{"id":286077,"date":"2025-01-27T12:00:17","date_gmt":"2025-01-27T12:00:17","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=286077"},"modified":"2025-01-23T09:44:48","modified_gmt":"2025-01-23T09:44:48","slug":"the-dismal-pseudo-science","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2025\/01\/the-dismal-pseudo-science\/","title":{"rendered":"The Dismal Pseudo-Science"},"content":{"rendered":"

22 Jan 2025 –<\/em> Economists\u00a0claim their discipline is a science<\/em>. If so, it is an odd one. For the deeper you probe its foundations, the shakier its superstructure looks. Modern-day economics is built on two convenient untruths.<\/p>\n

The first<\/strong> is the rationality of markets that, as modeled in Equilibrium Market Theory (EMT),<\/em>\u00a0which has been dominant for a generation, presumes a systemic logic that precludes sharp breaks or excesses.<\/p>\n

The second<\/strong>, interlocking premise is that humans are utility maximizing animals who act in accordance with a calculated self-interest, which ensures those stable, rational markets.<\/p>\n

Both premises are at variance with observed reality. This incongruity has not prevented professional economists, almost unanimously, to promote fanciful theories that became ensconced in the thinking and behavior of central banks, regulatory agencies and Wall Street \u2013 as well as the American Economic Association. So well ensconced that they survived the rude encounter with truth in the crisis of 2008 – 2009. That phenomenon reminds us that the age of dogmatic faith is not over. It is the objects of faith that have changed.<\/p>\n

The predilection for single dimensional constructs of mono-causal explanations is incompatible with truth seeking. There is no aspect of man in society that is otherwise. Neo-liberal economists are sociological monophysites. That is the heart of the matter. They believe that humans, and therefore society, has only one, unitary nature \u2013 that of calculating, narrowly self-interested economic man. Observation of the world around us tells us that this is untrue. Man and society have multiple natures. That is what makes them human.\u00a0Neo-liberal economists\u2019 faith in their dubious premises leads them down a path that skirts reality. That is manifest in a doctrinal approach to crucial economic phenomena central to interpretations of real-world conditions – and, equally, to policies they guide. Massaged statistics are \u2018weaponized\u2019 for this purpose. Data is not filtered \u2013 rather, it is shaped.<\/p>\n

Mark Twain once quipped: \u201cThere are lies, damn lies, and statistic<\/em>s\u201d \u2013 economic statistics in particular.<\/p>\n

Productivity<\/em><\/strong>\u00a0<\/em>is one of those subjects that bring out the worst in economists. They rely on statistics whose validity and value depend on the accuracy and completeness of the data fed into their models. Those models are suited to handle only \u2018hard\u2019 data; thus, either the relevant universe of data is kept methodology friendly or numerals are given to \u2018soft\u2019 data – based on assumptions. Those assumptions are often misleading or downright wrong.<\/p>\n

Hence economists\u2019 intellectual tergiversations in trying to prove the deductively derived \u2018truth\u2019 that the United States has the highest productivity in the OECD world, despite empirical evidence to the contrary. The question\u2019s importance is accentuated by productivity being advertised as the linchpin of superior overall US performance relative to most of Western Europe \u2013 as exemplified by its canonical \u2018super-flexible\u2019 labor market. Alan Greenspan, in his day, testifying before Congress, found himself in the awkward position of speculating that it had to do with the huge investment in information technology \u2013 even though he knew of no way to demonstrate that.\u00a0 Thus, a crucial element of performance analysis was secreted in a high-tech mystery cult. \u00a0The most telling anomaly has been the US economy\u2019s low productivity relative to several other industrial economies. Figures that measure it on an hourly or daily basis, in those very European economies whose performance is derided, point to markedly higher productivity over there.\u00a0Finland and France were at the top of the table (yes, the self-indulgent, sybaritic French). This has been a sty in the eye of orthodox neo-liberals. So, it was predictable that a theoretical \u2018corrective\u2019 would emerge to set the economic planets back into the preconceived alignment.<\/p>\n

A purported answer to the puzzle was announced by apostles of orthodoxy whose doctrinal authority is threatened by the anomaly. Adversity is the mother of invention, so social psychology – of all things – is called in to resolve a dilemma of economic analysis. We are told that the discrepancy is due to generational differences in the make-up of the workforce. The US economy employs more workers in their 20s and more\u00a0over 55.\u00a0 These workers, it is claimed, are less productive than those between the ages of 30 and 55. Voila<\/em>\u00a0\u2013 puzzle solved. Salvation for neo-liberalism. Except, do we know that the positive age\/productivity correlations aren\u2019t spurious?<\/p>\n

There is no\u00a0reliable data on this. Understandably so. What methodology could allow us to track and calibrate how the net work output of one individual in an office or sales floor or consulting room or nursing station or fruit orchard compares to that of another with different age attributes? What methodology could include the effect on group\u00a0output in those increasingly common settings where widget-making is not the activity? This is not an analytical breakthrough. It is the most ingenious attempt to reconcile a dogmatic theory with inconvenient data since the Ptolemy devotees\u00a0drew elaborate filigreed ellipses to account for Kepler\u2019s empirical observation of the movements of celestial bodies.<\/p>\n

One can offer an alternative hypothesis, just as credible on the evidence, that the US economy benefits\u00a0from a workforce that includes comparatively large numbers of the energetic, enterprising young and the experienced, seasoned old. Looked at that way, real American productivity, adjusted to workforce demographics, does not rise to the high level of the overachieving economies; rather it falls to the level of Greece and Portugal \u2013 upsetting numerous doctrinal apple carts along the way.<\/p>\n

So, what are we left with? Maybe the productivity rise in the US, unexceptional as it is, owes to the strong trend toward uncompensated overtime \u2013 whether among technical staff, clerical staff, middle managers, nurses, software writers, produce pickers or UPS deliverymen. This method of raising productivity has precedents.\u00a0 The record of Pharaonic pyramid builders was terrific; so too was Stalin\u2019s during the forced industrialization of the Soviet Union in the 1930s. But unpaid extra time escapes standard statistical methodologies, so it is\u00a0ignored as lacking economic validity. In addition, harping on labor exploitation is just not done in polite economic circles.<\/p>\n

A Parable<\/em><\/strong><\/p>\n

Additional questions about the way economists appraise productivity jump to mind. One, where nominal productivity is increased by transferring non-quantified costs onto the consumer, how is this figured in the equation?; and two, why is ‘remedial’ economic activity that meets needs created by the failure of economic performance added, rather than subtracted from GDP?<\/p>\n

Consider this.<\/p>\n

Phase 1<\/em>: A trip to Washington and other cities is planned. Ms. E calls United Airlines; the call is forwarded – after normal delay – to outsource phone center in India, operator cannot find flights desired because she (and whatever\u00a0database she is accessing) is ignorant of the fact that 2 airports serve D.C.; 2 subsequent calls (to India and the Philippines) are needed before a reservation is made. E\u2019s time lost = 1 hour. Economic statistics register a gain in productivity for United thanks to its lower costs and savings through under-trained, lower-paid staff. Do they register an economic cost for her time lost?<\/p>\n

Phase 2<\/em>: Aircraft is an Embraer regional jet, despite flight distance of 1,300 miles. Seating configuration makes it impossible to work. United gains – in productivity and profits – from operating small aircraft at full (physically) capacity and paying staff in this subsidiary company less than they earned as employees of United proper. E\u2019s work time lost and productivity diminished?<\/p>\n

Phase 3<\/em>: Arrival at gate,\u00a0disembarking delayed 20 minutes\u00a0because operator of ramp is busy at another gate; questioning confirms that staff have been cut and workload increased. Wait on ramp for hand baggage that could not be accommodated by small aircraft, additional 20-minute delay because one<\/em>\u00a0slim woman baggage handler cannot handle 3-tier wheeled cart and push it onto hydraulic lift. Several passengers, including Ms E, miss connecting flights due to delays. United has registered a further productivity and profit gain. How is the lost time of passengers registered?<\/p>\n

Phase 4<\/em>: Frazzled, rescheduled passengers buy alcohol and\/or aspirin in immoderate amounts. Boost to GDP.\u00a0 Later visit to HMO to check out chest pain coincidental to the agonized trip adds to HMO staff productivity and, via her co-payment, profitability. Contribution of last 2 to economy in real terms = zero. Ms E\u2019s time and suffering?<\/p>\n

Phase 5<\/em>: Due to income lost thanks to missed flight, Ms E decides to do home repair by herself to save money. Go to Home Depot; inordinate time spent trying to find staff, items needed, and explanation of use.\u00a0 Return trip because undertrained staff gave misinformation. Economic statistics register rise in productivity for Home Depot and US economy.\u00a0 Ms E\u2019s costs are, I suppose, ‘externalities’ compensated for by the psychic gain of feeling superior to the\u00a0Europeans who – due to inflexible labor costs, and retrograde performance in learning the science of mass marketing – have experienced lower productivity growth in the retail service sector.<\/p>\n

Ms E\u2019s parabolic experience calls attention to yet another distortion in the way that economists calculate key statistical indices. Inflation is routinely underestimated by a number of numerical slights of hand \u2013 many introduced in the Clinton years in order to keep the CPI (Consumer Price Index) low and thereby minimize cost-of-living increases in Social Security and all payouts linked to the CPA. A typical example is to take at nominal value the rise in a particular item\u2019s price without regard for a lowering in its actual quality. So, the Economy class ticket purchased by Ms E indicates only a very modest increase in airfares from a baseline year, e.g. 1978 when the airline industry was deregulated. In fact, though, that earlier Economy class flight bears no comparison with the sardine class experience of today. A comparable price today should be somewhere between E\u2019s $700 ticket and the price of a business class seat on the same flight. This deceit is similar to registering a price increase of a candy bar without noting that it now is 25% smaller than the one sold a couple of years back.<\/p>\n

This dishonestly is transparently intentional when we look at the price of products that have improved or been enhanced: computers. Since the standard computer of today can do many more things than its predecessors, the folks at the Bureau of Statistics conveniently estimate what the cost of performing those functions would have been at a given base year. Obviously, much higher since different expensive combinations of technical equipment would have been required. On that basis, they officially record that the price of a basic computer actually has gone down \u2013 and so it is registered as a component of the CPI. This is despite the fact that 90% of the buyers never use those extra features\/functions; and since the basic computer they bought 5 years ago is no longer available they have to pay a markedly higher price for a machine that adds nothing of value to them.<\/p>\n

II – Economics has a related statistical problem <\/em><\/strong>that<\/em> stems from difficulties in rendering service sector activity in standard measurement categories, especially the calculation of value-added.<\/em><\/p>\n

Consider the following.<\/p>\n

Harry \u2018X\u2019 is an independent commercial artist. He receives a fee of $1,000 from an advertising outfit for work done on a pharmaceutical company \u2018A\u2019 ad aimed at consumers\/patients that touts the virtues of a new prescription drug.\u00a0 (Transaction 1). Harry \u2018X,\u2019 approaching 65, pays a health care advisor $1,000 to help sort out the 70+ brochure offers he has received in the they in the end pay a markedly high price mail for accessing the prescription drug benefit.\u00a0 (Transaction 2). The health care advisor pays a financial consultant $1,000 as initial payment on preparing an investment plan for retirement. (Transaction 3). The financial consultant pays $1,000 to a Medicare licensed provider of residential care services for his mother who is a Texas resident. (Transaction 4). facility pays its administrative staff $1,000 to submit a claim (along with others) for a matching amount to an intermediate private company (company \u2018Z\u2019) that is contracted by the state of Texas to make such distributions. (Transaction 5). Company \u2018Z\u2019 pays its administrative staff $1,000 to submit a claim for reimbursement (along with others) from the state of Texas. (Transaction 6). The state of Texas pays $1,000 to a private company \u2018Q\u2019 to administer a student loan program for students enrolled at the \u00a0\u00a0economy by them?; to the national welfare? Individuals have received some services, but what is the real value of that good? If the transaction amounts had been $2,000 instead of $1,000, would that mean we had added twice as much value to GDP?; twice as much benefit to purchasers of services? Or are we taking the velocity of money<\/em><\/strong>\u00a0as an exact measure of economic activity? Let us consider the implications.<\/p>\n

Implication 1<\/em>. A service sector organized to maximize transactions would be registering greater economic growth than one that minimized them to serve the same ends.\u00a0 Therefore, the more inefficient the system, the wealthier the country would appear\u00a0to be.<\/p>\n

Implication 2<\/em>. A national economy where these services were privatized would register markedly greater growth than one that concentrated them in more rationally organized, lower total cost public agencies.<\/p>\n

Implication 3<\/em>. The American health provision \u2018system\u2019 spends 45% more than anyone else as a fraction of GDP, this although 50+ million are without any or have only minimal coverage. This correlates with uniquely high velocity of money involved in transactions in the health services sector. What is the connection, in real terms, between the monetary value of those transactions, conventionally measured, and the provision of actual services to those in medical need? How accurate is the statement of GDP in the first place since a large fraction of it is measured in terms of money velocity?<\/p>\n

Efficient Market Theory<\/em>\u00a0won converts among economists in part because its mathematical models were so elegant. The requisite statistical validation was supplied on scholarly demand.<\/p>\n

Lesson<\/em><\/strong><\/p>\n

In today\u2019s modern world there is a presumption that academics and those other professionals who employ their ideas are committed to finding objective truth. It ain\u2019t necessarily so. Academics, like all persons, are prone to groupthink reinforced by peer pressure. It is all the more pronounced when underpinned by the conviction that a scientific truth has been discerned. An elite<\/em>\u00a0group will be especially reluctant to let go of valued ideas whose acquisition places them on a higher plane that their fellow citizens.<\/p>\n

________________________________________________<\/em><\/p>\n

\"\"<\/a> Michael Brenner is professor of international affairs at the University of Pittsburgh; a senior fellow at the Center for Transatlantic Relations, SAIS-Johns Hopkins (Washington, D.C.), contributor to research and consulting projects on Euro-American security and economic issues. Publishes and teaches in the fields of US foreign policy, Euro-American relations, and the European Union. <\/em>mbren@pitt.edu<\/em><\/strong><\/a> – <\/em><\/strong>More<\/em><\/a>\u2026<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

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