William Paul Bell Queensland University Researcher

Why is mainstream economics not a social science but ideological mathematics?

Posts Tagged ‘Free Trade

Inclusive growth and climate change adaptation and mitigation in Australia and China: Removing barriers to solving wicked problems

leave a comment »

acc_logo_strip_col_bannerThis reports aims to assist the Sino-Australian bilateral relationship adapt to meet China’s new policies and to facilitate a smoother transition to a low carbon future.  Southwest University of Finance and Economics (SWUFE), Chengdu, China and the University of Queensland, Brisbane, Australia held a workshop at SWUFE to develop a guide to China’s low-carbon policies and their implications for the Sino-Australian energy trade and sectors.  This report results from the workshop.  Chapter 3 contains the guide to China’s low emission policies and discusses market-based experiments within China’s command-and-control electricity sector.  Chapter 4 discusses Australia’s poorly implemented neoliberal policies within its energy sector and provides an informative market-based case study for China on what to avoid.  Chapter 2 discusses the implications of Australia and China’s low emission policies. Chapter 5 discusses barriers to the transition to a low emissions economy.

Climate change is one of the world’s major challenges.  Others include increasing inequality and poor economic growth, creating a decline in inclusive growth.  Declining inclusive growth and climate change are interrelated wicked problems.  Their solution is technically and economically viable given appropriate investment but the absence of a price on carbon in Australia is a major obstacle to directing investment consistent with a low emissions future.

Australia is transitioning from a mining to a more service orientated economy.  However, Australia’s uncoordinated energy and climate change policy and poorly implemented neoliberal policies in the energy sector are undermining investment confidence and hindering both inclusive growth and the transition to a lower emissions economy.  Energy and climate change policies need bring together to restore investment confidence within the electricity sector.  The Integrated Systems Plan has gone some way to address this problem.  Similarly, Australia’s uncoordinated growth and climate change policies are hindering inclusive growth and the transition to a lower emissions economy.  Growth and climate change policies need bringing together to engender confidence and direct investment compatible with a low emissions future.  Notably, Infrastructure Australia has gone some way to address this issue at the national level but the lack of transparency and independence in other jurisdictions undermines Infrastructure Australia’s effectiveness.

Poor policy coordination is also hindering solutions to a host of other interrelated wicked problems.  These wicked problems include massive increases in retail electricity prices, private school fees and private health insurance, the inability to undertake major tax reform, such as introducing a tax on sugar or carbon or introduce road user charges to replace the declining revenue from fuel excise duty.  There is ample and sound evidence-based research to solve these wicked problems but there is an inability to enact policy in the interest of the electorate.

The key findings of this report are four common barriers to enacting policy to solve these wicked problems.

(1) Political donations present a conflict of interest.

(2) Adversarial politics and political wedging reduce the ability to address complex problems.

(3) There is an absence of academic economists informing the public debate to provide impartial advice.

(4) Unrealistic models of the economy and human behaviour are misinforming policy.

Advertisements

The G8 protests and the logically inconsistent foundations of neoclassical economics

leave a comment »

Neoclassical economics is deductive, using a mathematical axiom-proof-theory format.   Arnsperger and Varoufakis (2006) list the three basic axioms of neoclassical as methodological instrumentalism, methodological individualism and methodological equilibration.   In such an approach the basic axioms have to be correct otherwise the whole framework becomes unsound.   In contrast to the deductive approach, the scientific approach is inductive, forming theories from observation and using prediction to falsify the theories (Neuman 2003, p. 51).   Neoclassical economists have become adept at avoiding empirical falsification by creating ad-hoc explanations as to why their theories fail to work when confronted with empirical evidence, for example the Efficient Market Hypothesis predicting dividend volatility in excess of price volatility but the converse is observed (Shiller 1981).   Falsification avoidance is the sign of a degenerative research program (Lakatos 1976).   So, rather than use empirical falsification, a more suitable approach to disprove deductive frameworks is to use a logical proof showing their axioms lead to an absurdity.   The Sonnenschein–Mantel–Debreu Theorem (Debreu 1959) proves the basic axioms of neoclassical economics are logical inconsistent.   The Sonnenschein–Mantel–Debreu Theorem (Debreu 1959) shows that starting with the first two axioms leads to a shapeless excess demand curve.   The shapeless excess demand curve means that there are multiple equilibria and equilibrium are unstable making the third axiom untenable.   To fix this problem, it is assumed that all goods have constant Engel curves.   A good would have a constant Engel curve if somebody spends the same proportion of their income on the good as their income grew (Keen 2001).   This is an unlikely scenario as when income grows then people consume more luxury goods and basic goods become a smaller fraction of their income.   Can you think of a good with a constant Engel curve?   Colander (2000, p. 3) equates neoclassical economics “to the celestial mechanics of a nonexistent universe” for using theory outside its domain assumption (Musgrave 1981).   That is neoclassical economics as a pursuit in pure mathematics for intellectual exercise is fine but claiming applicability to the real world is misleading. Read the rest of this entry »