Sunday, April 13, 2008

A Neoclassical Economist Abuses a Critic Shamelessly

EconJeff (an anonymous blogger from Ann Arbor, Michegan) goes after Robert Nadeau, ‘a professor of English (!) at George Mason University, [who] does not, like many "heterodox" critics of mainstream economics, actually understand neoclassical economics in any meaningful way.’

No prisoners taken here, then.

What has Robert Nadeau done to deserve what is surely a blistering personal attack? He published an article in Scientific American entitled ‘Brother can you spare me a planet’, which Econ Jeff (who obviously economises on his identity) summarises in the declamation: ‘Shame on Scientific American for publishing this rubbish’. (HERE)

Here are some quotations from 'Jeff':

Instead, while the author focuses his attention on a misunderstanding of the invisible hand metaphor, his piece actually reflects his failure to take full account of another facet of neoclassical economic that also dates back at least to Adam Smith, namely specialization and division of labor. Nadeau is no doubt a smart man, but evidently one who suffers from a surfeit of confidence in his own ability to apply his intelligence to quickly understand, at a level deep enough to write a broad, general, historically based critique, a field that others spend decades learning.”

Nadeau’s ‘misunderstanding’ of the ‘invisible hand metaphor’, though gives no clues as to the nature of his misunderstanding, which coming from, ‘Jeff’, a proudly self-proclaimed neoclassical economist. ‘a field that others (i.e., ‘Jeff’) spend decades learning’, as if the time spent doing anything determines its exchange value or the quality of the output (I would have thought a neoclassical economist, especially after ‘decades’ of study, would know this – in fact, students should know it after their first term in Economics 101).

In similar vein, in a ‘sauce for the gander’ mood, Adam Smith, certainly not a neoclassical economist, would have serious complaints about the misunderstanding of his use of the metaphor of ‘an invisible hand’, widely prevalent among modern neoclassical economists, but perhaps not ‘Jeff’, after his ‘decades of study’.

Jeff insists that Professor Nadeau’s article ‘posits a conspiracy theory to cover up "the existence of the unscientific axiomatic assumptions" by whole cohorts of economists.’ Having read the article, I did not notice a ‘conspiracy theory’ or a ‘cover up’. Nadeau notes that neoclassical economists ignore the historical origins of their axiomatic theories. That’s what happens in paradigm management; it’s ‘heads down’ and ‘don’t look out of your windows’.

After all, Adam Smith’s first essay on the ‘History Of Astronomy’ covers centuries in which believers in the Sun orbiting the Earth, who despite looking at the sky at night and making laborious calculations, none of which matched what they were observing, still clung to the belief that the Earth was the centre of the Universe and ridiculed those who dared question their ‘science’.

I’ll supply a few paragraphs from Nadeau’s article (which I should state here that I do not share his ‘environmental’ fatalism, being a sceptic about the what has become the climate-change religion, which treats dissent as unscientifically as apostasy):

Brother, Can You Spare Me a Planet? (Extended version) Mainstream Economics and the Environmental Crisis” by Robert Nadeau

These assumptions were first articulated by 18th-century moral philosophers (Adam Smith, Thomas Malthus and David Ricardo) who embraced a new understanding of God known as deism that resulted from attempts to understand the metaphysical implications of Newtonian physics. Because this physics assumes that the laws of gravity completely determine the future state of physical systems, the deists concluded that the universe does not require, or even permit, active intervention by God after the first moment of creation. They then imaged God as a clock maker and the universe as a clockwork regulated and maintained after its creation by physical laws.” [quoting from: Bruno Ingrao and Georgio Israel, The Invisible Hand: Economic Equilibrium in the History of Science, tr. Ian MacGilvray (Cambridge, Mass.: MIT Press, 1990). (Readers will know that Lost Legacy would not subscribe to this Deist thesis.)]

Malthus and Ricardo believed that the clock maker created a second set of laws to govern the workings of the clockwork—the natural laws of economics. Smith imaged the collective action of the forces associated with these laws as an "invisible hand," and this construct became the central legitimating principle in mainstream economic theory. Smith claimed that the invisible hand is analogous to the invisible force that causes a pendulum to oscillate around its center and move toward equilibrium or a liquid to flow between connecting chambers and find its own level. Given that Smith's invisible hand has no physical content and is an emblem for something postulated but completely unproved and unknown, why did he believe that it actually exists? The answer is that Smith was a deist and his belief in the existence of the invisible hand was an article of faith.”

[If Adam Smith believed these assertions he certainly did not express them in anything he wrote. Neoclassical economists may believe these myths but nobody familiar with Adam Smith would subscribe to them.]

Nevertheless, these assumptions are now used to legitimate the existence of the invisible hand in its current form in the neoclassical economic paradigm—constrained maximization in general equilibrium theory.

[Yes, an entirely credible assertion about neoclassical miss-ascription of their theories of the invisible hand to their so-called scientific models, but they are not Smithian.]

Note what the writer of a textbook on environmental economics, quoted by Nadeau have to say about the dynamics of this process:

"The power of a perfectly functioning market rests in its decentralized process of decision making and exchange; no omnipotent planner is needed to allocate resources. Rather, prices ration resources to those that value them the most and, in doing so, individuals are swept along by Adam Smith's invisible hand to achieve what is best for society as a collective. Optimal private decisions based on mutually advantageous exchange lead to optimal social outcomes."

[Wrong about Adam Smith, but it is worth noting that he explained (in a reply to Dr Quesnay and the Phsyocrats: WN IV.ix.38: p678) that ‘perfection in markets’ is not necessary for growth and the spread of opulence.

The metaphor of the invisible hand had no such content, nor was it a ‘theory’, to be ‘swept along by’, because he shows over 50 occasions in Books I and II of Wealth Of Nations that sub-optimal outcomes, which are not ‘best for society’, when individual rulers, merchants and manufacturers, and others, act according to their self-interests. These instances are not ‘explained’ by weasel interpretations of a person’s ‘true interests’ by others, as if an individual, who Smith asserts knows his own best interests, is not guided by society’s interests or similar such sophistry.]

In summary, I criticise ‘Jeff’s’ treatment of Robert Nadeau’s criticism of neoclassical economics without agreeing with either of them (Nadeau shows in his article his familiarity with the criticism of the modern neoclassical economists use of 19th-century mathematics by modern mathematicians, which is behind modern complexity theory).

I do not necessarily agree with Nadeau’s use to which he wants to put a ‘different’ version of economics. ‘Tis a pity that he passes by appreciating what Adam Smith actually contributed to political economy because it might have helped him understand how economies work in the real world.


Blogger Chris Auld said...

A couple of simple clicks on his blog reveal that econjeff is not an "anonymous blogger" but rather U of Michigan's Jeff Smith, who is a very respected microeconometrician.

There are only two things wrong with Smith's comments about Robert Nadeau's piece in Scientific American. The first is that Smith is far, far too kind: the piece is STUNNINGLY ill-informed. Nadeau knows less than nothing about economics in the sense that whatever little knowledge he's picked up seems to have just confused him.

The second is that Smith incorrectly says that Nadeau has a courtesy appointment in a policy school at GMU. A close look at GMU's staff lists shows that Nadeau's only appointment is in the English department. The policy school just keeps a list of people who have helped in various ways, such as acting as external examiner for theses. Nadeau has no qualifications whatsoever in the social or natural sciences and no appointments in any social or natural science faculties.

The most, perhaps only, interesting aspect of this fiasco is the obvious question: why on earth would Scientific American publish this ignorant tripe?

11:58 pm  
Blogger Gavin Kennedy said...

Thanks Chris for your comments.

My posting was a dual criticism of both Nadeau and Jeff; Nadeau for all the things he assumed about Adam Smith (to be fair he had tapped into what modern economists repeat about Adam Smith within the veil of ignorance) within his dominant theme of global catastrophe; Jeff for his blistering attack as a neclassical economist, who, in my humble view, are just as other wordly in their core approach as economists.

Both could enhance their learning about how real economices work from reading Adam Smith.

As for thee ditorial policy of Scientific American, like many others they have caught the climate catastrophe bug and lowered their scientific standards in face of what has become a consensus.

I didn't pursue their identities because of time pressure at this end. Thanks for your information.

5:56 am  

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