour. Says he'll provide his own kit.
That should handle it. Next?
December 10, 2008 11:58 AM | Reply | Permalink
Cute -- but unthinking.
December 10, 2008 12:11 PM | Reply | Permalink
Cute -- but unblinking.
December 10, 2008 12:21 PM | Reply | Permalink
The flirtation is getting tired.
December 10, 2008 5:53 PM | Reply | Permalink
Ellen's idea of a flirtation is a chainsaw sentence to your left temple.
But for you..... cutey-pie. ;-)
December 10, 2008 6:14 PM | Reply | Permalink
Ellen, I think you are jumping to conclusions in regard to my post. I did not say deregulation was categorically right. In fact, some of deregulation was in my view done correctly, and some done incorrectly. I was just saying deregulation did have a factual basis.
December 10, 2008 12:44 PM | Reply | Permalink
On topic barely. This post raises some interesting ideas about the range of advice the White House gets in contrast to the range of advice the White House needs. I've sometimes fantasized about replacing the Council of Economic Advisors with an Academy on Socio/Economic policy, or at least subordinating the CEA to somesuch group. My Academy would include Sociologists, Anthropologists, Social Psychologists, Philosophers, Ethicists, Historians (social and cultural variety) and a Poet, preferably one who could play the flute. Oh yes, an economist and a political scientist or two. The idea is to shed light on human behavior (both individual and group) from as many perspectives as possible. There would be a core of academicians in the White House itself, and scholars in residence from hither and yon rotating in and out.
The idea isn't that these folks would write scholarly papers or write weighty reports of gravitas beyond gravitas. But that these folks would talk to each other about the human condition, with the President, Michelle, and the kids sitting in when they felt like it. Pick the right wise women and men, and I think they would feel like it quite often. Good conversation is rejuvenating and inspiring. For variety's sake, a zither or panpipes could give the flautist a breather.
In the name of transparency, the public could sit in via the Internets, and benefit from the whirlwind of ideas such gatherings would generate.
aMike
December 10, 2008 12:30 PM | Reply | Permalink
A poet who plays the flute - as one of the advisers. I love that!
December 10, 2008 1:57 PM | Reply | Permalink
A cute (and partially true) argument that fails on two accounts:
1) Capitalist economics is a shell game. It has to be, since it's a matter of a relatively small number of individuals and companies controlling the lives of a very large number of people, while trying to convince them that this is the best and only viable way of organizing things. My suggestion is to read Karl Marx's Capital.
2) The argument about licenses and ethics is disingenuous. Licenses and ethics rules have little to do with the quality of treatment that psychotherapy (or medical) patients actually receive, except of course in the most extreme of cases. It's hard to believe that Tom Hollenbach doesn't know this - or perhaps he's deluded himself in the same way as the economists he describes.
December 10, 2008 1:28 PM | Reply | Permalink
Marxism? Really?
Marx had some useful points, but as an over-encompassing theory of everything, it is woefully lacking.
Then again, all theories of everything are never to be trusted. All models are wrong; some models are useful.
December 10, 2008 2:04 PM | Reply | Permalink
Wonderful discussion.
First: I notice intermediation getting knocked. Unfair. Intermediation greases the wheels. Borrowing short and lending long is inherent in all finance because it's simply not possible to match maturities. Our recent problems do not stem from the intermediation. Banks are very good at maturity matching. It was the flow of rotten assets from the unregulated mortgage business that started the collapse. A mutual fund is not going to make a car loan: money has to flow through the system. that will inevitably involve intermediation. And Ellen, please: cutting FDIC coverage is the surest way I know of precipitating a run on the banks. Or did I misunderstand what you were saying?
Second: As far as I can tell academic economics is not about real economies. It is the study of the properties of abstracted models populated by 'agents' who bear no resemblance to people. From these models economists claim to be able to make statements about the real world. The Walrasian system is just plain odd from my point of view. It's a magnificent intellectual construction that happens not to be relevant to a real world economy. But that's what gets those folks going. Real economies have messy and unpredictable things like actual people in them, not those metronomic, pristine, all knowing 'agents' of economic theory.
Third: Economists deserve criticism exactly because they give advice to policy makers. If they gave no advice and just stayed home to play with their math it would be fine. It's when they play in the real economy that the trouble starts. People's jobs are on the line. And it's no defense to say the policy makers messed up: say so. And in the face of real world evidence, like, say, the Depression, change the theory you peddle, don't try to call the world at fault for not behaving like your model.
Fourth: Economics is a sprawling subject, but the core is built around an unswerving faith in markets [abstract ones at that!]. To argue that there are many different kinds of economics is specious. That may be true, but the Chicago school dominates with a ferocity many would call blind ideology. It is their kind of economics that fills the textbooks and informs policy. Look what's going on now: we are on the brink of a massive Keynesian revival, yet the schools still push the neo-classical free market, deregulatory, non-interventionist mantra that got us into this mess.
Fifth: Offloading the blame to MBA's etc is also wrong. The watered down stuff they teach in business school is built on the Chicago school theoretical foundation. MBA's are the technologists to the economists science. If the theory stinks the practice will also stink. Further: the horde of economics Phd's developing market models for investment firms are all trained in the Chicago school. They actually think their training is applicable to the real world. Whoops.
Finally: Since all neo-classicists should immediately give up tenure. Nasty market corrupting stuff like tenure should not be allowed in economics departments. Let the Marxists set up communes. Tough talking neo-classicists should swallow their own medicine. The point being that I find it repugnant to be told by a Chicago school academic that free markets will allocate resources most effectively so the government should deregulate etc, while that self same academic sits behind the safety of tenure.
I am not at all optimistic that economists will re-write the textbooks that brought us today's calamity. Instead the debacle of 2008 will be a side bar. Another example of what happens when the real world fails to behave the way the economists say it does. It seems the entire world has become a market failure!
December 10, 2008 2:05 PM | Reply | Permalink
And Ellen, please: cutting FDIC coverage is the surest way I know of precipitating a run on the banks.
Exactly!
Why are we putting our money in banks and letting them invest our money? Because the government (FDIC) is insuring us against loss. Don't want risk? Buy T-bills (0.001%!).
Time to grow up and accept the risks of investing our money ourselves.
December 10, 2008 5:55 PM | Reply | Permalink
Nuh uh, we don't want to go there! That assumes a rational and adult populace.
You must be long gold.
December 10, 2008 8:10 PM | Reply | Permalink
Thanks, Tom, for a great discussion.
Should economists be licensed? No.
Let's reserve licenses for professions that directly interact with individuals. Where codes of ethics set boundaries and rules of engagement. Have you consulted a personal economist recently?
Licensing economists would just be another form of credentialing and would confer a sense of legitimacy that is as yet unwarranted for the profession. It is too filled with ideologues who like to stifle competing ideas and discourage experimentation -- not at all scientific.
_____________________________________________
Should economists be blamed for the current financial crisis? Probably not, although the free-market worshippers did enable financiers, the real culprits, they did not especially enrich themselves doing it.
It has been illuminating to read various economists' takes on the current financial crisis and realize how little many of them know about finance, about how the money system really works. Not the theory, but the actual system, the algorithms and the players.
Economists are scratching their heads trying to figure out and explain what went wrong with the standard models (See Cato discussion). I doubt their theories and models include simple things like stop loss orders, market cap requirements and other automatic triggers for investment activity that can and have wreaked havoc on the markets. How do they factor in lenders paying borrowers to take their money?
Neither economists nor financiers may have foreseen that the algorithms would begin cascading in a downward spiral but some financiers at least recognized what was happening and are even profiting from it. That's because they are at heart simply pirates. They really have no ideology. They will use whatever economic theory or model is most useful or profitable, hence no shame from taking bailout money.
Sorry, I wandered beyond my point which is that economists are only to blame insofar as they were useful tools for the profiteers who are doing their best to loot the accumulated wealth of the past half century.
And if anyone wants to start a movement to save economics from ideologues, sign me up.
December 10, 2008 2:51 PM | Reply | Permalink
You make a lot of sense there, Emma!
December 10, 2008 5:59 PM | Reply | Permalink
Wow! A lot of very bright people posting here!
I would follow Emma and lay the blame for this mess on the finance community's doorstep. The economists and the regnant paradigm were only used as quantitative legitimization for the smart guys who were running things and setting the trends. Creative finance became unhinged from any grounding in real risk or real asset valuation and so we wind up with a gazillion dollars in swaps, a shadow banking system in ruins and Wall Street with no investment banks!
December 10, 2008 8:08 PM | Reply | Permalink
I really enjoyed this comment immensely. It's brilliant.
December 10, 2008 5:18 PM | Reply | Permalink
And the BEST part is you didn't specify which one.
Soooo.... before Thera and Eva and DKC and Ellen get here.... I'm gonna claim it. First dibs!
YES!!!!!!!
And thanks Tena, you're too kind.
December 10, 2008 5:38 PM | Reply | Permalink
I renounce all claim to Tena's enjoyment and cede the field to guinn!
December 10, 2008 6:00 PM | Reply | Permalink
sorry... to quinn!
December 10, 2008 6:01 PM | Reply | Permalink
Please note Quinn, the comment immediately above Tena's understated appraisal.
December 11, 2008 12:32 AM | Reply | Permalink
Wow, Tom!
Thanks for kicking this off with your post. I've only had time to review some of the thread here, but it's extremely helpful to gain so many different perspectives from so many who seem to have their feet planted in the real world. I look forward to reading through the works more carefully when I get time later.
Great Stuff!
December 10, 2008 6:14 PM | Reply | Permalink
I want to reply generally to everyone on this thread because time constraints kept me from replying to each one individually. I'm pretty new to tpmcafe and I have to say, its quite a phenomenon. I thought it was pretty cool that this guy I never met, Josh Marshall, gave me a free blog on his website, but now that total strangers are are not only reading the things I write (even long ones) but also taking the time out of their days to reply to me and discuss what I'm writing, well, I just have to say that this is a truly great place. This is a group of generous people who care a lot about right and wrong, both individually and collectively, and also make the effort to think clearly and wisely about important issues. As a psychologist (I seem to say that a lot) I'm very impressed at how people here self-reflect and take in criticism and think about it before replying, and also at how supportive people are in general. I just want to really thank everyone for being a part of this.
December 10, 2008 6:30 PM | Reply | Permalink
Good to have you among us, Tom!
December 10, 2008 6:33 PM | Reply | Permalink
Goes to show how bad the economy really is: commenting on a psychologist talking about economists is rip roaring fun by comparison!
December 10, 2008 6:44 PM | Reply | Permalink
:-) ♪ ♫ ♬
December 10, 2008 8:39 PM | Reply | Permalink
With an attitude like that you'll go far!
December 11, 2008 12:28 AM | Reply | Permalink
Great thread! Thanks Tom & all commentators.
December 11, 2008 4:18 AM | Reply | Permalink