An Associated Press investigation outlined that the military coalition in Yemen actively reduced AQAP in Yemen by even actively recruiting them in the coalition because "they are considered as exceptional fighters".

(meta data) TITLE: AP Investigation: US allies, al-Qaida battle rebels in Yemen

# AP Investigation: US allies, al-Qaida battle rebels in Yemen

By MAGGIE MICHAEL, TRISH WILSON and LEE KEATHAugust 7, 20181

13Coalition-backed fighters advance on Yemenâ€™s Red Sea port town of Mocha in this Jan. 11 2017, photo.

The coalition forces eventually captured the town from Shiite rebels known as Houthis.

Some fighters in the unit were openly al-Qaida, wearing Afghan-style garb and carrying weapons with an al-Qaida logo, a sign of how closely the militants have been involved in the war against the Houthis, who are seen by Saudi Arabia and the United Arab Emirates as a proxy for Iranian influence.

of 13Coalition-backed fighters advance on Yemenâ€™s Red Sea port town of Mocha in this Jan. 11 2017, photo.

Again and again over the past two years, a military coalition led by Saudi Arabia and backed by the United States has claimed it won decisive victories that drove al-Qaida militants from their strongholds across Yemen and shattered their ability to attack the West.

Here's what the victors did not disclose: many of their conquests came without firing a shot.

That's because the coalition cut secret deals with al-Qaida fighters, paying some to leave key cities and towns and letting others retreat with weapons, equipment and wads of looted cash, an investigation by The Associated Press has found.

Hundreds more were recruited to join the coalition itself.

These compromises and alliances have allowed al-Qaida militants to survive to fight another day — and risk strengthening the most dangerous branch of the terror network that carried out the 9/11 attacks.

Key participants in the pacts said the U.S. was aware of the arrangements and held off on any drone strikes.

The deals uncovered by the AP reflect the contradictory interests of the two wars being waged simultaneously in this southwestern corner of the Arabian Peninsula.

In one conflict, the U.S. is working with its Arab allies — particularly the United Arab Emirates — with the aim of eliminating the branch of extremists known as al-Qaida in the Arabian Peninsula, or AQAP.

But the larger mission is to win the civil war against the Houthis, Iranian-backed Shiite rebels.

And in that fight, al-Qaida militants are effectively on the same side as the Saudi-led coalition — and, by extension, the United States.

"Elements of the U.S. military are clearly aware that much of what the U.S. is doing in Yemen is aiding AQAP and there is much angst about that," said Michael Horton, a fellow at the Jamestown Foundation, a U.S. analysis group that tracks terrorism.

"However, supporting the UAE and the Kingdom of Saudi Arabia against what the U.S. views as Iranian expansionism takes priority over battling AQAP and even stabilizing Yemen," Horton said.

The AP's findings are based on reporting in Yemen and interviews with two dozen officials, including Yemeni security officers, militia commanders, tribal mediators and four members of al-Qaida's branch.

All but a few of those sources spoke on condition of anonymity, fearing reprisals.

Emirati-backed factions, like most armed groups in Yemen, have been accused of abducting or killing their critics.

Coalition-backed militias actively recruit al-Qaida militants, or those who were recently members, because they're considered exceptional fighters, the AP found.

The coalition forces are comprised of a dizzying mix of militias, factions, tribal warlords and tribes with very local interests.

And AQAP militants are intertwined with many of them.

One Yemeni commander who was put on the U.S. terrorism list for al-Qaida ties last year continues to receive money from the UAE to run his militia, his own aide told the AP.

Another commander, recently granted $12 million for his fighting force by Yemen's president, has a known al-Qaida figure as his closest aide.

In one case, a tribal mediator who brokered a deal between the Emiratis and al-Qaida even gave the extremists a farewell dinner.

Horton said much of the war on al-Qaida by the UAE and its allied militias is a "farce."

"It is now almost impossible to untangle who is AQAP and who is not since so many deals and alliances have been made," he said.

The U.S. has sent billions of dollars in weapons to the coalition to fight the Iran-backed Houthis.

U.S. advisers also give the coalition intelligence used in targeting on-the-ground adversaries in Yemen, and American jets provide air-to-air refueling for coalition war planes.

The U.S. does not fund the coalition, however, and there is no evidence that American money went to AQAP militants.

The U.S. is aware of an al-Qaida presence among the anti-Houthi ranks, a senior American official told reporters in Cairo earlier this year.

Because coalition members back militias with hard-line Islamic commanders, "it's very, very easy for al-Qaida to insinuate itself into the mix," the official said, speaking on condition of anonymity under the terms of the briefing.

More recently, the Pentagon vigorously denied any complicity with al-Qaida militants.

"Since the beginning of 2017, we have conducted more than 140 strikes to remove key AQAP leaders and disrupt its ability to use ungoverned spaces to recruit, train and plan operations against the U.S. and our partners across the region," Navy Cmdr. Sean Robertson, a Pentagon spokesman, wrote in an email to the AP.

A senior Saudi official commented by saying that the Saudi-led coalition "continues its commitment to combat extremism and terrorism."

An Emirati government spokesman did not reply to questions from the AP.

But on Monday, Emirati Minister of State for Foreign Affairs Anwar Gargash tweeted that the UAE-backed counter-terrorism strategy is working.

He said it had "removed" thousands of militants and deprived them of safe havens.

AQAP is "at its weakest since 2012," he wrote, adding that the UAE and its allies "have all lost troops in the fight."

The coalition began fighting in Yemen in 2015 after the Houthis overran the north, including the capital, Sanaa.

The UAE and Saudi Arabia are determined to stop what they consider a move by their nemesis, Iran, to take over Yemen, and their professed aim is to restore the internationally recognized government of President Abed Rabbo Mansour Hadi.

Al-Qaida is leveraging the chaos to its advantage.

"The United States is certainly in a bind in Yemen," said Katherine Zimmerman, a research fellow at the American Enterprise Institute.

"It doesn't make sense that the United States has identified al-Qaida as a threat, but that we have common interests inside of Yemen and that, in some places, it looks like we're looking the other way."

Within this complicated conflict, al-Qaida says its numbers — which U.S. officials have estimated at 6,000 to 8,000 members — are rising.

An al-Qaida commander who helps organize deployments told the AP that the front lines against the Houthis provide fertile ground to recruit new members.

"Meaning, if we send 20, we come back with 100," he said.

The well-known commander communicated with AP via a secure messaging app on condition of anonymity because he had no authorization from the group to talk to the news media.

The Associated Press reported this story with help from a grant from the Pulitzer Center on Crisis Reporting.

In February, Emirati troops and their Yemeni militia allies flashed victory signs to TV cameras as they declared the recapture of al-Said, a district of villages running through the mountainous province of Shabwa — an area al-Qaida had largely dominated for nearly three years.

It was painted as a crowning victory in a months-long offensive, Operation Swift Sword, that the Emirati ambassador to Washington, Yousef al-Otaiba, had proclaimed would "disrupt the terrorist organization's network and degrade its ability to conduct future attacks."

The Pentagon, which assisted with a small number of troops, echoed that promise, saying the mission would weaken the group's ability to use Yemen as a base.

But weeks before those forces' entry, a string of pickup trucks mounted with machine guns and loaded with masked al-Qaida militants drove out of al-Said unmolested, according to a tribal mediator involved in the deal for their withdrawal.

The U.S. has killed al-Qaida's top leaders in a drone strike campaign that accelerated in recent years.

But in this victory — as in the others touted by the coalition — the mediator said armed U.S. drones were absent, despite the large, obvious convoy.

Under the terms of the deal, the coalition promised al-Qaida members it would pay them to leave, according to Awad al-Dahboul, the province's security chief.

His account was confirmed by the mediator and two Yemeni government officials.

Al-Dahboul said about 200 al-Qaida members received payments.

He did not learn the exact amounts, but said he knew that 100,000 Saudi rials ($26,000) were paid to one al-Qaida commander — in the presence of Emiratis.

Under the accord, thousands of local tribal fighters were to be enlisted in the UAE-funded Shabwa Elite Force militia.

For every 1,000 fighters, 50 to 70 would be al-Qaida members, the mediator and two officials said.

Saleh bin Farid al-Awlaqi, a pro-Emirati tribal leader who was the founder of one Elite Force branch, denied any agreements were made.

He said he and others enticed young al-Qaida members in Shabwa to defect, which weakened the group, forcing it to withdraw on its own.

He said about 150 fighters who defected were allowed into the Elite Force, but only after they underwent a "repentance" program.

The clearing of al-Qaida from Shabwa and other provinces did not completely take place without fighting.

Clashes erupted in some villages, usually with al-Qaida remnants that refused to play ball.

One former al-Qaida member told the AP that he and his comrades turned down an offer of money from the Emiratis.

In response, he said, an Elite Force squad besieged them in the town of Hawta until they withdrew.

Overall, deals that took place during both the Obama and Trump administrations have secured al-Qaida militants' withdrawal from multiple major towns and cities that the group seized in 2015, the AP found.

The earliest pact, in the spring of 2016, allowed thousands of al-Qaida fighters to pull out of Mukalla, Yemen's fifth-largest city and a major port on the Arabian Sea.

The militants were guaranteed a safe route out and allowed to keep weapons and cash looted from the city — up to $100 million by some estimates — according to five sources, including military, security and government officials.

"Coalition fighter jets and U.S. drones were idle," said a senior tribal leader who saw the convoy leaving.

"I was wondering why they didn't strike them."

A tribal sheikh shuttled between AQAP leaders in Mukalla and Emirati officials in Aden to seal the deal, according to a former senior Yemeni commander.

Coalition-backed forces moved in two days later, announcing that hundreds of militants were killed and hailing the capture as "part of joint international efforts to defeat the terrorist organizations in Yemen."

No witnesses reported militants killed, however.

"We woke up one day and al-Qaida had vanished without a fight," a local journalist said, speaking to AP on condition of anonymity for fear of reprisals.

Soon after, another accord was struck for AQAP to pull out of six towns in the province of Abyan, including its capital, Zinjibar, according to five tribal mediators involved in the negotiations.

Again, the central provision was that the coalition and U.S. drones cease all bombings as AQAP pulled out with its weapons, the mediators said.

The agreement also included a provision that 10,000 local tribesmen — including 250 al-Qaida militants — be incorporated into the Security Belt, the UAE-backed Yemeni force in the area, four Yemeni officials said.

For nearly a week in May 2016, the militants departed in trucks.

One of the mediators told the AP that he threw the last of the departing fighters a farewell dinner among his olive and lemon orchards when they stopped at his farm to pay their respects.

Another mediator, Tarek al-Fadhli, a former jihadi once trained by al-Qaida leader Osama bin Laden, said he was in touch with officials at the U.S. Embassy and in the Saudi-led coalition, keeping them updated on the withdrawal.

"When the last one left, we called the coalition to say they are gone," he said.

To think of al-Qaida as an international terror group is to miss its other reality.

For many Yemenis, it is simply another faction on the ground — a very effective one, well-armed and battle-hardened.

Over the years, AQAP has woven itself into society by building ties with tribes, buying loyalties and marrying into major families.

Power players often see it as a useful tool.

Hadi's predecessor as Yemen's president, long-ruling strongman Ali Abdullah Saleh, set the model.

He took billions in U.S. aid to combat al-Qaida after the 9/11 attacks, even as he recruited its militants to fight his rivals.

Hadi's current vice president, Ali Mohsen al-Ahmar, a military chief for decades, also has been accused of enlisting jihadis.

In that light, it would almost be more startling if the militants were not involved against the Houthis, especially since al-Qaida militants are extremist Sunnis seeking the defeat of the Shiite rebels.

Al-Qaida militants are present on all major front lines fighting the rebels, Khaled Baterfi, a senior leader in the group, said in a previously unpublished 2015 interview with a local journalist obtained by the AP.

Last month, Baterfi said in a Q&A session distributed by al-Qaida that "those at the front lines for sure know of our participation, which is either actual fighting with our brothers in Yemen or supporting them with weapons."

Al-Qaida has reduced attacks against Hadi's and Emirati-linked forces because assailing them would benefit the Houthis, Baterfi said.

The branch is following guidance from al-Qaida's worldwide leader, Ayman al-Zawahri, to focus on fighting the rebels, another top AQAP member said in written answers to the AP.

In some places, militants join battles independently.

But in many cases, militia commanders from the ultraconservative Salafi sect and the Muslim Brotherhood bring them directly into their ranks, where they benefit from coalition funding, the AP found.

The Brotherhood's Yemen branch is a powerful hard-line Islamic political organization allied to Hadi.

Two of the four main coalition-backed commanders along the Red Sea coast are allies of al-Qaida, the al-Qaida member said.

The coalition has made major advances on the coast, and is currently battling for the port of Hodeida.

Video footage shot by the AP in January 2017 showed a coalition-backed unit advancing on Mocha, part of an eventually successful campaign to recapture the Red Sea town.

Some of the unit's fighters were openly al-Qaida, wearing Afghan-style garb and carrying weapons with the group's logo.

As they climbed behind machine guns in pick-up trucks, explosions from coalition airstrikes could be seen on the horizon.

An AQAP member interviewed in person by the AP in May viewed the video and confirmed the fighters belonged to his group.

His affiliation is known from his past involvement in AQAP's rule over a southern city.

The impact of the intertwining of al-Qaida fighters with the coalition campaign is clearest in Taiz, Yemen's largest city and center of one of the war's longest running battles.

In the central highlands, Taiz is Yemen's cultural capital, a historic source of poets and writers and educated technocrats.

In 2015, the Houthis laid siege to the city, occupying surrounding mountain ranges, sealing the entrances and shelling it mercilessly.

Taiz residents rose up to fight back, and coalition cash and weapons poured in — as did al-Qaida and Islamic State militants, all aimed at the same enemy.

One liberal activist took up arms alongside other men from his neighborhood to defend the city, and they found themselves fighting side by side with al-Qaida members.

We are all together," said the activist, who spoke on condition of anonymity.

He said commanders received weapons and other aid from the coalition and distributed it to all the fighters, including al-Qaida militants.

Abdel-Sattar al-Shamiri, a former adviser to Taiz's governor, said he recognized al-Qaida's presence from the start and told commanders not to recruit members.

"Their response was, 'We will unite with the devil in the face of Houthis,'" al-Shamiri said.

He said he warned coalition officials, who were "upset" but took no action.

"We will get rid of the Houthis and we will be stuck with terrorist groups."

The activist and officials in the city said one of the main recruiters of al-Qaida fighters is Adnan Rouzek, a Salafi member tapped by Hadi to be a top military commander.

Rouzek's militia became notorious for kidnappings and street killings, with one online video showing its masked members shooting a kneeling, blindfolded man.

Its videos feature al-Qaida-style anthems and banners.

Rouzek's top aide was a senior al-Qaida figure who escaped from a prison in Aden in 2008 along with other AQAP detainees, according to a Yemeni security official.

Multiple photos seen by the AP show Rouzek with known al-Qaida commanders in recent years.

In November, Hadi named Rouzek head of the Taiz Operations Rooms, coordinating the military campaign, and top commander of a new fighting force, the 5th Presidential Protection Battalion.

Hadi's Defense Ministry also gave Rouzek $12 million for a new offensive against the Houthis.

The AP obtained copy of a receipt for the $12 million and a Rouzek aide confirmed the figure.

Rouzek denied any connection to militants, telling the AP that "there is no presence of al-Qaida" in Taiz.

Another coalition-backed warlord is on the U.S. list of designated terrorists due to his ties to al-Qaida.

The warlord, a Salafi known as Sheikh Aboul Abbas, has received millions of dollars from the coalition to distribute among anti-Houthi factions, according to his aide, Adel al-Ezzi.

Despite being put on the U.S. list in October, the UAE continues to fund him, al-Ezzi told the AP.

The aide denied any links to militants and dismissed his boss's designation on the U.S. terror list.

Nevertheless, he acknowledged that "al-Qaida has fought on all the front lines alongside all factions."

Right after the AP team spoke to him in Taiz, the team saw al-Ezzi meeting with a known senior al-Qaida figure, warmly hugging him outside the home of another former AQAP commander.

Aboul Abbas runs a coalition-funded militia controlling several districts in Taiz.

A 2016 video produced by al-Qaida shows militants in black uniforms with al-Qaida's logo fighting alongside other militias in districts known to be under his control.

A former security official in Taiz said militants and Aboul Abbas' forces attacked security headquarters in 2017 and freed a number of al-Qaida suspects.

The officer said he reported the attack to the coalition, only to learn soon after that it gave Aboul Abbas 40 more pick-up trucks.

"The more we warn, the more they are rewarded," the officer said.

"Al-Qaida leaders have armored vehicles given to them by the coalition while security commanders don't have such vehicles."

AP correspondent Desmond Butler also contributed to this report.

contents © copyright 2019 The Associated Press.

Iran condemned the Saudi-led airstrikes and urged an immediate end to attacks on Yemen. Saudi Arabia requested that Pakistan commit forces as well, but Pakistan's parliament officially voted to remain neutral. However, Pakistan agreed to provide support in line with a United Nations Security Council resolution, dispatching warships to enforce an arms embargo against the Houthis.
 On 21 April 2015, the bombing campaign was officially declared over, with Saudi officials saying they would begin "Operation Restoring Hope" as a combination of political, diplomatic, and military efforts to end the war. Even still, airstrikes continued against Houthi targets, and fighting in Aden and Ad Dali' went on.
 The United Arab Emirates has also spearheaded an active role against fighting AQAP and ISIL-YP presence in Yemen through a partnership with the United States. In an Op-Ed in "The Washington Post," Yousef Al Otaiba, the UAE ambassador to the United States, described that the intervention has reduced AQAP presence in Yemen to its weakest point since 2012 with many areas previously under their control liberated. The ambassador claimed that more than 2,000 militants have been removed from the battlefield, with their controlled areas now having improved security and a better delivered humanitarian and development assistance such as to the port city of Mukalla and other liberated areas. An Associated Press investigation outlined that the military coalition in Yemen actively reduced AQAP in Yemen without military intervention. An Associated Press investigation outlined that the military coalition in Yemen actively reduced AQAP in Yemen by offering them deals.


(meta data) TITLE: How the Economics Profession Is Coming to Terms with Its Role in the Great Financial Crisis - Evonomics

(meta data) AUTHOR: http://www.facebook.com/evonomics

(meta data) PUBLISHER: http://www.facebook.com/evonomics

# How the Economics Profession Is Coming to Terms with Its Role in the Great Financial Crisis

## It's time for mainstream economists to relax the defenses and open up a little.

Swiss psychiatrist Elisabeth Kübler-Ross, a pioneer in the field of grief counselling, identified the five stages of grief as denial, anger, bargaining, depression, and acceptance.

This extract from Economyths draws on her model of grief as inspiration to chart the long, arduous, but ultimately healthy and healing (we hope, it's not over yet) process as the economics profession slowly comes to terms with its role in the Great Financial Crisis.

The ten years since the first tremors of the crisis began in 2007 have been a difficult journey, not just for the world economy, but also for the economics profession.

The status of the field had never been higher than in the two decades preceding the crisis, during what Ben Bernanke and others called the Great Moderation.

Inflation and macroeconomic volatility seemed to be under control, and total national income was growing at an almost steady rate (the fact that total debt was growing even faster was less remarked upon).

In 2002, Alan Greenspan received an honorary knighthood from the Queen for 'his outstanding contribution to global economic stability'.

The following year, Nobel laureate Robert Lucas, famous for his theory of 'rational expectations', told his audience: 'My thesis in this lecture is that macroeconomics in this original sense has succeeded: Its central problem of depression prevention has been solved, for all practical purposes, and has in fact been solved for many decades.

'With its firm grounding in mathematical rigour

, economics was the undisputed queen of the social sciences.

Economists were therefore more than a little surprised by what jurist and economist Richard Posner – author of books including the aptly-named A Failure of Capitalism: The Crisis of '08 and the Descent into Depression – inventories as 'the bursting of the housing bubble (they didn't know it was a bubble), the ensuing banking collapse, the stock market crash, the sharp decline in output and employment, the global scope of the crisis, and the onset of deflation in the late fall of 2008 that created fears of a depression comparable to the Great Depression of the 1930s'.

According to James Heckman from the University of Chicago, 'Everybody here was blindsided by the magnitude of what happened.

Indeed, the crisis came as a traumatic event that left mainstream economists in what Greenspan called 'a state of shocked disbelief'.

Models which were based on assumptions of stability, equilibrium and efficiency were of little use when markets were cratering, real estate was sinking into the mud, and oil and food were spiking.

And since that time, economists have been working their way slowly and painfully through the different stages or aspects of the grief process, as they realise that their elegant models not only failed to predict the crisis, but also helped to create it.

When Economyths first came out, most economists were in a state of denial – especially those at the top of the profession.

Future laureate Tom Sargent said in a 2010 interview "It is just wrong to say that this financial crisis caught modern macroeconomists by surprise."

(No mention of whether the non-modern macroeconomists saw it coming too.)

Laureate Robert Lucas preferred to see the unpredictability as a natural result of future laureate Eugene Fama's efficient market hypothesis (though as Posner notes, that didn't stop him from predicting, shortly after Lehman's collapse, that the crisis would soon go away).Fama

agreed that the efficient market hypothesis 'did quite well in this episode'.

The Nobel committee apparently agreed too.

As reality sank in, economists soon began lashing out in anger at anyone who dared criticise their field, including yours truly (I'm going to talk about this because it seems to be quite a general problem).

At Canada's top-ranked economics blog Worthwhile Canadian Initiative, for example, a group of prominent academics, including regular contributors to national publications (Globe and Mail, National Post, Maclean's, Literary Review of Canada, etc.),shared their professional thoughts about the book online.

Descriptors used included idiotic, ignorant, intellectually lazy, juvenile, random, rubbish, semi-articulated, and 'sort of like Malcolm Gladwell without the insight' – ouch.

Someone even compared me to a climate change denier (not uncommon, as it turns out).

One commenter described the online book burning as part of a widely-deployed 'shoot the messenger' strategy against critics.

Which is fine – we give as good as we get, and at least they don't grade us.

But what was interesting about their discussion was the way these academics, who hailed from top universities such as British Columbia, Carleton, Laval, and so on, managed to maintain the illusion that they were being incredibly tolerant and open to criticism.

As one put it, 'Economists welcome criticism.

In the academy, we are well-known, if not infamous, for being direct, abrupt, and rude in criticizing each other (and others).

There is a very healthy discussion about methodology.

But they confused academic bickering with genuine criticism from people who share none of their biases.

The site linked to an even more vituperative blog review by an economics professor at the University of Victoria who of course took pains to say that economics 'benefits from criticism', as long as it's the right type, a topic we discuss further below.

(Fortunately I was spared the electronic 'viruses and hate mail' which have apparently afflicted other critics of mainstream economics.)

And that was about it for thoughtful response from the country's economics establishment, at least until former Deputy Governor of the Bank of Canada William White (now at OECD) – one of the few people who warned of the financial crisis – cited the paperback edition as a Bloomberg Best Book of 2013, perhaps out of sympathy.

As anger started to burn out, the next stage of the drawn-out and generally exhausting grief process involved bargaining: both with the future – perhaps we can put things right – and in a kind of retroactive bargaining with the past, saying that the event would not have occurred if only something had been done differently.

One common argument, anticipated in the book's introductory chapter, was that there is nothing wrong with economics per se, the problem is one of poor communication: the field's critics just don't understand the full rich diversity of economic thought, and are attacking a simplified caricature.

A good illustration of this approach was the 2015 book Economics Rules by Dani Rodrik from Harvard.

Echoing Lionel Robbins – who called economic man an 'expository device' in 1932 – Rodrick explains that the reason student groups such as the Post-Crash Economics Society are frustrated is that introductory economics courses offer only a pared down version of the theory and give 'little sense of the diversity of conclusions in economics'.

Also most economists are poor at presenting their arguments to the public, because they 'see themselves as scientists and researchers whose job it is to write academic papers'.

Rodrik does note the existence of a 'guild mentality' in economics which 'renders the profession insular and immune to outside criticism', and observes in a couple of places that 'Only card-carrying members of the profession are viewed as legitimate participants in economic debates'.

Yet later he cites the influence of behavioural psychologists and so on to conclude that 'the view of economics as an insular, inbred discipline closed to outside influence is more caricature than reality'.

The overall impression is one of bemusement at all the fuss.

After making a number of good points about models, the book concludes with 'Ten Commandments' (aka 'bargaining points') for economists, and ten for non-economists.

Some of these are very sensible – #3 from the latter list, for example, says: 'Analysis requires simplicity; beware of incoherence that passes itself off as complexity.'

Others are versions of common defences against critics, e.g. #9: 'If you think all economists think alike, attend one of their seminars', and #10: 'If you think economists are especially rude to noneconomists, attend one of their seminars.'

These are surely well-meant and sound fairly innocuous, unless you're afraid of economics seminars, but they come up all the time in different guises and it's worth inspecting them a little more closely.

The first is a polite variation of the 'caricature' or 'straw man' argument, implying that economics is far more diverse and complicated than it appears to an outsider.

However, the fact that economists do not agree on every point does not somehow innoculate the field against criticism; and the claim or implication that non-economists don't fully understand the subject, and need to attend a seminar or take a course to appreciate its mysteries, often boils down to a debating or avoidance tactic (and obviously doesn't apply to the increasing number of critics from within the field's own ranks).

It also leads to the catch-22, perfectly expressed in a generally glowing 2017 review of Rodrik's 'marvelous book' by economist and game theory expert Ariel Rubinstein, published in the Journal of Economic Literature, that 'One needs to be an outsider to criticize Economics but one needs to be an economist to do it sufficiently well so as not to be drawn astray by stereotypes', which doesn't seem to leave many people.

Apparently Rodrik qualifies, despite or because of the fact that he 'belongs to the elite of the Economics academic establishment'.

Commandment/bargaining point #10, meanwhile, echoes the idea, also expressed above, that rudeness between economists is evidence of a 'very healthy discussion about methodology'.

I'm assuming this doesn't include hate mail.

First, the main objection to the arguments made by economists concerns not the style, but the content.

Second: as seen below, economists are not rude at all when it comes to questioning their leaders – in fact obsequious deference would seem to be a better description.

Third: lack of civility (at least in itself) is not an indicator of healthy scientific debate, in the academy or in the playground.

I'd say that advertising it probably reflects more an anxiety about appearing robustly scientific.

Fourth: in his 2006 book The Trouble With Physics, physicist Lee Smolin notes that string theorists cultivate a 'brash, aggressive, and competitive atmosphere', though he doesn't see it as an advantage.

He also detects a 'blatant prejudice' against hiring women.

Could these be related – and could macho posturing be a similar problem in economics?

According to one article, by economist Miles Kimball and an untenured female economist who didn't want to be identified in case it hurt her career, some male economists 'may not even realize all the ways they routinely put others down – especially those in vulnerable positions who dare not strike back'.

Finally, and related, rudeness might be fine between equals, but one of the functions of social graces is to help deal with asymmetrical power relationships, of the sort encountered in economics departments.

A 2015 investigation at the University of Manitoba, for example, concluded that while the department head, an orthodox economist, had insisted 'that he was committed to maintaining diversity', his subsequent actions resulted in a change of climate that had the opposite effect.

This ultimately led among other things to 'a violation of academic freedom when orthodox members of the department behaved in ways that discriminated against doctoral students being supervised by heterodox economists'.

According to one professor there was 'serious bullying going on' including threats to interfere with the tenure process.

No wonder the students are calling for revolt (they're so rude).

It therefore comes as something of a relief to us critics that some economists at least may be proceeding to the penultimate, more passive stage of the grief process, depression.

Evidence is provided by a paper by Paul Romer, 'The Trouble With Macroeconomics' (he had also been reading Smolin's book, hence the title), a 2016 preprint of which caused a considerable stir in economics circles.

Sounding almost Economyths-like in style, the first sentence of the abstract announces that 'For more than three decades, macroeconomics has gone backwards'.

It goes on to describe the author's 'pessimistic assessment of regression into pseudoscience' and mention the 'serious failure' of top economists.

Decidedly non-upbeat section titles include 'Post-Real Models', 'Loyalty Can Corrode The Norms of Science', 'Back to Square One', and 'The Trouble Ahead For All of Economics'.

No concrete solutions are proposed for what sounds, to an outsider, like a rather dysfunctional state of affairs.

In the same way that elegant but unfalsifiable string theory has, as Smolin showed, taken over high-energy physics, so mainstream economics has increasingly emphasised elegant but unfalsifiable mathematical models over experimental reality.

Most of the parameters in the models cannot be determined from observations, but are simply made up to give the desired answers.

Events such as crashes are assumed to be caused by external shocks, rather than internal dynamics.

The models can't make sense out of even basic things like monetary policy, which according to theory – since money plays no significant role in these models – should have little or no effect.

However, the problems are as much sociological as they are mathematical.

Just as string theory is characterised by what Smolin described as 'groupthink' about the correct way to approach problems, so some economists see it as 'an extremely serious violation of some honor code for anyone to criticize openly a revered authority figure …

neither facts that are false, nor predictions that are wrong, nor models that make no sense matter enough to worry about'.

Romer, who is now chief economist at the World Bank, notes that he sees himself more as a practitioner rather than an academic, so feels free to speak out and tell it like it is, but many people are afraid to criticise a 'revered leader' because of the 'unpleasant reaction' that it may evoke.

He relates a story of running into a colleague who was so angry with him for criticising a paper by Robert Lucas that 'at first he could not speak.

Eventually, he told me, "You are killing Bob."'

So much for that self-image of economists being open to criticism.

In fact Romer says he was inspired to write the paper after seeing a documentary about the Church of Scientology.

Paul Mason observed in The Guardian that Romer's paper is important because he is not an outsider or a rebel, but 'a doyen of the profession, and from the heart of the US academic mainstream'.

As Bloomberg commented, 'along came one of the leading practitioners of his generation, to say that the skeptics were onto something'.

Which, speaking as one such sceptic, is certainly appreciated.

In fact in some respects Romer probably goes further – even I didn't sum an economic argument up as: 'Assume A, assume B, … blah blah blah …

However, while it is refreshing that some in the mainstream are facing up to these problems, and Romer's paper is written with great courage, a dose of dark humour, and an obvious concern for the state of economics, there is in fact little acknowledgement that these issues have long been debated and solutions proposed outside of the mainstream; and as argued in this book, it is exactly this deafness to other voices which is at the root of the 'trouble with economics', and the reason it has taken so long to confront the fact that there might be a serious problem, let alone actually do something about it.

Of course, depression is a state of mind that involves turning inwards.

But for an area as insular as mainstream economics, the final stage of the grief process – acceptance – will only come when the field finally gets over itself and opens up to new ideas – or even the old ideas that have been there all along.

In 2017 for example the UK's Economic and Social Research Council announced that it intended to set up a network with its remit being to 'revolutionise' the field of economics: 'It will be led by a team of 25 world leading experts taken not only from different branches of economics, but also from psychology, anthropology, sociology, neuroscience, economic history, political science, biology and physics.'

Perhaps those experts can answer some of the questions we posed for them back in the original 2010 edition of Economyths.

As seen in the revised edition, ideas from areas such as complexity science and data analysis are starting to sink in and have an effect.

And some high-profile economists are having a go at new approaches.

Joseph Stiglitz, for example, recently contributed to a paper that uses an agent-based model to account for 'the complex adaptive nature of economic systems, and the implications of money endogeneity' (i.e. the fact that money is produced by banks).

But one thing that mainstream economists won't go near – it doesn't fit with the models – is the idea that economists might not be quite so impartial, objective and unbiased as they appear.

Rodrik, for example, notes that leading economists had bought into the dominant efficient market paradigm which saw markets 'not only as inherently efficient and stable, but also as self-disciplining', and that this 'legitimized and enabled a great wave of financial deregulation that set the stage for the crisis'.

He describes it as 'curious' that other models were not used.

But why would they make that particular choice?

Why were other models, such as Minsky's model of the credit cycle, repressed?

The field of economics has an unhealthily close dependency relationship with the financial sector, which may just have clouded its judgement.

Instead of acting out against critics in a way that embarrasses the profession, or ignoring those who want to help, it's time for mainstream economists to relax the defences and open up a little.

A first step is to untangle those institutional effects and other motivations that have shaped their field and which continue to resist change.

I'm sure there are plenty of sociologists and psychologists (even grief counsellors probably) who can help.

Of course the process can't be rushed, so here is, not a commandment, but a gentle suggestion to economists in this difficult time: ten years is enough.

Time to open the windows and let in the fresh air.

Adapted from Economyths: 11 Ways That Economics Gets it Wrong, Icon Books; 2nd edition edition (September 12, 2017)

### Donating = Changing Economics. And Changing the World.

Evonomics is free, it's a labor of love, and it's an expense.

We spend hundreds of hours and lots of dollars each month creating, curating, and promoting content that drives the next evolution of economics.

If you're like us — if you think there's a key leverage point here for making the world a better place — please consider donating.

We'll use your donation to deliver even more game-changing content, and to spread the word about that content to influential thinkers far and wide.

You can also become a one-time patron with a single donation in any amount.

#### If you liked this article, you'll also like these other Evonomics articles...

Economist Julie Nelson Says Much of Economics is a Sham ScienceHow a Decade of Crisis Changed EconomicsBribery, Cooperation, and the Evolution of Prosocial InstitutionsWhy You Should Blame The Economics Discipline For Today's Problems

We welcome you to take part in the next evolution of economics.

When Wall Street Owns Main Street — Literally Insanely Concentrated Wealth Is Strangling Our Prosperity

David Orrell is an applied mathematician and author of popular science books.

He studied mathematics at the University of Alberta, and obtained his doctorate from Oxford University on the prediction of nonlinear systems.

His latest book is Quantum Economics: The New Science of Money.

# Donating = Changing Economics. And changing the world.

Evonomics is a labor of love, it's free, and it's ad-free.

We spend hundreds of hours and thousands of dollars spreading the word about The Next Evolution of Economics.

If you think that's a worthy mission, as we do—one with powerful leverage to make the world a better place—please consider offering your support.

here!Be a part of the conversation by getting the latest in your inbox

9. Economic growth will make us happy
 10. Economic growth is always good
 In each case, Orrell explains the role that the myth plays in economics, discusses the problems it creates, and proposes solutions and alternatives based on ideas from areas such as complexity, network theory, nonlinear dynamics, heterodox economics, and so on.
 The 2017 extended version included a new chapter on the idea that
 11. The economy boils down to barter
 This chapter included a summary of Orrell's quantum theory of money and value.


Cahal Moran is a co-author of The Econocracy.

(meta data) TITLE: How the Economics Profession Is Coming to Terms with Its Role in the Great Financial Crisis - Evonomics

(meta data) AUTHOR: http://www.facebook.com/evonomics

(meta data) PUBLISHER: http://www.facebook.com/evonomics

# How the Economics Profession Is Coming to Terms with Its Role in the Great Financial Crisis

## It's time for mainstream economists to relax the defenses and open up a little.

Swiss psychiatrist Elisabeth Kübler-Ross, a pioneer in the field of grief counselling, identified the five stages of grief as denial, anger, bargaining, depression, and acceptance.

This extract from Economyths draws on her model of grief as inspiration to chart the long, arduous, but ultimately healthy and healing (we hope, it's not over yet) process as the economics profession slowly comes to terms with its role in the Great Financial Crisis.

The ten years since the first tremors of the crisis began in 2007 have been a difficult journey, not just for the world economy, but also for the economics profession.

The status of the field had never been higher than in the two decades preceding the crisis, during what Ben Bernanke and others called the Great Moderation.

Inflation and macroeconomic volatility seemed to be under control, and total national income was growing at an almost steady rate (the fact that total debt was growing even faster was less remarked upon).

In 2002, Alan Greenspan received an honorary knighthood from the Queen for 'his outstanding contribution to global economic stability'.

The following year, Nobel laureate Robert Lucas, famous for his theory of 'rational expectations', told his audience: 'My thesis in this lecture is that macroeconomics in this original sense has succeeded: Its central problem of depression prevention has been solved, for all practical purposes, and has in fact been solved for many decades.

'With its firm grounding in mathematical rigour

, economics was the undisputed queen of the social sciences.

Economists were therefore more than a little surprised by what jurist and economist Richard Posner – author of books including the aptly-named A Failure of Capitalism: The Crisis of '08 and the Descent into Depression – inventories as 'the bursting of the housing bubble (they didn't know it was a bubble), the ensuing banking collapse, the stock market crash, the sharp decline in output and employment, the global scope of the crisis, and the onset of deflation in the late fall of 2008 that created fears of a depression comparable to the Great Depression of the 1930s'.

According to James Heckman from the University of Chicago, 'Everybody here was blindsided by the magnitude of what happened.

Indeed, the crisis came as a traumatic event that left mainstream economists in what Greenspan called 'a state of shocked disbelief'.

Models which were based on assumptions of stability, equilibrium and efficiency were of little use when markets were cratering, real estate was sinking into the mud, and oil and food were spiking.

And since that time, economists have been working their way slowly and painfully through the different stages or aspects of the grief process, as they realise that their elegant models not only failed to predict the crisis, but also helped to create it.

When Economyths first came out, most economists were in a state of denial – especially those at the top of the profession.

Future laureate Tom Sargent said in a 2010 interview "It is just wrong to say that this financial crisis caught modern macroeconomists by surprise."

(No mention of whether the non-modern macroeconomists saw it coming too.)

Laureate Robert Lucas preferred to see the unpredictability as a natural result of future laureate Eugene Fama's efficient market hypothesis (though as Posner notes, that didn't stop him from predicting, shortly after Lehman's collapse, that the crisis would soon go away).Fama

agreed that the efficient market hypothesis 'did quite well in this episode'.

The Nobel committee apparently agreed too.

As reality sank in, economists soon began lashing out in anger at anyone who dared criticise their field, including yours truly (I'm going to talk about this because it seems to be quite a general problem).

At Canada's top-ranked economics blog Worthwhile Canadian Initiative, for example, a group of prominent academics, including regular contributors to national publications (Globe and Mail, National Post, Maclean's, Literary Review of Canada, etc.),shared their professional thoughts about the book online.

Descriptors used included idiotic, ignorant, intellectually lazy, juvenile, random, rubbish, semi-articulated, and 'sort of like Malcolm Gladwell without the insight' – ouch.

Someone even compared me to a climate change denier (not uncommon, as it turns out).

One commenter described the online book burning as part of a widely-deployed 'shoot the messenger' strategy against critics.

Which is fine – we give as good as we get, and at least they don't grade us.

But what was interesting about their discussion was the way these academics, who hailed from top universities such as British Columbia, Carleton, Laval, and so on, managed to maintain the illusion that they were being incredibly tolerant and open to criticism.

As one put it, 'Economists welcome criticism.

In the academy, we are well-known, if not infamous, for being direct, abrupt, and rude in criticizing each other (and others).

There is a very healthy discussion about methodology.

But they confused academic bickering with genuine criticism from people who share none of their biases.

The site linked to an even more vituperative blog review by an economics professor at the University of Victoria who of course took pains to say that economics 'benefits from criticism', as long as it's the right type, a topic we discuss further below.

(Fortunately I was spared the electronic 'viruses and hate mail' which have apparently afflicted other critics of mainstream economics.)

And that was about it for thoughtful response from the country's economics establishment, at least until former Deputy Governor of the Bank of Canada William White (now at OECD) – one of the few people who warned of the financial crisis – cited the paperback edition as a Bloomberg Best Book of 2013, perhaps out of sympathy.

As anger started to burn out, the next stage of the drawn-out and generally exhausting grief process involved bargaining: both with the future – perhaps we can put things right – and in a kind of retroactive bargaining with the past, saying that the event would not have occurred if only something had been done differently.

One common argument, anticipated in the book's introductory chapter, was that there is nothing wrong with economics per se, the problem is one of poor communication: the field's critics just don't understand the full rich diversity of economic thought, and are attacking a simplified caricature.

A good illustration of this approach was the 2015 book Economics Rules by Dani Rodrik from Harvard.

Echoing Lionel Robbins – who called economic man an 'expository device' in 1932 – Rodrick explains that the reason student groups such as the Post-Crash Economics Society are frustrated is that introductory economics courses offer only a pared down version of the theory and give 'little sense of the diversity of conclusions in economics'.

Also most economists are poor at presenting their arguments to the public, because they 'see themselves as scientists and researchers whose job it is to write academic papers'.

Rodrik does note the existence of a 'guild mentality' in economics which 'renders the profession insular and immune to outside criticism', and observes in a couple of places that 'Only card-carrying members of the profession are viewed as legitimate participants in economic debates'.

Yet later he cites the influence of behavioural psychologists and so on to conclude that 'the view of economics as an insular, inbred discipline closed to outside influence is more caricature than reality'.

The overall impression is one of bemusement at all the fuss.

After making a number of good points about models, the book concludes with 'Ten Commandments' (aka 'bargaining points') for economists, and ten for non-economists.

Some of these are very sensible – #3 from the latter list, for example, says: 'Analysis requires simplicity; beware of incoherence that passes itself off as complexity.'

Others are versions of common defences against critics, e.g. #9: 'If you think all economists think alike, attend one of their seminars', and #10: 'If you think economists are especially rude to noneconomists, attend one of their seminars.'

These are surely well-meant and sound fairly innocuous, unless you're afraid of economics seminars, but they come up all the time in different guises and it's worth inspecting them a little more closely.

The first is a polite variation of the 'caricature' or 'straw man' argument, implying that economics is far more diverse and complicated than it appears to an outsider.

However, the fact that economists do not agree on every point does not somehow innoculate the field against criticism; and the claim or implication that non-economists don't fully understand the subject, and need to attend a seminar or take a course to appreciate its mysteries, often boils down to a debating or avoidance tactic (and obviously doesn't apply to the increasing number of critics from within the field's own ranks).

It also leads to the catch-22, perfectly expressed in a generally glowing 2017 review of Rodrik's 'marvelous book' by economist and game theory expert Ariel Rubinstein, published in the Journal of Economic Literature, that 'One needs to be an outsider to criticize Economics but one needs to be an economist to do it sufficiently well so as not to be drawn astray by stereotypes', which doesn't seem to leave many people.

Apparently Rodrik qualifies, despite or because of the fact that he 'belongs to the elite of the Economics academic establishment'.

Commandment/bargaining point #10, meanwhile, echoes the idea, also expressed above, that rudeness between economists is evidence of a 'very healthy discussion about methodology'.

I'm assuming this doesn't include hate mail.

First, the main objection to the arguments made by economists concerns not the style, but the content.

Second: as seen below, economists are not rude at all when it comes to questioning their leaders – in fact obsequious deference would seem to be a better description.

Third: lack of civility (at least in itself) is not an indicator of healthy scientific debate, in the academy or in the playground.

I'd say that advertising it probably reflects more an anxiety about appearing robustly scientific.

Fourth: in his 2006 book The Trouble With Physics, physicist Lee Smolin notes that string theorists cultivate a 'brash, aggressive, and competitive atmosphere', though he doesn't see it as an advantage.

He also detects a 'blatant prejudice' against hiring women.

Could these be related – and could macho posturing be a similar problem in economics?

According to one article, by economist Miles Kimball and an untenured female economist who didn't want to be identified in case it hurt her career, some male economists 'may not even realize all the ways they routinely put others down – especially those in vulnerable positions who dare not strike back'.

Finally, and related, rudeness might be fine between equals, but one of the functions of social graces is to help deal with asymmetrical power relationships, of the sort encountered in economics departments.

A 2015 investigation at the University of Manitoba, for example, concluded that while the department head, an orthodox economist, had insisted 'that he was committed to maintaining diversity', his subsequent actions resulted in a change of climate that had the opposite effect.

This ultimately led among other things to 'a violation of academic freedom when orthodox members of the department behaved in ways that discriminated against doctoral students being supervised by heterodox economists'.

According to one professor there was 'serious bullying going on' including threats to interfere with the tenure process.

No wonder the students are calling for revolt (they're so rude).

It therefore comes as something of a relief to us critics that some economists at least may be proceeding to the penultimate, more passive stage of the grief process, depression.

Evidence is provided by a paper by Paul Romer, 'The Trouble With Macroeconomics' (he had also been reading Smolin's book, hence the title), a 2016 preprint of which caused a considerable stir in economics circles.

Sounding almost Economyths-like in style, the first sentence of the abstract announces that 'For more than three decades, macroeconomics has gone backwards'.

It goes on to describe the author's 'pessimistic assessment of regression into pseudoscience' and mention the 'serious failure' of top economists.

Decidedly non-upbeat section titles include 'Post-Real Models', 'Loyalty Can Corrode The Norms of Science', 'Back to Square One', and 'The Trouble Ahead For All of Economics'.

No concrete solutions are proposed for what sounds, to an outsider, like a rather dysfunctional state of affairs.

In the same way that elegant but unfalsifiable string theory has, as Smolin showed, taken over high-energy physics, so mainstream economics has increasingly emphasised elegant but unfalsifiable mathematical models over experimental reality.

Most of the parameters in the models cannot be determined from observations, but are simply made up to give the desired answers.

Events such as crashes are assumed to be caused by external shocks, rather than internal dynamics.

The models can't make sense out of even basic things like monetary policy, which according to theory – since money plays no significant role in these models – should have little or no effect.

However, the problems are as much sociological as they are mathematical.

Just as string theory is characterised by what Smolin described as 'groupthink' about the correct way to approach problems, so some economists see it as 'an extremely serious violation of some honor code for anyone to criticize openly a revered authority figure …

neither facts that are false, nor predictions that are wrong, nor models that make no sense matter enough to worry about'.

Romer, who is now chief economist at the World Bank, notes that he sees himself more as a practitioner rather than an academic, so feels free to speak out and tell it like it is, but many people are afraid to criticise a 'revered leader' because of the 'unpleasant reaction' that it may evoke.

He relates a story of running into a colleague who was so angry with him for criticising a paper by Robert Lucas that 'at first he could not speak.

Eventually, he told me, "You are killing Bob."'

So much for that self-image of economists being open to criticism.

In fact Romer says he was inspired to write the paper after seeing a documentary about the Church of Scientology.

Paul Mason observed in The Guardian that Romer's paper is important because he is not an outsider or a rebel, but 'a doyen of the profession, and from the heart of the US academic mainstream'.

As Bloomberg commented, 'along came one of the leading practitioners of his generation, to say that the skeptics were onto something'.

Which, speaking as one such sceptic, is certainly appreciated.

In fact in some respects Romer probably goes further – even I didn't sum an economic argument up as: 'Assume A, assume B, … blah blah blah …

However, while it is refreshing that some in the mainstream are facing up to these problems, and Romer's paper is written with great courage, a dose of dark humour, and an obvious concern for the state of economics, there is in fact little acknowledgement that these issues have long been debated and solutions proposed outside of the mainstream; and as argued in this book, it is exactly this deafness to other voices which is at the root of the 'trouble with economics', and the reason it has taken so long to confront the fact that there might be a serious problem, let alone actually do something about it.

Of course, depression is a state of mind that involves turning inwards.

But for an area as insular as mainstream economics, the final stage of the grief process – acceptance – will only come when the field finally gets over itself and opens up to new ideas – or even the old ideas that have been there all along.

In 2017 for example the UK's Economic and Social Research Council announced that it intended to set up a network with its remit being to 'revolutionise' the field of economics: 'It will be led by a team of 25 world leading experts taken not only from different branches of economics, but also from psychology, anthropology, sociology, neuroscience, economic history, political science, biology and physics.'

Perhaps those experts can answer some of the questions we posed for them back in the original 2010 edition of Economyths.

As seen in the revised edition, ideas from areas such as complexity science and data analysis are starting to sink in and have an effect.

And some high-profile economists are having a go at new approaches.

Joseph Stiglitz, for example, recently contributed to a paper that uses an agent-based model to account for 'the complex adaptive nature of economic systems, and the implications of money endogeneity' (i.e. the fact that money is produced by banks).

But one thing that mainstream economists won't go near – it doesn't fit with the models – is the idea that economists might not be quite so impartial, objective and unbiased as they appear.

Rodrik, for example, notes that leading economists had bought into the dominant efficient market paradigm which saw markets 'not only as inherently efficient and stable, but also as self-disciplining', and that this 'legitimized and enabled a great wave of financial deregulation that set the stage for the crisis'.

He describes it as 'curious' that other models were not used.

But why would they make that particular choice?

Why were other models, such as Minsky's model of the credit cycle, repressed?

The field of economics has an unhealthily close dependency relationship with the financial sector, which may just have clouded its judgement.

Instead of acting out against critics in a way that embarrasses the profession, or ignoring those who want to help, it's time for mainstream economists to relax the defences and open up a little.

A first step is to untangle those institutional effects and other motivations that have shaped their field and which continue to resist change.

I'm sure there are plenty of sociologists and psychologists (even grief counsellors probably) who can help.

Of course the process can't be rushed, so here is, not a commandment, but a gentle suggestion to economists in this difficult time: ten years is enough.

Time to open the windows and let in the fresh air.

Adapted from Economyths: 11 Ways That Economics Gets it Wrong, Icon Books; 2nd edition edition (September 12, 2017)

### Donating = Changing Economics. And Changing the World.

Evonomics is free, it's a labor of love, and it's an expense.

We spend hundreds of hours and lots of dollars each month creating, curating, and promoting content that drives the next evolution of economics.

If you're like us — if you think there's a key leverage point here for making the world a better place — please consider donating.

We'll use your donation to deliver even more game-changing content, and to spread the word about that content to influential thinkers far and wide.

You can also become a one-time patron with a single donation in any amount.

#### If you liked this article, you'll also like these other Evonomics articles...

Economist Julie Nelson Says Much of Economics is a Sham ScienceHow a Decade of Crisis Changed EconomicsBribery, Cooperation, and the Evolution of Prosocial InstitutionsWhy You Should Blame The Economics Discipline For Today's Problems

We welcome you to take part in the next evolution of economics.

When Wall Street Owns Main Street — Literally Insanely Concentrated Wealth Is Strangling Our Prosperity

David Orrell is an applied mathematician and author of popular science books.

He studied mathematics at the University of Alberta, and obtained his doctorate from Oxford University on the prediction of nonlinear systems.

His latest book is Quantum Economics: The New Science of Money.

# Donating = Changing Economics. And changing the world.

Evonomics is a labor of love, it's free, and it's ad-free.

We spend hundreds of hours and thousands of dollars spreading the word about The Next Evolution of Economics.

If you think that's a worthy mission, as we do—one with powerful leverage to make the world a better place—please consider offering your support.

here!Be a part of the conversation by getting the latest in your inbox

9. Economic growth will make us happy
 10. Economic growth is always good
 In each case, Orrell explains the role that the myth plays in economics, discusses the problems it creates, and proposes solutions and alternatives based on ideas from areas such as complexity, network theory, nonlinear dynamics, heterodox economics, and so on.
 The 2017 extended version included a new chapter on the idea that
 11. The economy boils down to barter
 This chapter included a summary of Orrell's quantum theory of money and value. There was a foreword by Cahal Moran.


There was an appendix "The Five Stages of Economic Grief".

(meta data) TITLE: How the Economics Profession Is Coming to Terms with Its Role in the Great Financial Crisis - Evonomics

(meta data) AUTHOR: http://www.facebook.com/evonomics

(meta data) PUBLISHER: http://www.facebook.com/evonomics

# How the Economics Profession Is Coming to Terms with Its Role in the Great Financial Crisis

## It's time for mainstream economists to relax the defenses and open up a little.

Swiss psychiatrist Elisabeth Kübler-Ross, a pioneer in the field of grief counselling, identified the five stages of grief as denial, anger, bargaining, depression, and acceptance.

This extract from Economyths draws on her model of grief as inspiration to chart the long, arduous, but ultimately healthy and healing (we hope, it's not over yet) process as the economics profession slowly comes to terms with its role in the Great Financial Crisis.

The ten years since the first tremors of the crisis began in 2007 have been a difficult journey, not just for the world economy, but also for the economics profession.

The status of the field had never been higher than in the two decades preceding the crisis, during what Ben Bernanke and others called the Great Moderation.

Inflation and macroeconomic volatility seemed to be under control, and total national income was growing at an almost steady rate (the fact that total debt was growing even faster was less remarked upon).

In 2002, Alan Greenspan received an honorary knighthood from the Queen for 'his outstanding contribution to global economic stability'.

The following year, Nobel laureate Robert Lucas, famous for his theory of 'rational expectations', told his audience: 'My thesis in this lecture is that macroeconomics in this original sense has succeeded: Its central problem of depression prevention has been solved, for all practical purposes, and has in fact been solved for many decades.

'With its firm grounding in mathematical rigour

, economics was the undisputed queen of the social sciences.

Economists were therefore more than a little surprised by what jurist and economist Richard Posner – author of books including the aptly-named A Failure of Capitalism: The Crisis of '08 and the Descent into Depression – inventories as 'the bursting of the housing bubble (they didn't know it was a bubble), the ensuing banking collapse, the stock market crash, the sharp decline in output and employment, the global scope of the crisis, and the onset of deflation in the late fall of 2008 that created fears of a depression comparable to the Great Depression of the 1930s'.

According to James Heckman from the University of Chicago, 'Everybody here was blindsided by the magnitude of what happened.

Indeed, the crisis came as a traumatic event that left mainstream economists in what Greenspan called 'a state of shocked disbelief'.

Models which were based on assumptions of stability, equilibrium and efficiency were of little use when markets were cratering, real estate was sinking into the mud, and oil and food were spiking.

And since that time, economists have been working their way slowly and painfully through the different stages or aspects of the grief process, as they realise that their elegant models not only failed to predict the crisis, but also helped to create it.

When Economyths first came out, most economists were in a state of denial – especially those at the top of the profession.

Future laureate Tom Sargent said in a 2010 interview "It is just wrong to say that this financial crisis caught modern macroeconomists by surprise."

(No mention of whether the non-modern macroeconomists saw it coming too.)

Laureate Robert Lucas preferred to see the unpredictability as a natural result of future laureate Eugene Fama's efficient market hypothesis (though as Posner notes, that didn't stop him from predicting, shortly after Lehman's collapse, that the crisis would soon go away).Fama

agreed that the efficient market hypothesis 'did quite well in this episode'.

The Nobel committee apparently agreed too.

As reality sank in, economists soon began lashing out in anger at anyone who dared criticise their field, including yours truly (I'm going to talk about this because it seems to be quite a general problem).

At Canada's top-ranked economics blog Worthwhile Canadian Initiative, for example, a group of prominent academics, including regular contributors to national publications (Globe and Mail, National Post, Maclean's, Literary Review of Canada, etc.),shared their professional thoughts about the book online.

Descriptors used included idiotic, ignorant, intellectually lazy, juvenile, random, rubbish, semi-articulated, and 'sort of like Malcolm Gladwell without the insight' – ouch.

Someone even compared me to a climate change denier (not uncommon, as it turns out).

One commenter described the online book burning as part of a widely-deployed 'shoot the messenger' strategy against critics.

Which is fine – we give as good as we get, and at least they don't grade us.

But what was interesting about their discussion was the way these academics, who hailed from top universities such as British Columbia, Carleton, Laval, and so on, managed to maintain the illusion that they were being incredibly tolerant and open to criticism.

As one put it, 'Economists welcome criticism.

In the academy, we are well-known, if not infamous, for being direct, abrupt, and rude in criticizing each other (and others).

There is a very healthy discussion about methodology.

But they confused academic bickering with genuine criticism from people who share none of their biases.

The site linked to an even more vituperative blog review by an economics professor at the University of Victoria who of course took pains to say that economics 'benefits from criticism', as long as it's the right type, a topic we discuss further below.

(Fortunately I was spared the electronic 'viruses and hate mail' which have apparently afflicted other critics of mainstream economics.)

And that was about it for thoughtful response from the country's economics establishment, at least until former Deputy Governor of the Bank of Canada William White (now at OECD) – one of the few people who warned of the financial crisis – cited the paperback edition as a Bloomberg Best Book of 2013, perhaps out of sympathy.

As anger started to burn out, the next stage of the drawn-out and generally exhausting grief process involved bargaining: both with the future – perhaps we can put things right – and in a kind of retroactive bargaining with the past, saying that the event would not have occurred if only something had been done differently.

One common argument, anticipated in the book's introductory chapter, was that there is nothing wrong with economics per se, the problem is one of poor communication: the field's critics just don't understand the full rich diversity of economic thought, and are attacking a simplified caricature.

A good illustration of this approach was the 2015 book Economics Rules by Dani Rodrik from Harvard.

Echoing Lionel Robbins – who called economic man an 'expository device' in 1932 – Rodrick explains that the reason student groups such as the Post-Crash Economics Society are frustrated is that introductory economics courses offer only a pared down version of the theory and give 'little sense of the diversity of conclusions in economics'.

Also most economists are poor at presenting their arguments to the public, because they 'see themselves as scientists and researchers whose job it is to write academic papers'.

Rodrik does note the existence of a 'guild mentality' in economics which 'renders the profession insular and immune to outside criticism', and observes in a couple of places that 'Only card-carrying members of the profession are viewed as legitimate participants in economic debates'.

Yet later he cites the influence of behavioural psychologists and so on to conclude that 'the view of economics as an insular, inbred discipline closed to outside influence is more caricature than reality'.

The overall impression is one of bemusement at all the fuss.

After making a number of good points about models, the book concludes with 'Ten Commandments' (aka 'bargaining points') for economists, and ten for non-economists.

Some of these are very sensible – #3 from the latter list, for example, says: 'Analysis requires simplicity; beware of incoherence that passes itself off as complexity.'

Others are versions of common defences against critics, e.g. #9: 'If you think all economists think alike, attend one of their seminars', and #10: 'If you think economists are especially rude to noneconomists, attend one of their seminars.'

These are surely well-meant and sound fairly innocuous, unless you're afraid of economics seminars, but they come up all the time in different guises and it's worth inspecting them a little more closely.

The first is a polite variation of the 'caricature' or 'straw man' argument, implying that economics is far more diverse and complicated than it appears to an outsider.

However, the fact that economists do not agree on every point does not somehow innoculate the field against criticism; and the claim or implication that non-economists don't fully understand the subject, and need to attend a seminar or take a course to appreciate its mysteries, often boils down to a debating or avoidance tactic (and obviously doesn't apply to the increasing number of critics from within the field's own ranks).

It also leads to the catch-22, perfectly expressed in a generally glowing 2017 review of Rodrik's 'marvelous book' by economist and game theory expert Ariel Rubinstein, published in the Journal of Economic Literature, that 'One needs to be an outsider to criticize Economics but one needs to be an economist to do it sufficiently well so as not to be drawn astray by stereotypes', which doesn't seem to leave many people.

Apparently Rodrik qualifies, despite or because of the fact that he 'belongs to the elite of the Economics academic establishment'.

Commandment/bargaining point #10, meanwhile, echoes the idea, also expressed above, that rudeness between economists is evidence of a 'very healthy discussion about methodology'.

I'm assuming this doesn't include hate mail.

First, the main objection to the arguments made by economists concerns not the style, but the content.

Second: as seen below, economists are not rude at all when it comes to questioning their leaders – in fact obsequious deference would seem to be a better description.

Third: lack of civility (at least in itself) is not an indicator of healthy scientific debate, in the academy or in the playground.

I'd say that advertising it probably reflects more an anxiety about appearing robustly scientific.

Fourth: in his 2006 book The Trouble With Physics, physicist Lee Smolin notes that string theorists cultivate a 'brash, aggressive, and competitive atmosphere', though he doesn't see it as an advantage.

He also detects a 'blatant prejudice' against hiring women.

Could these be related – and could macho posturing be a similar problem in economics?

According to one article, by economist Miles Kimball and an untenured female economist who didn't want to be identified in case it hurt her career, some male economists 'may not even realize all the ways they routinely put others down – especially those in vulnerable positions who dare not strike back'.

Finally, and related, rudeness might be fine between equals, but one of the functions of social graces is to help deal with asymmetrical power relationships, of the sort encountered in economics departments.

A 2015 investigation at the University of Manitoba, for example, concluded that while the department head, an orthodox economist, had insisted 'that he was committed to maintaining diversity', his subsequent actions resulted in a change of climate that had the opposite effect.

This ultimately led among other things to 'a violation of academic freedom when orthodox members of the department behaved in ways that discriminated against doctoral students being supervised by heterodox economists'.

According to one professor there was 'serious bullying going on' including threats to interfere with the tenure process.

No wonder the students are calling for revolt (they're so rude).

It therefore comes as something of a relief to us critics that some economists at least may be proceeding to the penultimate, more passive stage of the grief process, depression.

Evidence is provided by a paper by Paul Romer, 'The Trouble With Macroeconomics' (he had also been reading Smolin's book, hence the title), a 2016 preprint of which caused a considerable stir in economics circles.

Sounding almost Economyths-like in style, the first sentence of the abstract announces that 'For more than three decades, macroeconomics has gone backwards'.

It goes on to describe the author's 'pessimistic assessment of regression into pseudoscience' and mention the 'serious failure' of top economists.

Decidedly non-upbeat section titles include 'Post-Real Models', 'Loyalty Can Corrode The Norms of Science', 'Back to Square One', and 'The Trouble Ahead For All of Economics'.

No concrete solutions are proposed for what sounds, to an outsider, like a rather dysfunctional state of affairs.

In the same way that elegant but unfalsifiable string theory has, as Smolin showed, taken over high-energy physics, so mainstream economics has increasingly emphasised elegant but unfalsifiable mathematical models over experimental reality.

Most of the parameters in the models cannot be determined from observations, but are simply made up to give the desired answers.

Events such as crashes are assumed to be caused by external shocks, rather than internal dynamics.

The models can't make sense out of even basic things like monetary policy, which according to theory – since money plays no significant role in these models – should have little or no effect.

However, the problems are as much sociological as they are mathematical.

Just as string theory is characterised by what Smolin described as 'groupthink' about the correct way to approach problems, so some economists see it as 'an extremely serious violation of some honor code for anyone to criticize openly a revered authority figure …

neither facts that are false, nor predictions that are wrong, nor models that make no sense matter enough to worry about'.

Romer, who is now chief economist at the World Bank, notes that he sees himself more as a practitioner rather than an academic, so feels free to speak out and tell it like it is, but many people are afraid to criticise a 'revered leader' because of the 'unpleasant reaction' that it may evoke.

He relates a story of running into a colleague who was so angry with him for criticising a paper by Robert Lucas that 'at first he could not speak.

Eventually, he told me, "You are killing Bob."'

So much for that self-image of economists being open to criticism.

In fact Romer says he was inspired to write the paper after seeing a documentary about the Church of Scientology.

Paul Mason observed in The Guardian that Romer's paper is important because he is not an outsider or a rebel, but 'a doyen of the profession, and from the heart of the US academic mainstream'.

As Bloomberg commented, 'along came one of the leading practitioners of his generation, to say that the skeptics were onto something'.

Which, speaking as one such sceptic, is certainly appreciated.

In fact in some respects Romer probably goes further – even I didn't sum an economic argument up as: 'Assume A, assume B, … blah blah blah …

However, while it is refreshing that some in the mainstream are facing up to these problems, and Romer's paper is written with great courage, a dose of dark humour, and an obvious concern for the state of economics, there is in fact little acknowledgement that these issues have long been debated and solutions proposed outside of the mainstream; and as argued in this book, it is exactly this deafness to other voices which is at the root of the 'trouble with economics', and the reason it has taken so long to confront the fact that there might be a serious problem, let alone actually do something about it.

Of course, depression is a state of mind that involves turning inwards.

But for an area as insular as mainstream economics, the final stage of the grief process – acceptance – will only come when the field finally gets over itself and opens up to new ideas – or even the old ideas that have been there all along.

In 2017 for example the UK's Economic and Social Research Council announced that it intended to set up a network with its remit being to 'revolutionise' the field of economics: 'It will be led by a team of 25 world leading experts taken not only from different branches of economics, but also from psychology, anthropology, sociology, neuroscience, economic history, political science, biology and physics.'

Perhaps those experts can answer some of the questions we posed for them back in the original 2010 edition of Economyths.

As seen in the revised edition, ideas from areas such as complexity science and data analysis are starting to sink in and have an effect.

And some high-profile economists are having a go at new approaches.

Joseph Stiglitz, for example, recently contributed to a paper that uses an agent-based model to account for 'the complex adaptive nature of economic systems, and the implications of money endogeneity' (i.e. the fact that money is produced by banks).

But one thing that mainstream economists won't go near – it doesn't fit with the models – is the idea that economists might not be quite so impartial, objective and unbiased as they appear.

Rodrik, for example, notes that leading economists had bought into the dominant efficient market paradigm which saw markets 'not only as inherently efficient and stable, but also as self-disciplining', and that this 'legitimized and enabled a great wave of financial deregulation that set the stage for the crisis'.

He describes it as 'curious' that other models were not used.

But why would they make that particular choice?

Why were other models, such as Minsky's model of the credit cycle, repressed?

The field of economics has an unhealthily close dependency relationship with the financial sector, which may just have clouded its judgement.

Instead of acting out against critics in a way that embarrasses the profession, or ignoring those who want to help, it's time for mainstream economists to relax the defences and open up a little.

A first step is to untangle those institutional effects and other motivations that have shaped their field and which continue to resist change.

I'm sure there are plenty of sociologists and psychologists (even grief counsellors probably) who can help.

Of course the process can't be rushed, so here is, not a commandment, but a gentle suggestion to economists in this difficult time: ten years is enough.

Time to open the windows and let in the fresh air.

Adapted from Economyths: 11 Ways That Economics Gets it Wrong, Icon Books; 2nd edition edition (September 12, 2017)

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9. Economic growth will make us happy
 10. Economic growth is always good
 In each case, Orrell explains the role that the myth plays in economics, discusses the problems it creates, and proposes solutions and alternatives based on ideas from areas such as complexity, network theory, nonlinear dynamics, heterodox economics, and so on.
 The 2017 extended version included a new chapter on the idea that
 11. The economy boils down to barter
 This chapter included a summary of Orrell's quantum theory of money and value. There was a foreword by Cahal Moran. Cahal Moran is a co-author of The Econocracy.