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What About the Questions That Economics Can’t Answer? conferences, and guest contributions – we’ll keep
by The Institute for... on September 25, 2012 10 comments you posted.

This is the first in a series of articles that INET's Rob Johnson will be writing for Yahoo! Finance. You
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can read the original text on Yahoo! here .
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Can economics be morally centered? And perhaps more importantly, should it be? Archive
These are questions that society is grappling with in the face of the economics profession's failure to
September 2012 (8)
confront the global impact of exploding inequality within and between countries.
August 2012 (10)
Limitations of the Dismal Science July 2012 (17)
Economists are very good at studying mechanisms for efficiently allocating things. But they are less June 2012 (21)
effective at addressing more fundamental questions related to these things' social value. Indeed, May 2012 (23)
economists typically leave values unexamined in their mathematical formulas. Social utility is simply not April 2012 (21)
explored. March 2012 (5)
February 2012 (5)
But what happens when economists' implicit
January 2012 (7)
value assumptions break down?
December 2011 (8)
Take, for example, the so-called "Easterlin 1 2 3 next › last »
paradox," which teaches that when a person's
income rises beyond what's necessary to meet
their basic needs it does not increase their
Recent Videos
happiness. This doesn't match the standard
capitalist economic assumption that rising 30 Ways to Be an Economist
personal wealth leads to increased individual Judy Klein – The Rules of
fulfillment. Yet it's been proven time and again. War and the Development of
And economics ignores this. Our textbook Economic Ideas
models remain unchanged. 30 Ways to Be an Economist
A Larger Problem Frydman, Goldberg,
Johansen, and Juselius –
On a broader level, this helps explain why orthodox economics has clung to the illusion that economic Modeling Imperfect
growth inexorably leads to progress, even in advanced industrial countries where plenty of wealth Knowledge and Non-Routine
already exists. This belief has led to a profound moral judgment: that those who lose in the march Change
toward economic progress do not matter when compared to what will be achieved by greater growth. It's Berlin Conference
all part of a trade off between economic equality and economic growth. Economists assume that more Beyond the Numbers:
economic equality comes at the price of reduced economic growth, yet Nobel laureate Joseph Stiglitz Michael Najjar's Artwork at
picked apart this presumption in his recent book The Price of Inequality. INET Berlin

We can see the explicit costs of these economists' implicit value judgments all around us. Economic
growth at any cost has come at the expense of environmental degradation and accelerated destructive Recent Blog Posts
climate change. And in the American Midwest, the march of progress ravaged the backbone of the
American economy, as once-prosperous industrial towns became ghost towns, including the areas of INET Blog
Detroit where I grew up. Are Eurobonds Necessary? A
Response to the INET Euro Council
Still, many economists believe that their models are objective and "value free." What's more, they are Report
convinced that economic discipline must function with the disinterestedness of a physical science. by The Institute for...
Where Economics Falls Short on September 30, 2012
4
So even in the wake of the 2008 crisis, many economists haven't engaged in a needed reevaluation of
INET Blog
economic values. What is a meaningful life? What do we aspire to? What, in the end, should those who
INET Council Expresses Shock at
influence the technocratic mechanisms of the economy be trying to create? Does the financial system Financial “Betrayal” in Europe
serve society or mainly prey upon it to extract wealth? by The Institute for...
Economics has proven itself devoid of answers to these profoundly important questions. Instead, on September 28, 2012
1
economists aspire to lucrative speaking engagements and proving themselves capable in the technical
mastery of elegant models that are devoid of connection to the needs of humanity beyond the unending Reading Mas-Colell
accumulation of money. Situating Microeconomics
by Sanjay Reddy
The problem is that economists are unable to imagine alternative economic goals that would benefit on September 27, 2012
society because they lack the imaginative tools for engaging in the discussion of morals and values. In 2
economics, tractability of modeling technique predominates over deep social reflection. So a new type of
inquiry and exploration is needed to determine what economics should aim for beyond trying to create
ever more sophisticated models for economic growth.
Toward a New Set of Answers
It is in this light that the Institute for New Economic Thinking (INET) recently engaged with Union
Theological Seminary in New York City with the goal of creating a new conversation to delve into the
human issues we must explore to have a truly meaningful economics. We begin with a conversation
between economics and theology. Together, we've created a public forum where leading economists
and theologians can discuss money and markets and how to get economics back to serving society —
not the other way around.

In a time of economic despair we cannot afford to place a premium on elegant mathematical models. It
is more important to touch people's hearts and give them the hope and resolve that brings them to a
place of action. Those who understand the power of faith and hope and love as a way to persevere can
make a big contribution to this conversation. And in our opening conversation at Union we saw this in
action, with discussions ranging from GDP and inequality to the Bible, Gandhian tactics, the power of
faith, and the importance of theology's deeper moral insights.

It is just this kind of integration of humanity with economic insight that society needs to help us emerge
from the ashes of economic crisis. This unusual combination of economic expertise with the examination
of deeper values can help us create a better world, a world where economics does not ignore the
suffering of everyday people.
It is only through the deeper insights of religion and the humanities that economics can get back to
providing useful roadmaps for society. Economists can diagnose the current situation and even
prescribe policy remedies that alleviate tragic situations. But by incorporating the deeper ethical, moral,
and human insights of theology, economics can create a new way of seeing our circumstances that
catalyzes positive and necessary change in our world.

That's the power of a morally centered economics.

Click here for the original on Yahoo! Finance

INET Blog Economics Profession

Posted by The Institute for... at 9:50 am
The Institute's blog

Comments

Submitted by W. on Tue, 09/25/2012 - 10:59am.

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.

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Submitted by W. on Tue, 09/25/2012 - 11:26am.

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.

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Submitted by Cynthia Arredondo on Tue, 09/25/2012 - 1:35pm.

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.

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Submitted by Lev Shakhmundes on Wed, 09/26/2012 - 1:19pm.

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.

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Submitted by Brian on Thu, 09/27/2012 - 11:15am.

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.

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Submitted by W. on Thu, 09/27/2012 - 5:34pm.

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!

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Submitted by david b on Mon, 10/01/2012 - 7:40am.

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?

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Submitted by david b on Mon, 10/01/2012 - 7:55am.

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

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Submitted by Anonymous on Tue, 10/02/2012 - 5:09pm.

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

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Submitted by dcb on Tue, 10/02/2012 - 5:21pm.

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!!!

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0

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