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Asad Zaman

Asad Zaman

Physician executive. All opinions are my personal. It is okay for me to be confused as I’m learning every day. Judge me and be confused as well.

Articles by Asad Zaman

Ecological Economics

7 days ago

From Asad Zaman
Eurocentric history portrays the West as advanced, rational, scientific, and democratic, while the East is superstitious, unscientific, autocratic, and backwards. This poisonous philosophy enabled the incredibly brutal and ruthless violence required for the conquest of the globe, and continues to sustain extremely exploitative economic systems. A partial antidote is World Systems theory which portrays all human beings, nations, and cultures, as joint participants in weaving the rich fabric of human history. Ecological economics goes further to take the entire humanity as one element of the biosphere and geosphere of our planet. All of the biological species have their “economics” where they consume and produce, directly or indirectly affecting other species. All of

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Developments in money and finance absent from conventional macro textbooks.

November 2, 2020

From Asad Zaman
Somebody aptly quipped that ‘Trying to understand the economy without understanding money and finance is like trying to understand how birds fly, without taking the wings into account”.
The Hegelian anti-thesis of the orthodox economic position that money is neutral, is the idea that “money is everything”. Economics is just the analysis of monetary flows, both within a society, and globally. Karl Marx describes the change in perspective via the formulae C-M-C’ versus M-C-M’. In the first paradigm, commodities C are sold to get money M, in order to buy another set of commodities C’. This picture of a barter economy, in which money just facilitates exchange, is at the heart of modern economics; this is why money does not matter. However, in a capitalist economy, M(oney)

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Political Economy

September 30, 2020

From Asad Zaman
This is a sequence of posts on “New Directions in Macroeconomics“, which discusses the numerous directions of research which must be incorporated to create a viable Macroeconomics for the 21st Century. We have previously discussed “Post-Keynesian Economics“, and “Modern Monetary Theory“. This post discusses the necessity of re-incorporating politics into economics.
Once we recognize the importance of history and institutions, it becomes clear that economic problems cannot be separated from politics and society. The interplay of class interests, and their relative power, is of essential importance in understanding political and economic structures of society. Current commitment to methodological individualism has blinded economists to these aspects, and left them unable

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Modern Monetary Theory

September 22, 2020

From Asad Zaman
This continues from the previous post on Post-Keynesian Response. A large number of contributions from different areas need to be integrated to build an economics for the 21st Century. For an acknowledgement of the failure of 20th Century Macro from one of its architects, see Romer’s Trouble With Macro. This post explains Modern Monetary Theory briefly.
Since the time of Keynes, major changes have taken place in the global financial system. Against wishes of Keynes, Bretton-Woods created a dollar centered system based on notional exchangeability of dollars for gold. The Nixon Shock in 1971 removed the gold backing from dollars, leading to the modern world of floating exchange rates. Dramatic changes in the monetary exchange systems and financial institution play no role

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Post-Keynesian Response

September 3, 2020

From Asad Zaman
This continues from previous post on New Directions in Macroeconomics. Among the heterodox responses to the crisis in economic theory created by the Global Financial Crisis 2007, we will briefly discuss the following:  Post-Keynesian Economics, Modern Monetary Theory, Political Economy, Evolution of Global Finance, Ecological Economics, Complexity Economics, Islamic Economics. This post is about Post-Keynesian Economics.
The response of mainstream macroeconomists to this crisis has been disappointing; see for example Antara Haldar (2018) “Economics: The Discipline that refuses to change”. The failure of classical economics in the Great Depression of 1929 led Keynes to the create the field of macroeconomics, which was revolutionary many different ways. Unfortunately,

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Four narratives about central banks

June 26, 2020

From Asad Zaman
The previous post (Three Mega-Events Which Shape Our Minds) explains the importance of history in shaping the world we live in. Historical events (facts) by themselves are not meaningful until they are linked together into a coherent narrative. The mortar which connects the facts must be supplied by our minds, and can never be asserted with certainty. The fact that we can never be certain about the narratives which connect and explain history has led to two polar mistakes. The positivist mistake is to renounce narratives, and focus solely on the facts. This makes it impossible to make sense of history, which deprives us of a rich storehouse of human experience. In effect, it means that we must start afresh every day, since the past makes no sense. The other extreme is

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Three mega-events which shape our minds

June 22, 2020

From Asad Zaman
What is the nature of the world in which I live? As I look around me, I see walls, windows, doors, and furniture. But these are insignificant parts of the world as constructed by my mind. I conceptualize the world through the teachings of history, according to which human history started in the remote past, with hunter-gatherers. I have a smattering of knowledge of the ancient civilizations of Sumeria and Babylon, and much more of the Roman Empire. The rise of Christianity, Islam, the Ottoman Empire, the Industrial Revolution in England.  The NARRATIVE, or the stories woven around these events, and my own place – or that of my ancestors – within these events, shapes my identity, my allegiances, and also my hopes, visions and projects for the future. These narratives

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Bagehot’s engaging naiveté

June 16, 2020

From Asad Zaman
Chapter 2 of Goodhart’s “Evolution of Central Banks” cites in detail several arguments made by Bagehot (pronounce Badge-it) in favor of a free banking system without a Central Bank. After listing them, he notes that Bagehot is “engagingly naïve”, as a gentle critique. It is astonishing that a hard-nosed practical financial analyst like Bagehot would indulge in such visionary daydreams about a “free market” system. This testifies to the power of ideology to blind one to the faults of idolized system. Here are some of the “naïve” arguments advanced by Bagehot in favor of free banking:
In a competitive free banking system, every bank would maintain adequate reserves, to create credibility.
Also, in case of panics, they would lend to distressed banks, in order to protect

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Central Banks: Monopoly or Public Service?

May 30, 2020

From Asad Zaman
The Reagan-Thatcher revolution in the late 1970’s consisted of a move towards free markets, and away from government regulation and control. Of central importance in this move was the deregulation of financial institutions. We would like to understand WHY this change took place, and WHAT were the effects of this change on the working of the USA/UK economies.
Summary of Basic Facts: Financial de-regulation, guided by an ideological belief that free financial markets would work better than regulated ones, was at the heart of the Reagan-Thatcher revolution. The evils of free financial sector had clearly been recognized in the Great Depression, The Emergency Banking Act of 1933 and other regulatory measures wrapped a large number of chains around the financial monster,

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How economic models became substitutes for reality

May 21, 2020

From Asad Zaman
The problem at the heart of modern economics is buried in its logical positivist foundations created in the early twentieth century by Lionel Robbins. Substantive debates and critiques of the content actually strengthen the illusion of validity of these methods, and hence are counterproductive. As Solow said about Sargent and Lucas, you do not debate cavalry tactics at Austerlitz with a madman who thinks he is Napoleon Bonaparte, feeding his lunacy.  Modern macroeconomic models are based assumptions representing flights of fancy so far beyond the pale of reason that Romer calls them “post-real”.   But the problem does not lie in the assumptions – it lies deeper, in the methodology that allows us to nonchalantly make and discuss crazy assumptions. The license for this

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The misleading case for free markets

May 11, 2020

From Asad Zaman
This sequence of posts goes through Charles Goodhart’s book on Evolution of Central Banking. Previous post is: RG5 Evolution of Economic Systems
Chapter 2 opens with a discussion of the views of Walter Bagehot (pronounce as badge-it), author of Lombard Street, which has received a lot of recent acclaim as masterpiece on central banking. After the Global Financial Crisis, Martin Wolf asked “Doesn’t what has happened in the past few years simply suggest that [academic] economists did not understand what was going on?”. Larry Summers responded by naming Lombard Street (1873). There are many articles which examine how a 150 year old book provides insights into the financial crisis which modern economists do not understand!. See, for example, Brad De-Long’s This Time is Not

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Evolution of economic systems

May 7, 2020

From Asad Zaman
Economic systems evolve, sometimes under external dynamic and sometimes under internal dynamics. As they evolve, economic theories co-evolve, however their can be (often are) lags in understanding – so theories relevant to one system are applied to another, with disastrous results.
Human beings started out with tribal societies, and spent the longest period of history in this form. They societes were egalitarian and communal. They were not market oriented. Production and  distribution was done by consensus of the community. Communities were self-sufficient, producing or acquiring basic needs for all members, without any markets or trade. For more details, see “Hunter-Gatherer Societies”.  An essential point to understand is that the economic system shaped the nature of

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Economic theories cannot be understood outside their historical context

May 4, 2020

From Asad Zaman
It is an Obvious Truth that economic theories analyze specific historical economic systems.
In nomadic societies, there is no production. Economics would be about finding plants, game, and moving according to seasons.
In agricultural societies, private property becomes important. Those who plant need to have rights to harvest their plantings.
Feudal Societies are mostly self-sufficient in commodities and operate without money. These are barter societies. Money is not a goal, but only a means to get more goods. Karl Marx explained this via the formula: C – M – C’  which means that Commodities are sold for money, which is used to get different commodities.
Market societies: people sell labor for wages to produce commodities. Money is used for purchase. Money is main

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Arguments against Central Banks

April 28, 2020

From Asad Zaman
RG2 (Reading Guide 2) – Continues from previous posts on Reading Course: Central Banking and Readers Guide: Goodhart on Central Banks. Writeup is given following the ten minute video:
[embedded content]
Goodhart starts by discussing discontent with Central Banking System. He wrote this book well before the GFC 2007 -8, which has created much greater discontent. There are two different lines of attack on Central Banking:
Free Banking: Private Creation and Provision of Money. Today, this idea would find shape in large scale private creation of money via bitcoins, FB Libra, community money, and many other innovative ideas for creation of money without governments being involved.
Regulated Central Banks: Banks should follow specified rules, like Friedman’s rule of 6%

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Reading course: Central Banking

April 22, 2020

From Asad Zaman
I am in process of creating an online course on the history of Central Banking. The era of online courses has been forced upon us by the Corona Virus, though I have been meaning to do this for a long time. The WEA Pedagogy Blog seems like a great place to do a beta-test. I would like to start by inviting the audience to read through Charles Goodhart’s book on the Evolution of Central Banking. We would plan to read one chapter a week and discuss it on posts and/or comments on posts on this blog. Those who formally register on the Google Form: History of Central Banking will be put on an email discussion group for the book, and also get a link to download a copy of the book itself. Some motivation for why it is worth reading this book is given below:
Conventional Macro

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Mäki Rules on Rodrik’s Rules

April 8, 2020

From Asad Zaman
Mäki, Uskali. “Rights and wrongs of economic modelling: refining Rodrik.” Journal of Economic Methodology 25.3 (2018): 218-236.
Introduction: I must confess to having admired Dani Rodrik. His research was iconoclastic, fearlessly going after many sacred cows of economics. So, I was saddened and disappointed by his defense of Economics: Rodrik, Dani (2015) Economics Rules. Why Economics Works, When It Fails, and How to Tell the Difference. Oxford UP. Rodrik uses “rules” in a dual sense; a set of rules to discriminate between good and bad economics, as well as an assertion of the superiority of economics. This post is a fairly longish 2100 word summary of the first half of  Mäki’s trenchant critique the book, linked above. If I find the time and energy, I might do the

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GDP comparisons across time

March 10, 2020

From Asad Zaman
This continues a sequence of posts aiming to show how apparently objective statistics conceal large numbers of arbitrary value judgements.  (1) Lies, Damned Lies, and Statistics, (2) Subjectivity Concealed in Index Numbers, (3) The Values of a Market Society, (4) Cross-Country Comparisons of Wealth, (5) Purchasing Power Parity, (6) Downfall of Rhetoric in 20th Century, (7) Facts & Values: Distinction or Dichotomy?. This is the 8th post, which considers comparisons of GDP across time within a single country.
In comparisons across countries, we face the difficulty that the concept of “wealth” has varied across societies, and changed with time. The “average basket” of goods varies for each country, because different societies have different preferences and values. We

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Facts & Values: Distinction or Dichotomy?

March 3, 2020

From Asad Zaman
This continues from the previous post on the Downfall of Rhetoric in 20th Century
Even though our goal is to explain how apparently objective looking statistics conceal arbitrary and subjective judgments, the path we take requires a detour through “epistemology”, or the theory of knowledge. Instead of the deep discussion provided by Putnam (2002, Collapse of the Fact/Value Dichotomy), we will take a shortcut, and look at how these philosophical debates and controversies about have shaped the way that social sciences in general, and statistics in particular, have conceived of the relationship between the numbers we analyzed and the real world that generates these numbers. The wide gap between the philosophers and other intellectuals can be seen clearly in their

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Downfall of rhetoric in 20th century

February 29, 2020

From Asad Zaman
One of most effective and powerful among modern forms of rhetoric is the use of statistics to conceal the ancient methods for persuasion. How this is done is the main topic of our essay.
In a sequence of posts ( Lies, Damned Lies, and Statistics, Subjectivity Concealed in Index Numbers, The Values of a Market Society, Cross-Country Comparisons of Wealth, and Purchasing Power Parity), I have tried to explain how the statistics we use conceal arbitrary value judgments. This is the modern form of rhetoric, which is deadly, because the values are built into numbers, hidden in the process by which the numbers are manufactured, and not open to discussion and dispute. The initial post gives a brief hint as to how this state of affairs emerged. This post elaborates some more on

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Purchasing Power Parity

February 26, 2020

From Asad Zaman
In a sequence of posts starting with  Lies, Damned Lies, and Statistics,  I have argued that the attempt to reduce multiple indicators to one number always introduces subjective elements relating to choice of factors, and relative weights to be assigned. By using technical jargon to justify choice of weights, the value judgments involved in this choice are concealed under a cloak of objectivity. This creates a modern form of rhetoric, where the arguments are made using numbers, and the values that went into the manufacture of these numbers remain hidden, and therefore, are not discussed. This concealment of values resulted from the creation of an artificial dichotomy between facts and values which became widely accepted. Values are considered unscientific, personal

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Cross-country comparisons of wealth

February 23, 2020

From Asad Zaman
This continues a sequence of posts on how objective looking statistics conceal hidden values, because a positivist approach prohibits open expression and discussion of value judgments. Previous posts in the sequence are: Lies, Damned Lies, and Statistics, Subjectivity Concealed in Index Numbers, and The Values of a Market Society.
Countries compete with each other on the GDP numbers, without any awareness of the values which are embodied in such competitions. Such comparisons are fraught with many difficulties. We illustrate the difficulties which arise when we try to compare GDP across nations. To being with, let us examine the GDP data measured in Local Currency Units (LCU) for the countries India, Pakistan, Malaysia, Bangladesh, China and Irland from the World

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The values of a market society

February 21, 2020

From Asad Zaman
Continued from previous post on Subjectivity Concealed in Index Numbers. Because modern epistemology rejects values as being just opinions, and only accepts facts as knowledge, values have be to disguised in the shape of facts. What better way to do this than by embodying them in cold hard and indisputable numbers? This post discussed how the GDP embodies the values of a market society.
From the sixteenth to the eighteenth century, the values of European societies were radically transformed by a complex combination of forces. Traditional social values, originating from Christianity, can be roughly summarized as follows:
Community: All members are part of a common body, striving together for common goals.
Social Responsibility: All members must take care of each other.

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Subjectivity concealed in index numbers

February 19, 2020

From Asad Zaman
This continues from the previous post on Lies, Damned Lies, and Statistics.

More than 1.5 million copies sold, more than all other textbooks of statistics combined. Online copy
The vast majority of our life experience is built upon knowledge which cannot be reduced to numbers and facts. Our hopes, dreams, struggles, sacrifices, what we live for, and what we are ready to die for – none of these things can be quantified. However, as we have discussed, logical positivists said that what cannot be observed by our senses cannot be part of a scientific theory. As a result of this false idea, later disproven by philosophers, the attempt was made to measure everything – numbers were assigned to intelligence, trust, integrity, corruption, preferences, etc. – even though a

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Failure of Turing’s conjecture

February 13, 2020

From Asad Zaman
Note that this is a very POSITIVIST idea — if the surface appearances match, that is all that matters.
       
I quote a passage from Pearl: The Book of Why, which provides a gentle introduction to the newly developed field (largely by him) of causal inference via path diagrams:
In 1950, Alan Turing asked what it would mean for a computer to think like a human. He suggested a practical test, which he called “the imitation game,” but every AI researcher since then has called it the “Turing test.” For all practical purposes, a computer could be called a thinking machine if an ordinary human, communicating with the computer by typewriter, could not tell whether he was talking with a human or a computer. Turing was very confident that this was within the realm of

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Mistaken methodology of econometrics

February 11, 2020

From Asad Zaman
This is the continuation of a sequence of posts on methodology of economics and econometrics (For previous posts, see: Mistaken Methodologies of Science 1, Models and Realities 2, Thinking about Thinking 3, Errors of Empiricism 4, Three Types of Models 5, Unrealistic Mental Models 6, The WHY of Crazy Models 7, The Knowledge of Childless Philosophers 8, Beyond Kant 9,). In this (10th) post, we consider the methodology of econometrics, which is based on Baconian or observational models. That is, econometric models tend to look only at what is available on the surface, as measured by observations, without attempting to discover the underlying reality which generates these observations. This is an over-simplified description, and we will provide some additional details

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Beyond Kant

February 6, 2020

From Asad Zaman
This is a continuation of previous post on “The Knowledge of Childless Philosophers“. I would like to clarify some aspects of the theory of knowledge which have become muddled and confused because childless philosophers did not observe how children learn about the world, and acquire knowledge starting from scratch. If they had taken this as the basic model for how we acquire knowledge, they would have been able to avoid a huge number of mistakes.
A realist methodology for science starts from the realization that scientific knowledge goes FAR BEYOND the realm of the observable. Electrons, Neutrons, Positrons have different kinds of charges, and act in different – incredible and amazing –  ways, but the link between them and observable phenomena is extremely weak and

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The knowledge of childless philosophers

February 3, 2020

From Asad Zamzn
Continuing from the previous post on The WHY of Crazy Models, I attribute a large portion of the blame to massively wrong theories of knowledge. A little bit of study of epistemology is enough to give anyone a headache. Because of this, instead of investing the time and effort to decipher what the philosophers are saying, the rest of us are willing to take it on faith. No one is aware of the massive amount of damage done by philosophers – most philosophers themselves are unaware the tremendous influence that their failures in the past have had on the real world. Similarly, the non-philosophers are unaware of how deeply their thoughts have been affected by false and obsolete philosophies, now rejected by the philosophers. Keynes summed up the state of affairs nicely in

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The WHY of crazy models

January 30, 2020

From Asad Zaman
I was professionally trained as an economist, and learned how to build models with the best. As described in detail in a previous post on “The Education of An Economist“, it was only by accident that, a long time after graduate school, I learned of glaring conflicts between the theory I had been taught, and the historical evidence about effects of free trade and trade barriers. Further exploration along this direction dramatically widened the chasm between the economic theories I had learnt, and the historical and empirical evidence all around me. This led me to a set of puzzles which I have been struggling with for the past two decades. [1] Why is that economists are not aware of the conflict between economic theories and empirical evidence? [2] Why is it that

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The WHY of crazy models

January 21, 2020

From Asad Zaman
I was professionally trained as an economist, and learned how to build models with the best. As described in detail in a previous post on “The Education of An Economist“, it was only by accident that, a long time after graduate school, I learned of glaring conflicts between the theory I had been taught, and the historical evidence about effects of free trade and trade barriers. Further exploration along this direction dramatically widened the chasm between the economic theories I had learnt, and the historical and empirical evidence all around me. This led me to a set of puzzles which I have been struggling with for the past two decades. [1] Why is that economists are not aware of the conflict between economic theories and empirical evidence? [2] Why is it that

Read More »