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Economics ethics technics_tokyo_conference_dr_gezgin


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Gezgin, U. B. (2011). Economic crisis, ethics and technics: Where is the drawing line between positive economics and normative economics? (Paper prepared for AAGS 2011: the Global Future: Issues and Trends for the 21st Century. Asia Association for Global Studies 2011 Conference. 12-13 March 2011, Tokyo, Japan.)

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Economics ethics technics_tokyo_conference_dr_gezgin

  1. 1. Economic Crisis, Ethics and Technics:Where Is the Drawing Line Between Positive Economics and Normative Economics? Dr Ulas Basar Gezgin, Economics lecturer E-mail:
  2. 2. • Gezgin, U. B. (2011). Economic crisis, ethics and technics: Where is the drawing line between positive economics and normative economics? (Paper prepared for AAGS 2011: the Global Future: Issues and Trends for the 21st Century. Asia Association for Global Studies 2011 Conference. 12-13 March 2011, Tokyo, Japan.)•• 031517/10/2011 economics, ethics & technics - Dr.Gezgin 2
  3. 3. Content• 1. Past (before 2007): Causes• 2. Present (2007-2011): Process and Responses• 3. Future (after 2011): Consequences• 4. The Status of Economics as a Profession:• Technics vs. Ethics• and Positive vs. Normative Economics• 5. Conclusion• 6. References• Appendix: Video Presentation7/10/2011 economics, ethics & technics - Dr.Gezgin 3
  4. 4. Abstract• A common distinction in economics is positive statements vs. normative statements. The former involves basic facts while the latter involves suggestions and opinions. Although this distinction is inherent in economics research and practice, 2008 economic crisis precipitated the discussions revolving on this distinction. 2008 is considered to be a milestone in the history of economic thought as deregulated economies are moved back to regulatory models; but at the same time bankrupt banks and companies have been bailed out and welfare state is sacrificed in Europe.7/10/2011 economics, ethics & technics - Dr.Gezgin 4
  5. 5. Abstract• While bankruptcy shifts from companies to governments as in the case of Hungary, Iceland, Greece, Britain etc, economists and international organizations have made predictions that never come true. Whether we are at the bottom (technically speaking, the ‘trough’ in business cycles) to be expected to bounce up or whether we are heading further down is a moot. Economic crisis has not only debunked the credibility of economics as a profession but also exposed the ethical dilemmas inherent in economics as a normative discipline. In this paper, these dilemmas are presented and discussed.• JEL Code: A11, B50, B41, A13, A147/10/2011 economics, ethics & technics - Dr.Gezgin 5
  6. 6. 1. Past (before 2007): Causes• September 11• Dotcom bubble• Low interest rates (cheap credit)• Consumption- and debt-driven economy• The collapse of Soviet Union• The self-proclaimed victory of neo-liberalism• The Washington Consensus• Deregulation• Commercial banking (less risky) vs.• investment banking (highly risky)7/10/2011 economics, ethics & technics - Dr.Gezgin 6
  7. 7. 1. Past (before 2007): Causes• “Human frailty”• “Institutional failures”• “Obsession with a false theory”• “Cultural origins”• “Failure of policy”• “International contradictions of capital accumulation”• “Missing the systemic risk”7/10/2011 economics, ethics & technics - Dr.Gezgin 7
  8. 8. 1. Past (before 2007): Causes• Overinvestment in 1990s.• Investment not responding to low interest rates in 2000s.• Housing bubble.• Economic crisis vs. Financial crisis• Cost of war in Iraq and Afghanistan (Vietnam)• Non-productive spending• High oil prices due instability in Southwest Asia as a result of American invasion• Wealth transfer from oil-importing countries to oil- exporting countries (oil-dependent development)• The power of “too-big-to-fail” corporations• (industrial-military complex)7/10/2011 economics, ethics & technics - Dr.Gezgin 8
  9. 9. 2. Present (2007-2011): Process and Responses• Bailouts, bonus for CEOs and tax cuts for the wealthy• Popular anger• Labor and student demonstrations• Privatization of benefits and nationalization of losses• Corporate irresponsibility7/10/2011 economics, ethics & technics - Dr.Gezgin 9
  10. 10. 2. Present (2007-2011): Process and ResponsesWho to blame? Who pays?a) Economists a) Economistsb) Bankers b) Bankersc) Politicians c) Politiciansd) All of the above. d) None of the above.7/10/2011 economics, ethics & technics - Dr.Gezgin 10
  11. 11. 2. Present (2007-2011): Process and Responses• 2010:• “A year of disappointment”• “Supposed to be a year of transition” (but?)• “A nightmare”• Euro crisis (Greece and Ireland)• 10% unemployment at North Atlantic• (Stiglitz, 2011)7/10/2011 economics, ethics & technics - Dr.Gezgin 11
  12. 12. 3. Future (after 2011): Consequences• Collapse of American world order and EU.• “Post-American world order”• American military and political withdrawal• ‘Iraqization’ and ‘Afghanization’ of the wars.• Rise of China.• Winners: China (customer) & Australia (supplier)• Chinese investments in Africa and South America.7/10/2011 economics, ethics & technics - Dr.Gezgin 12
  13. 13. 3. Future (after 2011): Consequences• Currency war• (+)s & (-)s of Chinese appreciation & American depreciation• China’s international reserves• (from USD to gold and other currencies)• Yuan as reserve currency in the future• The decline of the Washington Consensus• The death of consumption society (North Atlantic) and export society (Asia)• The death of consumption-driven growth model. The new model?• Contagion effects in Asia• (deregulated economies, and the Asian Financial Crisis)• The next Suharto?7/10/2011 economics, ethics & technics - Dr.Gezgin 13
  14. 14. 3. Future (after 2011): Consequences• Externalities of unemployment such as ‘crime’, suicides, organized protests• Security problems in the crisis countries• Prison societies• Subtraction of these costs from GDP=>• Far worse negative growth than calculated.• Keynesian solution: Spending for productive purposes with high returns• (infrastructure, technology, education etc)7/10/2011 economics, ethics & technics - Dr.Gezgin 14
  15. 15. 4. The Status of Economics as a Profession: Technics vs. Ethics and Positive vs. Normative Economics• The death of monetary wisdom• (print M or don’t?)• Revision of economics textbooks• Less predictive power or none at all.• Theories that are impractical, unnecessarily technical and useless to explain the real life issues.7/10/2011 economics, ethics & technics - Dr.Gezgin 15
  16. 16. Quotations: Economics as Ideology• “A few geniuses aside, economists frame their assumptions to suit existing states of affairs, and then invest them with an aura of permanent truth. They are intellectual butlers, serving the interests of those in power, not vigilant observers of shifting reality. Their systems trap them in orthodoxy” (Skidelsky, 2008a).• “The cycles in economic fashion show how far economics is from being a science. One cannot think of any natural science in which orthodoxy swings between two poles. What gives economics the appearance of a science is that its propositions can be expressed mathematically by abstracting from many decisive characteristics of the real world” (Skidelsky, 2008a).7/10/2011 economics, ethics & technics - Dr.Gezgin 16
  17. 17. 4. The Status of Economics as a Profession: Technics vs. Ethics and Positive vs. Normative Economics• Some blame the Keynesians!• Blame Keynesian expansionary policies for the crisis as if they preceded the crisis.• Unregulated, non-productive government spending is definitely not a Keynesian recommendation.• A short-term understanding of the economy at the expense of a long-term understanding, and an exclusive focus on deficits ignoring the assets of countries.7/10/2011 economics, ethics & technics - Dr.Gezgin 17
  18. 18. Quotations: Keynesian Spending• “One has to look not only at what a country or firm owes, but also at its assets. This should help answer those financial sector hawks who are raising alarms about government spending. After all, even deficit hawks acknowledge that we should be focusing not on today’s deficit, but on the long-term national debt. Spending, especially on investments in education, technology, and infrastructure, can actually lead to lower long-term deficits. Banks’ short-sightedness helped create the crisis; we cannot let government short-sightedness – prodded by the financial sector – prolong it” (Stiglitz, 2010f).7/10/2011 economics, ethics & technics - Dr.Gezgin 18
  19. 19. Quotations: ‘Deficit Fetishism’• But on the other side of the continuum, against ‘deficit fetishism’:• “Over the longer term, most economists agree that governments, especially in advanced industrial countries with aging populations, should be concerned about the sustainability of their policies. But we must be wary of deficit fetishism. Deficits to finance wars or give-aways to the financial sector (as happened on a massive scale in the US) lead to liabilities without corresponding assets, imposing a burden on future generations. But high-return public investments that more than pay for themselves can actually improve the well-being of future generations, and it would be doubly foolish to burden them with debts from unproductive spending and then cut back on productive investments” (Stiglitz, 2010f).7/10/2011 economics, ethics & technics - Dr.Gezgin 19
  20. 20. 4. The Status of Economics as a Profession: Technics vs. Ethics and Positive vs. Normative Economics• Questioning of roles and status of central banks.• Blamed to operate as private banks serving the monetary interests of the financial capital.• “With interest rates near zero, the US Federal Reserve and other central banks are struggling to remain relevant” (Stiglitz, 2010b).7/10/2011 economics, ethics & technics - Dr.Gezgin 20
  21. 21. 4. The Status of Economics as a Profession: Technics vs. Ethics and Positive vs. Normative Economics• Positive statements (basic facts, basic data etc) vs.• Normative statements (opinions, suggestions, recommendations)• The blurring of positive and normative economics• and a move from ethics to technics• “The key theoretical point in the transition to a debt-fueled economy was the redefinition of uncertainty as risk. This was the main achievement of mathematical economics. Whereas guarding against uncertainty had traditionally been a moral issue, hedging against risk is a purely technical question.” (Skidelsky, 2008b)• Untouched dogma• Indoctrinated and brainwashed by the dogmas of efficiency of the market, deregulation, privatization etc.7/10/2011 economics, ethics & technics - Dr.Gezgin 21
  22. 22. Quotations: Market Fundamentalism• “Economic theory had long explained why unfettered markets were not self-correcting, why regulation was needed, why there was an important role for government to play in the economy. But many, especially people working in the financial markets, pushed a type of “market fundamentalism”” (Stiglitz, 2008a).• “Neo-liberal market fundamentalism was always a political doctrine serving certain interests. It was never supported by economic theory” (Stiglitz, 2008d).7/10/2011 economics, ethics & technics - Dr.Gezgin 22
  23. 23. Quotations: Rationality Assumption• “A long line of research has shown that even using the models of the so-called “rational expectations” school of economics, markets might not behave stably, and that there can be price bubbles. The crisis has, indeed, provided ample evidence that investors are far from rational; but the flaws in the rational expectations line of reasoning—hidden assumptions such as that all investors have the same information—had been exposed well before the crisis”• (Akerlof & Stiglitz, 2009).7/10/2011 economics, ethics & technics - Dr.Gezgin 23
  24. 24. 4. The Status of Economics as a Profession: Technics vs. Ethics and Positive vs. Normative Economics• Positive Results of the Crisis:• Empowerment of alternative views and heterodox approaches in economics.• More collaboration opportunities for economics with various disciplines.• A higher number of heterodox economists and interdisciplinary economists.7/10/2011 economics, ethics & technics - Dr.Gezgin 24
  25. 25. 5. Conclusion: Sustainability of Capitalism• Growth versus inequality• Inequality treated as a noneconomic phenomenon before the crisis.• Weaker GDP fetishism after the crisis.• Sustainability of the governments• (bankrupt? collapse?)• Grassroots movements• Precipitated the contradictions of capitalism• Violent clashes• ‘Creative destruction’7/10/2011 economics, ethics & technics - Dr.Gezgin 25
  26. 26. 5. Conclusion: Solutions• Public participation• Transparency• Unlearning to break the chains of neo-liberal dogma• Heterodox economists• An equitable future7/10/2011 economics, ethics & technics - Dr.Gezgin 26
  27. 27. 6. References7/10/2011 economics, ethics & technics - Dr.Gezgin 27
  28. 28. Appendix: Video Presentation• Harvey, D. (2011). Crises of capitalism (animated video lecture). p2c07/10/2011 economics, ethics & technics - Dr.Gezgin 28