#Neoclassical Economics

[economicsinaction]

Economics is getting reduced to data analysis 

Increasingly, the theory or `thinking’ is missing in economics, and the research in the discipline is getting limited to data analysis.  One reason is the doubts on the usefulness of theoretical frameworks of the discipline. It started with macroeconomics. Macroeconomic behaviour cannot be modelled as that of individuals and firms. It is a system wherein the behaviour all individuals, firms and…

[alanshemper]

So what is modern economics about? It seems to be, mainly, about itself: The AEA meets to celebrate the importance of its members, their presence in high public positions, their influence in foreign lands, and the winning of the Nobel Prize. Female and black members have won the right to organize sessions about gender and race--thus domesticating some of those who might otherwise complain. Radicals and Keynesians, on the other hand, appeared only on panels organized separately, by an alphabet soup of splinter associations. What was therefore most conspicuously missing from this meeting of America's premier social science organization, was any actual discussion of economic ideas.

But what am I thinking? Of course they don't want to discuss ideas. Would you, with the record of this professorate? Consider what has happened, in recent years, to five of the leading ideas of modern economics.

19 December 2001

[transroadwarrior]

taking Ecological Economics and all the neoclassical economics students are losing their minds at the idea that it’s really weird to assign monetary value to things in nature and that infinite growth is physically impossible. They are SO uncomfortable when the profs are like “there are two billion people living on less than $US3 a day and that is Wrong”. They define “benefit” and “harm” in terms of only money and consider losing money in any context to be “harm”, irrespective of collective benefits and without considering wealth disparity. Now, they are trying to understand. But holding a civil tongue in my head is becoming increasingly difficult. I want to shake them like a box full of fragile glass stemware and shatter everything upon which they build their personal paradigms.

[i-swear-its-only-ironical]

Every time I have important exams coming up, a new hyperfixation arises. And sadly, it's never idk something academically useful but always some flavour of found family with one character or ship that owns my life for like 2 months and makes me want to write extensive analysis about. BUT NO, MY DEAR BRAIN, THIS HASN'T GOT ANYTHING TO DO WITH STATISTICS OR POLITICAL SCIENCE SO FUCK YOU.

I'm fine it's fine it's okay I'm fine.

[halflingcaravan]

Tim "Smashed Avo" Gurner

Hey Folks,

If you're wondering where this bell-end comes from in the world, he is unfortunately an Aussie. He is also one of our more loathed form of capitalist jerkwads: The Property Developer. Plus he's the wangrod who decided that...

When talking about property prices 3 years before the pandemic was responsible for the equally out of touch shit-take of... "The young folks shouldn't be buying avocado toast if they want to buy a home..."

So yeah, he's just full of shit takes.

The more amazing thing about this kind of shit take is that Gurner is basically saying the 'Neoclassical/Neoliberal Quiet Part Out Loud'.

Unemployment is the only way neoclassical economics thinks to control inflation. And it's a bit Rube Goldberg at the same time.

Buckle in folks, we're going for a deep dive into a land of wild fantasy and nonsense: mainstream macroeconomics.

But how do we stop the inflations?!

In the Neoclassical pattern, you need to remember the fantasy starts with how they describe the economy already as it is and how prices happen.

Step 1: The economy will already be producing everything it can and prices are directly linked to the amount of Government Money.

Yep, you read that right... the main pile of economic thinking says that economies around the world are already making as much stuff as they could. They're importing everything they could, and the people who are here are already making as much as they possibly could.

This gets glued into the next thing which is The Equation of Exchange; MV = PQ. You'll see this bandied around and from a maths sense this is the most boring mundane crap of an equation possible but once you start trying to make it match RL goings on makes zero sense. M = the government money out there, V = Velocity of money (put a pin in this one! Oh boy!), P = prices, Q = the number of times people pay those prices.

It has variations where the PQ will be "P = Average Price, Q = All transactions in the average" or "PQ is actually the sum of every price P and the Q times that price was paid". They work out to be the same in the long run: the total of all the things people bought/sold. Now, remember the first half... we are already making the most stuff we can which means that Q is basically 'fixed' (we don't have more stuff to buy and sell) for any given period of time. They also tend to assume that 'Velocity of Money is constant' (which yeah oh boy... just oh boy). So if you change M (government money) there's only one thing that can happen: Prices move. If you spend more government money, then Prices have to go up. That's part of the logic, which is why they keep scaring you with Spending More Government Money Will Make The Inflations.

(Velocity of Money is meant to represent some kind of how often the money moves between people, but this is bonkers because everything is done on spreadsheets now and editing values is spreadsheets creates and destroys stuff constantly, so how fast is money moving? Also, banks settle net transaction not every single transaction. If your bank needs to send $10m to another bank, but that bank needs to send $11m to your bank, then the other bank sends $1m to your bank... that's it job done. They don't pass all the millions back and forth. So this whole idea of the velocity of money as a thing is nonsense, and then on top of it if you're at all scientifically inclined... try do a unit-substitution on MV=PQ, notice the units for V and realise what that would mean if you were doing that in Chem or Physics... let your brain melt on that one).

Step 2: But the Wage Price Spirals! Supplies and Demands!!!

Supply-and-Demand curves have something super wild going on. It gets glossed over a lot, but...

Supply and Demand curves assume the whole economy has only one thing in it, and everyone wants that one thing exactly the same as each other.

Yep. A supply and demand curve assumes everyone in Australia likes Victoria Bitters beer as much as everyone else AND that the only beer available in this fine nation of indigenous folks, migrants, forced migrants, and colonialist fucks, is Victoria Bitters. There is one beer: VB, and everyone wants it exactly the same amount. Welcome to Neoclassical/Mainstream economics.

What does this mean for inflation? If people have more money to buy stuff, then they'll push up prices! The demand (wanting a thing PLUS having the cash to buy it) will beat supply (which remember is already maxxed out) and push up prices!!!

How do we stop this? Make sure people don't have as much money to spend on things. Yep, you stop this by making people broke.

What is a great way to make people broke? Increase unemployment.

How do you go about doing that?

Central Bank Interest Rates... it's all a bit Rube Goldberg, but this is the monetarist solution to everything in the economy... fuck with the rates.

If you push up rates, loan costs go up, people and businesses have to spend more to cover their loans. That means people can't buy as much stuff. That means their rents potentially go up. That means food prices go up. And businesses can't afford to keep on as many staff. Unemployment goes up. That's the trick. Rates go up (insert bowling balls playing pianos to knock a switch to drive a remote control car) and then unemployment goes up.

Then when people aren't buying, inflation slows down. Then they drop rates.

But notice the funny thing... generating more unemployment requires the prices of stuff to go up because the rates go up. They make inflation to stop inflation... it's so fucking bonkers. We will crash this car into a tree faster now so we don't maybe crash into that cliff wall up ahead.

So yeah, Tim "Smashed Avo" Gurner isn't lying because that is the goal: to crush inflation by crushing employment.

[halflingcaravan]

Why it’s almost like treating people humanely at work makes them interested in working for you…

spoiler: the weird trick was "offering more pay and benefits"

[sexchangedotcom]

my economically sound and durable brutalist baby just dropped several tonnes of concrete on your neoclassical baby

[moleshow]

I am a stupid person. Where should I begin reading about economics.

where you should begin depends on what you want to know. my response is long so i'm putting it under a readmore

if you want to know about economic theory, that's one thing; if you want to know about economics in practice (i.e. the way economies operate), that's another. these things are related, but they're often in separate books.

if there's something you want to know about specifically feel free to ask--i may or may not be able to provide a suggestion on what you should read. my wheelhouse is mainly international economics and political economy so my recommendations are not the end-all-be-all of the field.

i've uploaded all of these here: https://gofile.io/d/gbocnf

(i wasn't able to find a pdf of the 2020 edition of the Frieden but i was able to find the 2017 edition.)

the first recommendation i have is unfortunately a textbook. theoretical foundations are important 😔

1. An Introduction to International Economics: New Perspectives on the World Economy by Kenneth Reinert

this book's focus is primarily on neoclassical economic theory (which is often what people mean when they say "economics"), but it provides a strong foundation for thinking about markets, trade, and currencies.

i also want to note here that economic theories are best thought of as lenses through which to look at phenomena. all of these lenses illuminate some things and obfuscate others. so the utility of a given theory is dependent upon what you're trying to examine.

2. The Travels of a T-Shirt in the Global Economy: An Economist Examines the Markets, Power, and Politics of World Trade by Pietra Rivoli

this book is a lot of fun, and falls pretty squarely into the "political economy" camp. Rivoli takes as her subject a t-shirt from a walgreens in florida (if memory serves), and follows the chain of production, to find out how it got there--as well as where shirts like it might go after being purchased. along the way she looks at the dynamics of production in practice, so she looks at the role of labor, firms, governments, brokers, etc.

i would recommend starting with this one or reading it alongside the Reinert so you aren't raw-dogging a textbook.

3. Global Capitalism: Its Fall and Rise in the Twentieth Century and Its Stumbles in the Twenty-First by Jeffry Frieden

for this one, you'll want to read the 2020 edition because the 2007 edition doesn't talk about the global financial crisis of 2008. this is a book that really is what it says on the tin--a history of global capitalism. it's particularly useful for understanding the origins and consequences of the postwar economic order. it contains some good discussions of keynesian economics and the neoliberal school of thought that followed.

4. World-Systems Analysis: An Introduction by Immanuel Wallerstein

this one's not a crucial read, but it covers a different way of thinking about basic economic units in international economics (i.e. not limiting one's economic analysis to nation-state units but instead thinking about the global economy as a system).

5. Running Steel, Running America by Judith Stein

i've put this book here because the latter half of the book essentially goes through how and why american production changed in the latter half of the 20th century, focusing chiefly on the production of steel. (this is another political economy book.) Stein illustrates the consequences of US foreign policy for the domestic economy, particularly during the 1970s--a crucial period. the whole book is worth reading, but the first half deals more with labor and politics so it's not directly related to your question.

bonus: Politics and Economics in the 1970s - lecture by Judith Stein

feel free to reach out if you have more questions or need clarification on something here👍

[probablyasocialecologist]

Consider the twin master sciences of the twentieth century, neoclassical economics and population genetics. Each of these disciplines came to power in the early twentieth century with formulations bold enough to redefine modern knowledge. Population genetics stimulated the “modern synthesis” in biology, uniting evolutionary theory and genetics. Neoclassical economics reshaped economic policy, creating the modern economy of its imagination. While practitioners of each have had little to do with each other, the twins set up similar frames. At the heart of each is the self-contained individual actor, out to maximize personal interests, whether for reproduction or wealth. Richard Dawkins’s “selfish gene” gets across the idea, useful at many life scales: It is the ability of genes (or organisms, or populations) to look out for their own interests that fuels evolution. Similarly, the life of Homo economicus, economic man, is a series of choices to follow his best interests.

The assumption of self-containment made an explosion of new knowledge possible. Thinking through self-containment and thus the self-interest of individuals (at whatever scale) made it possible to ignore contamination, that is, transformation through encounter. Self-contained individuals are not transformed by encounter. Maximizing their interests, they use encounters—but remain unchanged in them. Noticing is unnecessary to track these unchanging individuals. A “standard” individual can stand in for all as a unit of analysis. It becomes possible to organize knowledge through logic alone. Without the possibility of transformative encounters, mathematics can replace natural history and ethnography. It was the productiveness of this simplification that made the twins so powerful, and the obvious falsity of the original premise was increasingly forgotten. Economy and ecology thus each became sites for algorithms of progress-as-expansion.

Anna Lowenhaupt Tsing, The Mushroom at the End of the World: On the Possibility of Life in Capitalist Ruins

[fashionsfromhistory]

Afternoon Dress

c.1821

England

By the 1820s, multicolor, patterned garments had begun to replace the gossamer white of the century's first decade, due in large part to new developments in printing technology. Textile manufacturers were able to mechanize and economize production using engraved rollers rather than traditional wood blocks or copper plates. This dress, with its soft-colored zigzag pattern embellished by ruffles and braid, is very much a transitional piece that illustrates the move from the neoclassical mode to the more romantic styling of the 1820s and 1830s. From the previous decade, the dress retains the elevated waist. Other features - the blousy sleeve and the pelerine collar - are fashion points that would become increasingly prevalent and exaggerated in the 1830s. (Museum at FIT)

Museum at FIT (Object number: P83.32.2)

[edwad]

so many socialists are committed to a self-serving history of economics where the whole thing since 1870 has actually been an elaborate plot to undermine the contributions of marx (or whoever their favorite 19th century socialist is, but it's usually marx in this story). this particular telling of events is so important to them that they will get irrationally angry if you tell them that it isn't true and that their guy (whoever it was) didn't actually have that much influence on economic conversations at the time. even worse, lots of early marginalists were specifically concerned with constructing a kind of model of socialist distribution or using the new economics to center the needs of individuals rather than leaving it up to the disinterested circuitry of classical economics which always ended in calls for free trade, often at the expense of the people on the ground. this is untenable for contemporary socialists because it destroys the image of neoclassical economics as a kind of evil class project, which is the basis of their critique of it since they don't meaningfully engage with it at all otherwise.

[gepgep2]

One reason that actual proletarians were very suspicious of socialists in many cases is because their immediate enemy isn't actually the capitalist, who he rarely meets, but the annoying administrator upstairs. To a large extent, traditional socialism means giving that guy more power rather than less.

So I think we need to look at what's really going on in a hospital, in a school... In most cities in America now hospitals and schools are the two largest employers- universities and hospitals. Essentially work has been reorganized around working on bodies and minds of of other people, rather than producing objects. And the class relation in those institutions are not- you can't use traditional Marxist analysis. You need to actually reimagine what it would mean: Are we talking about the production of people? If so, what are the class dynamics involved in that? Is "production" the term at all? Probably not.

That's why I say that we need to reconstitute the language we're using to describe this, because we're essentially using 19th century terminology to discuss 21st century problems. Both sides are doing that. The right wing's using like neoclassical economics which is basically Victorian, it's trying to solve problems that no longer exist. But the left is using the 19th century Marxist critique of that which also doesn't apply!

https://m.youtube.com/watch?v=MN9S0HD8VH8

[beardedmrbean]

Traditionally incoming Argentinian presidents give an inauguration speech inside of Congress to other politicians. Javier Milei, a former “tantric sex instructor” turned libertarian economist, symbolically gave his speech with his back to the Congress facing towards the people. 

“For more than 100 years, politicians have insisted on defending a model that only produces poverty, stagnation, and misery,” President Milei said. “A model that assumes that citizens exist to serve politics, not that politics exists to serve citizens.” He also promised an “end a long and sad history of decadence and decline” and promote a new era based on peace, prosperity, and freedom.

Since his headline-making election victory last month, media portrayal of Milei has ranged from dismissive to condescending, often depicting him as an eccentric “far-right populist.” Yet, since taking office, Milei has shelved many of his campaign’s more contentious proposals and begun implementing a radical but, by international standards, orthodox reform plan to revitalize Argentina’s faltering economy.

Milei inherited a challenging situation. Argentina’s economy has shrunk by 12 per cent over the last decade, annual inflation reached an extraordinary 160 per cent in November, while the poverty rate increased to 40 per cent in the first half of 2023.

Argentina has a fascinating economic history that led up to this point. In the 19th century post-independence Argentina adopted a liberal constitution that helped deliver an impressive economic expansion.

By the early 20th century, Argentina was one of the world’s richest countries, driven by agricultural exports. Real wages were comparable to Britain and only slightly below the United States. Millions fled destitution in southern Europe for a new life in Argentina. Buenos Aires has been labelled the “Paris of South America” because of spectacular neoclassical architecture built during this era.

This turned to disaster over the subsequent decades because of collectivist rule – from military dictatorships to avidly socialist leaders. Argentina nationalised industries, subsidised domestic production, limited external trade, and introduced an unaffordable welfare state. This has become known as the Peronism, named after 20th century president Juan Domingo Perón, a leftist populist leader who supressed opposition and controlled the press.

This agenda accelerated in recent decades under self-identifying Peronist leaders, turning Argentina into one of the world’s most closed and heavily regulated countries. The latest Human Freedom Index places Argentina at 163rd in the world for openness to trade and 143rd for regulatory burden. This has culminated in an economy on the precipice of economic disaster.

Not wasting any time, Milei has proposed a mega package of over 350 economic reforms to open the economy and remove regulatory barriers. This includes privatising inefficient state assets, eliminating rent controls and restrictive retail regulations, liberalising labour laws, lifting export prohibitions, and allowing contracts in foreign currencies.

There has been a notable absence of some of most radical ideas – such as legalising organ sales or banning abortion. He has also put on hold plans to dollarise the economy and abolish the central bank. Instead, at least by international standards, the agenda contains several orthodox economic reforms.

Many of the measures – such as cutting spending to get the deficit (currently at 15 per cent of GDP) under control, opening the country up to international trade, and liberalising the airline industry through ‘open skies’ policy – would be required to join the European Union. The government is eliminating capital and currency controls and allowing the peso to devalue – measures that the IMF’s managing director Kristina Georgieva said these are important to stabilise the economy.

There are undoubtedly significant challenges ahead and some darker elements to agenda.

Milei has been, uncharacteristically for a politician, honest that “in the short term the situation will get worse”. The removal of price controls, for example, will increase inflation until demand and supply can stabilise to end shortages. But, he says, “then we will see the fruits of our efforts, having created the foundations of a solid and sustainable growth over time.”

The government is facing significant opposition, with the union movement organising mass protests and threatening a general strike. The government has responded by proposing questionable new anti-protest laws, that include lengthy jail sentences for road-blocking and requirements to seek permission for gatherings of more than three people in a public place. Milei, who could struggle to get much of his agenda through Argentina’s Congress, is asking for sweeping emergency presidential powers until the end of 2025. This raises serious questions about democratic accountability.

Nevertheless, there are some positive early signs. Since Milei’s election Argentina’s flagship stock index has risen by almost one-third and the peso’s value has not collapsed. Argentina could soon benefit from a major new shale pipeline pumping one million barrels of crude a day (helped along by reforms that allow exports of oil and sales at market prices) and the mining of the second largest proven lithium reserves in the world.

Argentina has long served as a solemn reminder that prosperity is neither inevitable nor unassailable. Misguided policies can transform mere challenges into a profound crisis. Milei is offering a glimmer of hope: redemption may just be possible. Let’s also hope that Britain’s leaders can similarly take the path of reform, ideally before things get as bad as Argentina.

Matthew Lesh is the Director of Public Policy and Communications at the Institute of Economic Affairs

[anarkittyuwuuniverse]

"Like a state, an operating system “governs” the programs and applications under it and networked with it as well as, to some extent, the individuals who avail themselves of these tools and resources. It defines us in relation to itself, and each other, as “users,” and can reward us, reject our requests, or even bar us from access according to its needs. It can also monitor and surveil us. Referring to giant metaplatforms like Android and Apple, the German sociologist Philipp Staab observes, “Their own systems are continuously optimized for maximum convenience, to reduce the need to switch to another system. On the other hand, they make it as difficult as possible for users to use certain services outside their own ecosystem.” This is our starting point for understanding the State. Its central feature is the legal, administrative, and decision-making structure we refer to as government. But the State is a much larger, more complex phenomenon, a comprehensive means of organizing and exercising power that, once it’s launched, expands to cover more and more aspects of existence according to a direction and logic of its own. “The state could never be the means for any special or definite end, as liberalism conceived it to be,” the German anarchist Rudolf Rocker wrote in his classic, Nationalism and Culture ; “it was rather, in its highest form, an end in itself, an end sufficient for itself.” At the same time, and again like a computer operating system, the State is not a material object or entity. The various pieces of “hardware” we associate with it—big, imposing neoclassical buildings fronted by Greco-Roman columns quite often come to mind, along with military bases, roads, and monuments—are merely material containers and symbols of the immaterial reality. An operating system is soft ware, a collection of embedded commands that direct a machine called a computer. The State, too, is “software”: a collection of ideas, doctrines, commands, and processes that direct the deployment of human beings and their deployment of physical resources. The State is at once a political, social-cultural, and economic entity. Like an operating system, it networks together institutions, organizations, and less formal groups including government but also many others: corporations, banks, other financial institutions (state-chartered, as it happens), and other underpinnings of capitalism; eleemosynary (nonprofit and charitable) institutions; so-called civil society groups and political parties (especially “established” parties like the Democrats and Republicans in the United States, which have evolved into quasi-state institutions); and even basic units like families and households. Other institutions and groupings that form part of the State furnish cultural and even paramilitary support to the social order, strengthen organized religion, and reinforce racial and gender stratification: for instance, the extreme wings of the nativist Alternative for Germany; the Hindu nationalist Rashtriya Swayamsevak Sangh (RSS) in India; and the American Legion, the Ku Klux Klan, the National Rifle Association, militia groups, the Proud Boys, and the Southern Baptist Convention in the United States." -The operating system: An anarchist theory of the modern state

[racefortheironthrone]

Your list of Worst Prime Ministers has a lot of "I wish the populace had gotten mad enough to straight-up overthrow this guy for the bad stuff he did, which they didn’t". What would the reverse look like? Put another way - which historic British Prime Minister was most unfairly reviled by the public for stuff that turned out in the rearview mirror of history not to be his/her fault?

Well, to go back to the post that started this little run, the one that stands out to me is James Callaghan. He certainly was not my favorite Labour PM, and I think he made a lot of mistakes (the pound was always a self-inflicted injury for a generation of Labour politicians, devolution was badly mishandled, etc.), but he was also right about some important issues (the Social Contract and the Common Market most importantly) and the crisis that everyone hated him for was not really of his making.

Stagflation was something that no one dealt with well. Nixon, Ford, Carter, Reagan, Thatcher - it really didn't matter where you were on the ideological spectrum, none of the economic theories on offer in the 1970s had a viable solution to the problem. The left was hamstrung by the limitations of the neoclassical synthesis, but it's also true that monetarism was a fiasco everywhere it was tried, whether in the United States or the United Kingdom or Chile.

Speaking of alternate histories, I really do wonder what would have happened if Callaghan had called a snap election in September 1978 as people wanted him to do. 1979 would still have been a trainwreck regardless, because Callaghan didn't have a solution to the wage problem (should have read more Keynes!), but a storm that he could have ultimately weathered because North Sea oil was about to come online, which would have brought inflation down even faster without Thatcher's monetarist nonsense.