Gezgin, U. B. (2011). Economic crisis, ethics and technics: Where is the drawing line between positive economics and normative economics? (Paper prepared for AAGS 2011: the Global Future: Issues and Trends for the 21st Century. Asia Association for Global Studies 2011 Conference. 12-13 March 2011, Tokyo, Japan.) http://asia-globalstudies.org/day_2_ http://aags2011.websitetoolbox.com/post?id=5103151

1. Economic Crisis, Ethics and Technics:
Where Is the Drawing Line Between
Positive Economics and Normative
Economics?
Dr Ulas Basar Gezgin,
Economics lecturer
E-mail: ulasbasar@gmail.com

2. • Gezgin, U. B. (2011). Economic crisis, ethics and
technics: Where is the drawing line between
positive economics and normative economics?
(Paper prepared for AAGS 2011: the Global
Future: Issues and Trends for the 21st Century.
Asia Association for Global Studies 2011
Conference. 12-13 March 2011, Tokyo, Japan.)
• http://asia-globalstudies.org/day_2_
• http://aags2011.websitetoolbox.com/post?id=51
03151
7/10/2011 economics, ethics & technics - Dr.Gezgin 2

3. Content
• 1. Past (before 2007): Causes
• 2. Present (2007-2011): Process and Responses
• 3. Future (after 2011): Consequences
• 4. The Status of Economics as a Profession:
• Technics vs. Ethics
• and Positive vs. Normative Economics
• 5. Conclusion
• 6. References
• Appendix: Video Presentation
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4. Abstract
• A common distinction in economics is positive
statements vs. normative statements. The former
involves basic facts while the latter involves
suggestions and opinions. Although this distinction is
inherent in economics research and practice, 2008
economic crisis precipitated the discussions revolving
on this distinction. 2008 is considered to be a
milestone in the history of economic thought as
deregulated economies are moved back to regulatory
models; but at the same time bankrupt banks and
companies have been bailed out and welfare state is
sacrificed in Europe.
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5. Abstract
• While bankruptcy shifts from companies to
governments as in the case of Hungary, Iceland,
Greece, Britain etc, economists and international
organizations have made predictions that never come
true. Whether we are at the bottom (technically
speaking, the ‘trough’ in business cycles) to be
expected to bounce up or whether we are heading
further down is a moot. Economic crisis has not only
debunked the credibility of economics as a profession
but also exposed the ethical dilemmas inherent in
economics as a normative discipline. In this paper,
these dilemmas are presented and discussed.
• JEL Code: A11, B50, B41, A13, A14
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6. 1. Past (before 2007): Causes
• September 11
• Dotcom bubble
• Low interest rates (cheap credit)
• Consumption- and debt-driven economy
• The collapse of Soviet Union
• The self-proclaimed victory of neo-liberalism
• The Washington Consensus
• Deregulation
• Commercial banking (less risky) vs.
• investment banking (highly risky)
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7. 1. Past (before 2007): Causes
• “Human frailty”
• “Institutional failures”
• “Obsession with a false theory”
• “Cultural origins”
• “Failure of policy”
• “International contradictions of capital
accumulation”
• “Missing the systemic risk”
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8. 1. Past (before 2007): Causes
• Overinvestment in 1990s.
• Investment not responding to low interest rates in 2000s.
• Housing bubble.
• Economic crisis vs. Financial crisis
• Cost of war in Iraq and Afghanistan (Vietnam)
• Non-productive spending
• High oil prices due instability in Southwest Asia as a result
of American invasion
• Wealth transfer from oil-importing countries to oil-
exporting countries (oil-dependent development)
• The power of “too-big-to-fail” corporations
• (industrial-military complex)
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9. 2. Present (2007-2011):
Process and Responses
• Bailouts, bonus for CEOs and tax cuts for the
wealthy
• Popular anger
• Labor and student demonstrations
• Privatization of benefits and nationalization of
losses
• Corporate irresponsibility
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10. 2. Present (2007-2011):
Process and Responses
Who to blame? Who pays?
a) Economists a) Economists
b) Bankers b) Bankers
c) Politicians c) Politicians
d) All of the above. d) None of the above.
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11. 2. Present (2007-2011):
Process and Responses
• 2010:
• “A year of disappointment”
• “Supposed to be a year of transition” (but?)
• “A nightmare”
• Euro crisis (Greece and Ireland)
• 10% unemployment at North Atlantic
• (Stiglitz, 2011)
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12. 3. Future (after 2011): Consequences
• Collapse of American world order and EU.
• “Post-American world order”
• American military and political withdrawal
• ‘Iraqization’ and ‘Afghanization’ of the wars.
• Rise of China.
• Winners: China (customer) & Australia (supplier)
• Chinese investments in Africa and South America.
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13. 3. Future (after 2011): Consequences
• Currency war
• (+)s & (-)s of Chinese appreciation & American depreciation
• China’s international reserves
• (from USD to gold and other currencies)
• Yuan as reserve currency in the future
• The decline of the Washington Consensus
• The death of consumption society (North Atlantic) and export
society (Asia)
• The death of consumption-driven growth model. The new model?
• Contagion effects in Asia
• (deregulated economies, and the Asian Financial Crisis)
• The next Suharto?
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14. 3. Future (after 2011): Consequences
• Externalities of unemployment such as ‘crime’,
suicides, organized protests
• Security problems in the crisis countries
• Prison societies
• Subtraction of these costs from GDP=>
• Far worse negative growth than calculated.
• Keynesian solution: Spending for productive
purposes with high returns
• (infrastructure, technology, education etc)
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15. 4. The Status of Economics as a Profession:
Technics vs. Ethics and
Positive vs. Normative Economics
• The death of monetary wisdom
• (print M or don’t?)
• Revision of economics textbooks
• Less predictive power or none at all.
• Theories that are impractical, unnecessarily
technical and useless to explain the real life
issues.
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16. Quotations: Economics as Ideology
• “A few geniuses aside, economists frame their
assumptions to suit existing states of affairs, and then
invest them with an aura of permanent truth. They are
intellectual butlers, serving the interests of those in
power, not vigilant observers of shifting reality. Their
systems trap them in orthodoxy” (Skidelsky, 2008a).
• “The cycles in economic fashion show how far
economics is from being a science. One cannot think of
any natural science in which orthodoxy swings between
two poles. What gives economics the appearance of a
science is that its propositions can be expressed
mathematically by abstracting from many decisive
characteristics of the real world” (Skidelsky, 2008a).
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17. 4. The Status of Economics as a Profession:
Technics vs. Ethics and
Positive vs. Normative Economics
• Some blame the Keynesians!
• Blame Keynesian expansionary policies for the
crisis as if they preceded the crisis.
• Unregulated, non-productive government
spending is definitely not a Keynesian
recommendation.
• A short-term understanding of the economy at
the expense of a long-term understanding, and
an exclusive focus on deficits ignoring the assets
of countries.
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18. Quotations: Keynesian Spending
• “One has to look not only at what a country or firm
owes, but also at its assets. This should help answer
those financial sector hawks who are raising alarms
about government spending. After all, even deficit
hawks acknowledge that we should be focusing not on
today’s deficit, but on the long-term national debt.
Spending, especially on investments in education,
technology, and infrastructure, can actually lead to
lower long-term deficits. Banks’ short-sightedness
helped create the crisis; we cannot let government
short-sightedness – prodded by the financial sector –
prolong it” (Stiglitz, 2010f).
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19. Quotations: ‘Deficit Fetishism’
• But on the other side of the continuum, against ‘deficit fetishism’:
• “Over the longer term, most economists agree that
governments, especially in advanced industrial countries with
aging populations, should be concerned about the
sustainability of their policies. But we must be wary of deficit
fetishism. Deficits to finance wars or give-aways to the
financial sector (as happened on a massive scale in the US)
lead to liabilities without corresponding assets, imposing a
burden on future generations. But high-return public
investments that more than pay for themselves can actually
improve the well-being of future generations, and it would be
doubly foolish to burden them with debts from unproductive
spending and then cut back on productive investments”
(Stiglitz, 2010f).
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20. 4. The Status of Economics as a Profession:
Technics vs. Ethics and
Positive vs. Normative Economics
• Questioning of roles and status of central
banks.
• Blamed to operate as private banks serving
the monetary interests of the financial capital.
• “With interest rates near zero, the US Federal
Reserve and other central banks are struggling
to remain relevant” (Stiglitz, 2010b).
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21. 4. The Status of Economics as a Profession:
Technics vs. Ethics and
Positive vs. Normative Economics
• Positive statements (basic facts, basic data etc) vs.
• Normative statements (opinions, suggestions, recommendations)
• The blurring of positive and normative economics
• and a move from ethics to technics
• “The key theoretical point in the transition to a debt-fueled economy
was the redefinition of uncertainty as risk. This was the main
achievement of mathematical economics. Whereas guarding
against uncertainty had traditionally been a moral issue, hedging
against risk is a purely technical question.” (Skidelsky, 2008b)
• Untouched dogma
• Indoctrinated and brainwashed by the dogmas of efficiency of the
market, deregulation, privatization etc.
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22. Quotations: Market Fundamentalism
• “Economic theory had long explained why
unfettered markets were not self-correcting, why
regulation was needed, why there was an
important role for government to play in the
economy. But many, especially people working in
the financial markets, pushed a type of “market
fundamentalism”” (Stiglitz, 2008a).
• “Neo-liberal market fundamentalism was always
a political doctrine serving certain interests. It
was never supported by economic theory”
(Stiglitz, 2008d).
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23. Quotations: Rationality Assumption
• “A long line of research has shown that even
using the models of the so-called “rational
expectations” school of economics, markets might
not behave stably, and that there can be price
bubbles. The crisis has, indeed, provided ample
evidence that investors are far from rational; but
the flaws in the rational expectations line of
reasoning—hidden assumptions such as that all
investors have the same information—had been
exposed well before the crisis”
• (Akerlof & Stiglitz, 2009).
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24. 4. The Status of Economics as a Profession:
Technics vs. Ethics and
Positive vs. Normative Economics
• Positive Results of the Crisis:
• Empowerment of alternative views and
heterodox approaches in economics.
• More collaboration opportunities for
economics with various disciplines.
• A higher number of heterodox economists and
interdisciplinary economists.
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25. 5. Conclusion:
Sustainability of Capitalism
• Growth versus inequality
• Inequality treated as a noneconomic
phenomenon before the crisis.
• Weaker GDP fetishism after the crisis.
• Sustainability of the governments
• (bankrupt? collapse?)
• Grassroots movements
• Precipitated the contradictions of capitalism
• Violent clashes
• ‘Creative destruction’
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26. 5. Conclusion:
Solutions
• Public participation
• Transparency
• Unlearning to break the chains of
neo-liberal dogma
• Heterodox economists
• An equitable future
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27. 6. References
7/10/2011 economics, ethics & technics - Dr.Gezgin 27

28. Appendix: Video Presentation
• Harvey, D. (2011). Crises of capitalism
(animated video lecture).
http://www.youtube.com/watch?v=qOP2V_n
p2c0
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