Monday, July 21, 2014

Why the ‘Ivy League’ Universities Really Comprise the Corrupt League – In Politics, Econ, Business

The Gaussian Copula Formula (top) used by economists to justify credit default swaps, and the Pareto distribution - used to justify the allocation of most wealth to the richest. These are two illustrations of the bunkum taught at 'elite' universities to subvert economics in our nation and the world at large.

It was actually a comment from a nitwit poster on a Guardian (UK) forum that caught my eye. It was in response to a previous poster’s eloquent contribution and a citation of Prof. Stephen Cohen of NYU.  The response comment read, taking on the source of the citation:

From a 2nd rate prof at a 3rd rate university”

Really? Are there ‘third rate’ universities? In fact, not so much these days and hence the inexplicable  yen for so many t0 blow hundreds of thousands of bucks to  compile massive debt just to get into an Ivy league school for the sake of name cachet.  Or tens of thousands more merely to make futile efforts via applications, to enter the magic, golden doors.  The fact is, it makes very little difference which university you attend (assuming it isn’t a ‘for profit’ or online version). It is more the cachet and reputation of the specific department.  From the May 2011 issue of MONEY magazine: "Don't assume an Ivy League education is better than one from a public or state university."

However, as Chris Hedges observes in his remarkable book, ‘The Empire of Illusion’ it is the “Ivies” – the likes of Harvard, Yale, Princeton and others,  that are the source of a continuing flow of zombot, unthinking elites poisoning our nation and the world. To be clear,  this lot are being disgorged in specific academic areas, namely business, politics and economics. Their toxic views are infiltrating the memosphere and reinforcing the hegemony of the elites and their stranglehold on the country – including the ongoing inequality.

Thankfully, their scientific and math contributions remain relatively uncontaminated – unless they’re in the areas which receive corporate grants to support oil shale and natural gas fracking, or GMO foods. In astrophysics, for example, they’re generally fine.

Hedges’ takedown chapter is III: The Illusion of Wisdom and he comes out swinging for the fences with his opening paragraph (p.89):

The multiple failures that beset the country, from our mismanaged economy to our shredding of Constitutional rights to our lack of universal health care to our imperial debacles in the Middle East, can be laid at the door of institutions that produce and sustain our educated elites. Harvard, Yale, Princeton, Stanford, Oxford, Cambridge, the University of Toronto and the Paris Institute of Political Studies, along with most elite schools, do only a mediocre job of teaching students to question and think. They focus, through the filter of standardized tests, AP classes, enrichment activities, high-priced tutors, swanky private schools, entrance exams and blind deference to authority, on creating hordes of competent systems managers. “


Response for the collapse of the global economy runs in a direct line from the manicured quadrangles and academic halls in Cambridge, New Haven, Toronto and Paris to the financial and power centers of the world.”

This is a breathtaking accusation but Hedges can fully back it up with his examples and citations. Nor is this simply a matter of “sour grapes from a loser” since Hedges did in fact lecture at Princeton for years. But what he shows is that the tolerance for divergent thinking in these assorted elite faculties and enclaves is almost non-existent. Hence,  the examples he provides shed light on the extent to which all the above named schools “disdain honest inquiry – which is by its very nature distrustful of authority, fiercely independent and often subversive.”

They therefore would have little tolerance for a remarkable political thinker like Neoliberal gadfly Henry Giroux,  who for many years was Waterbury Chair Professor at Penn State. But on account of his work and resolute critical voice (one of “the most vocal critics of the corporate state and destruction of American education”) he was driven to the margins of academia in the United States. The Neoliberal sock puppets and their assorted lackeys simply couldn’t abide his independent research and critical thought and so drove him to Canada where he now teaches at McMaster University. (Certainly not a ‘3rd rate school’ if it has the likes of Giroux!)

But Giroux is only one of  many examples of the minds marginalized because of their outspokenness.  Hedges also cites those such as Noam Chomsky (linguistics prof from MIT),  consumer advocate Ralph Nader, the late historian Howard Zinn and others who are shut out once they critique the system keeping us all down, as serfs in the alleged ‘land of liberty’.

How do these wretched intellectual pretenders get away with this evisceration of faculty and critical thought? Well, by an entrenched and well-rehearsed, embedded template that sifts all yearly intakes to find the individuals that will be the most easily molded - the most confident carriers of the elite virus and zombie ideas. (Mainly, as Hedges also notes, little dweezils that follow their profs all around -  groveling-   while also grafting for 4.0 in all their subjects.)

As for the zombie ideas forced down the willing throats of these sycophant students, like:  “money is speech”, "corporate personhood", "free markets", "globalization"  and “trickle down economics”, they ought to have died ages ago .  But all are sustained via the publication of specious, pseudo-academic bullshit for which the dumpster would be the only rightful place in a rationally run institution of higher learning.

Hedges details the methods at the outset of the chapter:  

They organize learning around minutely specialized disciplines, narrow answers …it allows students and faculties to retreat into these self-imposed fiefdoms and neglect the most pressing  moral, political and cultural questions.”
And then later elaborates some more (p. 103):
"This is what the Harvard Business School method is about, a didactic system in which the logic employed to solve a specific problem always, in the end, sustains market capitalism. These elites are not capable of asking the broad, universal questions, those staples of an education in the humanities, which challenge the deepest assumptions of a culture and examine the harsh realities of political and economic power. They have forgotten, because they have not been taught, that human nature is a mix of good and evil. They do not have the capacity for critical reflection. They do not understand that for every answer there arises another question- the very basis behind the Socratic method's search for wisdom."

One of the ways this occurs is the use of specialized vocabulary.  Thus, the pseudo-intellectuals or “quants” that helped develop the Gaussian Copula formula (see embedded graphic at top) were quite confident that when they applied it to the development of credit default swaps  few would figure them out before it was too late. Indeed choosing the name for this bastardized form of credit derivative ensured that they’d be virtually home free. On account of the arcane lingo used and the complex nature of the underlying formula, few ordinary mortals would have the time, intelligence or temperament to get to the bottom of it all.

These nasty devices were geared to enable commercial banks (the ones that hold your passbook savings) to leverage their assets to preposterous ratios just like investment banks, sometimes as high as 33:1.  In other words, their generation of profits would largely be based on phantom money – since they lacked the reserves to make good if the bets (which is what the credit defaults swaps were) failed. In the meantime, the Gaussian formula itself allowed the credit derivatives to be sliced and diced numerous ways to package them throughout ordinary securities such as collateralized mortgage obligations.  The failure of the credit agencies themselves to recognize this enabled them to be outfoxed by the specialized lingo and the presence of one fraction of ‘AAA’ bonds in each. This  then led directly to the misrepresentation of junk bonds as AAA and the collapse of the credit markets in 2008.

Since then  it’s become ever more evident why elite economics is a failure and can’t even be regarded as a science like Physics, or even in a “pre-scientific phase” as one respondent (Sanjay Bissessur)  to an original  Financial Times letter of mine showed. But economists' failure to even appreciate or use the Gaussian Copula formula correctly shows that they aren't even in the pre-scientific phase. And Bissessur’s pathetic efforts to compare the incident to “early physics” was plainly based on false analogy and disclosed his own lack of critical thinking.

In the case of the Gaussian copula, invented by David X. Li  and articulated in his (2000) paper: ‘On Default Correlation: A Copula Function Approach”  it isn't even a true mathematically sound equation analogous to those used in physics or celestial mechanics.. It is more an intellectual Frankenstein monster that never should have seen the light of day any more than a four-headed baby with a pointed tail. For example, Li's misuse of the distribution functions (FA(1)) and (FB(1)) would appall any genuine mathematician or physicist. Each is actually based upon significant uncertainties via survival law distributions which can vary enormously. There is no way to normalize any probability based on (TA, TB ) so there is no way to equate Pr[TA, TB] to anything on the left side. The equal sign is dangerous recklessness masquerading as math. Did elite economists or quants know any of this when they cranked out their credit default swaps? The evidence of failure to predict the 2008 credit crash shows they didn't.

All of which supports Hedges’ condemnation of these mental zombots, i.e. p. 98:

“They cannot grasp that truth is often relative. They base their decisions on established beliefs such as the primacy of an unregulated market or globalization, which are accepted as absolutes.”

In other words, they inhabit a self-confected, solipsist world of illusion devoid of critical, empirical testing or critical thought. I mean, Jeez, if any one of these so-called geniuses would have just taken the time to understand WHAT he was doing in applying the Gaussian Copula to credit derivatives he’d likely have seen it was the equivalent of a physicist taking a tiny piece of special relativity and trying to inject it into areas (i.e. thermodynamic systems at room temperature)  that had no relevance because the primary criterion (speeds near c, the speed of light) were not being met. But see, that sort of moral value perception would also have required a moral dimension to their research and its applications, and all the elites lacked it in spades.

At least physics has and uses empirical testing before advancing to hard claims  – so the odds are less that physicists will make asses of themselves. Not so with these economic, political elites.   Unlike astronomers,  who can accurately predict the position of Jupiter or Mars in 2050 or the next lunar eclipse or occultation of a star, the economists can't even predict simple stuff in their immediate domain - say like forecasting the U.S. economic growth would be 3.2 % in 2011 when it was only 1.7%

So why do we keep paying attention to these overpaid clowns? Just because they have Harvard, Cambridge, Princeton, Stanford or whatever degrees after their names? Well, mainly because the politicos who achieve high office (and have similar backgrounds)  tend to install them in their cabinets so instead of being relegated to some corner office behind the hallowed walls of ivy, they have the ear of Presidents and Prime Ministers. These clowns can then help determine national policy which result is usually to the detriment of the rest of us. (Think of the 'chained CPI' gimmick that Obama once entertained.)

Which elicits the question of whether Obama is caught up in this elitist matrix. It was clear in his recent piece Thomas Frank believes so, as he writes:

"The Obama team, as the president once announced to a delegation of investment bankers, was “the only thing between you and the pitchforks,” and in retrospect these words seem not only to have been a correct assessment of the situation at the moment but a credo for his entire term in office. For my money, they should be carved in stone over the entrance to his monument: Barack Obama as the one-man rescue squad for an economic order that had aroused the fury of the world. Better: Obama as the awesomely talented doctor who kept the corpse of a dead philosophy lumbering along despite it all.

The Age of the Zombie Consensus, however poetic it sounds, will probably not recommend itself as a catchphrase to the shapers of the Obama legacy. They will probably be looking for a label that is slightly more heroic: the Triumph of Faith over Cynicism, or something like that. Maybe they will borrow a phrase from one of the 2012 campaign books, “The Center Holds,” and describe the Obama presidency as a time when cool, corporate reason prevailed over inflamed public opinion. Barack Obama will be presented as a kind of second FDR: the man who saved the system from itself. That perhaps the system didn’t deserve saving will be left to some less-well-funded museum."

In other words, Frank's take is that Obama has helped to preserve and sustain the defunct market capitalism system taught at the elite schools, as well as the whole corporate hegemonic infrastructure. What does Chris Hedges think? He writes (p. 113):

"Obama is a product of the elitist system. So are his degree-laden cabinet members. They come out of Harvard, Yale, Wellesley and Princeton. Their friends and classmates made huge fortunes on Wall Street . They belong to the same clubs. They speak the same easy language of privilege, comfort and entitlement. The education they have obtained has served to rigidify and perpetuate social stratification."

Not that Obama is any different from Clinton before him and worst of all his immediate predecessor,  Bush Jr.,  who we learned benefited as a "legacy student" at Hah-Vahd. Hedges observes (p. 102) that Harvard sports something called the "Z-list" wherein 25 to 50 well-connected but borderline applicants "are told they can enroll if they defer for a year". Hmmmm.....nice trick if you can get it.  Especially if your pappy happens to be a wealthy SOB that can bestow personal grants on the universiy!

Will this corrupt system ever change to benefit the larger society? Not likely! So long as corporate money, personal wealth and advantage are extolled above principles, honor and moral decency, the myopic, amoral elites will lead their blind, greedy and obsequious students, the blind politicos and the rest of us (who aren't so blind) into oblivion. In this light, Hedges'  words are perhaps most trenchant (p. 103):
"A culture that does not grasp the vital interplay between morality and power, which mistakes management techniques for wisdom, which fails to understand that the measure of a civilization is its compassion, not its speed or ability to consume, condemns itself to death."

Will the elites take any notice of this and act to change their ways before the pitchforks really come out? Hardly! They are too smug, self-satisfied and arrogant to take seriously anything an outside critic has to say.

Which more or less resembles the stance of the French elites before the pitchforks - and guillotines - came out (during the French Revolution) , to lop off thousands of elitist heads and send them rolling into large baskets.

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