Sunday, December 14, 2008

Prisoners of science

Possibly it's only me, but isn't there some kind of a family resemblance between the creative-catastrophe people you hear from on the economics blogs, and the withdrawal-agreement-victory people people you hear from elsewhere?

The creative-catastrophe picture involves eventual impairment of US government credit, dollar-devaluation to close to zero, eventual hyper-inflation, and necessary restructuring of all social and economic relationships. The Iraq-victory picture shows the US government humiliated militarily and diplomatically, with untold consequences everywhere else in the world too.

The most obvious common feature is a desire to see an end to the ambiguity and the bullshit that characterize the mainstream picture-painting: Things like calling infinite propping-up of banks "injection of liquidity into the system" when in fact the point is that nothing is being injected "into the system", only into the banks. Things like continuing the GWOT when in fact this is nothing but a war on anyone who shoots at US soldiers anywhere in the world they choose to go. That's the main common feature: Both groups are fed up with the bullshit, and they deserve a lot of credit for highlighting that.

Unfortunately, there is another common feature as well, and that is the tacit adoption or re-importing of crucial elements of the mainstream mindset. For instance, the creative-catastrophe people assume that at some point the orthodox laws from general-equilibrium theory about excess supply leading to plummeting prices (applied to US government debt first, and then to the dollar itself) will eventually make themselves felt. While rejecting bailouts, they are more catholic than the pope when it comes to the application of free-market, general equilibrium theory as an inexorable law that has the final word. So while there is an appearance of having overcome mainstream thinking, that's all it is: appearance.

Similarly, the Iraq-withdrawal-turningpoint people seem to have an almost childlike faith that a piece of paper, just because it has ambassador Crocker's name on it, represents an unambiguous commitment to a humiliating withdrawal by a date certain. There are an amazing number of factors that have to be passed over in silence to make this point, but that only reflects the intensity of the desire to arrive at the longed-for result: Defeat of the empire is not at some time in the future, it is NOW. The appearance of non-mainstream thinking is weaker here than in the case of the creative-catastrophe people, and the emotional "victory and change now" component is more clearly the driving one.

In my opinion it would be better to focus first on what is fundamentally wrong with the mainstream mindset, and then think about solutions.

It is clear to everyone that there are multiple scams buried in the current economic system, and the first question should be: How are these justified and papered over? The answer is that this is the function of economics and the other social sciences. You can only think of the current Bernanke schemes as "pumping liquidity into the system" if you assume that the handful of bank CEOs and their retainers are not actual people, but are ciphers or "actors" in a system that assumes uniform behavior. Jamie Dimon and the guy selling newspapers on the corner are each actors responding, in basically uniform ways, to "price-signals" in the economy. So you overlook, for explanatory purposes, the fact that excess liquidity in the banks' reserve accounts with the central bank are enormous because of decisions by this specific, small group of people not to lend or buy anything with it. In your religion, these are not specific people, but rather "economic actors", and you cannot go behind their actions and ask who they are. This is the function of science. And obviously it only works for economics if you tacitly assign to a particular handful of people the function of representing "the system", and then apply your science to them.

(The only way the current system has of overcoming this situation is to have the judicial authorities arrest people and charge them with crimes. For instance, Bernard Madoff was a NASDAQ market-maker, so what he was doing was part of the system of price-formation in the securities markets. His arrest converted him from the role of agent in a sophisticated price-setting system, into an individual person. It is the only way our system has of extricating itself even for a moment from the bonds of economic science.)

Same with the military-diplomatic story. In this case we have an interesting if inadvertent confession from one of the practitioners, in the branch of political science they call International Relations (IR). At the recent annual meeting of the Middle East Studies Association in Washington, there was a panel on IR, and one of our top scientists in that line of work wanted to know why it is that so few people with an actual grasp of the affairs of Mideast countries contribute to the science (via articles in various IR journalist). The obvious answer was that the science of IR is bullshit if the majority of the practitioners have no grasp of the countries whose relations they are studying, so naturally contributing to IR journalist is also bullshit. And believe it of not, the IR proponent said that isn't good enough. The person with an actual grasp in reality of the country in question (for instance by having a facility with the language spoken by the people who inhabit that country, and so on) has an obligation to show specifically and in detail what it is that the IR bullshitter is missing in his "scientific" analyses. And not the other way around.

Weirdly enough, the preachers of US decisive humiliation in Iraq actually have to reach back into the science of IR in order to make their case. The signed agreement is an internationally binding document (except it isn't); Iraq (in the person of Ali Dabbagh!) is now able to engage in multilateral diplomacy (except they aren't); and so on. This is all very thin stuff, but the point is that in order to make the case that this is something epoch-making in the international order of things, you apparently have to fall back on the cliches of the "science" of International Relations.

So in both cases what you have is a self-styled "radical" view that in fact relies on nothing so much as conventional "scientific" thinking.

If you were to scrape away the sham of conventional economics from the crisis, obviously the solution would be to jail the money-center bank CEOs for fraud, and rev up the economy with some combination of well-run regional banks and direct federal-government lending. Similarly in the case of Iraq, scraping away the sham of IR science would highlight the question who these actual people are that constitute the "government of Iraq" and why is the US continuing to support them. Even Maliki himself is campaigning of the theme that the "political process" was rotten from the beginning because it was founded on the idea of sect- and ethnic-based allocations. And yet on the basis of this shabby history, and with a leg-up from political science, the shenanigans of this group of people and their sham victory over America are touted as a victory for the left.

(Links available on request)


Anonymous Anonymous said...

How could we have the links? Thanks.

1:16 PM  
Blogger badger said...

Okay. From the bottom up, first here's the professorial statement that says someone who knows local culture, language and so on has in addition to prove that he has something to contribute beyond that of the IR scientist, and not the other way around.

Most MESA members would probably agree that it is a problem that people are writing about the Middle East without deep understanding of culture, history, language, politics. But that position is not universally shared. It needs to be defended by demonstrating exactly what is missed by those lacking such background or skills. What trends, causal mechanisms, actors, or evidence are area specialists adding that others do not or can not? I do not agree with those who believe that local knowledge should take the place of theory or with those who prioritize general theory over local knoweldge. Both are needed. But it is the particular burden of the area specialists in the configuration of today's academic disciplines to demonstrate their indispensibility -- not simply to assume it.


Note the concluding clause: " the configuration of today's academic disciplines." It means: "If you want a job"

1:35 PM  
Blogger badger said...

Next, on the point about people on the left touting the "withdrawal agreement" as a decisive and humiliating military/diplomatic turning point for America, just to give one example out of many, there is this post "Ring the Bells, Iraq has won..." and the following discussion thread, where the poster cites the "international commitment" and in effect calls more realistic interpreters of this imperialists and flag-wavers.


And to illustrate the related point, for instance there is this recent postby Helena Cobban treating Iraq as an arms-length proponent of multilateralism, presumably based on its new international status.

1:54 PM  
Blogger badger said...

Finally, on "economic science" issue: The role of excess liquidity reserves at the banks is explained in this Bloomberg piece dated Nov 11, including the following:

Some analysts point to the surplus cash that banks keep on deposit at the Fed as a key gauge of the Fed's monetary-policy stance. The so-called excess reserves have ballooned to $363.6 billion from $2 billion in August as the Fed added to its emergency lending programs.

``It is a move to quantitative easing, to force lots and lots of reserves into the banking system with the expectation that banks will start to trade them for a higher-yielding asset,'' said Poole, a Bloomberg contributor, said yesterday in a Bloomberg Television interview.

The risk is that banks fail to lend some of the excess reserves to businesses and consumers, prolonging the credit freeze that's led to recessions in the world's major economies. That's what happened in Japan after the Bank of Japan adopted quantitative easing in 2001.
(The actual number is to be found on the Federal Reserve website, Statistical Releses, H.3 Table 1, Column 5). That's all they're doing, and "what happened in Japan" is exactly the result here. Bloomberg link So the language is that of monetary economics, but the reality is merely propping up banks with oceans of liquidity and hoping for the best.

On the "creative catastrophe" idea (that it would be better to let the system melt down and let people get back to basics), this is an idea that bubbles up for instance in almost any of the discussion threads on It's always time-consuming to read, but almost always worth it. My point here is that the mechanism that is imagined for this melt-down to take place basically involves (among other things) the collapse of the US dollar under the pressure of excess borrowing, and if you take this as something that will come about as a result of an inexorable law of general-equilibrium economics, then you're really reverting to mainstream economics (where the intention obviously is to think independently and creatively).

2:16 PM  
Anonymous Anonymous said...

Well, thanks a lot, for everything.
Go on like this.

4:02 AM  
Blogger badger said...

okay & thanks

10:32 AM  
Anonymous Anonymous said...

Hey, I just found your excellent blog. Am particularly impressed by the combination of knowledge of the global economy, proficiency in Arabic, and interest in what is actually happening in the Middle East. Why is this so rare? Keep up the good work.

11:40 AM  

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