2.2.2 Is it posible to convince people with arguments?

If we take a look at economic thoughts over the last 200 years, we realise that the development of economic thought can't be compared to the development of science like biology, chemistry, physics and so on. In natural science, a theory is eliminated when it has been proved wrong.

In economics theories fall asleep. They disappear when the situation changes, and nobody cares about them anymore.

In science, a theory is eliminated when there is found a better one which fits better with reality, whereby the reality does not change.

In economics, the theory is adapted to a changing reality.

For the same reasons, our theory can reappear as well. That happens very often if the original theory was not really understood.

For instance, we can read very often, that Keynesianism proved wrong in the 70th when the increase of the oil price led to inflation. The problem is that Keynes never said that an external shock could be relieved by expansive fiscal policy. He did not even say that expansive fiscal policy was the solution to any kind of unemployment, and expansive fiscal policy is not even the main conclusion to be drawn from Keynesian theory.

Sometimes, we get very strange situations. For fifty years, hundred of thousands of university professors and teachers taught Marxism-Leninism at the university and school. All of them had the complete collection of the blue books on their book shelves at home.

After the fall of the wall, all this books a disappeared from the bookshops and reappeared in the antiquarian bookshop. Thousand of tonnes of them. One kilo of Karl Marx was cheaper than one kilo of coal. (Immediately after the fall of the wall. there were many houses with coal heating.)

Everybody would have expected that there will be a public discussion on what went wrong. However, that didn't happen. Marxism just disappeared silently.

One could argue that it was so obviously bullshit, that no further discussion was needed. That's true from an objective point of view, but it is to suppose that all these professors and teachers believed in that bullshit, at least in a superficial way, because they defended it until the very end. It is somehow stunning that these people just disappeared silently.

Nevertheless, the differences between universities in the Eastern Bloc and the West are not so big. More or less, fifty percent of what is taught in economics nowadays, for instance, the whole welfare economics or the game theory belongs to a kind of parallel universe with no relevance at all for practical issues. There are of course a lot of professors who affirm that these theories are relevant, but that's what Marxist economists thought as well about Marxism. There is a certain tendency of people with no working experience to believe that reality is not really important.

It is to assume that for a while we will see discussion papers, actually never discussed papers, in "scientific journals," discussing about welfare economics and things like that, but because these discussions are irrelevant, they will fall asleep silently. The process can be accelerated by cutting funds.

It's hard to prove that mass media manipulates public opinion, but later on in the chapter about Adorno, we will see that from an economic point of view, the mass media have little interest to inform people about relevant issues.

The mass media decide about the issues discussed publicly and not the relevance of a topic. Much more interesting, we are still in the year 2014, would be for instance the question why it is so difficult for institutional investors, banks and insurance companies, to identify real profitable investments. That question is more important than the question why the Greeks financed their consumption through loans. The power of the mass media is more and more questioned by the internet, and the internet is economically strong enough to break this power.Mass media are more interested in spreading information that concerns many people a little bit and are easy to produce than relevant information for view people, which can only be obtained by valuable research.It is more likely that they put the love live of Tom Cruise in the center of the debate than the bureaucratic obstacles companies are confronted with, although the last topic is much more relevant because companies create jobs. In the first issue, many people are interested a little bit, and no effort is needed to follow the topic. The second topic is a little bit more complicated to understand, and only a view people are directly concerned.
In general, news becomes important if all mass media spread them. The question whether Britney Spears wears pants or not becomes a worldwide topic if the question is discussed in all media and the more media talks about that, the more media will talk about it. The majority of the news come from press agencies like AFR, Reuter, AFP, etc. They can be used at almost no costs. More attention is paid to the pants of Britney Spears than to the question if the intervention in Afghanistan was based on a clear strategy.
It is much easier to reach a large public with topics that can be emotionalised. That is the condition to make money because only a large audience guarantees income through advertising. There is no need to prove that, it is obvious. The most successful newspapers, in the number of copies sold, are the newspapers who best succeed in emotionalising irrelevant issues. It is hard to say why this is like that. Why people are more interested in the love affairs of royals, actors and other famous persons or crimes of any type than in the question of how the bubbles in the stock markets are financed? The first topic has no impact at all on their lives; the second topic can have a very strong impact on their lives. To give another example, more attention is given to coffins coming back from Afghanistan than to the question if it is possible to stabilise Afghanistan through purely military means. The difference between the yellow press and other newspapers is only gradually, and finally, all of them has to adapt themselves to the market. If the yellow press is more successful, and it is more successful, capital will be pulled out from more serious newspapers and invested in the more profitable ones. That's way step by step the more serious newspapers use the same tricks, photo series, more comments than facts, more society than economy, more personalisation as the yellow press. The situation will change and is actually changing. The yellow press lives from pictures, but nobody will pay for pictures if you can get millions of pictures on the internet. The second point is that the internet has a natural tendance to split the market. If Google is the general doorman of information, people get directed to thousands of directions and Google doesn't care if he earns 10 dollars with a million of websites or 10’s of millions with one website. At the other side, the costs of publishing on the internet is much lower, and all the millions of websites can be refinanced.

The mass media decide about the relevance or irrelevance of a topic. A broader range of topics can only be offered through the internet. For natural reasons, the range of topics is reduced on paper and due to the costs of printing and distribution, it is only profitable if a lot of copies are sold. The cost drivers are not the content production, but printing and distributing.

A broader range of topics can only be offered through the internet because the diffusion costs almost nothing and very often even the production of the content costs nothing because the author is already an expert on the topic or gets the information for free because he is well informed for other reasons. Lots of authors of Wikipedia for instance are experts on the topic about which they write.

However, that is not the only problem. The second problem is a little bit more difficult to see. Mass media not only decide which topics are publicly discussed, they decide as well about the questions are discussed. This is a more subtle manipulation than just giving the answers.

One may wonder how it is possible that talkmasters in talk shows can just talk about everything. The answer is easy. It is quite easy to talk about any topic if one knows which questions the public expects to be posed. It is much harder to find the right questions.

Let's illustrate this with an example. In Germany, in other countries it is obviously different, the debt crisis in the Mediterranean countries is discussed under the following aspects.

1 - Should Germany pay for the debts of the Mediterranean countries?

2 - Is it necessary that the Mediterranean countries carry out the same reforms as Germany did ten years ago?

3 - Did the Mediterranean countries have a different culture related to monetary policy as Germany?

It is obvious that these question are not neutral. They are based on a theory. (Easy to be seen in 2. If this question is asked, a relationship between these reforms and the economic development in the last ten years is presumed.)

The discussion would be a completely different one, if we pose these questions.

1- Why did institutional investors, bank and insurance companies, invest in Greek government bonds and not in real investments?

2- Due to the higher risk in the yield of Greek governmental bonds and was higher than any alternative investment, should the banks bear the responsibility if this risky strategy fails?

3- How should a surplus in the trade balance be financed?

It is obvious that the discussion is completely different depending on the questions posed. The first set of questions leads to more neoclassical answers. The Mediterranean countries have to save more in order to pay back the debts and improvements in their competivity are needed. If they have a different culture concerning monetary policy, they would be better off having their own money that would depreciate if their trade balance become negative.

The second set of question leads to a more Keynesian perspective. It is obvious that a country with an eternally positive trade balance like Germany accumulates claims what leads to an increasing debt of foreign banks, private households and governments. It is obvious that in the long run it doesn't work.

If we want, we can see it from a more philosophical point of view. The postructuralism supposes that meaning is never something fixed, but can only understood in confrontation to something that is different. In another words, it means that it only exists in a structure. The anchorage of meaning is always relative and never absolute. Meaning is never constituted in reference to something absolute, but always to something that is different.

The poststructuralism extends the idea of the structuralism, a tendency in linguistics, to sociology and philosophy. In linguistics, it is obvious that a word only have a meaning inside a certain semantic field (wonderful <=> nice <=> pretty <=> beautiful). However, the structuralism doesn't suppose that system inside which concepts became a meaning, is the result of something beyond the system. It is not just only that the single concept moves, the whole system is moving.

There is some truth in the poststructuralism in the sense that the question are already determined by the system and the questions already mask part of the reality. In talk shows, there is no discussion of the relevant topics, there is a discussion of the most common questions.

That's why moderators of talk-shows are so self-confident. They know which questions the public expects to be discussed (and in most cases they know the answers as well.) Their competence doesn't consist in posing the right question, something difficult to understand, but to pose the question spread before by the mass media.

Representative democracies nowadays are controlled by the mass media. The problem is not that the possible answers are manipulated. The problem is that they decide the issues publicly discussed and the questions which are posed. Referring to the answers, there is a great variety. Therefore, the system looks democratic. The problem is that there is not such a wide range concerning the topics and the questions.

All the problems mentioned above, problems on the supply side of information and problems on the demand side of information doesn't exist in a market. The most important information is included in the price, and the supplier is obliged to make it public. The demand side as well is well informed and has a big interest to be informed, because he pays.

Both the supplier and the consumer can get the information they need and are interested in getting them. They are not dealing with abstract issues, but with very concrete problems which concern them directly. Perhaps in the decision to buy something or not ethical and/or moral attitudes play a role, but that's not a big problem in market decisions. If people prefer clothes produced without children work or if they prefer not genetically modified food, their preferences are reflected in prices.

Therefore, the solution of neoliberalism or people like Milton Friedman is very easy. The best way to control a system is through the market and what can't be controlled through the market, shouldn't be controlled at all. The market is a drastic reduction of complexity. That sounds good at first glance, and a lot of people are fascinated by this idea.

However, if Milton Friedman is serious about this and if he really believes that the personal preferences of the people should be respected, things became more complicated. If someone, for instance only wants to buy food from the region he/she lives, non-genetically changed, without any kind of additives, there must be a way to find out if the indications on the packaging are right. Otherwise, he/she has to find it out. (Everybody for himself, by the way. Otherwise, a large campaign is needed to inform the other consumers.) If a private organisation controls the products and have the claimed qualities, a governmental institution doesn't make a big difference.

We can therefore easily see that not even in this simple example the reduction of complexity through the market really works and obviously it doesn't work at all with more complex problems, for instance, problems like global warming which only can be resolved through worldwide agreements.

At the other side, the logic of Karl Popper doesn't work neither. Popper considers democracy as a learning process, similar to experiments in the natural science. Someone, in general, a political party, makes a proposition how certain problems should be resolved. If he succeeds in convincing a majority that his ideas will work, he get the possibility to put them in practice. If the problems are resolved this way, it is proved that he was right.

There are many problems with this theory. This theory can only work if ideas which have been proved wrong are definitely eliminated. Otherwise, we will see the same ideas, as it happens in reality, reappear again and again. South America, for instance, tried in the 70th and 80th the same extreme solutions, Marxism or laissez-faire capitalism, Europe has tried after World War I. In order to eliminate a theory it is therefore not enough that something didn't work, in this case, people only start complaining about politics in general, but to show why it didn't work.

To put it shortly; without transparency, there is no learning process. It is a stunning fact that all neoliberals, Milton Friedman, Friedrich Hayek and company discuss a lot about democracy, from a very philosophical perspective, but transparency and the access to information doesn't play any role. They have the same problem a large part of society today. They don't have the impression that something is missing.

Of course, we can discuss about whether expansive fiscal policy leads increases governmental debt. However, it would be more useful, more constructive, more convincing and more fun to discuss the governmental budget. Perhaps the expansive fiscal policy is not the problem, but the way the money is spent. Perhaps the question is not reduction, but restructuration. However, in order to know that, we need FACTS and DATA.

Friedrich Hayek, the companion of Milton Friedman in his fight against any kind of roads to serfdom, wrote a lot, but actually, it remains unclear what he wanted to say.

In einer komplexen Gesellschaft hat der Mensch keine andere Wahl, als sich entweder an die für ihn blind erscheinenden Kräfte des sozialen Prozesses anzupassen, oder den Anordnungen eines Übergeordneten zu gehorchen. Solange er nur die harte Schule des Marktes kennt, wird er vielleicht denken, daß die Leitung durch einen anderen vernünftigen Kopf besser wäre; aber wenn es zum Versuch kommt, entdeckt er bald, daß ihm der erstere immer noch wenigstens einige Wahl läßt, während ihm der letztere gar keine läßt, und daß es besser ist, die Wahl zwischen verschiedenen unangenehmen Möglichkeiten zu haben, als zu einer von ihnen gezwungen zu werden.

Hayek, Individualismus und gesellschaftliche Ordnung

In a complex society man have no choice than to accept the blind forces of the social process, which he can't understand, or to obey to a superior instance. While he only knows the hard school of the market he may think that he would be better off if a better head takes the controll. But when it comes to try it out he quickly realises, that the first one at least let him some choice, while the second let him no choice at all and that it is better to have the choice between several unpleasent alternatives than to have no choice at all.

Hayek, Individualism and social order

We will see later on, in the chapter about Friedrich Hayek, that Friedrich Hayek never explains the context his "theories" are based on. Here, in any case, we have "the blind forces of the social process" on one side and subordination on the other. Nothing in between. If with "blind forces of the social process" he refers to a market economy it is doubtful that entrepreneurs see it the same way. Entrepreneurs make things happen, and if he doesn't understand how things work, he perhaps should find another job. At the other side, there is, following Hayek, only dictatorship, where individuals have no choice at all. People can't found a party, can't demonstrate, can't write an article in the newspapers. They have to obey. We will see that this is a general problem of Friedrich Hayek and not because we have only a quote out of context. Hayek knows only two worlds. Free market of the laissez-faire style or socialism. There is nothing in between.

However, this is not the curious thing. That's just bullshit, but not really important. More stunning is the fact that transparency and the access to information doesn't play any role.

One should believe that the fervent followers of the Austrian school and neoliberalism, there are really a lot of them, well organised in hundred of "think tanks", lobby groups, political party and at least in the English-speaking world also at universities, should welcome a party like the German piratenpartei, who has only one topic, transparency. However, this is not the case, not at all.

Austrians and neoliberals like to make fundamental opposition. They have no interest in improving democracy through more transparency. It is plausible that Austrian and neoliberals gather under their banner every type of persons who is dissatisfied for any reason with democracy.

Austrian economics and Hayek is not attractive from an economic point of view, and the author thought it would be better to eliminate the chapter about Hayek in the Spanish and English version. However, then he realised that the Austrian school is better known in North and South America than in Germany, and so he kept this chapter. In most of the cases, like in this video Ron Paul vs. Paul Krugman: Austrian vs. Keynesian economics in the financial crisis, concepts of the Austrian school, in this case, the strange theory that low-interest rates lead to bubbles, to justify a certain theory.

(Actually it is not the low-interest rates lead to bubbles, but the incompetence of institutional investors to detect profitable investment. The problem mentioned by the Austrian could be easily resolved. Banks get cheap money, but only for real profitable investments. For a more detailed explanation see the little book about Keynes that can be downloaded from the start of this website.)

Neoliberalism has some interesting points, as we are going to see later on when discussing Milton Friedman. His companion Friedrich Hayek tells us in an obscure way things we already know. Yes, bureaucracies are inefficient. Yes, government tends to abuse its power. However, the solution is more transparency. The problem with people like Hayek is, that they passed their whole live in the parallel academic universe, but introduce more transparency has something to do with practice. For instance creating a website that explains in detail governmental spending.

If someone says that expansive fiscal policy always leads to a misallocation of resources, it would be much more convincing to prove that. It is very plausible that this happens if the money is spent without any control, but the question is if it is not possible to introduce in governmental spending mechanism which works as efficient as market mechanism.

Through the internet, we can get an idea what people know about economics because we can find millions of comments to article on newspapers, videos and so on. Here is an example: A Conversation on the Economy with Joe Stiglitz and Paul Krugman.

One can say that almost all of these comments are just opinions. Capitalism is connected with liberty, efficiency, innovation, etc. and governmental intervention with justice, humanity, end of exploitation, a more equal society and so on. The problem is that both are right, but in both cases there is a lack of theory.

We hope that we succeeded in this manual in explaining a bit basic terms and that 'capitalism' actually is not the right term. We should say market economy. However, a market economy has nothing to do with the Walrasian total equilibrium and the assumption of transparency made in any textbook, simply abstracts from the problem a market economy resolves best. It is crucial to understand how market economies work.

It is equally critical to understand the problems of a market economy. The future doesn't have a price and, therefore, the mechanism which control a market economy can't work. Insecurity leads to a preference for liquidity.

The challenge is, therefore, to resolve this problem and to keep the strength of a market economy, and that can only be obtained through transparency.

This is the basic question: How to keep the advantages of a free market economy and resolve the inherent problems of a free market economy.

However, this is not a theoretical problem and all theories like the social market economy did not contribute anything new. The problem are the access to the fact and data, not the theory.

The second problem is that governmental programs, for instance, more money for start-ups, or expansive monetary policy with a reduction of the type of interests can only work if there are entrepreneurs able to found companies. Instead of discussing whether Keynesian policy leads to a misallocation of resources, it would be much more important to teach entrepreneurship. We repeat: The teaching of economic theory in the narrow sense should be reduced to two years. With the two years saved it would be possible to improve the entrepreneurial skills. Live very often is not about talking and discussing, but about doing. To see some examples illustrating what we are talking about see the previous chapters.

However, of course, it's hard to see, why high-interest rates simplify the founding of companies. The Austrian school assumes that money is wasted if interests rates are too low because people will invest in unprofitable projects. With the same argumentation, one could say that cars should be as expensive as possible because otherwise people would buy too many cars.

The basic rule is very simple. Every project that allows to pay back the credit plus a type of interest which covers the risk and the administration costs of the banks is useful.

Austrians and neoliberals assume that the type of interest is the price of money and has, therefore, the function of prices in a market economy. That's wrong. The type of interest is not a price in the sense of a market price. Keynesian theory is perfectly compatible with a market economy, but in order to see that, one should understand first how market economies work and models like the Walrasian total equilibrium, where the capital flows automatically in the most profitable use, resemble more a planned economy than a market economy. If no complex decision making is needed to find the most rentable use of capital, if the optimal allocation can be found with some equation, central planning would be better. However, that's not the case.

For more details, see the little book about Keynes that can be downloaded from the start of this website.

What we need are more real jobs. Writing discussion papers which were never discussed are indeed a misallocation of resources. If the government redirects resources from a productive use to the production of discussion papers, we have indeed a misallocation. However, that has nothing to do with the Keynesian theory.

There are of course thousand of studies on how to improve the efficiency of the universities, here is an example: Benchmarking to improve efficiency. The result of these studies is always that there are still more studies needed. There is no benchmarking needed at universities. The only thing we have to know is the percentage of graduates of each faculty who found a job one year after they had finished their studies. These data can be easily obtained.

If professors think that mathematical modeling of the type of the Walrasian total equilibrium has to do anything with a market economy, it is time to fire them. In order to understand what a market economy is about, it is crucial to understand what Keynesianism is about, we need people with working experience, in the best of the cases successful entrepreneurs. We don't need more discussion papers; we need more marketable products and innovation.

The public discussion about the efficiency of academic studies is dominated by the academic staff. This is much more compact, and better-organised group than the amorph mass of the students and the have a better access to the mass media and politics. There is a broad discussion about lazy and incompetent students and how much does that cost the taxpayer. However, there is not even a discussion about the qualification of the academic staff and the contents of the academic curricula. At least 50 percent of the topics included in the academic curricula of economics is just nonsense, irrelevant in public discussion and entirely irrelevant in practice.

It is even worse. The presentation of the neoclassic theory, even the term is incorrect as we will see later on, as we can found it nowadays in any textbook, makes it difficult to understand crucial economic concepts. It is to suppose that most graduates know at the end of their studies what is income elasticity, price elasticity, cross price elasticity, Veblen effect and so on but didn't understand the function of prices in a market economy and the role of an entrepreneur. They had passed an exam about the IS-LM model, but the only thing they associate with Keynes is expansive fiscal policy. There is no benchmarketing needed to see this.

The author hopes that he has already given enough examples in the previous chapter illustrating how the academic curricula of economics should be restructured, but perhaps, it is still too abstract.

(By the way, abstract is relative in this context. Founding a company is always somehow diffuse. This is the basic problem of market economies. If this were not the case, the Keynesian policy would be no problem. It would be easy for the government to find interesting and profitable projects for deficit spending. Austrians believe that it is enough that the government doesn't intervene in order to avoid any kind of misallocation. The truth is that the government can try to make the process of finding profitable project easier, but he can't eliminate the risks.)

Let's try to illustrate with another example. Humanities is another case, where the efficiency of the studies can not be measured through clear parameters. Every time we have this situation, poorly defined goals, it is impossible to control a system through the mecanism of the market.

Studying Roman philology, for instance, Spanish, students learn to interpret works of the Spanish literature, Antonio Buero Vallejo, Alfonso Sastre, Miguel Mihura, Julio Cortázar, Lezama Lima, Mario Vargas Llosa, Miguel de Cervantes etc. If everything works fine, they learn that a novel opposes his own logic to the logic of society and that it takes as much work to understand the inherent logic as it took to these authors to get rid of the logic of society. If something is easy to understand it defrauds the reader, because the reader has no chance to learn something new. But we have no intention right now to talk about philosophical aesthetics. We will touch this topic when discussing about Adorno.

The only point we are interested right now is this. Real live is different. Publishers are more concerned about marketing. They produce books for a distinct group, for women, housewives, erotic and love, books for every kind of life crises, adventure stories, thriller and so on and every group a well-defined marketing strategy with marketing agencies, connection to the mass media and the libraries. In other words, it is a world that has nothing to do with the stream of consciousness, field of literature, intertextuality and so on. .

In other words, all what has been learned at the university is worth nothing and about what is actually needed, a graduate of philology has no clue. They have learned to write for papers, which nobody reads. The only "customers" they can eventually have are pupils or students, which are obliged to assist their classes. If they want to find a job outside this narrow world, they have to know this world. It would be a bad idea to accept the norms of this world and in the long run not a profitable strategy, but it is necessary to know what' s going on.

It is not enough neither to read Neil Postman. The question is how to reverse the situation. Neil Postman supposes that in past times, everything was better. That's not the case as we will see later on in the chapter about the cultural industry. What is actually needed are new ways of representing culture. To give an illustrative example, nobody cared about the opera Carmen of Bizet. However, when Carlos Saura made a film out of it, a shock wave run around the earth.

Make a diagnostic of the problem, the low interest for anything that is more than effortless amusement, and change things are two different stories. Another possibility to make people aware that they are actually defrauded is to write some novels which can be arbitrarily mixed. For that, we need some basic stories with some basic figures, the stunning but annoying daughter of a wealthy businessman, the poor boy studying hard to get a better life, the gangster with a genius plan to rob a bank, the family mother looking for adventures and so on. It must be possible to mix this stories and figures to get thousand of different stories. The whole thing can be improved by using a programming language. Perl, for instance, is well suited for things like that.

People would become aware that most of the movies, music and literature has more to do with industrial production and batch production than with creativity.

To diagnosis the problem is easy. But that is not the interesting part. The interesting part is to resolve it and earn money resolving. The academic staff has to learn that literature is a product that must be, as any other product, sold.

The attitude of philologist is the same as of the economists. Both of them analysis problems, but they expect others to resolve them. We can make a diagnosis that with an expansive fiscal policy, there is the risk of misallocation. It is not complicated and easy to understand. The answer to the problem is very clear. For an expansive fiscal policy, we need profitable investments. If economists have the solution and can detect them, then the government should give them money to get them realised. If economists can provide only diagnosis to the problem and wait until the private sector resolves the problem, we don't need them.

Returning to our original question; can people be convinced through arguments? At first glance, it seems that is not possible. People don't vote programs, in general, they don’t even know what the different programs of the political parties are. They vote for people they believe being the incorporation of their vaguely defined values. Opinion polls, in general, ask strange kind of questions. People were asked if they are in favour or against a minimum wage, in favour or against subsidising solar energy, in favour or against a public wealth system and so on and they have to respond with yes or no. The most bizarre questions are of the type "Which politician do you think is the most competent on social issues?".

The author is German and has no clue who is Mr. Osborne, but that sounds funny. To have an opinion about his qualities, it's enough that people know how he is.

Some 45 per cent of people who knew who Mr Osborne was told pollsters Populus he should be sacked, compared to just 18 per cent who thought he was doing a good job.

Labour was seen as more 'competent' than the coalition for the first time since the general election

This type of question "Are you in favour or against the minimum wage?" is completely idiotic. It depends on the level of this minimum wage. A low minimum wage like two dollars an hour in the US, wouldn't have any impact. A very high-level wage like 200 dollars an hour would lead to unemployment. It is to suppose that they are talking about a minimal wage superior to that what McDonalds pay. But then, they have to say it. We have no intention to discuss the topic here. The author would say that jobs at this level doesn't make any sense, and the government should organise more profitable jobs. For instance in the construction of roads, buildings and so on. Mainstream economists are against minimum wages and, in this case, the author would agree. If the (monetary) marginal utility of discussions papers, that is what economists produce is zero, then the wage should be zero as well.

However, that's not the point. It is obvious that nobody can have a really well-founded opinion about any of this issues. About every issue, we can read thousands of articles with different opinions. If a survey institute calls the author of these lines, they do that very often, he always answers to any question with a response of "no opinion" and he always wonders who devised the questionnaire.

However, there is a problem. Saying that it is nearly impossible to have founded opinion about at least the most important issues we get quickly to the statement that everything is just a matter of opinion and from this statement we get quickly to a general atmosphere, where politics is made responsible for everything. In order to win elections, politics must give the impression that they have the solution and in a situation of insecurity the most self-confident or, at least, the one with the most marketing power succeeds in convincing the population.

People afterwards became aware that these solutions doesn't work in practice and vote for another solution, seldom better that the previous one, but, at least, different.

That's not what we actually expect from a democratic decision process. From a democratic decision process, we hope that solutions based on a wrong theory become forever eliminated.

Although it is not possible to understand each issue of public debate thoroughly, we hope that through this manual, we will see some basic concepts which are always to be taken into account. We will try to illustrate this through examples.

At the other side there are many problems, which doesn't concern society as a whole, but only a little group. The appearance of uber for instance, we are still in 2014, is a phenomenon like this. It is to assume that problems like this will never be a topic of an electoral campaign and will, therefore, be resolved. In this case by jurisprudence.

At the other side, it is to assume that only a few topics, the same all over the world, health system, pension system, welfare state, organisation of public education, immigration, public spending and (indirectly) monetary policy will always be on the political agenda. These problems are characterised by the fact that they have a heavy impact on the whole economy and that there is a wide range of propositions, explicitly or implicitly, and a lot of economic goals, like justice, effectivity and sustainability are concerned.

The academic curricula have only two main topics. The characteristics of equilibrium and the different definitions of equilibrium in microeconomics and employment in macroeconomics. The wide range of topics has been drastically reduced compared to the original texts that this manual is based on. The reason of that has been already explained several times. Academic economics wants to present itself as a science like physics, with universally valid laws. This is the only possible abstraction from reality and focusing on theoretical problems with little relevance to reality.

The problem is that real life problems are more complex, and an abstraction from reality is not possible. Most of the concepts explained in textbooks are useless when it comes to analysing real world problems. 50 percent of what we found in textbooks is just useless and a waste of time.

Nevertheless, a chronological overview of economic thinking, as given in this manual, allows to see the essential aspects of economic problems, at least of these economic problems, which have a massive impact on the society as a whole and in different sectors of society.

Knowing these concepts would allow people not to vote for people, but for concepts, in other words for (assumed) relationships between cause and effect.

It is, for instance, to suppose that a pension system like the one existing in the USA is not going to work. It is economically impossible, if we look at the society as a whole, to transfer consumption to the future by saving. That is only possible if the amount of money is kept low and interest rates high. That means that the central banks must accept a high unemployment rate. That's something they won't do.

Austrians would say, and "prove" it with historical data, that low-interest rates leads to bubbles. That risk exists and it is equally possible, that this risks it minor if interest rates are high. If nobody invests, there are no bad investments, that's obvious, but not the solution to the problem.

That only works, if it is possible to produce the consumer good needed in the future now. That is the case with accommodations for personal use. In this case the "savings", paying back the credit, can be done as well in the future. The author is not sure that is was really a bad idea to promote the building of houses. It was poorly organised, but not a bad idea. We will discuss this topic several times throughout this book.

In textbooks about economics, we learn how to move around curves. This kind of exercise is irrelevant when it comes to discussing a problem of the real world. We never see someone moving around curves when discussing real issues. Moving around curves only works in a well-defined theoretical framework where only two parameters are considered; for instance, price and quantity in the supply and demand curve. In the real world, we never have such a simple situation. Moving around curves is irrelevant and a waste of time. If we get to the point of Cournot by moving curves or some mathematical equations, doesn't make any difference neither. Both methods are irrelevant.

We can think about it for ten minutes, but then it is finished. As long as the marginal turnover is higher than the marginal costs, profits increases. If someone wants to buy something willing to pay for the first unit 4 dollars, for the second 3 dollars and the third 2 dollars and the production costs are 2 dollars for the first unit, 2,50 dollar for the second and the third three dollars, we sell him two units. That's all. Dedicate more time on that is a waste of time. If we want to show the inefficiency of a monopoly, we better stick to Alfred Marshall. The producer and consumer rent is better suited to show that.

Real live questions, what is the best way to finance the necessary change in energy supply, that could be done for instance by selling shares to the population keeping out institutional investors, how to improve the transfer of know-how.

If we already have the problem that central problems of society are not understood or more accurate, if people personalise this problem because the theoretical framework is missing to analyse them on the basis of cause and effect, then there is no need to discuss irrelevant problems with inadequate methods. What is actually needed is an improvement in the public discussion. For more about that and the role of economist in this process, see for instance the internet and economics.

Politics is a kind of mythology. In former times, in times of the ancient Greeks, for instance, every problem that could not be explained logically, was explained by the intervention of a god. Poseidon was responsible for thunder, Hephaistos for fire and lots of gods for the destiny in general. History at school level is all about persons, although persons have little relevance. America was not discovered by Columbus, but by the persons who constructed the ships. It seems that the more people are unable to give a rational explanation for a phenomena, the more they tend to personalise a problem.

For the mass media, that's an economically interesting phenomenon. The less people know, the more they can focus on people and news about persons can be obtained more quickly than real facts. Daily News, for instance, is almost only about persons.

(That make change from one day to another, but at the moment of writing, 6th November 2014, is was exclusively about persons. If that has changed and the reader of these lines finds some information on this website, it is proved that the nut can be cracked and the author of these lines was right.)

In the textbook of economics, we find nothing about know-how transfer, innovation, how to improve the results of research and development and so on, although it is clear for everybody that these factors have a crucial impact on the economy. If Google were in Greece and not in the US, we would have an entirely different situation. There is a silent agreement between economists and what parameters are the economically relevant ones.

The stunning phenomenon is that public opinion in large parts shares this view. At a lower level, in other words without mathematical and graphical modeling, we have the same kind of discussion as in any textbook. For some, wages are too high, and unemployment can be reduced by cutting them and for other people it is too low, which leads to a lack of demand. For some people, the distribution of income is too unequal, which leads to a lack of demand and for other people, it is too equal, which leads to a lack of saving. For some people, interest rates are too low because that leads to bubbles fund. For other people, too high because that leads to a lack of investment. Some people believe that the pension system should be based on a privately accumulated capital stock and other people believe, that it must be organised through "a contract of generations".

Problems with the transfer of knowledge and innovation are never discussed, although it is obvious that this has a massive impact. If we succeed through the know-how, the transfer to increase the (monetary) marginal product of labour higher wages is no problem. The type of interest can be as low as they want, if nobody has a profitable project to invest in, no money is needed. The possibility to live after retirement from the privately accumulated capital stock depends on whether this capital stock could had been invested, depends on innovation.

The relationship between economists and the public is somehow strange. The public is convinced that economics is not a science and good for nothing, but if they save money, they expect economists to invest it in a profitable way. If that doesn't work as expected, which is something quite logical, they get angry. They expect politicians to have the answers to economic problems knowing that these politicians are advised by economists and are frustrated, as it is to be expected if things doesn't work as expected.

It seems that this kind of thinking has some advantages. The public, the politics and economists, are interested in excluding these factors. If we exclude factors like know-how transfer or innovation, it is easier for the public to find someone who is responsible for the problems. Excluding these factors, people can say that the problems are not resolved because other people, the economists and politicians, are incompetent. If the real issues are things like know-how transfer and innovation, no one could be blamed. A statement of the type "oh, the entrepreneurs are so stupid, they are not able to detect interesting projects to invest into and creating jobs" would be foolish. People need the illusion that someone can be made responsible for their problems.

Politicians at the other side are interested in excluding these factors as well. If redistribution, lowering or increasing wages or promoting savings are relevant factors, the economy depends on political decisions. By admitting that economic development depends on things, they can almost not influence limits their power.

For economists, that's obvious and have no interest in demonstrating that the real problems have to do with things they have no clue of. It is quite evident that in a society where everybody can found and successfully run a company, there is no need for economists.

Nowadays, economics is, therefore, a much more subtle ideology than Marxism. In the case of Marxism, things are easy. The role played by modern economics is much more subtle. Different opinions are allowed, provided that they are compatible with the three functions of economics; to console, to underline the importance and let abstract from reality.

There are many discussions papers about the misallocation of resources when public spending is increased. However, there is not a single discussion paper about the usefulness of discussion papers, and if there is one, it is silently ignored.

The author doesn't deny the importance of philosophy. We have included two chapters with a focus on philosophy. Philosophy allows to define a general framework. We can learn from philosophy, in a lot of different ways, that the only stability in history is the fact that people always believe in some kind of stabilities. We will discuss this topic in the chapter about Ernst Bloch.

However, if we talk about concrete economic issues, philosophy is not helpful, and tendencies like the neoliberalism, ordoliberalism, social market economy, Austrian school are too philosophical. They get lost in fundamental debates, which doesn't make a lot of sense in real life. We don't have free market economies on one side and socialism on the other side as assumed by Milton Friedman. Ordoliberalism, the idea that the role of the government is to establish some rules of the games, in other words, to guarantee a sufficient intensity of competition, is elder than the green hills of Africa. Like the neoliberalism, ordoliberalism assumes that there is only the market economy or 'capitalism' as Milton Friedman calls this system on one side and socialism on the other side and ordoliberalism, like social market economy, is a "third way". In reality, we have thousands of alternatives.

At first glance, it 's hard to see any difference between neoliberalism, ordoliberalism and the Austrian school, but reading the original authors, we will see in the corresponding chapters, that there are differences. Not really in the basic concepts, but in the language and the topics they focus on. Neoliberalism, for instance, focuses more on efficiency, on the optimal allocation of resources. Freedom is a mean to achieve this goal. In the Austrian school, freedom, a term never really defined, is not a mean, but the goal. The opposite of the free market is socialism and socialism is fascism. Being seen in this way, efficiency is relegated to a secondary role. Even if a fascist regime can offer a higher material living standard, it would be the hell on earth. The problem is that there are a lot of alternatives to free market economies of type laissez-faire. Hayek and the other Austrians discuss a situation, which actually doesn't exist.

If we want to see a very illustrative example how narrow-mindedness of the Austrian type leads to ridiculous conclusions, we can read this article: China's Flirtation with Keynesian Economics.Indeed, Chinas politics can be interpreted as a kind of Keynesian economics, and we doubt, that this is going to work when economic growth depends more on own research and innovation. However, we can see very clearly, that all the prognostics made about Chinas economy are false, a real slap on the face. China is now the economy number two, and it is not sure that in a few years they are not going to be number on.

The problems tendencies like the neoliberalism, Austrian school or ordoliberalism focus on cannot be discussed from a philosophical point of view because there are very concrete solutions for that.

There is no doubt that any system completely uncontrolled will end on the wrong path. If the reader of these lines gets paid for writing discussions papers, which were never discussed nowhere by nobody, he will write discussion papers. If he or she gets a job in a bureaucracy doing useless things the whole day the whole day, he or she will do it. There are millions of people out there like this.

The reader of these lines will always try to avoid working in a market economy because this is insecure and arduous. We all like to get jobs where is no clear relationship between income and output and nobody likes to be controlled by the objective control through the market.

At the other side, the taxpayer don't like to pay for things he doesn't get any benefit from. If the taxpayer knew that he pays for many things that can be done much cheaper, politics would be obliged to organise the public administration more efficiently.

To give a concrete example, just to show that this is not a philosophical problem to be discussed under the terms of "capitalism and freedom".

After the fall of the wall in Berlin, Berlin is a city and a federal state as well, Berlin had, in relationship to its inhabitants, three times more public employees than any other city in Germany. That was too much. All this people believed, at least, that's what they said, that they work very hard, but the other federal states of Germany were no longer to pay for that. Politics was obliged to react.

A controlling system was implemented in each of the, at these days, 23 boroughs. In every borough were calculated the costs of each service, issue a trade licencing, controlling food production, costs of public libraries etc. (The system is somehow sophisticated, we are not going to explain it here in detail.) Based on these data the allocation of resources was changed. The boroughs got the median value of the costs multiplied by the amount of products and not the resources they believed being necessary. In other words, the less efficient boroughs were obliged to reduce the costs. That was very efficient and after a few years, the situation in Berlin was comparable to these of other cities.

It is obvious that the pressure can be increased by publishing the data on the internet. (What is actually done, but in a very incomprehensible way, so that people without a good understanding of controlling can't interpret the data.) It is, for instance, to suppose that people would be shocked, if they knew that for the costs of the public libraries it would be possible to buy a kindle for each citizen of Berlin and with a Kindle, everyone would be able to download 10,000 books for free from Amazon.

This is only an example. It is easy to prove, that transparency has an impact on efficiency as strong as the market mechanisms.

It seems that neoliberals and Austrians don't want to discuss resolving problems, emotions are the better marketing strategy. Millions of people read "Road to Serfdom" from Hayek, but who would have read a book with the title "Adaption of controlling software to the needs of public administrations"?

As already discussed, there are sectors of the public administration where no control with mechanisms comparable to the mechanisms which control the market is possible. The public schooling is a illustrative example for that. Neoliberals like Milton Friedman stresses the problems of public financed schooling. The critic of public school is widespread. If one puts public schooling on YouTube, thousands of videos can be found about the topic. The problem is, that there is no proof that private schooling would do better. We are going to discuss again about the topic when talking about Milton Friedman.

Critics of public schooling are widespread, and there is no doubt that every word in this video is true: Sir Ken Robinson: Bring on the learning revolution! In every country, Germany, France, Great Britain or Spain, people have the impression that their public schooling is wrong. The truth is, the debate is the same all over the world.

Nevertheless, there is a practical problem. It seems that it is tough to get well-trained teachers. Teachers can now explain the same thing spontaneously in different ways with different methods, to guess from a wrong question what is the real problem, who have enough working experience to give a hint to their students what they can do with the things they like to do and so on. Teaching as it is organised nowadays is a kind of disincentive to the teachers. There is no need to convince their students about the relevance of the topics they are teaching or to improve their methods because they always have the possibility to supress any discussion. It would be better to employ teachers with a succesfull teaching career outside the formal education system. In other words, teachers who have learnt to treat their audience as customers.

The Pisa study is not really helpful when it comes to evaluate the outcome of the schooling system. Germany and the United States for instance have only a mediocre result in the pisa study, but are the two countries with the highest gdp per capita. It seems that the more people are stupid, the richer they are. If the outcome of the pisa study doesn't correlate with any parameter, it is useless.

Change of public opinion seldom has to do with a rational refutation of a theory. The importance of religion was not refuted by rational arguments. It simply vanished in the course of history. Marxism was never refuted, it simply disappeared. When discussed at an academic level, the focus was always set on more philosophical issues, restriction of liberty and things like that. This may be true, but the basic error is the definition of capital. For Marx, money is the result of capital and something coming from the past. In other words, capital and money are the same thing. That is actually the crucial error, as we are going to see throughout this website. One reason for that is the fact, that classic and neoclassic theory are based on the same mistake. It is, therefore, difficult for every tendency which is based on the classic and neoclassic theory to criticise Marxism on this central issue.

Neoliberals reproach Keynes to be a socialist, see for example this article: IS KEYNESIANISM A SOCIALIST MANOEUVRE? (Easy to find thousand of others. The truth is, that the only real opponent to marxism are not the neoliberals, they have the same strange c(Easy to find thousand of others. The truth is that the only real opponent to Marxism are not the neoliberals, they have the same strange concept of capital, but Keynesianism. Keynes is the only author who questioned the foundations of Marxism (and at the same time of the classical and neoclassical theory.) Capital is not needed for investments. Investments are financed with money, and that is a huge difference. For details, see the little book downloadable from the start page of this website. The critics made by the Austrians are more philosophical than economic.

From all that we can deduce that we don't have a rational learning process. Sometimes for ideological reason economic development is explained by ideas which has nothing to do with reality. An example for that is the explication given for the German Wirtschaftswunder. In this case, a political party, the CDU, in this instance, tried to present itself as the inventor of this Wirtschaftswunder. An argument still used nowadays. Sometimes the political debate is about irrelevant issues; that's the case with Austrian attacks against Keynes. Sometimes, economic theories are not actually refuted by arguments, they just vanish.

That's not really good for a democratic decision process. A democratic decision process only works, if obsolete and wrong ideas are refuted by arguments. Otherwise wrong concepts will appear again and again. Perhaps, if we are lucky, they vanish one day if all the circumstances change, but that can take a lot of time. The actual financial crises, for instance, we are still in the year 2014 as interpreted by many people as crises of capitalism, we see a revival of Marxism, although it is not very clear, what they understand by capitalism. It is much more easy to explain bubbles on the stock market with the framework of Keynesian theory, but it is hard to see why this crisis is a failure of the market economy. (We assume that the people who use the term 'capitalism' mean actually 'market economy'.)

At first glance, the idea of Karl Popper seems easy and straightforward, although very few people understand it. The majority of the people believes that the basic idea of democracy is the ruling of the majority, but that is not the decisive point. Democracy is a way to find out systematically what works and what doesn't work, and majorities can err as much as minorities. The decisive point is that there must be a possibility to correct bad decisions. .

However, that only works, if there is access to the data and if the theory proposition is based on is clear. This means for instance that the public budget of the nation, the federal states and the communities must be accessible and it must be possible for what this money has been actually used and if the goals set have been achieved.

Nobody will or can control the whole public budgets, but there are always people who for professional or other reasons have enough background information to control some parts of it.

Popper is a little bit too philosophical and doesn't take into account the practical problems.

For Milton Friedman and Friedrich Hayek, on the other hand, the rule of majorities presents a risk for freedom. The idea is that majorities tend to exploit minorities. In theory, the risk exists, in practice, it does not. What actually happens in practice is something entirely different. Minorities abuse majorities. Minorities or certain pressure groups are better organised than majorities and for them, it is interesting to represent their interests, because they are really concerned, while it doesn't make any sense for the majority to defend their interests because the possible benefit is not worth the effort. For the sugar industry, for instance, it is interesting to lobby for higher tariff trades on sugar coming from foreign countries. For the single consumer, that doesn't make any sense.

We can assume as well that the majority is more reasonable than the minority. A single sector of the economy will always try to get rid of competitors through the regimentation restricting the access to the market. Pharmacies, for instance, do that very successfully in Germany. Any kind of drugs, pharmacies can only sell even the most trivial ones like headache tablets. However, even pharmacists wouldn't vote for a law which restricts competition because, in this case, they would be concerned as consumers.

A bank robber believes that it is a good idea to rob a bank. However, he would never vote for a law allowing bank robbing in general, because then he risks that the bank where he has his money is robbed.

The same argument is validly related to the redistribution of income through taxes and social transfers. Hayek believes that in democracies, the rich would be expropriated through taxes. That never happened. A possible explanation could be, that nobody knows if one day he gets rich himself. If the majority believes that they can improve their economic situation, they won't vote for a party that excludes this possibility from the very beginning.

To put it briefly, the theory taught in the study of economics and appears in textbooks about economics has fundamental mistakes. The first mistake is that many things are taught which doesn't even have a theoretical relevance and are pure ideology. This, for instance, is the case with the welfare economics rubbish based on the wired ideas of Vilfredo Pareto. These contents should be simply eliminated from the academic curricula. There is no time to lose. It is necessary to do the most relevant things in the short time we have.

The next error is that the "economic laws" universally valid, which are only universally valid because they exclude everything which is not universal. If we say that German romanticism, Clemens Brentano, Achim von Arnim, Novalis are comparable to the English and American romanticism, Edgar Allan Poe, Lord Byron, William Blake because all of these authors wrote their poems with a fountain pen and not with a ballpoint we have a universal law. But this is a nonsense affirmation, because actually german romaticism and English/American romanticism is very different. We get a law by abstracting from the relevant issues. If we abstract from individual circunstances and relevance we get easily an infinite numbers of "laws".

To illustrate this point, we are not interested in knowing the wage where the demand for labour and the supply for labour is balanced. No doubt, a wage like this exists. We want to know why this wage is different in the different parts of the world and what can be done to increase it in the case that it is to low. We want to know the social, psychologicla, technical, climatical etc. factors who have an impact on the wage. It doesn't make any sense to exclude everything from the analysis which is not universal but individual to get some univerals laws suited for mathematical modeling.

What economists believe to be the strengths of economic thinking, the fact that economics, in contrast to other social science, has a "universal laws" is actually the weakness of economics. Very often economic laws are only some relationships taken for granted at a certain time and only it the laws are very trivial; they are stable.

The third error is systemic thinking, in other words, the idea that the economy is kind of a machine which can be controlled by adjusting and readjusting some parameters.

We don't say that this way of thinking is completely wrong. Sometimes it makes sense. Sometimes it is possible to modify the behaviour of the people by changing some parameters. If for instance the VAT is increased and the elasticity of prices is not completely elastic, in other words when at least a part of the increase leads to an increase in prices, consumption will decrease.

However, processes of this kind have nothing to do with a market economy. The neoclassic theory, we will talk about that topic later on when we talk about Joseph Schumpeter, which is the beginning of this kind of thinking, describes, in contrast, what they think, a static economy. (We always exclude Alfred Marshall. There are some problems with the terms, as we will see later on when discussing the neoclassic theory.) In the neoclassic theory, Léon Walras this tendency reached his peak, the economy gets automatically to equilibrium, and once this equilibrium is attained, it remains there.

It is a market economy without entrepreneurs. There is nobody who processes information, imposes innovations and react to changes in preferences, the size of the markets, prices in the commodity markets etc.. The productive factors, capital and labour, does this alone without any effort.

As stated correctly by Schumpeter in this kind of economy no saving, very important in classical and neoclassical economic thinking, is needed, because this type of economy only reproduces itself year after year and for replacing written-off machines, only the earned depreciation is needed.

Neoclassic theory is an economy without human beings. It is kind of a machine. It is a curious fact that the neoliberalism, which stresses so much the importance of liberty, entrepreneurship, personal effort etc. is based completely on the neoclassc theory.

The methodological paradigm of economics is physics. The problem is that in science, there are really universal valid laws, and it is possible to abstract from individual circumstances because there are only a few, and they can be eliminated in experiences. A stone falls at 9.82 m/s2 in China and Uruguay. In science, there are no individual circumstances nor subjects

In economics, we are confronted with phenomenon and interactions by far more complex. Subject modify their environment and are modified by the environment. If the subject is eliminated, there is no relationship between politics, the social environment, both the result of interaction between subjects, neither.

Economics is, concerning the theory, simple. Much, but much easier than programming for instance in C++, learn a language, molecular biology or other of the thousands of things one can do. Everybody can understand the theory and the basic theoretical concepts, even without making a big effort. That's good by the way. If economics were so complicated as for instance C++, in other words, something so complicated that several years of training is required to use it in a productive way, the situation would be helpless.

This is proved by the fact that there is almost no politician who studied economics. (In general, they studied law, what is a problem. Because at least a basic knowledge of economics is needed, when it comes to deciding on economic issues and all political decisions have economic aspects.)

If a long study and practice were needed, as it is needed to programme in C++, it would be impossible to control politics through a democratic decision process. Democracy would fail by the fact that it is to complicated.

return to the top of the page ...