Slides for talk given at Jilin University, China, on 25th October 2016

1. FIRST TELL NO UNTRUTH
AN ETHICAL CODE FOR ECONOMISTS
© Alan Freeman
Jilin University 26 October 2016

2. Where to find more
https://geopoliticaleconomy.academia.edu/AlanFreeman
www.hetecon.net
http://www.post-crasheconomics.com
www.Copejournal.com
www.geopoliticaleconomy.ca

3. Two traditions in the critique of economics
• Criticism of ‘orthodox’ economics (mainly Europe – Elsner, Lee, Chick etc)
• It produces untrue statements
• It doesn’t allow any challenges or differences (‘Heterodoxy’)
• Request for ‘economic ethics’ (mainly in USA – DeMartino, Zingales)
• Most professions have a concept of ‘doing right’
• Often expressed in notions of ethical conduct or responsibility
• Best known example is medicine (Hippocratic Oath: ‘first do no harm’)
• But lawyers, engineers, accountants have codes of conduct
• Only economics says ‘we don’t need ethics’

4. DeMartino and ‘econogenic harm’
• Analogy with medical profession
• Iatrogenic harm is ‘harm done by doctors’
• For example recommending surgery or medicine that kills the patient
• Econogenic harm is ‘harm done by economists’
• The principle of studying potential harmful effects
• The principle of patient autonomy
• Rejection of the Hicks-Kaldor criterion
• This says ‘harm must be balanced by good’
• But there is economic harm for which no amount of good can compensate
• For example climate change

5. The pluralist movement
• Started with 1992 declaration in American Economic Review (Hodgson et al)
• Against ‘single thought’
• Called for a diversity of approaches
• 2001 formation of Association for Heterodox Economics (AHE)
• The Royal Economic Society rejected heterodox papers just because it did
not agree with them – did not judge their merit
• The AHE said ‘heterodox economists should judge heterodox contributions’
• Student movements (PAE, PCES, ISIP, Rethinking)
• World Association for Economics (Fullbrook) 12,000+ members worldwide

6. I argue these are the same basic idea
A ‘good economist’ always considers a range of views
A good economic advisor always explains the alternatives
A good economic researcher always investigates alternative hypotheses
A good economics department hires many theorists of different ideas
A good journal publishes diverse answers to the questions it addresses
To do otherwise is harmful
It is therefore unethical

7. What is ethics?
• Ethics means ‘doing good’ – but it also means ‘not doing bad’
• DeMartino (2015) uses example of medical ethics
• Hippocrates, founder of medicine: ‘First do no harm’
• In other words, don’t make things worse
• The patient already has a medicine provider: it’s called a body
• Better no treatment than a bad treatment
• So how do economists do harm?
• By giving advice which makes things worse
• That is, advice which leads to harmful consequences
• What kind of advice leads to harmful consequences?

8. NOT AS EASY AS IT
SOUNDS
THE PROBLEM OF ‘ORTHODOX HETERODOXY’

9. They produced the wrong
answer….
Orthodox economics
So let’s produce the right
answer instead
Heterodox Economics
A simple answer that doesn’t work

10. Orthodox
Keynesianism
Orthodox
Marxism
Orthodox
Institutionalism
Sounds great, eh?
Every economist thinks ‘things would be better if they did it my way’
But….
Do not make a new orthodoxy; get rid of all orthodoxy
- including ‘heterodox orthodoxy’

11. Economists don’t leave room for doubt
They claim there is only one possible answer
And only one correct theory
And only one correct version of that theory
The case for pluralism

12. Monotheoreticism
• Research into the ‘practice of economics’
• Lee, Lee and Harvey, Elsner, Freeman, Association for Heterodox Economics (AHE)
• Selection for conformity
• Economics departments recruited and promoted only one type of theory
• Journals published only one theoretical analysis
• Research funding was only given to ‘mainstream’ economic theory
• The result is that difference is eliminated
• People that publish successfully are recruited and promoted
• They then become ‘judges’ for awarding funding, work and publications
• The ‘peer review’ process becomes ‘peer selection’
• At the end, the whole economics profession is teaching only one idea
• And that idea is wrong!

13. Against heterodox orthodoxy
The problem of interpretation
• What is taught today as ‘Keynesianism’ is not what Keynes actually said
• For example Keynes argued for ‘the euthanasia of the rentier’
• And for ‘the socialisation of investment’
• What is taught is ‘Bastard Keynesianism’ (Robinson)
• What is promoted in the West as ‘Marxism’ is not what Marx actually said
• Most Western Marxism interprets Marx as an equilibrium theorist
(Steedman, Sweezy)
• But Marx opposed this reasoning (Freeman/Carchedi, Freeman/Kliman)
• It leads to an theory of capitalism in which crisis cannot happen (Freeman,
Desai, Kliman)

14. Inductive Pluralism in Interpretation
• It’s not enough to teach ‘Marxism’ or ‘Keynesianism’;recognise different
interpretations of Marx and Keynes
• Bortkiewicz/Sweezy/Morishima
• ‘New Solution’ (Mohun, Dumenil)
• Simultaneous Single-System (Moseley, Callari-Wolff-Roberts)
• Temporal Single System or TSSI (Freeman/Kliman/Carchedi/Ramos/Potts)
• This is not relativism
• One can decide if an interpretation is good by means of evidence (induction)
• Stigler Criterion (Kliman): does it make sense of the text?
• This is not dogmatism
• Dogmatism says ‘what Marx says must be right because Marx says it’
• Pluralism says ‘In order to discover if Marx was right, we must know what he really said’

15. Inductive pluralism in facts
• At the entrance to Renmin University is the advice ‘seek truth in facts’
• Everyone has battles about ‘the facts’; but facts are interpreted according to theory
• Therefore, one must allow every theory to express the facts according to its own
system of classification and evidence-gathering
• This is not relativism either
We choose the theory that makes the most sense of all the facts,
using the interpretation of the theory advanced as a hypothesis
and using the inductive presentation of the facts advanced as
an evidence-gathering method
This is what science consists of

16. IMF Evaluation Office (2001)
“The IMF’s ability to correctly identify the mounting risks
was hindered by a high degree of groupthink, intellectual
capture, a general mind-set that a major financial crisis in
large advanced economies was unlikely, and incomplete
analytical approaches”

17. Alan Greenspan
“In recent decades, a vast risk management and pricing
system has evolved … A Nobel Prize was awarded for the
discovery of the pricing model that underpins much of the
advance in derivatives markets. This modern risk
management paradigm held sway for decades. The whole
intellectual edifice, however, collapsed in the summer of
last year. ”

18. Colander et al (2009)
“If one browses through the academic macroeconomics and
finance literature, ‘systemic crisis’ appears like an otherworldly
event that is absent from economic models. Most models, by
design, offer no immediate handle on how to think about or deal
with this recurring phenomenon. In our hour of greatest need,
societies around the world are left to grope in the dark without a
theory. That, to us, is a systemic failure of the economics
profession. ”

19. Buiter (2009)
“In both the New Classical and New Keynesian approaches to monetary theory
(and to aggregative macroeconomics in general), the strongest version of the
efficient markets hypothesis (EMH) was maintained. This is the hypothesis that
asset prices aggregate and fully reflect all relevant fundamental information,
and thus provide the proper signals for resource allocation. Even during the
seventies, eighties, nineties and noughties before 2007, the manifest failure of
the EMH in many key asset markets was obvious to virtually all those whose
cognitive abilities had not been warped by a modern Anglo-American Ph.D.
education. But most of the profession continued to swallow the EMH hook,
line and sinker, although there were influential advocates of reason
throughout, including James Tobin, Robert Shiller, George Akerlof, Hyman
Minsky, Joseph Stiglitz and behaviourist approaches to finance. The influence
of the heterodox approaches ... was, however, strictly limited ”

20. “We were inspired to start the society when hearing about the 2011 Bank
of England Conference – ‘Are Economics Graduates Fit for Purpose?’
At this event, leading economists from the public and private sphere came
together to discuss whether economics undergraduates were being taught
the right things in light of the Financial Crisis … However, as the conference
took place its effect on the syllabus was minimal at most. It was not
immediately thought that the crash called for a new approach within
economics.
However, the BoE conference called this conclusion into question.
Post-Crash Economics Society

21. We in Manchester were intrigued and excited to hear about this event. The
economics we were learning seemed separate from the economic reality
that the world was facing, and from the crisis that had made many of us
interested in economics to begin with.
Through our own research, we began to learn more about economics. We
examined how its mainstream had begun to be dominated by a certain
kind of economics, often referred to as neoclassical, at the expense of
other approaches.
It was decided to set up a society that would bring this discussion to
Manchester.
Event participants 400
“

22. We are committed to campaigning for a change in the syllabus itself.
Whilst we believe events and discussion are extremely valuable, most
students won’t receive the economics education they require unless the
content of their degrees change.
As a society, we are committed to pluralism within economics. We believe
that the mainstream within the discipline has excluded all dissenting
opinion, and the crisis is arguably the ultimate price of this exclusion.
Alternative approaches such as Post-Keynesian, Marxist, and Austrian
economics (as well as many others) have been marginalised. The same
can be said of the history of the discipline.
“
facebook group 1200

23. Students are routinely taught that only one form of economics
is ‘scientific’ and ‘correct’. Complacency was therefore sure to
arise, and the failure of so many mainstream economists to see
the crisis appears to vindicate these worries.
We hope to challenge this outlook that credits only one form of
economics, and want to create an academic environment
within economics that never rests on its laurels, and invites
intrigue and critical thinking from students.
“
World Economics Association 12000

24. WHAT IS THE
CONNECTION BETWEEN
ETHICS AND PLURALISM?

25. Examples of harm done by economists
• 1982 and the debt crisis
• ‘Washington Consensus’/neoliberalism: deregulate, privatise, drop protection
• It clearly didn’t work: poverty got worse, economies did not grow
• Shock Therapy
• Advice given: introduce market rapidly, so fast that it’s impossible to change
• Russia suffered more social and population damage than in the war
• 2008 Crash
• Economic theory of ‘Efficient Markets’ said it could not happen
• Policymakers removed controls on the banks
• Millions of lives were ruined

26. The problem defined
• Producing wrong answers is not unethical. It happens all the time
• Until bacilli were discovered, people did not know many causes of disease
• This does not mean than all doctors before Pasteur were unethical or did no good.
• What’s wrong is to insist on a wrong answer, when a better answer is available
• There were alternatives to neoliberalism and shock therapy – eg the Chinese road
• The theory that allowed China to develop was available
• But the IMF said ‘there is only one answer’
• It is also wrong to insist that we know the truth, when we don’t have sufficient grounds
• The ‘Efficient Markets Hypothesis’ was a hypothesis, not a confirmed theory
• But policymakers were advised to deregulate banking controls ‘because it is true’

27. What does it mean ‘to tell an untruth’?
• It means to insist that something is true when we cannot be certain
• The IMF did not say ‘we advise you to privatise but you have a choice’
• They said ‘unless you privatise, we won’t give you credit’
• They justified this harmful conduct by saying ‘this is economic truth’
• This was unethical for two reasons
• They did not consider the alternatives
• They did not give any choice to the countries they advised

28. Later, it was discovered to be wrong
• Most development theorists acknowledge ‘Washington Consensus’ was wrong
• Even the IMF is changing the advice it gives and calls for ‘fiscal stimulus’
• Geoffrey Sachs, architect of shock therapy, recognises it failed
• Alan Greenspan confessed ‘everything I believed to be true’ was wrong
• For decades, economics taught that high interest rates were the only basis for
sound growth
• Now, interest rates are at a record low
-Colander et al 2009

29. What exactly went wrong?
• Most basic point: the advice was wrong because it was untrue.
• Harm is done when people take harmful actions
• But if they believe it’s the right thing to do, is it wrong?
• The harm then arises because the belief was wrong
• So where did they get the belief from?
• From the economists
• So the economists have responsibility for the harm

30. Could the economists have given better advice?
• Perhaps: they could have said ‘follow Deng Xiaoping’
• But at the time, did they know this was right?
• They had good grounds but could not be certain
• Only now, with China’s success, has the ‘hypothesis’ been proven
• Even now, there are many consequences we do not know the answer to
• We only find out in practice
• So the discovery of economic truth is the business of all society
– not just the economists

31. ECONOMICS: A SOCIAL
PROBLEM
REGULATORY CAPTURE AND THE REFORM OF ECONOMICS

32. Why are economists allowed to do harm?
• Formal justification: ‘we only give advice’: It’s up to you whether you take it
• But in the 1980s if you wanted IMF loans, you had to take the advice
• Shock therapy was to ensure people had no chance to refuse the advice
• Actually, it’s enshrined in doctrine of ‘normative and positive’
• It’s also caused by separating economic from social knowledge (Desai)
• The root problem: the claim to know positive truth when the truth is not yet known
• The ‘cult of the expert’ (Zingales)

33. Positivism as a religious body of doctrine
• Economic and social knowledge cannot be positive
• Because the outcome of any decision depends on free will of the actors
• Positivism says we have to accept economic destiny as if it were a natural force
• They disguise phenomena that really result from human decisions
• And present them as ‘inevitable’
• For example ‘the Law of the Market’
• For example ‘Globalisation’
• They present human decisions as an alienated force
• This is actually a religious mode of discourse
• In fact, economics is a religion

34. Regulatory capture
• Politicians find it convenient to hide behind their economists
• They hire economists to tell people what they already decided to do
• Monetarism was an obscure cult until Thatcher
• She found the economists she wanted and promoted them
• In the same way, the leading international bodies (IMF etc) were
actually overturned (Todaro: ‘neoliberal counterrevolution’)
• Orthodoxy and monotheoreticism are imposed by classes who
receive justification from the answers that these theories give
Really, it’s a form of corruption

35. Adair Turner (head of financial regulation)
“the whole efficient market theory, Washington consensus, free
market deregulation system” was so dominant that it was
somewhat like a “religion”. This gave rise to “regulatory capture
through the intellectual zeitgeist”
(Tett 2009)

36. You get the economics you pay for
• Cui Bono
• Countries that benefitted from IMF policy were the lender nations
• Countries that benefitted from shock therapy were the Europeans
and Americans who took over East European and Russian markets
• People that benefitted from bank deregulation were the banks
• Society has to be protected against regulatory capture of economics
• Code of ethics is a protection for society
• Code of ethics is a protection for economists

37. Elements of a code
First tell no untruth
Admit when you don’t know the answer
Make public the alternative answers
Make clear the theory you are using
Make clear the interpretation you are using
State presuppositions (EMH/Ricardo/Say)
Let the people make the judgement, not the economist

38. 谢谢
https://geopoliticaleconomy.academia.edu/AlanFreeman
www.hetecon.net
http://www.post-crasheconomics.com
www.Copejournal.com
www.geopoliticaleconomy.ca