The flat earthism of gossip journalism

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By FERNANDO NOGUEIRA DA COSTA*

the journalism mainstream committed a crime by attacking the honor of Márcio Pochman and the reputation of IE-Unicamp

After all, who practices “economic flat earthism”? Economists educated in a conventional way, in defense of an imaginary self-adjustment, commonly known as “anchoring expectations”, or Unicamp economists critical of this intellectual inertia?

Conditional claims are made on the basis of theory about the causal relationships of a very limited set of phenomena. Conventional theory narrows the field of view.

Many meaningful questions, in the real world, within the mainstream theory are meaningless questions to ask. A revolution in economic theory required the development of new instruments of thought from the General Theory of Keynes – and not following the “flat-Earther” tradition of the “mainstream” (sic) neoclassical.

Standard economic theory, for example, ignores the inherent instability of the capitalist financial system. She does not even recognize that financial instability is a problem in need of a good theoretical explanation.

It does not show how financial forces interact with production and consumption to determine income, employment and prices. Orthodoxy sees the capitalist economy facing persistent unemployment and even recognizes fiscal and monetary policy measures capable of combating unemployment. However, he argues ideologically: within free, decentralized and uncoordinated markets, there would be self-correcting forces capable of leading to full employment by itself.

The standard economist practices this self-deception, because he thinks one thing and says another. When he is in government, he claims: his interventionist policy will eliminate persistent unemployment or chronic inflation. When he is in opposition, he thinks: if nothing is done by the government, over time and according to its free functioning, the market economy will achieve stable prices and full employment. When?!

The post-Keynesian economist, in contrast, develops an explanatory theory of why the monetary economy of production fluctuates, demonstrating the instability and inconsistency periodically presented to be related to the degree of financial fragility. This is the relationship between financial expenses and expected profit, either in dividends or in capital gains, respectively, variables in the process of financing investments and valuation/devaluation of shares.

Orthodoxy does not overcome its ideological barrier of recognizing the market economy as inherently unstable. The vision of the dynamics of capitalism in highly destructive economic cycles is not part of its theoretical basis. Otherwise, it would criticize socially undesirable concentrations of wealth and power.

For her, instability is due to events outside economic functioning, that is, exogenous to market forces. Her focus is on defending a decentralized market economy as capable of achieving by itself coherence and coordination in production and distribution, while the focus of the theory considered heterodox (post-Keynesian) is on the practice of finance capital. It adopts a systemic financial approach.

The tradition of mainstream emphasizes equilibrium and stabilization tendencies, while the theoretical vanguard analyzes the decisions of bankers and shareholders, interactive with those of rentier individuals, governments issuing public debt securities and external creditors. “Economic flat earthism” ignores the capitalist nature of the economy, a fundamental fact for readers of Marx, Keynes, Kalecki and Minsky, among many other dissident authors.

Concepts post keynesians, ignored by pre-keynesians, concern the pricing of capital goods in offer price (construction cost) and demand price (market value): there is investment when this is higher. Capitalist financial institutions serve as the basis for an alternative economic theory as a better guide to interpret what actually happens in the real world (“round land”) instead of the standard theory of neoliberal economists as usual in the Brazilian media.

These true “economic flat earthers” reason based on an abstract economy of exchange (barter without money), exemplified by any market of any people. This demonetized model does not contemplate capital-intensive production, capitalist finance or capitalization and debt as we know them.

With the use of this artificial construction of abstract trade relations, conventional theory argues: “your” decentralized market economy would always achieve a consistent result. In this theory, any deviation from equality between supply and demand for labor would be eliminated through market interactions, that is, it presupposes that wages are lowered for the workforce to be employed!

Therefore, full employment would be achieved through market operations themselves. However, this same theory does not explain how unemployment arises as a result of economic processes. Incoherently, interactions would contribute to balance, but would never destabilize endogenous processes...

A complex system would be coherent when the connections between its variables are stable so that its reactions to exogenous shocks are predictable. In an economy, seen in a conventional way and imposed by authentic “flat-Earthers”, coherence implies that there is always a progressive approximation of the balance between the supplied and demanded quantities of the various goods and services, including labor.

This virtual equality is achieved and maintained through small economic adjustments. In this kind of idyllic setting, state planning, government interventions, legislative regulation, and monetary controls would not be necessary.

Unfortunately, this coherence of the market system periodically breaks down in Major Financial Crises (GCF). Economic theory must therefore explain both the coherence of the pricing process and the possibility of a collapse.

By refusing to do this, the conservatives of this economic theory do not admit that inconsistency is the result of the internal process of the capitalist economy. For them, the pricing process would only collapse when some unusual shock or institutional aberration occurs. Blaming external forces (exogenous ones like the money supply – sic) as responsible for the inconsistency, then, the sporadic disorder “coming from outside” would coexist with the maintenance of the underlying coherence.

Flat-Earthers defend “as it should be” – and do not know “what is” in reality. Any inconsistency is explained by external factors, such as imperfect institutions (State, Central Bank, unions, monopolies, foreign cartel) or human error. Hence, now, when the Brazilian economy is in the process of improvement, the jealous anti-PT people want to accuse in advance, regarding a projected disaster, the social-developmentalists trained at the Institute of Economics at Unicamp and appointed in the current government!

In order to have consistency in the regulation of a set of markets, they apply a substitution principle. Higher relative prices tend to discourage and lower relative prices tend to encourage the use of a product or service.

However, in stock and bond markets, where speculative behavior is strong, the substitution principle does not apply. An increase in their relative prices can increase the quantity demanded for these financial or capital assets. Therefore, feedback leads to tree and later crash.

The theoretical core of mainstream, based on relative prices, are people's preferences and the production functions of industrial plants. The theory units are only households and non-financial firms. They abstract the other institutional sectors, as if there were only personal and corporate finance – and were not interconnected with public, banking and international finance!

Flat-Earthers dictate the united-order: any individual decision maker assumes the price of everything he buys and sells as already established. In these circumstances, each and every one of the participants is powerless: The Market is a supernatural control mechanism, as it is omnipresent, omniscient and omnipotent.

Nobody, no individual can do anything in the face of The impersonal Market… Inconsistently, the prices that determine market behavior are transformations of individual behavior determined by the market. 'did you?

Perhaps because of this feedback, a vicious circle of 360-degree thinking, where without stress you always return to the starting point, the detractors imagine themselves acting in defense of The Earth is Round!

In fact, they committed a crime by attacking the honor of my former student and colleague, the honorable (and kind man) Márcio Pochman, and the reputation of our institution (IE-Unicamp), with the intention of making him liable to disbelief in public opinion. In a dispute over office, they made use of the opportunistic Brazilian gossip journalism… The journalists from The Globe committed defamation, one of the crimes against honor, with its provision in art. 139 of the Penal Code.

*Fernando Nogueira da Costa He is a full professor at the Institute of Economics at Unicamp. Author, among other books, of Brazil of banks (EDUSP).


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