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Monthly Archives: February 2012

It appears that mathematicians are trained for abstraction but in class they are confronted with real life pupils and students. Their tradition is to resolve their cognitive dissonance by relying on tradition. Mathematics then becomes a tool for authority and stagnation. I rather see it as an exercise in freedom, where nothing can force you to accept a proof but the proof itself.

Education in mathematics

An econometrician dismissed from a Central Planning Bureau can become a teacher of mathematics. The didactics of mathematics became a new problem area and resulted in two books Elegance with Substance (EWS) (2009) and Conquest of the Plane (COTP) (2011c) and this memo Neoclassical mathematics for the schools (2011d).

There are now two open minded reviews that show the strength of mathematical thinking. Gamboa (2011) reviews COTP, admits to feelings of unease, but ends with a positive “enjoy”. Richard Gill (2012) reviews both EWS and COTP. It was special to me that I could find something about the notion of a derivative, as developed by Newton and Leibniz, but it is even more special that Gill spends a longer open minded discussion on it. He is no expert on the didactics of mathematics and he doesn’t discuss other improvements in EWS and COTP, but it is a quality review. He was trained in Cambridge, now professor of mathematical statistics in Leiden and member of the Royal Dutch Academy of Sciences. Earlier Gill (2008) reviewed my book on logic A Logic of Exceptions (ALOE) (1981, 2007, 2011a).

Democracy

The CPB directorate not only blocked my analysis on unemployment but all my papers, also the one on Kenneth Arrow’s Impossibility Theorem. Nobel Prize winners Kenneth Arrow and Amartya Sen misstate their results, where their interpretation does not cover the mathematics. I had hoped on some support from mathematicians. On the contrary, it appeared that social choice theorists and mathematicians did not understand the issue themselves. I developed my analysis into the book Voting Theory for Democracy (2001, 2011b). In 2001 I had to write this report and note of protest. A recent event causes this short paper, Colignatus (2011e). Our modern democracies are not so democratic while improvement is blocked by its very scholars who are not behaving so scholarly.

Finance

We need to distinguish between mathematicians and engineers, where the latter will have more eye for reality. However, “financial engineering” may still lack the code of honour that bridge builders have, see Steinsaltz (2011), who favourably refers to Nicolas Bouleau. A good exception is also financial engineer Paul Embrechts who participated in Danielsson et al. (2001) in a warning on Basel II. On balance however, I maintain (also in Elegance with Substance) that part of the responsibility for the current crisis falls to “mathematicians” as well. Let them work hard towards improvement.

Economics

The world crisis has caused some economists to worry about the influence of mathematics on economic theory and practice, see this page by professor Geoffrey Hodgson et alii. According to my analysis they do not worry enough. I am strongly in favour of mathematics, like Leibniz would say “Let us sit down and look at the formulas” (no quote). Only through mathematics we can establish what would be an improvement in education, democracy, finance and economics. But the latter are also empirical sciences and it would be the fallacies of miscomposition and misplaced concreteness to mistake the one for the other.

References

Thomas Colignatus is the preferred name of Thomas Cool in science.

Colignatus (1981, 2007, 2011a), “A logic of exceptions” (ALOE), see http://thomascool.eu/Papers/ALOE/Index.html

Colignatus (2009), “Elegance with Substance”, http://thomascool.eu/Papers/Math/Index.html

Colignatus (2011b), “Voting Theory for Democracy”, 3rd edition, http://thomascool.eu/Papers/VTFD/Index.html

Colignatus (2011c), “Conquest of the Plane”, http://thomascool.eu/Papers/COTP/Index.html

Colignatus (2011d), “Neoclassical mathematics for the schools”, http://thomascool.eu/Papers/Math/2011-09-06-NeoclassicalMathematics.pdf

Colignatus (2011e), “”A short response to a supposed “review”, with reference to a longer discussion, also on Arrow’s Impossibility Theorem”, http://thomascool.eu/Papers/VTFD/2011-11-25-ShortResponse.pdf

Danielsson, J. et al. (2001), “An academic response to Basel II”, http://www.math.ethz.ch/~embrechts/ftp/Responsev3.pdf

Gamboa, J.M. (2011), “Book review. Conquest of the Plane, by Thomas Colignatus”, http://www.euro-math-soc.eu/node/2081

Gill, R.D. (2008), “Book review. A Logic of Exceptions: Using the Economics Pack Applications of Mathematica for Elementary Logic, by Thomas Colignatus”, NAW 5/9 nr. 3 sept., http://www.nieuwarchief.nl/serie5/pdf/naw5-2008-09-3-217.pdf

Gill, R.D. (2012), “Book reviews. (1) Elegance with Substance, (2) Conquest of the Plane”, by Thomas Colignatus”, http://www.math.leidenuniv.nl/~gill/reviewCOTP.html

Steinsaltz, D. (2011), “The Value of Nothing: A Review of The Quants”, http://www.ams.org/notices/201105/rtx110500699p.pdf

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Most economists will agree that Paul Krugman has at least one blind spot. Disagreement arises about what that spot is, while some perhaps can’t see the Paul through the spots.

In my analysis Paul’s blind spot basically concerns DRGTPE.

DRGTPE contains a section about Krugman so that I don’t have to repeat that analysis here. You can download the PDF and check it out, see page 222+. Overall, Krugman has less insight in the failure of the Trias Politica and the impact of taxation on unemployment and the shift of the Phillipscurve. In this crisis Krugman rightly points to the state of aggregate demand but alongside monetary stimulus DRGTPE assigns an important role to investment banks.

We’ll see what happens when professor Krugman finds time to read the book.

My suggestion to fellow economists is that you can refer to my books and working papers. If you want peer review then such references generate that peer review.

My papers have not appeared in peer reviewed journals and there are no citations in peer reviewed journals, except for a favourable review of The Economics Pack by Ron Shone in the Economic Journal, and this friendly reference to me by Olivier Blanchard, since I reminded him that the terms “macro-” and “micro-economics” were coined by Pieter de Wolff. The introduction of those terms is historically not unimportant since it caused a move from Political Economy.

Let me explain this lack of peer review and citation.

Since my dismissal with false accusations from the Dutch CPB in 1991 I have had only short temporary jobs. Each time a different kind of subject with the need to be up and running at some level of complexity. With difficulty some time could be found to write, as was also needed to understand the new subjects. Time for a publication channel was generally lacking.

There was no fixed station with “working papers” from such an institutional environment. Fortunately Bob Parks at St. Louis EconWPA provided an archive, until that was ended by his management. After some years the MPRA archive in Muenchen was created and has become the safe haven. Those papers are basically linked from http://econpapers.hhs.se/RAS/pco170.htm.

My own page basically mentions the books and papers arranged by subject  http://thomascool.eu/papengli.html. However, the current economic crisis caused some memo’s that have not been developed into full papers, and those can be found on the crisis page:  http://thomascool.eu/Papers/Drgtpe/Crisis-2007plus/Index.html

When I graduated in 1982 it was still the custom in Dutch universities that a Ph.D. represented a serious study by a mature researcher. While I worked at CPB in 1982-1991 this custom was changed so that a Ph.D. became a second stage of education for a younger researcher, and the conclusion of graduate school, and it became the criterion for employment at a Dutch university. Since I lack such a degree, Dutch universities are, basically, closed to me.

In the beginning around 1991 I submitted some papers to economic journals but the referee reviews contained errors and miscomprehension. See for example this paper and its appendices: http://thomascool.eu/Papers/Unemployment/State.html. Labour market specialists do not understand enough about taxation, tax specialists do not understand enough about labour, and so on. Since it was futile to try, I stopped submitting to journals, and concentrated on my books. Since it was hard to find publishers, I basically published those myself though some with help from Dutch University Press.

Because of the economic crisis it seemed fair to try again to submit a paper to a journal. I did this with my paper on the Economic Plan for Europe. This also is the base for my newspaper article in the English / Greek newspaper eKathimerini. It still is the best road that Europe could take. Nevertheless, the editor of that economics journal blocks a decent refereeing process, and dismissively states:

“Dear Thomas,  The paper rather looks like a political paper than a research paper. No clear hypothesis is dicussed via empirical testing or theoretical modelling but a bundle of statements are made. Even if some of these statements are interesting this will not be sufficient for a research paper. Kind regards, Jens Boysen-Hogrefe.” (September 27, 2011).

It so happens that dr Boysen-Hogrefe wrote an article about the German labour market “miracle” http://www.ifw-members.ifw-kiel.de/publications/the-german-labour-market-miracle, which “mircacle” can better be understood as a disaster, for it involves predatory pricing with respect to other EU nations, and causes an unbalanced export surplus. Germany here copies Holland, see my http://thomascool.eu/Papers/Drgtpe/Crisis-2007plus/2009-03-31-MacroLesson.pdf. See also Gartner & Merkl at http://www.voxeu.org/index.php?q=node/6187.

Thus dr Boysen-Hogrefe (a) does not follow proper editorial processes, (b) misunderstands the labour market and consequences for macro-events, (c) misunderstands what science is. An appeal didn’t have any effect.

This explains why my work cannot be found in the peer reviewed journals. Not for lack of quality but because of censorship and because our society has insufficient mechanisms for correction.

The current economic crisis has one of the causes in the subprime mortgages and the subsequent debt problems of banks and governments. This has caused a renewed interest in the work by Hyman Minsky and Wynne Godley, see http://www.levyinstitute.org.

A synthesis of various economic approaches is possible, such that our fellow economists will awake from their slumbers. We can formulate alternatives to this synthesis such that the data will decide which approach is more powerful.

The old synthesis can now be extended

I already formulated a synthesis in 1990, before the financial markets were deregulated to the very extent that has now caused this crisis. The deregulation took place since our fellow economists neglected my suggestion of that synthesis. The inclusion with the work by Minsky and Godley makes for an even better synthesis. Basically: to the Minsky and Godley approaches that researchers may now be familiar with, I suggest the additions of the notions of the Economic Supreme Court, tax void, dynamic marginal tax rate, and the shift of the Phillipscurve and NAIRU also due to differential indexation. These notions are in my book DRGTPE. A suggestion is that the Levy institute studies this too and considers an adaptation of its model.

My Economic Plan for Europe is based upon DRGTPE:
http://ekathimerini.com/4dcgi/_w_articles_wsite3_1_23/10/2011_411466

An interview by graduate student Protesilaos Stavrou:
http://protes-stavrou.blogspot.com/2011/10/plan-for-europe-interview-with-thomas.html

There is also my note in the Royal Economic Society Newsletter about the current debt finance error and proposal for a regime ladder to eliminate stigma on government debt.

Full employment

DRGTPE contains the notion of national investment banks and shows that full employment better be a target and that it can be attained. Minsky uses the term Employer of Last Resort (ELR). Starting from Keynes and Tinbergen I apparently found a similar analysis as Minsky on this though I use full employment rather than ELR.

The analysis in DRGTPE about the impact of taxation is a useful addition to the Minsky analysis on the ELR. Here I employ the same idea as Godley for finance: the use of accounting relations to show the limitations to the economy. I call this the “definition & reality methology” since it concerns definitions in models on economic reality.

This methodology is important, see my note on the paper “No one saw it coming” by Dirk Bezemer: http://thomascool.eu/Papers/Drgtpe/Crisis-2007plus/2009-10-23-ColignatusVsBezemer.pdf

In 1990 I regarded unemployment as the main problem to solve, see: http://thomascool.eu/Papers/Drgtpe/Crisis-2007plus/2011-10-16-Ghost-1989.html

We can now include the current crisis of 2007+.

Unemployment, CPB, Economic Supreme Court

Overall, we need a constitutional amendment of the Trias Politica with an Economic Supreme Court (ESC), per nation. Currently our fellow economists jump about in all kinds of directions but given an ESC there will be structure and order. Compare lawyers and the Supreme Court. See the draft amendment in DRGTPE.

Holland has been running systematic surplusses on the external account. Apparently there are vested interests in that country to resolve home grown unemployment by exporting (it). The Dutch Central Planning Bureau (CPB) has a role in that too. The directorate claims that it is a scientific bureau, but it is not a scientific bureau (for then it would be like an ESC).

Professor Robert Haveman who has ties with the Levy Institute has been in Holland and visited the CPB. He was linked to a CPB-review team. The CPB directorate censors science, but the review team with professor Haveman did not report on that. It is a bit strange that professor Haveman researches poverty but supports a CPB directorate that censors an analysis on unemployment and poverty. See http://thomascool.eu/Thomas/English/TPnCPB/Audit2/2003-03-26.html

Censorship

I have been protesting this censorship of science for more than 20 years now. Since 2004 I advise to a boycott of Holland till this is resolved:
http://thomascool.eu/Papers/Drgtpe/Crisis-2007plus/2012-01-03-Boycott-Holland.html

I hope that economic scientists in the world will study this economic synthesis. It will include a firm position on the integrity of economic science. It is painful to see the suffering that has been happening these last 20 years as a result of this censorship.

That I don’t blog at the Financial Times comes about by this rather sad story.

The FT has the Economist’s Forum with well-known authors like Michael Spence, Joseph Stiglitz, and, well, I will not list all of them. The moderator is sharp commentator Martin Wolf.

It appeared that Martin Wolf approved of my latest piece on the moratorium on stigma in government debt. I felt honoured to be included in the list of contributors. Publication of that piece in the FT would be imporant since the FT is probably the key financial newspaper. 

However, the newspaper presented me with a non-exclusive copyright and licence statement that implied that I would surrender my rights to the FT for the rest of my life, without the option to change conditions or end that contract. You will have heard stories of young musicians who lose their rights to music companies in such ways. It would be nice to be able to do a submission under better conditions than merely being published. For this reason I included a limitation in article 1. Below I copy that article 1 with my addition in red. To my regret, the legal officer did not accept any changes. It was “take it or leave it”. Well, that ended my short affair with the FT. It is a pity. I always had admiration for the Pearson publishing company.

Now it may be that people in Europe will suffer longer from the current economic crisis since the suggestion of a moratorium on stigma in government debt will not have circulated as much. Legal inflexibility thus can be counted as one of the factors that prolonges the crisis.

Quote:

Copyright Licence

  1.  You have agreed to contribute material to The Financial Times Ltd (“FT”) (company number 227590) for publication by FT and/or its affiliates and syndication partners. The terms of this copyright licence apply to any material submitted by you to FT in any format and accepted by us for publication in any format from time to time (the “material”). This licence is a legal contract between you and FT. This licence and contract applies only to the “Economists’ Forum” in 2012.

Unquote.

The EU is in a pressure cooker with interest rates that suffer from stigma, i.e. irrational fears of default that become rational and self-fulfilling because the higher rates of interest imply a reward. A moratorium arises by temporarily allowing eurozone bonds for 3% of GDP per annum to cover deficits. This buys time and rest to think through a structural solution. A dash for a fiscal and political federation may be ill advised because of the risks of resentment.

Decision making in the EU now takes place in a pressure cooker. There is a large risk that wrong decisions are taken that make the situation only worse. In the last five years EU leaders have wandered about from one crisis to the other, also created by themselves. They now recognize for example that the “voluntary default” on Greek debt was not so wise. Kanzler Merkel last week expressed her preference for a fiscal and political federation but this has a risk too. The transfer of national souvereignty would take place under the current conditions of austerity and depression in Southern Europe, such that the European project may become a dictate disliked by Europeans instead of the community that everyone welcomes. Historically Europe’s greatest danger is resentment. And such a federation might actually not be really needed just now.

The current high rates of interest derive from stigma, i.e. irrational fears of default that become rational and self-fulfilling because the higher rates of interest imply a reward. The key problem in the eurozone is that there is no structural mechanism yet to eliminate stigma. The pressure cooker in fact also encourages stigma. Problems with rates of interest are a weak argument for a political federation.

There is a straightforward manner to buy precious time to relax and discuss structural reform at ease. The manner is this: allow eurozone members to borrow 3% of GDP per annum, for the next 10 years, with full backing by the ECB. Since old debt is already in the hands of market counterparties, it is not quite as relevant, and it are only the new deficits that are important for the annual budgets of the member states. With the backing by the ECB the rates of interest in the eurozone can drop to an acceptable low level. Italy, Spain, Portugal and Ireland are immediately saved and we get a clearer picture of what can be done about Greece. After those 10 years only 30% of their GDP will be have such backing by the ECB, so that coverage is limited and the “no bail out” condition still is satisfied.

This moratorium actually uses eurozone bonds. Proponents of eurozone bonds generally want them structurally and not just for a moratorium. Earlier I advised against such bonds since they destroy important market information. For the purposes of this moratorium they however form an instrument that everyone understands and that is immediately effective. My own structural analysis leads to the suggestion of a regime ladder, with different stages depending upon the distance from the target of 60% of debt to GDP. However, my structural analysis is only one of the many approaches. The idea of the moratorium is to create more time to evaluate all of them, also using what we have learned about how a crisis can evolve.

There is a moral hazard that some member states will take advantage of this moratorium and not participate in the creation of a structural solution. It is more likely however that the whole of Europe now is aware of a need for a structural solution. Nevertheless it would be possible to define phases, say 1 year for job creation and agenda setting, and subsequently 3 periods of 3 years for aspects to develop in full, say on investments, banks, governance, and decide in unanimity whether there is sufficient progress to continue with the moratorium.

This proposed moratorium comes at a cost for Germany and Holland. Their rates of interest are exceptionally low now because of the fears about Southern Europe. Europe as a whole could ask Germany and Holland to accept normal rates of interest again to create this moratorium. Given Kanzler Merkel’s objectives and given that the “no bail out” clause is satisfied, it would be a wise decision. It will be the best news that Europeans have heard since all this started in August 2007.

References

Colignatus is the name in science of Thomas Cool, econometrician in Scheveningen, Holland.

Bergsten, F. and J.F. Kirkegaard (2012), “The coming resolution of the European crisis”, http://www.voxeu.org/index.php?q=node/7568

Colignatus (2011a), “Definition & Reality in the General Theory of Political Economy”, 3rd edition, http://thomascool.eu/Papers/Drgtpe/Index.html and http://www.voxeu.org/index.php?q=node/3087

Colignatus (2011b), “Conditions for turning the ex ante risk premium into an ex post redemption for EU government debt”, http://mpra.ub.uni-muenchen.de/35120

Colignatus (2012), “A haircut every year”, RES Newsletter, January, p15, http://thomascool.eu/Papers/Drgtpe/Crisis-2007plus/2012-01-RES-Newsletter-Haircut.jpg

Delbecque, B. (2011), “Capping interest rates to stop contagion in the Eurozone”, http://www.voxeu.org/index.php?q=node/7106

Traynor, I. (2012), “Angela Merkel casts doubt on saving Greece from financial meltdown”, The Guardian, January 25, http://www.guardian.co.uk/world/2012/jan/25/angela-merkel-greece-financial-meltdown

Given the developments in world democracy and the world economy it seems sensible to somewhat join the blogosphere, though I don’t feel much like a blogger.

The main messages of this website are:

  1. Democracy and economy are improved by upgrading the Trias Politica into a Tessera Politica, with the adoption of a constitutional Economic Supreme Court, for each democratic nation separately. See my book DRGTPE.
  2. There is a new synthesis of economic theory, with various innovations, see DRGTPE again. This allows the solution of the world economic crisis and the unemployment since the mid 1970s. Clearly economic policy depends upon the theory that economic advisors adopt. If they don’t have the proper theory then their advice might make matters worse.
  3. The analysis on this synthesis and the Economic Supreme Court has been hit by censorship by the directorate of the Dutch Central Planning Bureau (CPB) since 1989/90. The CPB plays a key role in the preparation of Dutch economic policy. Apparently Dutch society cannot resolve this censorship of science. Hence the best advice to the world is to start boycotting Holland till that censorship is lifted. See this paper.
  4. Also my analysis on Kenneth Arrow’s Impossibility Theorem was censored in 1990. See my book VTFD.
  5. Supplementary is this: Part of the problem appears to lie with the attitude of mathematicians towards issues in reality. Kenneth Arrow was a mathematician who confused voting and deciding. Many economists neglect censorship of science because that doesn’t feature in their mathematical models (see DRGTPE however for a model that does). Financial mathematicians helped create the world crisis. This abstract attitude of mathematicians also creates havoc in education when they meet real life pupils and students. See my books EWS and COTP, and the book ALOE on logic.

I will write on other stuff as well but the main message is to boycott Holland till the censorship at CPB is lifted and I am a free person and free scientist again.  This lack of freedom also shows in that I felt forced to name this blog “boycottholland.wordpress.com” instead of a bit more positive “visitholland.wordpress.com” or something more creative. Anyway, enjoy, and start boycotting !