Indispensable Definitions of the Science of Economics

2009-07-09T00:24:00.001-07:00

Aid Worker:	An aid worker is a person on a self-finding trip in exotic places paid for by the taxpayer.
Altruism:	We know that people in different countries behave more or less altruistically (drop a wallet and the difference is noticeable). Since economics has no use for social behavior, economic textbook are not encumbered with such irrelevances as altruism.
Bank Managers:	Speculators who gamble with other people’s money, pocket the gains and transfer the losses to shareholder and the taxpayer.
Banks:	The purpose of a bank is to speculate with the money of its shareholders and depositors.
BIP per head of the population:	A measure to establishing the amount of goods and services available per head of the population. Economists teach that an increase in the BIP per head means we are better off. So if the burden of regulation increases and more regulators are employed and more people in firms are busy complying with the regulations, we are always better off. When the crime rate increases and we consume less because our security expense increase, economists report that welfare has not changed.
Byts:	Bright young things who, fortunately, also get old and fade away, like the French structuralists.
Chicago School:	Adherents of the Chicago School believe that markets would operate perfectly were it not for state regulations that foul them up. If unregulated or deregulated markets fail – such as the financial markets – it is also the fault of the regulators.
Competition	In classical economics, competition ensured that resources went to those who could make most of it, thus ensuring allocative efficiency and, more importantly, that innovators earned excess profits only temporarily – they are eroded as imitators enter the market. This process of innovation, high profitability and their subsequent erosion is driving the capitalist system with its increasing productivity and income. Mainstream computational economics has no use for competition. In their models all firms have exploited all potential efficiency gains and innovations fall from heaven – in fact, when economists talk about perfect competition as we know it has been ruled out.
Competition:	Economists usually consider activities not exposed to market competition are delivered inefficiently. The analysis is never applied to what economists do.
Competition:	Competition as we know it has been eliminated from the world of economists. In their models of perfect competition no-one is able to influence prices of the goods they buy and sell, all producers use the same up-to-date technology and the innovations that appear from heaven are adopted instantly by all participants. This elegantly rids the economy not only of competition but also of entrepreneurs and firms become accidental phenomena that appear and disappear from nowhere like ghosts in a mystery tale.
Consumer choice:	Consumers have constant preferences, perfect information and all the power of computation that allows them evaluate all possible option – that, at least, you learn in the economic textbooks. If you are lucky you find in your economics department some fringe figure located at the end of corridor next to the bathroom who tells these assumptions lead you seriously astray in important fields such as health, finance, savings and more choice actually may reduce welfare.
Corruption:	Corruption is unknown in the economics profession since there is nothing illegal about testimony and reports blatantly biased in favor of those who commission them.
Development Aid:	Originally, development aid was supposed to improve the productivity of the inhabitants of the Third World. One of the best established findings in economics is that development aid did nothing of the sort. This does not stop the some economists from clamoring for more. Their behavior is entirely uninfluenced by the fact that part of it flows their way in form of large payments for travel allowances, consultancy reports and research funds.
Development Economics:	Fell on hard times and came low in the pecking order of economics since its practitioners were supposed to have some knowledge of the societies they dealt with. Fortunately, this prerequisite has now fallen by the wayside with the advent of the new wave of development enthusiasm and development economists strongly connected to the Millennium Project.
Development Expert:	A development expert is someone who is developed by means of large amounts of aid money.
Econometrics:	A branch of metaphysics; it transposes empirical data into speculations that have no known bearings on any observed economic relationships. It is the modern equivalent of calculating how many angels can dance on the head of a pin.
Economic Development:	A field that reached its peak with the publication of the Origins of the Wealth of Nations in 1776 and has gone downhill ever since. From time to time byts stumble over parts of it and start a new fashion. Adam Smith’s human capital theory was rediscovered by T.W. Shultz and got him a Nobel Prize. The World Bank rediscovered that the nature and kind of government has something to do with growth. They called it Governance but haven’t got the Nobel yet.
Economic Forecasting:	Since future behavior of humans is unknowable – it is impossible to know the future preferences of human beings – economic forecasting predicts the future correctly only by accident and has no greater scientific standing than astrology. Were the market for forecasting to operate efficiently, the low-cost provider astrology would have put the high cost provider economic forecasting out of business long ago. Fortunately, the economic profession is a proficient rent-seeker and subsidies continue to flow into the failed profession.
Economic Growth:	Economic growth is a long term issue that does not concern mainstream economists since “in the long run we are all dead”.
Economic History:	A subject that has been expunged from the canon of economic teaching and research on the ground that explaining singular events is not amenable to statistical procedures - quite apart from involving knowledge about the real world.
Economic Language:	The language of economics is increasingly mathematical. The reason is simple: if transformed into common language it would be blindingly obvious that the ideas contained in the theories are either unoriginal or utterly trivial or both.
Economic Man:	Maximizing one’s self-interest leads to the greatest degree of welfare of the person concerned. Economists conclude from this that any witless creature not following this path is unworthy to occupy a position of social responsibility.
Economic Planning:	By 1940 the majority of economists held that a planned economy was perfectly feasible, the arguments of its critics without force, the difficulties of monitoring state firms and of acquiring the knowledge necessary for planners to achieve efficient planning much exaggerated. After 1989 they were, much against their inclination, forced to change their minds, and indeed, after some rumination had really known all along that Socialist Planning didn’t work. Nevertheless, many still have not lost the old habit and continue advocating the virtue of planned economies on a smaller scale, such as in form of the national health systems.[1]
Economic Theory:	Builds mathematical models on the basis of simplifying assumptions about the behavior of market participants, a limited number of other variables and assumed functional forms that habitually fail to predict and explain – which provides excellent reasons to do more of the same.
Economists:	Academics that unsuccessfully engage in predicting the future and fail to agree on the causes of past economic developments.
Efficiency:	Undergraduates were taught (before the advent of modern textbooks) that efficiency means maximum output with given input. Since economists produce output whose marginal product is largely negative (resources are employed in disseminating results that are of no value to anyone), the term has fallen out into disuse.
Empirical Research:	A mugs game where quantitative economists analyze data of dubious quality with dubious methods and increasingly without any theoretical guidance which is then going to be disproved by the next test with slightly different data sets and other dubious methods. Despite 30 years of research no findings of any significance that contributed to the understanding of the economy have emerged yet.
Ethics:	Ethics is a field that has been imposed on the profession by the misguided public and has never been accepted by economists as a serious subject of inquiry. Since markets are perfect, each participant goes bust if she deviates in pricing and employment decisions from what the markets dictate.
Ethics:	Ethics is a field staffed with would-be philosophers who refuse to acknowledge that in the real world business decisions constantly confront moral dilemmas. This conveniently allows professors of ethics to accuse businesspeople of acting unethically whatever they do.
Exchange Rates:	Exchange rates are the mysterious prices of currencies. There are no theories of the exchange rates because the assumptions of economics are unable to deal with actually observed human behavior such as rapidly changing expectations. This does not stop economists from integrating exchange rate movements in their models and derive “predictions”.
Experimental economics:	Experimental economics suggests that people sometimes behave in ways incompatible with rationally maximizing monetary gains. Since such behavior disrupts the ease of modeling, it is presumed to have no relevant effects whatsoever on the operation, stability and success of the economic system we life in.
Finance:	Finance is a field in economics that is supposed to analyze financial markets. That the professors of finance have no idea about the working of financial markets has been amply proved by their failure to predict the current financial crisis. Since knowledge of actual business processes has never been a criterion of employment and promotion in the field of financial economics, this is unlikely to change.
Financial Regulation:	Designed to increase the profits of banks by approving new financial products that increase the level of disinformation among the public and legalize dissimulation and fraud.
Financial Supervision:	Institutions were bank managers regulate their scope for misappropriating funds.
Foreign Government Debt:	Foreign government debt is an excellent investment, since governments cannot go bankrupt – when they do it is in Latin America and therefore of no relevance.
Foreign Private Debt:	Debt incurred abroad by private individuals is not something an economist worries about. After all, these funds will surely be invested and will generate the funds to service the debt.
Government Debt:	Is not really debt at all and therefore has not implication on future generations, at least when financed domestically: future generations inherit both the debts as well as assets. So let’s increase domestic government debt!
Human Capital Theory:	Human capital theory holds that human capital increases labor productivity and it is therefore an important ingredient in economic growth and the wealth of nations. The theory is either a tautology or bunk. It is tautological when human capital is defined as those characteristics of the work force that improve labor productivity. It is bunk when it says that education and training does so – as any high school kid knows, some education and some training does and some does not, mostly it does not, and frequently education lowers labor productivity. Not surprisingly, the bunk version is especially popular among the educationalists, including academic economists.
Human Capital:	The human capital theory was formulated by Adam Smith and has been rediscovered by modern economic theory. After the rediscovery it got trivialized to the point that attending any sort of school of schooling makes people more productive, independent of its content or the environment those attending “school” live and work. Belly dancing engineering both improve human capital.
Invisible Hand:	According to modern economics, cheating everybody (economists call it behaving opportunistically) fosters the common good.
Liberals (collectivist liberals).	Liberals of the collectivist kind (American liberals) blame markets for any social ills they observe. When the central bank stuffs up the economy by flooding it with cheap money and a housing bubble results, at fault is the housing market. When the bubble bursts and the government authorities supposedly supervising the financial system has slept through the bubble, the fault is with the free financial markets.
Macroeconomic Policy:	In a recession, increase government spending, decrease taxes and cut interest rates. Since the cutting edge macroeconomic theory does not explain what happens when you do this, the purported beneficial effects are matter of we hope.
Macroeconomic Theory:	A theory how the main variables in the economy behave – such as income, inflation, and unemployment – that is immediately disregarded when it is needed, as in the case of recessions or depressions.
Market Failures:	Do not exist. Oligopolies support growth, externalities can be dealt with by negotiations of market participants and information failures are uncommon because everybody has perfect information about everything concerning past, present and future and therefore always makes decisions in her best interests. This is particularly true of those who invest in shares.
Markets:	According to economic theory markets are places where everybody cheats everybody else.
Methodology:	Methodology analyzes the principles and procedures of inquiry in a particular discipline, i.e. its methods. Since methodology sounds more important than method, most economists, in line with other social scientists, use the former when they mean the latter.
Monetarism:	Money influences output in the short run but only prices in the long run. The short run last from a month to infinity. The long run is slightly longer.
Monetary Supply:	Some economists think that the supply of money is determined by the central bank (money is exogenous), others believe that the quantity of money is determined by the money or credit creation process within the financial system (money is endogenous). The disagreement does not stop economists from freely proffering their advice on what monetary policy a central bank ought to pursue.
Neoliberals:	Liberals of the free market type fight any regulation of markets tooth and nail. If such unregulated markets fail, they blame it on the government that has neglected to regulate them properly.
Networking:	Establishing yourself as a well-connected crony. Everyone knows that careers are made through networking. You will hear little about it from economists –it is not compatible with the beneficial working of markets generally and the efficient allocation of resources in the labor market.
Networking:	Not part of the canon of economics. There is no formal training that tells young economists that their career is practically exclusively determined by attaching themselves to networks that help each other in getting jobs, promotions and journal publications.
New Classical Macroeconomics:	Explains recessions although all markets are always in equilibrium with some people having misestimated inflation rates. The Nobel Price Committee must have seriously believed that major recessions can be explained in this way.
New Keynesian Macroeconomics:	Labor and Product Markets are inefficient and generate unemployment on grounds that are not quite clear.
Nobel Prizes in Economics:	The only Nobel Prize that is given without the burden of having to produce a significant original idea that sheds light on economic life.
Oriental Bazaar:	The ideal world of economic theory – prices are fixed by haggling, information on prices and product quality unavailable and fraud is ripe.
Performance Incentives:	All incentives in economics are material – which implies that salaries have to be tied to performance, otherwise economic man starts to shirk. A different part of economics, that dealing with imperfect information, teaches that complex tasks cannot be monitored effectively. If it were true that only performance related pay prevents shirking and performance cannot be monitored, economists have nothing sensible to say on how to shape work incentives of complex tasks.
Progress in Economic Theory:	Progress in Economics consists in cloaking trivial ideas in mathematics.
Public Sector Organizations:	Public activities are always and everywhere done ineffectively even if they deliver profitably the same services at the same cost as firms in the private sector.
Quantitative Economics:	Method that is forced upon unsuspecting students who initially believe that it leads to some insight into social or economic life. Some of them later realize that they have been fraudulently deceived, but in the absence of any alternative employment opportunities they are forced to perpetuate the fraud on the next generation of students.
Quantity Theory of Money:	If the quantity of money increases significantly, the price level ought to go up – in the long run. So far no-one has been able to specify what the long run is.
Rating Agencies:	Companies that are asked by enterprises and governments to evaluate their financial situation, from whom they get lots of money for doing so. Still, their judgment is absolutely independent. Rating agencies usually give good marks when times are good and bad marks when times are bad – since you don’t know this you need a rating agency.
Rational Expectations:	Recently economists discovered that expectations of future prices influence current behavior. The insight forced them to deal with expectations explicitly. Since they have no idea how expectations are formed they assume that everybody knows everything except sometimes when they don’t. They have since rigorously proved that if everybody knows everything markets clear and when they don’t they don’t.
Rationality:	The insight that people do not behave rationally cannot be accommodated in economic models and has therefore, regrettably, to be disregarded.
Real Business Cycle Macroeconomics:	Markets are always in equilibrium – unemployment is an illusion simply by simpletons who cannot see that the unemployed could easily find a job at the going wage rate.
Reality:	Economists often talk about reality. It consists of masses of data-sets that are collected by all sorts of institutions that are then manipulated statistically. Data not contained in such data sets are not part of reality.
Rent-seeking:	Trying to attract income beyond what can be had in a well-regulated market is a ubiquitous phenomenon and of great practical import which disqualifies it from being taken seriously by economists – perhaps because the profession is an extreme example of siphoning off rent.
Securitization:	Transfer of debt from one financial institution to another without the knowledge of the debtor. The term was invented to hide the fact that securitization increases the risk of default.
Social Science:	Social science is generally not a word mentioned in a society of polite economists since it involved – at least before it got contaminated with economics – such wasteful pursuits as acquiring some knowledge of societies, possibly even a foreign language.
Socialism:	Socialists believe that if government and enterprises are in the hands of the Socialist Party, the welfare of the members of the Socialist Party will improve. The theory is one of the best established truths in social science.
Stakeholder:	Anyone with enough political clout to extract “contributions” from businesses.
Stakeholders.	Activist groups politically important enough to extort funds from firms for worthy causes, in general the cause of increasing the welfare of the leading activists.
Trade Unions:	Trade Unions are an unnecessary encumbrance of the market economy, since wages are determined by the theory of wage determination.
Trade Unions:	Trade Unions are a nuisance preventing the efficient allocation of resources. They interfere in the labor market that would otherwise work perfectly and allocate resources efficiently according the theory of the labor market.
Trust:	Is not a category in economics.
Truth:	Is not a category in economics.
U.S. Federal Reserve Bank:	The Federal Reserve Bank is a public institution that buys junk assets in exchange from newly printed money in order to improve the stability of the US economy and the welfare of its citizens.
Unemployment:	Without government intervention labor markets always clear. That is trivially true: those fired either find a job at the same wage rate or a lower wage rate, including one that is close or equal to zero – some people are reduced to cleaning shoes or beg. Thus the absence of beggars in the street is a clear and regrettable sign of government messing up labor markets.
Unproductive Labor:	Economics teaches that is no such thing as unproductive labor. Increasing the number of economists will increase the value of the output generated. All lawyers fighting law-cases are engaged in productive activities. If you increase the complexity of the law and you need masses more lawyers and expert-economists to produce the same output, economists would cheerfully declare this work of lawyers and economics to be productive activities. As usual, Adam Smith beats modern economics, at least he knew that there was something like unproductive labor.
Virtue:	Is not a category in economics. Since it would be most unlikely that a virtuous economist would get a job in a university and everybody knows this, the term is an embarrassment.
Wage Determination:	Wages are determined by the supply and the demand for labor. It is assumed that are large numbers of mobile employees und a large number of firms in each category of work at each and every location. It follows that in the real world too wage-rates are negotiated freely by people who have alternatives readily available.
Wages of Management:	The theory of wage determination justifies any wage rate, including those of top management. Never mind that wage rates are set by these very managers who sit on each others board of directors and happily agree to the boni of their colleagues that allow increases of their own wage in the next round.
Welfare State:	Modern Utopia – where everybody has access to education, health and old age pensions are no cost to themselves.
Welfare:	According to welfare economics, welfare increases if we can consume more material goods or increase our leisure or both – never mind that job security goes down the gurgler and “job flexibility” destroys our private and family life.
World Bank:	The World Bank gives large loans to countries of the Third World so that they might “develop”. Since the money is habitually wasted, the resulting debt has to be regularly forgiven after some proper interval.
Law and Economics:	Lawyers – who are in charge of formulating laws and regulations – have an incentive to produce a highly complex legal system that does nicely for their income. Economists show no interest in analyzing the process because it would require knowledge of a highly intricate real world, an activity greatly disdained by the profession.

[1] Bergson notes that „by now it seems agreed that the argument on those questions advanced by Mises ... is without much force”; the alleged information and monitoring problems “exaggerate the difficulties of the problems” (Colander, 370 – quotes Abram Bergson. Social Economics. A Survey of Contemporary Economics, Vol. I, ed. Howard S. Ellis. Homewood, Ill: Richard D. Irwin, 1948, p. 412).

Indispensable Definitions in Economics

Efficient Market Hypothesis

Performance Incentives

Rating Agencies

Inflation

Indispensable Definitions of the Science of Economics