Zombie Economics: Academics’ Theories Live After the Data Killed Them.
|December 26, 2013||Posted by Staff under Editorials|
Eight years ago, in December 2005, I began warning of an impending economic crisis that would commence when the rate of growth of private debt started to fall. Journalists throughout the world picked it up and publicised my views – as well as similar arguments from Nouriel Roubini, Dean Baker, Ann Pettifor, Michael Hudson, Wynne Godley, and a few others. But our arguments were ignored by the economics profession. Numerical evidence of what caused the crisis was and still is ignored by mainstream economists, while less numerate journalists latched onto it.
When an issue is politically neutral, a higher level of numeracy does correlate with a higher capacity to interpret numerical data correctly. But when an issue is politically charged – or the numerical data challenges a numerate person’s sense of self – numeracy actually works against understanding the issue. The reason appears to be that numerate people employed their numeracy skills to evade the evidence, rather than to consider it.
So much for democracy: both evidence and intelligence make precious little difference to how people will vote on contentious issues. The need to preserve a sense of identity matters more than the evidence – and this can’t be treated as “irrational” behavior either, because it’s quite rational to want to retain membership of a group that is immediately important to you.
Max Planck – the father of quantum mechanics – found it near impossible to convince his fellow physicists to accept his new – and empirically far more accurate – characterisation of the nature of energy. He ultimately concluded that: “A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.”
In social conflict over empirical issues, each side tends to deride the other as lacking the ability to interpret the data – thus thinking they are more numerate than their opponents.
Ed. Notes: While Keen is better than the economists winning so-called “Nobel” prizes (no such thing in economics; the money actually comes from banks), he’s still not as penetrating and scientific as the topic requires. For instance, it’s not just private debt in general that triggers recessions but private mortgage debt or, more precisely, our spending for land (under houses). When that gets out of hand, it sucks up our spending that no longer can go to purchasing the goods and services produced by our neighbors, so they cut back, a vicious spiral ensues, and recession is under way. Not grasping the deeper phenomena at work, economists (even the nice ones) can’t see the deep policy shift that’s needed to correct economies — which would be geonomics.