The Institute Blog

There are no relevant questions that economics could answer. So long as the average economists is quite incapable of holding any math theoretical sentence of some depth, the profession (?)cannot but leave the very issues within the boundaries of the silogism (and ergotization). There are no real/concrete processes that the average economist, deep and probably unconsiously discouraged by his math ignorance, can approach. Math is not but the very language of science.

The problem with Elegant mathematical models is not that they unwantedly clashes with the despair of contemporary economic conditions. In such a view, everything regarded as Elegant would fall in the same fashionista branch of analysis. Instead, the problem is that the average (or even more than that) economist cannot hold a rationale for the elements of such models, nor as of its foundations. The same elegant models are being applied succesfully within branches of science as physics, electronic engineering, and many more. But whenever you (The INET?) put within a math test a physicist, engineer AND an economist, you will realice that the former really know what they are talking about, while the last one don´t.

I agree with the human and social wealth dimension that economics should have through the exploration, dialogue and collaboration with other scientific disciplines; nevertheless when you mention the incorporation of ethical, moral dimension by religion, can be a dangerous statement. Religion has its own institutions, and these have been the mean for religious impositions, which have been made in the name of religious morals principles, then maybe insights from religion can be biased. Further more, if in the study of economics should be integrated a humanitarian dimensions, in many periods of history, religions have segregated human beings according the their ideological orientation. I just want to highlight here, that theology as a branch of the philosophy, yes it can help to integrate ethics and moral values, but be careful because theology is not the same as religion.

This is a comment to the previous three comments

Dear Cynthia and W, please give them a break! Economists are as human as you and I are.

Processes in an economy are incredibly complex. To a very large degree they are impacted by human behaviors, which in turn have their causes in ethics, morals, religion, ideology, theology, etc, etc (extend this list with all the other "humanitarian dimensions.")

As to the use of mathematical models, they, on one hand, are indeed the tools of "the very language of science". On the other hand, when they are applied to very complex dynamic processes, simplifications and approximations in building the models are inevitable. This explains why mathematical applications in economics may produce inaccurate or even conflicting predictions.

You may be interested to read the following educational piece, which is quoted from We Are Different, So What, pp 20-21, www.wearedif.net

Where a relevant branch of science deals with a dynamic system, it will usually engage mathematics as a means of describing, modelling and analyzing the dynamic system.

A pendulum, a planetary system, weather conditions, a free market economy, a living organism are all examples of dynamic systems, presumably listed in the order of increasing complexity.

There are processes in Nature that are highly deterministic. However complex, they lend themselves to accurate mathematical descriptions. A good example is the planetary movements. The planet Pluto was discovered not by observations through a telescope but by calculations based on small divergences in the movements of other planets of the solar system. The trajectories of space ships are calculated very accurately. Otherwise, Apollo, while returning from the moon, would miss the Earth and the shuttle Atlantis could not find the Russian Mir station and approach it with a low relative speed.

For certain dynamic systems, some movement components can be described well by equations, but those components might intervene with and be hidden among many other components: random (non-deterministic), external, unpredictable, or just difficult to be described by equations. A good example of such a dynamic system is any real contemporary economy. We are well aware, practically and theoretically, of the economic cycles in a free market economy, but this does not make economic forecasting either easy or even a viable undertaking. Other examples are the environmental dynamic systems (weather, hurricanes, earthquakes, volcano eruptions) where we are getting better and better with our predictions, but still far from desired accuracies. For many dynamic systems in Nature, it is either difficult or impossible to produce accurate equations for the overall movement in a system. An animal body is an example of a dynamic system where sheer complexity prevents a satisfactory mathematical description of the system.

More than 2,000 years ago the Emperor of China ordered the Court Scholars to study different mechanisms for social systems.

One of the disciplines studied was economics.

The determination of the Court Scholars was that it would be a mistake to use economics as a basis or foundation for the establishment of social systems.

The reasons they provided and offered in support of their conclusion were, in part, that such systems would dehumanize society.

Perhaps we are now able to more fully and better recognize and realize the truth of those ancient scholars.

1-The fact that economists are not educated within mathematics, is by far the great obstacle.

That erodes the possibility of being systematically analytic; leaving room for more or less randomly involving themselves in a sort of belief system upon which the trueness of a statement is atached.

That situation alone, constitutes a quite deep methodological weakness in itself.

2-To say that economic facts are more complex that certain other facts, is not absolutelly true.

The overwhelming flavour atached to economic facts is not but a simple consequence of the lack of a strong method whithin which an economist could organize its own analytical insight towards a sound methodological path.

The ignorance of math by economists, brings about the muddle at the very start of any approach of any relavant economic fact (v.g the matching of dynamical sentences with comparative statics ones, so broadly pervasive in the field): the lack of math formation precludes the setting of an order structure within statements, observations, and so on.

Lack of order, results in remaining quite confused when the ocassion is as to separate a set of facts between those of Institutional foundations (v.g monetaty regimes, sets of monetary regimes, ...)and those of indivudual-psychologycal ones.

3-Economists ARE NOT acquainted with higher mathematics.

4-Other types of scientists (physicists, engineers, etc.) DOES.

5-Its so simple to test the precedent as of taking a math test to them and comparing the results.

6-Economists are not acquainted with the mathematics implied in, say General Equilibrium theory.

7-Having economists at large educated within higher mathematics would broaden the scope of the things that economics can efficiently afford, at the same time it would turn manageable many trascendental things that are so far (dis)regarded behind the labels of "highly complex"..."really, astonishingly complex...", and so on.

Probably, after a cople of decades investing in economists higher math formation, would yield the right profits! By now, probably growingly increasing profits!

I must say I find there is a great deal of censor ship on this site.
Mr. Johnson ask us to ask the questions that economists can't answer, but at times when I directly raise those issues on other posts on the site they aren't put up. How can economists answwer the questions when you won't allow the readership to even post about them. For a specific example in the money view. The bank of england has come out with a paper showing how Qe increases wealth inequaltiy. Yet in the money view I am not allowed to raise the issue in regards to the new fed qe program. Plus how it is related to wealth inequaltiy is directly related to the work of dirk benzimer in my view. It is raises wealth inequality, and not the majority of boats equally one must question the moral/social/ practical value of the program. It also leads to questions regarding assumption in economics about the "wealth effect".

It seems your own staff are censoring the hard questions you are asking economists to answer.

I imagine this post will be removed as well. Also what does this censorship mean for the intellectual rigor of the institute?

Nope, pleaqse give them a break. I was a simple mba student doing a project in the company winnabago. I saw that all of them were purchased from home equaity withdrawls. I then looked into the amount of home equity loans, which led to amount of credit card debt, which led to percent of income stream devoted to debt servicing. I knew the next recession was going to be as big as anything in my lifetime because if thngs slowed it would snowball. Then oil hit 147 per barrell and I knew the things were going to get reallly bad (i remeber the 70's oil crisis). If I with my limited information about economics could forcast better than 90% of economists with a bit of simple thinking and logic there is no reason most of the economists couldn't have seen the writing on the wall. How in the world could economists ignore the laibility side of society's balance sheet. From there I leaned and read minsky and learned that the guy wrote about the sorts of things I had been thinking that were clear in my mind. I learned then about steve keen. No economists don't deserve a break, they have completely missed the forrest for the trees. it seems There are models, micro models, and little deep philosophical thinking about issues. I didn't need a model to tell me what almost all of you couldn't see that was in plain site. Allowing banks to leverage 30 plus to one. That is insanity, and I don't recall a single economist raising the warning flags. I remeber when the land under the tokyo palace was worth more than the land for the entire state of california. I was still young (teens) and told my dad to sell anything japanese related.

Over and over in my lifetime I have seen the destruction of a credit bubble, and central bankers say they can't even identify them. Well, maybe we need to remove them and find someone who can identify a bubble in that job

sorry for typo's, I have a sort of dyslexia thing and my spellcheck is out

Sorry, I am posting a lot. Mr. Johnson if your read alternative economic blogs (zerohedge, naked capitialism, simon johnson's site) there are many people asking the questions you ask above. Look, I have worked in academia, I know the system, I know how the system rewards those who think within the system and punishes those who think outside of the system. What you are saying is correct, but will you get published (the fed controls much economic literature), will you get a job in industry, consulting, the good job once to leave government. There are very good economic voices out there if you search them out, but they have been marginalized by the system.
Once more I make an exception to andrew haldane, and I still can't figure out how he still has his job!!!

The capitalist system created the most advanced society in the world. Everyone has an equal opportunity to a better life. The thinking that inequality is a bad thing is anathema to our system. Progressives seek to enslave the unsuccessful by telling them the government is their salvation. I hope they fail.

i agree with the author. The mainstream is lost, we need to take a time of deep thinking about human values and the way they can be emobodied in economic theory.

We are living today with an experience that is unprecedented in all of human history. We are living in an economy that is already truly global in both scale, and limit.

19th Century models of industrial expansion (bigger, better, faster, cheaper) need to be replaced with 21st Century models of adaptive evolution (enough, and to spare, for both now and later).

19th Century architectures for value creation, capital formation and wealth distribution through incorporation and securitization (speculative trading in financial assets) need to be replaced with 21st Century architectures of stewardship and sustainability. What are those architectures?

The building blocks -- the Lego pieces, if you will -- may already be here. We just may need to put them together in new and different ways.

Institutions have evolved to be the new stewards of our present and future financial security. Vast sums of private wealth are entrusted to Pensions, Endowments, Foundations, Insurance, Annuities, even Family Offices and Sovereign Wealth, all under charters of trust of varying kinds encompassing a range of values, some financial, others moral. These Institutions have the scale and longevity to invest directly in enterprise, sharing in profits as earned as their strategy for realizing investment returns.

Can Economics give them the skills?

As direct partners with enterprise, Institutions who hold our money under a charter of trust can align interests across the full range of stewardship issues, both financial and moral: principal protection; programmed performance; threshold returns; constancy; transparency; alignment of interests; sustainability; and social responsibility.

The principles of partnership investing are well-understood. They are not being well-promoted.

Instead, we get Modern Portfolio Theory. This is a theory that may work for individuals, but is proving inadequate to the financial needs of Institutions, as well as the non-financial values of society, which, though they are legion in their details, may be grouped for convenience into a limited set of categories, such as: climate stability; resource stewardship; social mobility; financial integrity; global community; and economic adaptability.

Can Economics move us past Modern Portfolio Theory to promote stewardship and sustainable abundance?

I think it can. We just have to give the experts the social license they need to do it.

This initiative of INET to engage with Union Theological Seminary may be just the right place to begin putting the Legos together in a way that will move us past Modern Portfolio Theory to a new theory of stewardship and sustainability.

I applaud the vision, and the courage to pursue that vision.

I agree that this is where economics needs to be going and look forward to reports from the conversation with Union Theological Seminary.

The wise know that new growth comes from cultivating roots, and in these matters there is one particular thinker whose writings are long overlooked and ideas are long overdue for broad discussion: John Ruskin. Financial Times columnist Andrew Hill wisely wrote in the months following the financial collapse that we should all dust off Ruskin's classic Unto This Last. This critique of political economy, comparable only to Marx and yet entirely differing from Marx, flowed not merely from moral outrage but from legitimate disdain for a branch of knowledge that claimed to be a science but whose definition of its foundational notion, wealth, was observably false. Out of his argument he derived this guiding principle: "THERE IS NO WEALTH BUT LIFE." Although singularly prophetic and profound in his ideas on this subject, and although his influence was at one time wide, profoundly guiding the paths of many including Gandhi, whom you mention here, Ruskin remains strangely obscure to us today.

I would encourage participants in this current effort to dust off their Ruskin, rediscover his profound insights, and realize how well this genius speaks to our crises today.

INET should be applauded for taking a look at the world's major (and minor) religions as economics' textbooks for sustaining agrarian and regional economies.

In my own research and design for high-transparency, impacts-aware banking (the GoodBank Project™(IO)), the religions provide a rich source of values, identified and passed down through the generations through parable and well-established story-telling.

What is most intriguing is that new technologies could give religions and their membership added transparency as to their use of money, and the self-reflection to see if their finances (and bankers) head towards or away from sacred beliefs and tenets of faith.

Such ethical economics introspection - enhanced by semantic transparency as to how money and values align - insulates religions from evolving rote mechanics for economic adherence, or being used to achieve unsustainable and harmful impacts, or worse.

Hi david b,

You puzzle me.

First, when you are talking to people and showing disrespect for them, they will not listen to you. They will sooner get angry and punch you in the nose! Is this why you are hiding?

Second, you often saw big things coming. You have the abilities of George Soros. He saw big things coming. He acted on his expectations. As a result, he has been in a financial position to offer stipends to suffering Russian scientists, to fund the Open Society Institute and the Institute for New Economic Thinking, and to support other honourable endeavours. The kind of things you saw coming, would allow you, time and again, to shovel spades of money from financial markets. And you would not have time to hang around with people whom you despise.

So, the puzzle remains unresolved.

Your idea is part of a moral voice found in a little known,grassroots network of small urban churches in South Los Angeles. As the story goes, some old school civil rights leaders naively confused the right to being treated with decency rather than brutality, with the right to economic equality. No one said anything about lifting people out of poverty, violence, and unsafe housing in 1968 and it has only gotten worse among some groups over time. The conversation about mass inequality in the world's economy is welcome 'sunday dinner' talk in our houses of faith. We'd love to have you over for dinner sometime.