LOONY TUNES no. 175

1

Farzana Aslam, associate director of the Centre for Comparative and Public Law and principal lecturer in the Faculty of Law at the University of Hong Kong, STS (19 September) HERE

South China Morning Post.

Don’t blame globalisation for all society’s ills, in Hong Kong or elsewhere

“Rather than accept accountability for these failings in leadership that have operated at a local and inter-national level, politicians offer up “globalisation” as an explanation. Reference to “global” invites the public to believe that the negative consequences of local economic policies that have accompanied globalisation are driven by an invisible hand, a power beyond the control of local policymakers. This is nonsensical. For example, when politicians deride free trade, they conveniently forget that international trade agreements are always negotiated between nation states.”

COMMENT

The “invisible Hand’ is indeed “a power beyond the control of local policymakers” because it does not exist. 

The idea that it does exist is a Class 1 error, started off by Paul Samuelson in its modern guise from 1948 in his famous textbook.

Otherwise, Farzana Aslam is well informed.

2

Sharon Schulman posts (23 September) in the Philadelphia Inquirer HERE

“Commentary: Voters surprised by reach of government benefits

According to Carr, ". . .government has its own invisible hand - major social programs that are invisible to many Americans either because they are attached to universal entitlement or contributory systems; or, because the government acts indirectly, through private intermediaries or through indirect instruments such as the tax code.”

3

Leonard Uche posts (29 September) Vibesnights Blog

HERE

“Commotion in Umuahia brothel as ‘invisible hands’ beat 2 to death, 6 unconscious

“TRAGEDY struck when two persons, a man and woman, died in a brothel located on 44, Uyo Street, Umuahia metropolis, Abia State, yesterday. Six others were rushed to the Federal Medical Centre, Umuahia, unconscious, from the hotel. 

The cause of the incident was shrouded in mystery, as a version said they were beaten by invisible hands. News of the incident spread like a wild fire, as it drew a crowd to the hotel. The brothel, owned by a lady and said to be notorious for sex workers, was alleged to have experienced such an incident before, which was allegedly covered up.”

COMMENT

!!!!

KIRKCALDY'S LOCAL INITIATIVE ON ADAM SMITH HITS ALL TARGETS

Eamonn Butler of the Adam Smith Institute (London) posts HERE

“Twitter informs me that the branch of Greggs The Bakers, situated where Adam Smith’s house once stood in Kirkcaldy, now bears a plaque with his words: 

“Man is an animal that makes bargains” – apparently to market their £2 roll and coffee deal. Enterprising.”

COMMENT

Brilliant! Congratulations to ‘Greggs’ - a popular Scottish bakery food chain. Its position in Kirkcaldy High Street, close to where Adam Smith’s mother’s house was situated, is inspired and likely to create increased tourist traffic as the garden area is very much as it was when Smith wrote Wealth of Nations (1767-73), on his return from France as travelling tutor with the young Duke of Buccleugh (1764-66). He stayed in London until 1773-1776 to complete his famous book and see it through his publisher’s printing and publishing operations.

Beyond the garden there is a renovated and restored 18th century-building, now a museum of Adam Smith’s Kirkcaldy connections, managed by local people, who raised the money and now manage a thriving tourist interest in Adam Smith Kirkcaldy connections.

Many future visitors to the site where his mother’s house once stood no doubt will avail themselves of Gregg’s delights…

Note: Adam Smith was among the first scholars to discuss the nature of bargaining through the use of conditional propositions: ‘If you give me what I want, then I shall give you what you want’ (IF-THEN).

I have written an account of Smithian bargainning for chapter 1 in my new (third book) on Adam Smith. 

NOTE: Smith noted that humans are the only animals that conduct bargaining exchanges, see “Wealth of Nations” (WN i.ii. 1-3, pp. 25-7).

[Mailing address to receive regular E-MAIL newsletters from ASI:

Adam Smith Institute, 23 Great Smith Street, Westminster, London SW1P 3BL UK.]

Adam Smith versus the invented 'adam smith'

Its not often that I read a piece with which I disagree across the board and also find something with which I do agree. 

As usual the source of my disagreement is a mixture of the writer’s education in Economics 101, where rotten myths about Adam Smith (1723-90) are implanted in innocent students’ minds that is based on a mythical ‘adam smith’ who never existed - yes, the one whom George Stigler assured his audience ‘was alive and well and living in Chicago”. The gullible believed him and preached the gospel according to the phoney ‘adam smith’ and their innocent audiences across the world in Econ 1 classes, then repeated the phoney mantra, including Nobel Prize winners.

“MIT scholar, Sandy Pentland posts (27 September) HERE 

“Big Data Is About People”

“Rational Behaviour Is Overrated”

“Pentland, says he often begins his talks discussing the “invisible hand” theory of economist Adam Smith, something familiar to most first year economic students. Smith claims that our economy and society is shaped by rational individuals competing for their own interests.

COMMENT

Disagree!

Adam Smith never had a theory of the “invisible hand”. For Smith it was a metaphor, which rhetorical metaphors he discussed in his “Lectures on Rhetoric and Belles Lettres’ (1762; 1983). For Metaphors there is an “allusion” said Smith (not a theory or an identity) between two ‘objects’.

Nor did he say anything about an economy ‘shaped by “rational individuals”, certainly not to any degree now common, since the economists writing in the 19th and 20th centuries assumed rationality and created mathematical models, as if people were strictly rational in a scientific sense. Once these fantasies became mathematicalsed, economics became locked into models of behaviour that portayed economic relations as if they were susceptible to rationality like in the physics sciences.

“That’s really the basis of democracy and markets, and this is how we run our world,” says Pentland. “It’s also social science a la 1680. We actually know we’re not fully rational but more importantly we’re not independent, and we’re not always greedy.”

COMMENT

Agreed!.

“The independence one is the big one,” he continues. “We actually talk to each other. That’s where you get bubbles and fads. That’s what culture is, it’s people agreeing on things together.”

“People’s opinions are more of a function of the people they interact with than they are of the stuff between your ears. We’re more social creatures than we are independent creatures.”

That means ideas, trends and beliefs spread through “friendship networks” argues Pentland.

“If you look at what people look at online, they look at the same things and they talk about the same things as the people they spend time with physically.”

“The thing that I’ve learned is we are neither ‘hive mind’ nor rational individuals.”

COMMENT

Agreed!

LOONY TUNES no. 174

1

Rohit Varma posts (22 September) on Business Line in The Hindu HERE

Technology enhances human relationships

“And, that was a wrap! Fifty-three speakers, 35 topics, and one didactic event! It’s great to be a part of such an incredible global event, where you have all the ‘social media gurus’ under one roof. This year’s global theme was The Invisible Hand: Hidden Forces of Technology (and How We Can Harness it for Good), and the Social Media Week’s events were held in the bustling city of Mumbai. What a week!”

2

On CougarBoard (22 September) HERE

‘Ummmmm....the "invisible hand" ceases to be “invisible"...'

“once the government steps in and starts mandating a $15 hourly wage.”

3

Dong Dengxin, Director of the Financial Securities Institute at Wuhan University of Science and Technology posts(22 September) on Global Times HERE

“New rules for IPOs are a cure for market dysfunction”

“To put the market on the right track requires necessary macroeconomic fine-tuning. Otherwise, the capital market is likely to further distort social resource allocation and consequently detract from balanced regional economic development. The invisible hand of the market is inherently flawed and should therefore be accompanied by the visible hand of the government that serves to powerfully rectify the defects. This is part of the basic understanding of economics. As such, the new policy that puts companies registered in the laggard regions on top of the waiting list for market flotation helps rectify this capital market dysfunction.” 

4

Nick Cohen posts (22 September) in The Spectator HERE

“This could be the end of the Labour party”

“It has no way forward even as a credible opposition so long as it follows Corbyn's vicious, vacuous creed. …

… “Elsewhere, Corbyn’s supporters explain away the terrible opinion polls by saying that they are the bitter fruits of a Tory conspiracy. Not stopping there, they go on to see the invisible hand of MI5 raised against them everywhere from Twitter to the BBC.

LOONY TUNES no 173

1

TImothy Boyle post (19 September) in The Age HERE

“Top Clubs Find Inner Champion

“Hawthorn, Sydney and Geelong have generated a kind of microcosmic alternative to the social principle of Adam Smith's "invisible hand", in which he argued the whole of society would benefit if individuals focused on their own success. The "invisible hand" in football is a social atmosphere, a program of shared behaviours and attitudes enforced by teammates in order to lift individuals into their best form.”

2

 unagidon, a contributing editor to Commonweal posts (10 September) in Commonweal

HERE

“The idea that poor management should inevitably lead to poor performance is based at least in part on things like Adam Smith's theology of the "Invisible Hand".  Poor management should lead to increases in price and should lead to a decrease in the quality of the product.  Sooner or later, competitors will emerge that will be more efficient both in cost and quality, and they will knock the inefficient company out of the market. The likelihood that this will happen represents a risk for the person running a business.  This risk is what drives them to be efficient. Amen.

In fact, Smith's whole theory, insofar as this kind of risk is a driver of the whole thing, was already falling apart when he was alive and writing in the 18th century with the rise of the joint stock company (which today we simply refer to as the corporation).  The creation of the corporation led to the separation of ownership from control.  In the early days of the corporations, back before corporations became "persons", they were envisioned as a means to protect an individual from personal risk.  With a corporation, only the corporation took on risk and only its assets were on the line in the case of a failure.  It seems rather strange to look at now, because while it limited personal risk, it also transferred risk outside of itself by limiting the assets that an aggrieved debtor could obtain if the corporation collapsed. (One wonders if the Life of Trump would have been radically different with his bankruptcies if his personal assets had been available for investors to recover from).”

3

Morgan Y. Liu posts on Twitter picked up in Huffington Post HERE

“Democracy is a hard sell to those who see only the two alternatives of despotism and chaos. It requires believing that beneficial politics and economy can be the result mostly of self-organization - a third alternative to strict control and total bedlam.

Maybe, though, this third way shouldn’t be so hard to believe. Many phenomena in the natural world work because of self-organization: from the formation of molecules, to the crystallization of each unique snowflake, to the “schooling” of fish, to the function of anthills. Complex wholes can be built on components, each operating simply and without central coordination. The whole can function as more than the sum of its parts. This principle appears to be quite prevalent across nature, according to the interdisciplinary field of complexity science. Among them are biologists, physicists, chemists, engineers, and social scientists, who see that interesting phenomena occur at that critical edge between order and chaos. Doesn’t that sound like where democracy operates?

Even if complexity science applies to politics, democracy is still a hard sell. To the many in the world with no concept of political order without direct central control, democracy’s bottom-up logic makes no sense. The claims of western democracy boosters seem as magical as the market’s “Invisible Hand” (Adam Smith) or the “Mystery of Capital” (Hernando de Soto). The real global debate today is over which model leads to better societies: the all-controlling despot or the self-organizing democracy. Both sides have much work to do in convincing the other.

Follow Morgan Y. Liu on Twitter: www.twitter.com/morganistan1

4

Subodh Vermal posts (22 September) in The Times of India HERE

Erratic rainfall activity linked to climate change?

“Experts have described these extreme rainfall events as the invisible hand of climate change revealing its dangerous impact”.

ALL PEOPLE ARE NOT MORALLY SOUND

Christine Lagarde, IMF Managing Director , IMF, speaks (16 Swptember) at the International Bar Association Conference, Washington, DC HERE 

“Mending the Trust Divide”

“I started my intervention by appealing to Aristotle’s ancient wisdom. Let me close by appealing to the wisdom of a founding father of modern day economics – Adam Smith.

To many of us, Adam Smith is perhaps best known for terms such as “self-interest”, “laissez-faire” and the famous “invisible hand.” Yet for Smith, the classical discipline of economics was always a branch of moral philosophy. Indeed, for him, the market would only work effectively if it was underpinned by trust: the baker that is featured in the Wealth of Nations would only be able to sell his goods if he or she was trusted.

In his Theory of Moral Sentiments, published in 1790, Smith elaborated on the importance of trust and good citizenry.

As noted by Smith: “Concern for our own happiness recommends to us the virtue of prudence: concern for that of other people, the virtues of justice and beneficence…the one restrains us from hurting, the other prompts us to promote happiness.”[6th edition: VI.III.54).

These two great thinkers – Aristotle and Smith – millennia apart, cherished and upheld the value of good citizenry. This is no coincidence. Good citizenry is critical for nurturing trust. And that is the glue that holds economic systems, and ultimately societies, together.”

COMMENT

Except that there has always been participants in the market and government, and in all systems of society under all social systems, both theological and secular, the presence of morally corrupt people in all ranks. Including, sad to say, occasionaly in the IMF.

INTERESTING FACT ABOUT THE REAL SIGNIFICANCE OF THE DIVISION OF LABOUR

Morgan Kelly and Cormac O Grada post in the September 2016 issue of the Quarterly Journal of Economics HERE

“Adam Smith, Watch Prices, and the Industrial Revolution”  

Abstract

“Although largely absent from modern accounts of the Industrial Revolution, watches were the first mass produced consumer durable, and were Adam Smith’s pre-eminent example of technological progress. In fact, Smith makes the notable claim that watch prices may have fallen by up to 95 per cent over the preceding century; a claim that this paper attempts to evaluate. We look at changes in the reported value of over 3,200 stolen watches from criminal trials in the Old Bailey in London from 1685 to 1810. Before allowing for quality improvements, we find that the real price of watches in nearly all categories falls steadily by 1.3 per cent per year, equivalent to a fall of 75 per cent over a century, showing that sustained innovation in the production of a highly complex artefact had already appeared in one important sector of the British economy by the early eighteenth century.”

COMMENT

(From WN: I.xi.o, p.260):

Effects of the Progress of Improvement upon the real Price of Manufactures

It is the natural effect of improvement, however, to diminish gradually the real price of almost all manufactures. That of the manufacturing workmanship diminishes, perhaps, in all of them without exception. In consequence of better machinery, of greater dexterity, and of a more proper division and distribution of work, all of which are the natural effects ofimprovement, a much smaller quantity of labour becomes requisite for executing any particular piece of work; and though, in consequence of the flourishing circumstances of the society, the real price of labour should rise very considerably, yet the great diminution of the quantity will generally much more than compensate the greatest rise which can happen in the price.

There are, indeed, a few manufactures, in which the necessary rise in the real price of the rude materials will more than compensate all the advantages which improvement can introduce into the execution of the work. In carpenters and joiners work, and in the coarser sort of cabinet work, the necessary rise in the real price of barren timber, in consequenceof the improvement of land, will more than compensate all the advantages which can be derived from the best machinery, the greatest dexterity, and
the most proper division and distribution of work.] But in all cases in which the real price of the rude materials either does not rise at all, or does not rise very much, that of the manufactured commodity sinks very considerably.
This diminution of price has, in the course of the present and preceding century, been most remarkable in those manufactures of which the materials are the coarser metals. A better movement of a watch, than about the middle of the last century could have been bought for twenty pounds, may now perhaps be had for twenty shillings. In the work of cutlers and locksmiths, in all the toys which are made of the coarser metals, and in all those goods which are commonly known by the name of Birmingham and Sheffield ware, there has been, during the same period, a very great reduction of price, though not altogether so great as in watch-work. It has, however, been sufficient to astonish the workmen of every other part of Europe, who in many cases acknowledge that they can produce no work of equal goodness for double, or even for triple the price” (WN: I.xi.o, p.260)

This consequence of the increasing output from the division of labour in manufacturing and the constant fall in price per unit of output is by far the most significant aspect of the growth of the commercial organisation of the division of labour. 

It is by far the more important aspect, missed by David Warsh in his counterposing the “pin factory” example, as quoted by Adam Smith word for word from the French Encycopedia in the first book of the Wealth of Nations, with what Warsh describes as the “Invisible Hand” phenomenon in Warsh, D. 2006. Knowledge and the Wealth of Nations: a story of economic discoverey. Norton.

Congratulations to Morgan Kelly and Cormac O Grada for pointing this interesting fact out.

David Sloan Wilson in EVONOMICS HERE

http://evonomics.com/death-invisible-hand-narrow-pursuit-self-interest-always-fails/

“The Death of the Invisible Hand: Why the Narrow Pursuit of Self Interest Always Fails”

Regulation comes naturally for small human groups but must be constructed for large human groups.

I hope that our economy recovers, but the time has come to declare its guiding metaphor dead. This is the metaphor of the invisible hand, which makes it seem as if the narrow pursuit of self-interest miraculously results in a well-functioning society.

The invisible hand metaphor originates with Adam Smith in The Wealth of Nations(1776).

COMMENT

No it didn’t originate with Adam Smith! The Invisible Hand has a much longer history than Adam Smith use of it. In the 17th century the IH was a religious metaphor for ‘the hand of God’, which continued into the 19th century, and it can still be reported as such through to the 21st century. (Google “invisible hand” and see how often and in what form it is mentioned daily).

Moreover, Adam Smith was credited with a version of the IH metaphor that has become universal for its quite different role today. Paul Samuelson was responsible for this modern secular version becoming so popular in his 1948 textbook, Economics, reporting it as being about how “selfish” actions lead to public benefits. 

After 19 editions of his textbook to 2010, Samuelson’s 5+ million readers innocently spread Samuelson’s original misguided assertion which  became the dominant narrative, despite some attempts by Samuelson (particularly with his co-writer, Nordhouse, to modify his 1948 erroneous assertion in later editions of his famous textbook). 

See my article, in the History of Economic Ideas, “PAUL SAMUELSON AND THE INVENTION OF THE MODERN ECONOMICS OF THE INVISIBLE HAND”.

INVISIBLE HANDS AND ZOMBIES

James Mackintosh posts (15 September) on Wall Sreet Journal HERE

“Zombies May Be Prowling The Stock Market”

“Well, yes: Part of the point is to discourage saving and encourage consumption. More coherent critics worry that low rates damage the economy by sustaining companies and banks which ought to be driven out of business in a zombie state, so limiting the recycling of capital back to more deserving, faster-growing companies. The fear is that the creative destruction identified as vital to capitalism by the late Joseph Schumpeter has been put on hold. …

“… Individual investors may not care too much, particularly those who made almost 17% on utilities over the past year. But if the invisible hand of the market is suffering from zombie putrefaction, the economy will be less dynamic than usual.”

COMMENT

Lamenting the non-existence of a “supposed invisible hand”, usually miscredited to Adam Smith, a wholly innocent man, until libelled by Paul Samuelson in 1948, the spin masters have found another culprit , imaginary “zombies”.

Political economy once had claims to be a science….

DEBATE BEGINS ON ROMER'S CRITIQUE

A RESPONSE FROM "STUMBLING AND MUMBLING" BLOG TO PAUL ROMER'S CRITIQUE HERE

(September 15, 2016)

RESPONSE from STUMBLING AND MUMBLING HERE 

Chris Dillow is the author of Stumbling and Mumbling Blog. He bills himself as an “An extremist, not a fanatic” (he also knows his finance economics).

AN ACADEMIC PROBLEM?

"Some mainstream economists have recently attacked DSGE models. Olivier Blanchard says (pdf) there are “many reasons to dislike” them. And Paul Romer says (pdf) they’ve caused “intellectual regress” into a “post real” doctrine which attributes economic fluctuations to imaginary causes.

I want to ask a question which is implicit in Romer’s paper: is the problem here (assuming it be such) specifically with economists, or rather with academia in general?

I ask for three reasons.

First, macroeconomic analysis outside universities does not use DSGE models. Neither economic writers nor investment bank economists use them: they might often be wrong, but not I suspect because of this.  And the role such models play in central banking is mixed. Yes, the Bank of England has one, but the Fed’s main model isn’t a DSGE one. And I’m not sure how far DSGE models influence policy-making. Month-to-month policy changes rely more upon judgement and interpretation of high-frequency data than pure modelling. And the main policy innovation of recent years – QE – didn’t emerge from DSGE thinking. As Ben Bernanke said, “The problem with QE is it works in practice, but it doesn’t work in theory.”

Secondly, Romer says there are “striking parallels” between what he calls “post-real macroeconomists” and string theorists in physics: groupthink and a tendency to interpret evidence optimistically. This suggests there might be a problem common to some academics rather than just economists.

Thirdly, whenever we see intelligent people doing things that look silly, we must ask the economists’ questions: what are the incentives and constraints here? Might it be that incentives in academia sometimes generate a bias towards the habits Romer deplores? For example, whilst peer review helps maintain high standards it might also encourage fashion and groupthink: methods and results that please referees are the way to get published. This generates an incentive to do what Kuhn called normal science rather than work that challenges the paradigm. And perhaps a little distance from the “real world” leads to excessive weight upon theoretical elegance and too much tolerance of reliance upon unobservables. …"

PAUL ROMER BLASTS AGAINST USING FAULTY MATHS IN ECONOMICS

Ths morning I read a paper by Paul Romer critiquing the modern maths of macroeconomics (The Trouble with Macroeconomics, 14 September, 2016) HERE  

Paul Romer has form in the maths of growth theory and macro - he achieved analytical praise for his work. For his place in the pantheon of mathematical modelling, see David Warsh, “Knowledge and the Weath of Nations: a story of economic discovery”, 2006 Norton.

In a paper published 14 September, Paul Romer demolishes several analytical maths devices recently constructed to model macroeconomics. At times Romer borders on polite sarcasm at the authors of these maths models, basically suggesting that the authors are ‘making it up’.

No matter what your competence level in maths, I strongly suggest that readers follow the link and get a feel for what Romer thinks is wrong with these models. He also side swipes at potential critics of his interventions because such devastating attacks on their authors could affect their careers and their self-beliefs. I would have thought it more devastating for people if the maths used to model a macro economy produce perverse results and people are impoverished as a result.

My views on mathematical modelling are well known - I am sceptial that people in economies follow behaviours susceptible to maths - and I am not convinced that maths and economics can be bedded together like maths and physics.

Judge for yourself.

THE INFLUENCE OF THE IDEAS OF PHILOSOPHERS

94.1 KPFA, a radio station in California, hosts (13 September) a discussion/debate on Adam Smith’s alleged ideas on Moral Philosophy, such as the “invisible hand”, ‘division of labour” and “self interest” HERE 

“Adam Smith is regarded as the father of the free market, based on the notion that if we follow our self-interest without the intervention of governments, it will lead to the best possible outcome.  But his moral philosophy has been forgotten or discarded by his supposed disciples.  A documentary series, which features the likes of David Harvey, Ha-Joon Chang, and Noam Chomsky, shows how Smith’s arguments about the division of labor, self-interest, and the invisible hand of the market have been distorted to justify rampant greed.”

COMMENT

I’d probably agree broadly with the radio programmes expressed views. I am, though, always reticent to use the language of “father of the free market”, “supposed disciples”,  and “justify rampant greed”. 

Absent Adam Smith, the British economy, and others that emerged elsewhere and the events of the 19th century, would have happened quite independent of the influence of Adam Smith (his books were limited in readership in the thousands not tens of millions) as events had happened long before Smith (1723-90) throughout all history.

Philosophers may be the “father” of ideas that may or may not be noted by other philosophers and much of the  general public, but philosophers do not “father” actual events. There are plenty of willing ordinary “bastards” in life exercising their natural inclinations to greed, amorality and the general awfulness of barbarism, feudal slavery and wage exploitation, or the likes of communist/fascist tyranny.

LOONY TUNES no 171

1

Larry Berman, co-founder of ETF Capital Management, posts (11 September) on the Globe and Mail HERE 

“Central bankers seem to be more swayed by recent events than longer-term trends. This tends to make policy making an exercise in looking in the rear-view mirror. It’s much easier to defend a position in front of Congress and investors if all can see the “reason” why. This has, over the years, led to a myopic focus for governing monetary policy: Central banks are trying to micromanage the natural ebb and flow of the global cyclical economy – they are at the mercy of Mr. Market more than ever in history. We likely need more of Adam Smith’s invisible hand and less do-whatever-needs-to-be-done monetary policy. European Central Bank president Mario Draghi’s statement this week that the ECB did not even consider more accommodation might be an eye-opener and a message to Brussels that abundant fiscal policy (even more debt) is the next step because he is running out of qualifying bonds to fill his quantitative-easing program.”

Comment

What is the difference in Larry Berman’s fantasy world of leaving it to Adam Smith’s ‘invisible hand’, i.e. do nothing, and don’t “do-whatever-needs-to-be-done monetary policy”, i.e. do nothing?

2

Kent James, an East Washington resident, posts (10 September) on Observer-Reporter HERE

http://www.observer-reporter.com/20160910/free_trade_should_not_be_demonized

“Central banks suffer from recency bias … do you?“

“Adam Smith’s “The Wealth of Nations” was written in the 1770s in an effort to overthrow the mercantilist policies of the British government, which Smith saw as stifling economic growth by limiting trade.

Smith’s ideas led to the growth of capitalist economies that have created unprecedented material wealth. The political economist and philosopher Henry George argued that if free trade were truly free, with neither party forcing the other to trade, of course it would be beneficial for both parties; if it were not, then one party would back out.

But lately, free trade has come under fire from the leading presidential candidates, because of its impact on American workers

Comment

“Adam Smith’s “The Wealth of Nations” was written in the 1770s”. No. it was written over a long period between 1760 to 1776, when it was finally published, followed by 5 editions from 1778, 1784, 1786, 1789, 1791.  

“Smith’s ideas led to the growth of capitalist economies that have created unprecedented material wealth.”  No. It coincided with the growth of what became “capitalist`’ economies (a word first used in 1854 in English). 

Smith’s strong advice was to abandon the prevailing “mercantile” economies, which  was ignored and broadly remains so because they fostered colonies, wars between the mercantile powers thoughout the 17th thru to the 20th century.

3

Dartmouth College posts (11 September) on Science Daily

HERE

"Study finds STEM workers more likely to find jobs in denser STEM labor markets”

“This is an important question as many of these STEM job agglomerations are associated with progressive, meritocratic cultures. The study asks if these places play by a different set of rules when it comes to race and gender. When it comes to STEM job matching, they do not. Women and racialized minority STEM graduates are indeed better matched in STEM clusters, but many others are too. That STEM agglomeration hardly improves the matching prospects for women, blacks, and Latinos relative to white men, signaling that no invisible hand can mediate the solution to these labor-market inequalities.”

4

David Taber, author of the Prentice Hall book, "Salesforce.com Secrets of Success,", and the CEO of SalesLogistix, focused on business process improvement through use of CRM systems, posts (12 September) HERE

Has your cloud consultant gone crazy?”

“If you didn’t know better, you’d think this was all great: lots of competitors lowering the price bar and fighting to improve themselves while the invisible hand of the market does its thing. The problem is, economists know that invisible hands cannot protect against stupidity if everyone is acting stupid. That’s what causes a “race to the bottom,” where nobody wins.”

5

Martin Sandbu posts (12 September) in the Financial Times HERE

Free Lunch: Algorithm Alert

“Recall Ronald Coase’s insight into the reason why companies exist. It is a human organisation that reduces the costs of many of the myriad transactions economic activity involves. The boundaries of the firm are likely to be drawn between those transactions that can be done at less cost by a centralised decision structure and those more cheaply organised by the invisible hand of markets (LL emphasis). That relative cost difference depends a lot on the relative ease and importance of instructing and monitoring those involved in the activity as employees versus contractors. The computer revolution is altering this balance significantly — hence the change in the type of work available that O'Connor and others chronicle.”

6

Peter Rosenstreick posts (12 September) on FX Street HERE

“So instead of aiming for an “invisible hand” strategy, Fed policy regrettably has become the pure determinate of asset pricing.”

IN WITH A BANG, OUT WITH A WHIMPER

Stephen Gordon, a professor of economics at Université Laval posts (12 September)

HERE on National Post:

Stephen Gordon: The case for mathematical models in economics

To be sure, not all useful contributions to economics have come about by means of mathematical modelling: Adam Smith’s “invisible hand” is probably the best and most celebrated example. The idea that socially optimal outcomes could be brought about by agents pursuing their own self-interest is the foundation of much of modern economics.

But as compelling as Smith’s insight was, it was left to economists such as Kenneth Arrow and Gérard Debreu, working almost two centuries later, to identify the assumptions one has to make about the economy, to arrive at Smith’s conclusion. And perhaps more importantly, they also identified the conditions in which markets don’t work as he imagined.

COMMENT

I recommend readers consult Robert Gordon’s article in full. It makes a case for what he calls ‘rigour’. He comments on the fallacies in Adam Smith’s labour use of the theory of value, a theory long pre-dating Smith’s use of the LTV. 

He lauds the rigour of the of maths. I suggest that the so-called rigour in maths in economics is also a fallacy. 

People’s behaviour are not sufficiently or consistently identical enough to be treated like the maths of electrons. Even simple supply and demand diagrams (after  Alfred Marshall’s ‘cross’ diagram long taught in Econ 101) and the associated maths give a false impression of economic equilibrium. When applied to the theory of general equilibrium - its authors were lauded by mathematical Nobel Prizes - we see both the genius and absolute irrelevance of maths of human behaviour.

I once wrote a short book, way back when I taught first year economics students who were struggling with simple maths (Kennedy, “Mathematics for Innumerate Economists’, Duckworth, 1982), which was reasonably well received by its readers, so I did my bit to help them.

Heavy maths of modern macro econmics systems regularly come in with a bang and go out a few years later with a whimper (as often with more Nobel Prizes!). 

Read: David Warsh, 2006: Knowledge and the Wealth of Nations, Norton, for an excellent survey - he does not agree with my take but he is the best living writer on modern economics and its mathematical fads and fancies. 

Also follow the link for Stephen Gordon’s piece in National Post. and let me have your take on it.

LOONY TUNES no 170

1

Alisdair Macleod posts  (9 September) HERE

“The impoverishment of the masses”

“There is something in the human psyche which denies economic truths. The explanation as to why free markets work is logical and simple to understand. The contrary evidence, that statist attempts to interfere with Adam Smith’s invisible hand always fail, is irrefutable. Yet the blame for failure is always laid at the door of capitalism. The few of us that persistently insist that right is not wrong and wrong is not right attempt a seemingly hopeless task of persuading the unwilling"

2

Posted (9 September) by Mike Masnick on TECHDIRT HERE

“Invisible Hand of the Network“

Ted Cruz Still Blatantly Misrepresenting Internet Governance Transition”

“Saying any one group controls the internet is as absurd as saying who “controls” capitalism or globalization itself. But everyone has their version of control. Silicon Valley billionaires may insist we surrender to the invisible hand of the network, which simply chooses disruption and convenience over accountability and ethics. For the federal government, it’s far easier to accuse the private sector of being in control and thwarting national security than admit that mass surveillance is an expensive and incompetent tactic.”

3

Timothy Boyle posts (10 September) on The Age (Australia) HERE 

“Hawthorn, Sydney and Geelong have generated a kind of microcosmic alternative to the social principle of Adam Smith's "invisible hand", in which he argued the whole of society would benefit if individuals focused on their own success. The "invisible hand" in football is a social atmosphere, a program of shared behaviours and attitudes enforced by teammates in order to lift individuals into their best form.”

4

(31 August) in VALUE WALK (In The Foundation for Education) HERE

“Markets Break Down Barriers”

“These stories constitute but a tiny sliver of many thousands, if not more. They lead us to an interesting question: how is it exactly that markets fight social discrimination? Markets work in very different ways than the obvious and visible hand of state-driven policies. While the state seeks to outlaw and abolish caste identity by making discrimination illegal, markets work in quiet and invisible ways by making caste identity irrelevant.”

5

Englewood Staff post (31 August) on Englewood Daily HERE 

Tuesday Trading Session Recap: Weyerhaeuser Co. (NYSE:WY)

“Stock exchanges work according to the invisible hand of supply and demand, which determines the price where stocks are bought and sold.  No trade can occur until someone is willing to sell a stock at a price that another is willing to buy it at.  When there are more buyers than sellers, the stock price will rise because of the increased demand.  Conversely, if more individuals are selling a stock, the price will decrease.

On any given trading day, supply and demand fluctuates back-and-forth because the attractiveness of a commodity’s price rises and falls.  Because of these fluctuations, the closing and opening prices are not necessarily identical.  A number of factors can affect the attractiveness of a stock in the hours between the closing bell and the next day’s opening bell.  For example, if there is good news like a positive earnings announcement, the demand for a stock may increase, raising the price from the previous day’s close.  It follows that bad news will negatively affect price. “

6

LOONY TUNES no. 168

1

Editorial (29 September) in the Dallas Morning News HERE

How Dallas has become a middle-management capital

Between financial and professional services, Dallas has become a middle-management capital.

How to keep the momentum going? We trust in the invisible hand of a free market, but it’s also crucial to keep investing in people. A competitive workforce is our greatest competitive edge.

7

Elizabeth Rayne posts (29 August) in blaster HERE

“The Ten Spookiest Unsolved Mysteries in Space”

“Already haunted by bizarre ghosts and undead stars, it harbors unseen forces that tear at the universe like invisible claws and has covered up astral cannibalism and lunar murder. Investigating scientists have not always been able to make sense of why things appear out of nowhere, disappear into nowhere, happen against astronomical odds, or even exist.”

8

Peta Tait, a professor of Theatre and Drama, La Trobe University, Australia, posts (29 August, 2016) HERE

 “Sequins and symphonies: how opera ran away with the circus”

“Invisible hands seemed to tear at a solo female performer in extreme thrashing, stabbing and writhing until she left, precariously walking on bent toes.”

9

Shaun Nicols posts (29 August) in The Register HERE

“FAA powers up an invisible hand, groping the skies for rule-busting biz drones”

10

Abhishek Sharma posts (29 August) in Himalayan Times HERE 

“Guided development model: More of a hindrance?”

“The state merely functions as a neutral arbitrator between citizens and private actors who are engaged in economic activity as independent agents with the sole goal of maximizing profit.

The state only intervenes through the judicial channels once there are disputes between private parties related to allocation of economic resources or with respect to the enforcement of contracts.

Economic activity, it was believed, was best left to the discretion of the private sector with only minimal state involvement.

The “invisible hand of the market” would then ensure that the fruits of increased productivity and wealth creation would accrue to all sections of society.”

Comment

Follow the link and read a most interesting dismissal of  the experience of applying “invisible hand” economics in Nepal.

CONGRATULATIONS ROBIN!

Robin Sukhu posts (9 September) on The Millstone Miss. US. HERE

"THE INVISIBLE HAND” OF THE MARKET

“Adam Smith

Countless times I have heard the phrase “the invisible hand of the market” used as justification and as a defense of neoliberalism.  The” invisible hand” is used as an argument to support deregulation, free trade, privatization among other things.  Invariably, people mention Adam Smith’s 1776 work “The Wealth of Nations”.

I have never read “The Wealth of Nations” and I doubt that most experts who quote from the book have read it.  However, I decided to download “The Wealth of Nations” and see for myself.  (Here is the link to the book:  http://political-economy.com/wealth-of-nations-adam-smith/)

The book is approximately 1400 pages.  I searched for the term “invisible hand” fully expecting it to appear numerous times.  It occurs only once.  This sole occurrence it is not defending free markets at all.  It seems to be offering an argument that British businesses will not exploit British citizens because the British companies will be bound by some sense of compassion for their fellow citizens.  The “invisible hand” of decency will regulate British corporate interests at home. (How corporations acted towards non-British citizens is not addressed.)

I skimmed various parts of the book to attempt to get the gist of it.  The book appears to be arguing for regulations to control corporate hegemony.  From what I have gleaned, it seems to be an argument against free markets!”

Comment

Wonderful initiative of Robin Sukhu to open Wealth of Nations and read about Smith’s use of the ‘invisible hand’ metaphor. Tis a pity that more unconditional advocates of market economics don’t bother to do the same. Markets are better (agreed) than state-run franchises by donors to political infuence, but they do not always work when captured by “merchants and manufacturers” with dubious intentions, as Smith noted several times in Wealth of Nations, especially in Book 4!

Robin extrapolates from what he considers are the implications of Smith’s singular reference to the invisible hand and gets way-laid somewhat. 

Smith’s reference was a singular one, It is not about ‘decency’. It is about a merchant who is concerned about the security of his capital if he sends it abroad, so he it invests it locally. In short, he responds to the relative perceived risks to him of investing at home or abroad.That is his motive for intentionally investing in his home market.  The consequence of his intentional motivated intention is that he unintentionally is led arithmetically to add to “domestic revenue and employment” which is good for the local public.  That’s all!

Yes! Nothing about ‘invisible hands of the market”, or “supply and demand”, or “general equilibrium”, or Pareto’s “theorem”, or the many other invented notions of modern economists, few of whom have read Wealth of Nations. 

It’s an “Emperor is naked” moment. The crowd believes the modern myth of Smith’s use of the IH metaphor so individuals believe it too, though it has been invented and made up as a common ficition by deluded admirers of the authority of crowds, who have forgotten to read Smith (including Nobel Prizewinners) for themselves.

So congratulations Robin, you have commenced a journey leading to the truth.

LOONY TUNES no. 169

1

Charles C. W. Cooke posts (29 August) in The National Review HERE

“In his Charlotte address, Trump had acknowledged not only that he needed to “choose the right words,” but that “in the heat of debate and speaking on a multitude of issues,” he had said “the wrong thing.” “I have done that,” he conceded, “and I regret it, particularly where it may have caused personal pain.” And yet, the very next morning, as if pushed to self-destruction by the sharp fingers of a ubiquitous and invisible hand, Trump first picked a fight with the New York Times and then went disastrously off-message.”

2

James P. Pinkerton posts (30 August) on Breitbart News HERE

“On the Origins of the Orthodoxy: Adam Smith and David Ricardo”

“The beginnings of an intellectually rigorous discussion of trade can be traced to 1776, when Adam Smith published his famous work, An Inquiry into the Nature and Causes of the Wealth of Nations.

One passage in that volume considers how individuals might optimize their own production and consumption:

It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy.

Smith is right, of course; everyone should always be calculating, however informally, whether or not it’s cheaper to make it at home or buy it from someone else.

We can quickly see: If each family must make its own clothes and grow its own food, it’s likely to be worse off than if it can buy its necessities from a large-scale producer. Why? Because, to be blunt about it, most of us don’t really know how to make clothes and grow food, and it’s expensive and difficult—if not downright impossible—to learn how. So we can conclude that self-sufficiency, however rustic and charming, is almost always a recipe for poverty.

Smith had a better idea: specialization. That is, people would specialize in one line of work, gain skills, earn more money, and then use that money in the marketplace, buying what they needed from other kinds of specialists.

Moreover, the even better news, in Smith’s mind, was that this kind of specialization came naturally to people—that is, if they were free to scheme out their own advancement.  As Smith argued, the ideal system would allow “every man to pursue his own interest his own way, upon the liberal plan of equality, liberty and justice.”

That is, men (and women) would do that which they did best, and then they would all come together in the free marketplace—each person being inspired to do better, thanks to, as Smith so memorably put it, the “invisible hand.” Thus Smith articulated a key insight that undergirds the whole of modern economics—and, of course, modern-day prosperity.”

COMMENT

Most of what James P. Pinkerton alludes to is unexceptional and fairly accurate historically. For most human societies for thousands of years, making or adapting nature’s provisions for instance was based on self-sufficiency and the neccesity of the resultant relative poverty. The absence of specialisation, apart from the sexual/gender division of labour, was the most common characteristic of the species. This did not preclude variations in the quality in what individuals produced. Some were better at tracking animals - and strangers from other tribes or clans - as well as all the other daily tasks of self-sufficiency. 

The resultant differences in quality were just the way it was over the millennia.  These individual diferrences probably were a basis, eventually, for the emergence of rude forms of exchange in the inevitable trade-offs by non-monetary exchanges/roles between individuals. Trackers, stalkers/chasers/killers/carriers/skinners/butchers/cookers/ were likely the basis for elementary and natural specialisation, again over millennia.

However, what basis there was for using the metaphor of ‘an invisible hand’ is an open question. Market places were a long way in the future.

James P. Pinkerton jumps ahead too fast. ‘Free marketplaces’ do not spring to mind.

3

Nat Segnit posts (September) on New Yorker HERE

“A PARTY IN A LUNATIC ASYLUM”

On the mundane mysticism of Alan Moore

“We were therefore sitting, Moore explained, at the source of the Anthropocene, the geological epoch defined by man’s influence on the environment. It was also the birthplace of capitalism, by Moore’s account. “Adam Smith either visited the place or heard about it,” he said, of the mill, speculating that this might have led the thinker to develop his famous “invisible hand” theory of laissez-faire economics.”

Comment

If Nat’s assertion is supposedly “famous” it makes no difference because Adam Smith never had an “invisible hand theory  of laissez-faire economics”  or knew of “capitalism” (‘laissez faire’ were two words he never used and “capitalism” was first used in English in 1854 - Smith died in 1790). As for “an invisible-hand”, it was not a “theory; it was a metaphor.

Whatever happened to the “fact checkers” who used to be employed in journalism?