Assumptions of Modern Science

by Girish Menon

Modern science is founded on the belief in the Genesis, that nature was created by a law-giving God and so we must be governed by "laws of nature".

Equally important was the belief that human beings are made in the image of God and, as a consequence, can understand these "laws of nature".

What do scientists have to say to that?

I say all scientists are therefore Judeo-Christian in their beliefs.

Post-crash economics: some common fallacies about austerity

Propositions in economics are rarely absolutely true or false – what is true in some circumstances may be false in others

• 
• • Robert Skidelsky
  • theguardian.com, Thursday 21 November 2013 16.29 GMT

Two Swabian housewives in Germany. 'One should simply have asked the Swabian housewife,' said German chancellor Angela Merkel after the collapse of Lehman Brothers in 2008. 'She would have told us that you cannot live beyond your means.' Photograph: Frederick Florin/AFP

The period since 2008 has produced a plentiful crop of recycled economic fallacies, mostly falling from the lips of political leaders. Here are my four favourites.

The Swabian Housewife: "One should simply have asked the Swabian housewife," said German chancellor Angela Merkel after the collapse of Lehman Brothers in 2008. "She would have told us that you cannot live beyond your means."

This sensible-sounding logic currently underpins austerity. The problem is that it ignores the effect of the housewife's thrift on total demand. If all households curbed their expenditures, total consumption would fall, and so, too, would demand for labour. If the housewife's husband loses his job, the household will be worse off than before.

The general case of this fallacy is the "fallacy of composition": what makes sense for each household or company individually does not necessarily add up to the good of the whole. The particular case that John Maynard Keynes identified was the "paradox of thrift": if everyone tries to save more in bad times, aggregate demand will fall, lowering total savings, because of the decrease in consumption and economic growth.

If the government tries to cut its deficit, households and firms will have to tighten their purse strings, resulting in less total spending. As a result, however much the government cuts its spending, its deficit will barely shrink. And if all countries pursue austerity simultaneously, lower demand for each country's goods will lead to lower domestic and foreign consumption, leaving all worse off.

The government cannot spend money it does not have: This fallacy – often repeated by British prime minister David Cameron – treats governments as if they faced the same budget constraints as households or companies. But governments are not like households or companies. They can always get the money they need by issuing bonds.

But won't an increasingly indebted government have to pay ever-higher interest rates, so that debt-service costs eventually consume its entire revenue? The answer is no: the central bank can print enough extra money to hold down the cost of government debt. This is what so-called quantitative easing does. With near-zero interest rates, most western governments cannot afford not to borrow.

This argument does not hold for a government without its own central bank, in which case it faces exactly the same budget constraint as the oft-cited Swabian housewife. That is why some eurozone member states got into so much trouble until the European Central Bank rescued them.

The national debt is deferred taxation: According to this oft-repeated fallacy, governments can raise money by issuing bonds, but, because bonds are loans, they will eventually have to be repaid, which can be done only by raising taxes. And, because taxpayers expect this, they will save now to pay their future tax bills. The more the government borrows to pay for its spending today, the more the public saves to pay future taxes, cancelling out any stimulatory effect of the extra borrowing.

The problem with this argument is that governments are rarely faced with having to "pay off" their debts. They might choose to do so, but mostly they just roll them over by issuing new bonds. The longer the bonds' maturities, the less frequently governments have to come to the market for new loans.

More important, when there are idle resources (for example, when unemployment is much higher than normal), the spending that results from the government's borrowing brings these resources into use. The increased government revenue that this generates (plus the decreased spending on the unemployed) pays for the extra borrowing without having to raise taxes.

The national debt is a burden on future generations: This fallacy is repeated so often that it has entered the collective unconscious. The argument is that if the current generation spends more than it earns, the next generation will be forced to earn more than it spends to pay for it.

But this ignores the fact that holders of the very same debt will be among the supposedly burdened future generations. Suppose my children have to pay off the debt to you that I incurred. They will be worse off. But you will be better off. This may be bad for the distribution of wealth and income, because it will enrich the creditor at the expense of the debtor, but there will be no net burden on future generations.

The principle is exactly the same when the holders of the national debt are foreigners (as with Greece), though the political opposition to repayment will be much greater.

Economics is luxuriant with fallacies, because it is not a natural science like physics or chemistry. Propositions in economics are rarely absolutely true or false. What is true in some circumstances may be false in others. Above all, the truth of many propositions depends on people's expectations.

Consider the belief that the more the government borrows, the higher the future tax burden will be. If people act on this belief by saving every extra pound, dollar, or euro that the government puts in their pockets, the extra government spending will have no effect on economic activity, regardless of how many resources are idle. The government must then raise taxes – and the fallacy becomes a self-fulfilling prophecy.

So how are we to distinguish between true and false propositions in economics? Perhaps the dividing line should be drawn between propositions that hold only if people expect them to be true and those that are true irrespective of beliefs. The statement, "if we all saved more in a slump, we would all be better off," is absolutely false. We would all be worse off. But the statement, "the more the government borrows, the more it has to pay for its borrowing," is sometimes true and sometimes false.

Or perhaps the dividing line should be between propositions that depend on reasonable behavioural assumptions and those that depend on ludicrous ones. If people saved every extra penny of borrowed money that the government spent, the spending would have no stimulating effect. True. But such people exist only in economists' models.

Management theory was hijacked in the 80s. We're still suffering the fallout.

Good governance went out of the window when the Chicago school's reductive view of human nature took hold

• 
• • Simon Caulkin
  • guardian.co.uk, Monday 12 November 2012 08.30 GMT

'Managers abandoned their previous policy of retaining and reinvesting profits in favour of large dividend and share buyback payouts to shareholders.' Photograph: David Karp/AP

This week the City has been congratulating itself on 20 years of UK corporate governance codes. Since the original Cadbury document in 1992, the UK has basked in its role as governance leader, with 70 other countries having followed its example and adopted similar guidelines.

There's just one problem: is it the right kind of governance? The day the FT carried the story, Incomes Data Services reported that FTSE 100 boardroom pay went up by a median 10% last year, a soaraway trend that the best code in the world has complacently overseen. Nor could it prevent the RBS meltdown, Libor or PPI mis-selling to the tune of £12bn, the biggest rip-off in financial history. It didn't stop phone-hacking or BP taking short cuts. It has sanctioned wholesale offloading of risk, whether individual (pensions, careers) or collective (global and financial warming) on to society, while rejecting any responsibility of its own except to shareholders.

So jerry-built is the corporate economy erected on the scaffolding of the City codes that it can no longer deliver even the material progress by which it justifies its privileges: even with a return to growth, living standards for lower and middle earners may be no higher in 2020 than in 2000, according to the Resolution Foundation. The truth is that UK corporate governance has neither headed off major scandal nor nurtured effective long-term management. In fact the opposite is true.

The irony is that we know what makes companies prosper in the long term. They manage themselves as whole systems, look after their people, use targets and incentives with extreme caution, keep pay differentials narrow (we really are in this together) and treat profits as the score rather than the game. And it's a given that in the long term companies can't thrive unless they have society's interests at heart along with their own.

So why do so many boards and managers, supported by politicians, systematically do the opposite – run companies as top-down dictatorships, pursue growth by merger, destroy teamwork with runaway incentives, attack employment rights and conditions, outsource customer service, treat their stakeholders as resources to be exploited, and refuse wider responsibilities to society?

The answer is that management in the 1980s was subject to an ideological hijack by Chicago economics that put at the heart of governance a reductive "economic man" view of human nature needing to be bribed or whipped to do their exclusive job of maximising shareholder returns. Embedded in the codes, these assumptions now have the status of unchallenged truths.

The consequences of the hijack have been momentous. The first was to align managers' interests not with their own organisations but with financial outsiders – shareholders. That triggered a senior management pay explosion that continues to this day. The second was that managers abandoned their previous policy of retaining and reinvesting profits in favour of large dividend and share buyback payouts to shareholders.

Ironically, the effect of this stealth revolution was to undercut the foundations of the very shareholder value under whose flag the activists had ridden into battle. Along with corporate welfare and customer service, among the functions squeezed in the shareholder bonanza was research and development. Innovation has stalled since the 1980s, prompting some economists to query whether the era of growth itself is over.

But it's not economics, it's management, stupid. Unsurprisingly, downtrodden and outsourced workers, mis-sold-to customers, exploited suppliers and underpowered innovation cancelled out any gains from ever more ingenious financial engineering – leaving shareholders less well off in the shareholder-value-era since 1980 than in previous decades. The great crash of 2008 stripped away any remaining doubt: the economic progress of the last 30 years was a mirage. As Nassim Nicholas Taleb put it in The Black Swan, the profits were illusory, "simply borrowed against destiny with some random payment time."

Over the last decades, misconceived ideologically based governance has recreated management as a new imperium in which shareholders and managers rule and the real world dances to finance's tune. A worthier anniversary to celebrate is the death seven years ago this month, on 11 November, of Peter Drucker, one of the architects of pre-code management, which he insisted was a "liberal art". Austrian by birth, Drucker was a cultured humanist one of whose distinctions was having his books burned by the Nazis. In The Practice of Management in 1954 he wrote: "Free enterprise cannot be justified as being good for business. It can be justified only as being good for society".

Time to explode the myth that the private sector is always better

Steve Richards in The Independent

The deeply embedded assumption that a slick, efficient, agile, selfless private sector delivers high-quality services for the public is being challenged once more in darkly comic circumstances. Those inadvertent egalitarians from the security firm G4S have failed to recruit enough security officers so it seems anyone will be able to wander in to watch the 100 metres final. Or at least that would have been the case if the public sector had not come to the rescue in the form of the army.

What an emblematic story of changing times. From the late 1970s until 2008, the fashionable orthodoxy insisted that the public sector alone was the problem. Advocates of the orthodoxy took a knock or two when the banking crisis cast light on parts of the pampered, sheltered and partially corrupt financial sector. Now we get a glimpse of incompetence and greed in another part of the private sector. As light is shed wider and deeper, we keep our fingers crossed that the public sector can rescue the Olympics from chaos.

The pattern is familiar but has been obscured until the arrival of this accessibly vivid example, an Olympic Games staged in a city paranoid about security without many security officers. For decades, private companies were hired on lucrative contracts for projects that the state could never allow to fail. If the companies delivered what was required, they earned a fortune. If they failed, the taxpayer found the money to meet the losses and those responsible for the cock-up often moved on to new highly paid jobs.

The lesson should have been learnt when Labour's disastrous Public Private Partnership for the London Underground collapsed, as this was another highly accessible example of lawyers, accountants and private companies making a fortune and failing to deliver. The Underground could never close, so all involved knew that in the event of failure, the Government or the Mayor of London would be forced to intervene. Boris Johnson described the arrangement at the time as "a colossal waste of money".

He was right, but that has not stopped his colleagues in Government looking to contract out to the private sector at every available opportunity. Andrew Lansley had hoped to make the NHS a great new playground for companies seeking an easy profit. He still might do so. Expect Michael Gove's so-called free schools to become profit-making enterprises if the Conservatives win the next election, and perhaps the academies, too. Maybe there will be a G4S-sponsored school.

G4S already runs prisons and some of the police operations that are being increasingly contracted out to private companies. The welfare-to-work contract secured by another company, much hailed by gullible ministers when the deal was announced as an example of efficiency and effectiveness, is already under critical scrutiny.

A fortnight ago, I argued that we are living through a slow British revolution partly as a result of the financial crisis and the exposure of reckless, unaccountable leadership from the City. The era of light regulation that allowed some bankers without much obvious talent to make a fortune is over. Now, slowly, the assumption held from Thatcher to Blair to Cameron that the delivery of public services should lie with the private sector is being overturned, too.

As is always the case in British revolutions, the change is being driven by startling events and not by political leadership. The Coalition still burns with an ideological zeal formed in the 1980s, the Conservative wing at one with Orange Book Liberal Democrats in their indiscriminate hunger for a smaller state and their undying faith in the private sector.

At the top of both parties, there are crusading advocates of an outdated vision that places too much faith in the likes of G4S and not enough in the potential dependability of a more efficient and accountable public sector.

This is not to argue that the public sector is perfect. Parts of it are complacently inefficient and paralysed by a sense of undeserved entitlement. The Coalition deserves some credit for seeking to increase transparency and accountability in an often over-managed and wasteful sector. In the case of the Olympics debacle and other equivalent deals, part of the culpability lies with government departments that negotiate on behalf of the taxpayer.

Last week, The Independent revealed that there had been no penalty clause in the G4S contract. On Tuesday, its unimpressive chief executive told the Home Affairs Committee that the company still expected to collect £57m for its contribution to the Olympic Games, an expectation that brings to mind once more that damning, ubiquitous phrase from the old Britain: "rewards for failure".

Who draws up these contracts? Which ministers sign them off? Why is their instinct always to outsource when there is now a mountain of evidence that failure follows?

Instead of focusing on the arduously unglamorous task of making the public sector more efficient and adaptable, ministers, like their New Labour predecessors, prefer still the deceptive swagger of the incompetent entrepreneur. The gullibility is more extraordinary now we finally get to know more about these supposed geniuses. Senior bankers earning millions stutter hesitantly when questioned by unthreatening MPs on select committees, incapable of articulating a case. Nick Buckles from G4S was so thrown by the Home Affairs Committee that he lapsed into a debate about whether the few security guards he had managed to hire spoke "fluent English", claiming not to know what such a term might mean. One of the great revelations since Britain's slow revolution began in 2008 is how many unimpressive mediocrities had risen in the unquestioning, unaccountable darkness that, until recently, acted as a protective layer for parts of the private sector.

But in the end look who is ultimately held to account. The Home Secretary, Theresa May, was called to the Commons twice this week to answer questions about what went wrong. She will be back in September. A government can outsource but it will still be held responsible, quite rightly, for the delivery of public services.

So political survival should motivate ministers in future to draw up much tighter deals with companies and to focus more on improving the public sector rather than expensively by-passing it. The voters have had enough of these abuses and yet, trapped by the past, some ministers show an ideological inclination to be abused for a little longer.

Consumption is the real problem, not population growth.

Beyond the headlines from the UN population report lies a clear message: consumption is still a far bigger threat to the planet

By George Monbiot

A worker repairs a grain lifter on a soy bean mountain in Salto, Argentina. Photograph: Diego Giudice/AP

 

It must rank among the most remarkable events in recent human history. In just 60 years, the global average number of children each woman bears has fallen from 6 to 2.5. This is an astonishing triumph for women's empowerment, and whatever your position on population growth, it is something we should celebrate.
But this decline in fertility, according to the United Natinos report published on Wednesday, is not the end of the story. It has also raised its estimate of global population growth. Rather than peaking at about 9 billion in the middle of this century, the UN says that human numbers will reach some 10 billion by 2100, and continue growing beyond that point.

That's the middle scenario. The highest of its range of estimates is an astonishing 15.8 billion by 2100. If this were correct, population would be a much greater problem – for both the environment and human development – than we had assumed. It would oblige me to change my views on yet another subject. But fortunately for my peace of mind, and, rather more importantly, for the prospects of everyone on earth, it is almost certainly baloney.

Writing in the journal Nature in May, Fred Pearce pointed out that the UN's revision arose not from any scientific research or analysis, but from what appeared to be an arbitrary decision to change one of the inputs it fed into its model. Its previous analysis was based on the assumption that the average number of children per woman would fall to 1.85 worldwide by 2100. But this year it changed the assumption to 2.1. This happens to be the population replacement rate: the point at which reproduction contributes to neither a fall nor a rise in the number of people.

The UN failed to explain this changed assumption, which appears to fly in the face of current trends, or to show why fertility decline should suddenly stop when it hit replacement level, rather than continuing beyond that point, as has happened to date in all such populations. I expected yesterday's report to contain the explanation, but I was wrong: it appears to have plucked its fertility figure out of the air.

Even so, even if we're to assume that the old figures are more realistic than the new ones, there's a problem. As the new report points out, "the escape from poverty and hunger is made more difficult by rapid population growth". It also adds to the pressure on the biosphere. But how big a problem is it?

If you believe the rich, elderly white men who dominate the population debate, it is the biggest one of all. In 2009 for example, a group of US billionaires met to decide which threat to the planet most urgently required their attention. Who'd have guessed? These men, who probably each consume as many of the world's resources in half an hour as the average African consumes in a lifetime, decided that it was population.
Population is the issue you blame if you can't admit to your own impacts: it's not us consuming, it's those brown people reproducing. It seems to be a reliable rule of environmental politics that the richer you are, the more likely you are to place population growth close to the top of the list of crimes against the planet.
The new report, inflated though its figures seem to be, will gravely disappoint the population obsessives. It cites Paul Murtaugh of Oregon State University, whose research shows that:

"An extra child born today in the United States, would, down the generations, produce an eventual carbon footprint seven times that of an extra child in China, 55 times that of an Indian child or 86 times that of a Nigerian child."

And it draws on a paper published in the Proceedings of the National Academy of Sciences, which makes the first comprehensive assessment of how changes in population affect carbon dioxide emissions. It concludes:

"Slowing population growth could provide 16-19% of the emissions reductions suggested to be necessary by 2050 to avoid dangerous climate change."

In other words, it can make a contribution. But the other 81-84% will have to come from reducing consumption and changing technologies. The UN report concludes that "even if zero population growth were achieved, that would barely touch the climate problem".

This should not prevent us from strongly supporting the policies which will cause population to peak sooner rather than later. Sex education, the report shows, is crucial, as is access to contraception and the recognition of women's rights and improvement in their social status. All these have been important factors in the demographic transition the world has seen so far. We should also press for a better distribution of wealth: escaping from grinding poverty is another of the factors which have allowed women to have fewer children. The highly unequal system sustained by the rich white men who fulminate about population is one of the major reasons for population growth.

All this puts conservatives in a difficult position. They want to blame the poor for the environmental crisis by attributing it to population growth. Yet some of them oppose all the measures – better and earlier sex education, universal access to contraception (for teenagers among others), stronger rights for women, the redistribution of wealth – that are likely to reduce it.

And beyond these interventions, what do they intend to do about population growth? As the UN report points out:

"Considerable population growth continues today because of the high numbers of births in the 1950s and 1960s, which have resulted in larger base populations with millions of young people reaching their reproductive years over succeeding generations."

In other words, it's a hangover from an earlier period. It has been compounded by another astonishing transformation: since the 1950s, global life expectancy has risen from 48 to 68.

What this means is that even if all the measures I've mentioned here – education, contraception, rights, redistribution – were widely deployed today, there will still be a population bulge, as a result of the momentum generated 60 years ago. So what do they propose? Compulsory sterilisation? Mass killing? If not, they had better explain their programme.

Yes, population growth contributes to environmental problems. No, it is not the decisive factor. Even the availability of grain is affected more by rising livestock numbers and the use of biofuels – driven, again by consumption – than by human population growth.

Of course we should demand that governments help women regain control over their bodies. But beyond that there's little that can be done. We must instead decide how best to accommodate human numbers which will, at least for the next four decades, continue to rise.

www.monbiot.com