The Pareto Efficiency Swindle

This continues a sequence of posts explaining how conventional economics is actually the economic theory of the top 1%: ET1%: Blindfolds created by Economic Theories. Eight central concepts of economic theory are shown to be deceptive – they have an appearance of objectivity, fairness, and equity, but actually conceal a strong bias in the favor of the wealthy. The previous post was the “Illusion of Scarcity.

We call the concept of “Pareto Efficiency” a swindle because it represents the normative principle that property rights of the wealthy take precedence over the right to basic needs of the poor. However, it is disguised to have an appearance of scientific objectivity, while the opposite normative preference, which most people have, is said to depend on subjective and unreliable value judgments.

The principle of Pareto efficiency has a harmless and innocuous appearance. Who could object to the idea that if we give more material goods to everyone, then the society as a whole is better off? However, we will show that Pareto Efficiency is deceptive and fully qualifies for the label ET1%. It appeals to everyone when we say that increasing social welfare requires giving more goods to all. But the hidden consequence of accepting this principle is that you cannot take wealth away from the super-rich to give to the hungry, because that would decrease the wealth of the super-rich. It also provides moral cover for increasing inequality, as we shall see. It also protects property rights against the taxation required to fulfill social needs of the poor.

1       Protecting the Rich from Re-distribution

Like the dog who did not bark, the Pareto principle protects wealthy not by what it says, but by what it refuses to say. While increasing wealth of everyone increases social welfare, assessing welfare impacts of redistribution requires interpersonal comparisons of utilities, which is stated to be unscientific.

A key element of the Pareto principle is that utilities cannot be compared across people – interpersonal comparison of utilities is ruled out. Earlier, using the principle of diminishing marginal utilities, it was possible to argue the wealthy derived less pleasure from their last dollar, while the poor would derive much more, justifying re-distribution. Against this, Pareto argues that we cannot compare the utility/pleasure derived by aristocrats with refined tastes, and the utility derived by the coarse and crude peasants. Of course, this apparently fair, objective and neutral refusal to compare, conceals a preference for the wealthy. Clearly, the Pareto principle can be, and was used to prevent taxation of the rich to support the poor. When the status quo is one where the aristocrats have five course meals, while peasants eat coarse bread, refusal to compare amounts to supporting the status quo, and arguing that social welfare would decline if we took from rich to give to the poor. The Pareto Principle is used by economists today in the same way – to prevent moves to re-distribute wealth in an equitable way. It does not allow us to take away luxuries from the rich to distribute food to the starving. Thus, it serves as an ideology which favors the wealthy.  This is the general characteristic of ET1%, that these theories appear to be fair and equitable, but conceal strong support for the wealthy. We can oppose this principle by an alternative which would be part of an ET90% – an economic theory for the public.

ET90%: A transfer which does not reduce access to comforts for the wealthy, while creating access to essential needs for the poor, improves social welfare.

As stated, the principle is somewhat vague and imprecise. There are many ways to sharpen it so that it would command consensus. Taking the usual classification of consumption into necessities, comforts, and luxuries, we could argue that taking luxuries away from someone to provide life-saving medical treatments, or to meet essential minimal nutritional requirements, would improve social welfare. This involves accepting that the right to live takes precedence over the right to property. It should be obvious from the discusssion that the Pareto Principle upholds the right to property of the wealthy over the right to live of the poor. However, more important is the fact that this normative position is hidden within an apparently objective framework. This concealment prevents and open debate and dialog which could generate consensus on the relative importance of property rights over the basic needs of the population. Such a consensus would undoubtedly be harmful to the interests of the wealthy, so the Pareto Principle creates an obstacle to open dialog about this by creating a false impression that the matter has already been settled in a scientific and objective manner, without any need for social consensus.

Islamic ideas of social responsibility strongly advocate the principle that wealth may be taken away from those who have an excess, and given to those in dire need. Islamic principles regarding re-distribution work at three levels. Compulsory re-distribution in the form of Zakat is mandated at 2.5% of wealth over a specified minimum. This is specifically meant for the poor. Additionally, the Quran (70:24,25) states that the poor have a right in the wealth of rich. Scholars have traditionally understood this to mean that if Zakat is insufficient to provide for basic needs of the poor, additional redistribution must be done, to the extent required. In addition to these compulsory, and semi-compulsory measures for re-distribution, Islamic teachings are full of encouragements and exhortations for the wealthy to spend on the poor. Historically, this has been effective in generating large  amounts of charitable spending among the Muslims.  We can encapsulate this discussion in the form of three principles which would be part of Islamic Economics, viewed as ET90% — the economic theory of the people:

  1. A small percentage (2.5%) of the wealth is the right of the poor, and must be redistributed.
  2. When the basic needs of the poor exceed the resources available, additional levies can be made on the wealthy to ensure that all such needs are met.
  3. Social norms of generosity, and collective responsibility for the needs of all, are encouraged to create an atmosphere of cooperation, community and charity, leading to large scale voluntary expenditures by the wealthy on those who are needy.

2       Power Corrupts

Contrary to the Pareto Principle, Islam teaches us that increase in wealth is not always a good thing.

(89:15) And as for man, when his Lord tries him and [thus] is generous to him and favors him, he says, “My Lord has honored me.”

Wealth in excess of our needs is perceived as a gift and an honor, but it is actually a trial. If excess wealth is used in good ways, then it becomes a blessing. But, excess wealth creates power, and the potential for abuse of power. For example, the Quran (42:27) states that

(42: 27) And if Allah were to enlarge the provision for His slaves they would surely rebel in the earth

There are many examples of people, like Qaroon, and nations, like the ‘Ad, who became rebellious when they were given wealth and power. Ṣaḥīḥ al-Bukhārī 2988, Ṣaḥīḥ Muslim 2961 confirm this tendency:

Amr ibn Awf reported: The Messenger of Allah, peace and blessings be upon him, said, “By Allah, it is not poverty I fear for you, but rather I fear you will be given the wealth of the world just as it was given to those before you. You will compete for it just as they competed for it and it will destroy you just as it destroyed them.”

According to conventional economics, more money and more consumption always increases welfare, and this is the basis for the Pareto principle. However, Islam has a far more sophisticated and complex view of this matter. Excessive wealth can be beneficial if it is used correctly, and can be harmful if used incorrectly. There are many ways to abuse excessive wealth which are actively discouraged in the Quran. The following principles form part of Islamic Economics, which prohibit use of wealth in ways that cause harm:

  1. Excess, wasteful and prodigal consumption – called Israf and Tabzeer – is prohibited.
  2. Conspicuous consumption, designed to cause envy in others, is prohibited.
  3. Wealth creates power. This power is to be used to help the oppressed, rather than to oppress.
  4. Spiritually, we are required to understand that the wealth we have is a gift and a trial from our Lord, rather than something we have earned due to our own intelligence and struggle.

3       Supporting Increasing Inequality and concentration of Wealth

The Pareto Principle can also be used to argue that increases in inequality and concentration of wealth are socially beneficial. While typical economists shy away from examining this implication, Martin Feldstein (1999:34, cited in Hill & Myatt Anti-Textbook) has no qualms about spelling it out: “I am interested only in evaluating changes that increase the incomes of high income individuals without decreasing the incomes of others. Such a change clearly satisfies the common-sense Pareto principle: It is good because it makes some people better off without making anyone else worse off. I think such a change should be regarded as good even though it increases inequality.”

Whereas the Pareto Principles supports increasing inequality by increasing the wealth of the already wealthy, the Quran tells us otherwise. The Quran (59:7) informs us that wealth should not be allowed to concentrate in the hands of the rich; instead, we should distribute it to the deserving parties, including the orphans, the needy, and the travelers:

(59:7) Whatever Allah has bestowed on His Messenger belongs to Allah, and to the Messenger, and to his kinsfolk, and to the orphans, and to the needy, and to the wayfarer; so that it may not merely circulate between the rich among you.

The reason for this caution has already been explained in verse (42:7) cited earlier: if we increase the wealth of the already wealthy, they will have greater power and cause greater damage by their increased rebelliousness. The mass hallucination created by modern economics depends on preventing the public from realizing the obvious connections between wealth and power. Because economists are not allowed to look at politics, the primary cause of the increasing inequality today cannot be understood, leading to a large, confusing, and misleading literature on the topic of increasing inequalities in wealth and income. For instance, see Piketty’s famous book, Capital In the 21st Century, which focuses on technical details of how the wealth of the wealthy increases faster, without coming to grips with the underlying structures of power which enable this.

To oppose increasing inequality and concentration of wealth, an Islamic Economic system could incorporate the following principle, based on 59:7 above

  1. Wealth should circulate freely from those with excess to those in need, using the mechanisms (both compulsory and voluntary) indicated above. This is to be achieved by regulations targeted at institutional, social, and personal levels.

In Conclusion: As we have seen, the Pareto Efficiency principle hides within an apparently objective framework, a strong bias towards the wealthy. This is built on the idea that more wealth is always better, an idea which is contested by many Islamic teachings to the contrary.

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A Syllabus for Islamic Economics

Dr. Mabid Al Jarhi proposed a new syllabus for Islamic Economics, and circulated it for comments and discussion. This generated a very lively discussion, which is linked below.

4/19/18: The most recent post in the discussion is by myself, and explains why an Islamic Syllabus should be based on Islamic Sources, not on Samuelson. My own Lectures on Islamic Economics illustrate the concept discussed below in my email:

The difficulty that I have with the approach of Dr. Mabid Al-Jarhi is that there is no answer to the question posed by Dr. Mahmoud El-Gamal: why do we need to use the word “Islamic”? The economics being done is purely from Western sources, whether orthodox or heterodox, and the emphasis on math and analytics is a purely Western emphasis, which has no contact with Islamic teachings. Some Islamic topics like Fiqh and others are to be tacked on as an almost superfluous and un-necessary adjuncts – exactly as Cliff Cobb recognizes in his email: “you have indicated a desire to develop an endogenously developed Islamic economics, one that is not simply a response to or adjunct of neoclassical thought.”  Unless we can put Islam at front and center, we cannot call it “Islamic Economics”. Here is how I propose to do so, in my Third Generation Islamic Economics paper.

We start by considering the diversity of human purpose – Inna Sa’yakum la Shatta. Human behavior is driven by the desire to achieve goals (which are diverse) and to understand it, we need to understand human purpose. Neoclassical economists believe that all rational humans have only one purpose – maximizing the pleasure they obtain from consumption. This is obviously wrong, and so using Islamic ideas would be an obvious improvement. In my short note on “A Methodology for Islamic Economics”, I spell out how we must found this on three elements – the positive or descriptive, the normative or ideal, and the transformative, the method to move from the current reality towards the ideal. The third element, creating change, was obviously part of the mission of the Prophet Mohammad SAW. Emphasizing these three elements would distinguish Islamic Economics from any of the currently available approaches, whether orthodox or heterodox, and, being firmly grounded in Islamic traditions, would justify the label “Islamic”.

In many papers, I have spelled out how Islam is diametrically opposed to Economics; for example, see “Islam Versus Economics”. The second generation of Islamic Economists have spent more than three decades overlooking the conflicts and striving to harmonize conventional economics with Islamic teachings, to the extent of even accepting utility maximization as a valid principle. A genuine Islamic economics can be built only if we reject “TheIllusion of Scarcity” as a foundational principle of economics. Instead, the first priority of an Islamic economic system would be to provide for the basic needs for all members of the society, and ensure access to equal opportunities for education for all. Making these the CENTRAL problems of economics would lead to a radically different kind of economics, which would justify a distinct and distinguishing name like “Islamic Economics”.

To summarize — if we wish to create an “ISLAMIC ECONOMICS” then the FOUNDATIONS for the discipline must come from Quran and Hadeeth. Current versions of second generation Islamic Economics have foundations in Samuelson, and trimmings from Islamic ideas — this approach is not acceptable. I think Dr Mabid Al-Jarhy’s proposed syllabus also falls into this category. How we can create a discipline which is founded on Islamic teachings is spelled out in my papers on Re-Defining Islamic Economics, and in Reviving the Promise of Islamic Economics. Modern Economic theory is DEEPLY FLAWED. If we have the COURAGE to do so, we can launch a revolution. Just as Islamic teachings created a revolution 1400 years ago, they have exactly the same potential today. However, today unfortunately, islam has become a stranger, and the Ummah is crawling into lizard-holes after the Christians and Jews.

PS: I have taken the liberty of adding a few names whom I thought would be interested in this discussion. Furthermore, the issues under discussion are of universal interest, wherever Islamic Economics is being taught. So I have copied the first twenty emails into a webpage linked below, and hope to update it later, so that a record is available for use by others. The link to the history of this email conversation is as follows:

http://islamic-worldview.com/discussion-of-mabid-al-jarhi-syllabus-for-islamic-economics/

 

 

The Methodology of Islamic Economics

My ten minute welcome address on this topic at the 6th Workshop on Islamic Economics, arranged by IKAM in Istanbul, 5-7 Apr 2018. A video of the entire session — in Turkish — is available from links below.

We must start by understanding that Western methodology for economics is seriously flawed. For reasons too complex to explain here (see “Deification of Science”), Europeans rejected religion, and came to believe that science is the only valid source of knowledge. However, scientific method is seriously handicapped when it comes to the study of human beings and societies. For a deeper discussion, see “Method or Madness?”; briefly, we can mention two major defects:

  1. Human beings are free to choose (between good and evil). Their future behavior is not predictable from the past.
  2. Mathematical formulae cannot be used to describe behavior, since humans change unpredictably. Formulas require robots, and indeed, this is what economic theory assumes.

The rejection of religion which took place as a result of the corrupt behavior of Popes led to deep religious trauma in Europe, and this led to the serious distortions in European theories of knowledge. Since religion advocates belief in the unseen, Europeans rejected this as a principle, and resolved to trust only in that which they could touch or see. The philosophy of logical positivism emerged, which argued that our only source of knowledge is our senses, and we cannot say anything about the unseen causes which create the observables. This rejection of unobservables, based on rejection of God, also led to rejection of unseen motivations, or the heart and soul of human beings. So the third serious defect which resulted from the adoption of a positivist understanding of scientific method was the following:

  1. A seriously mistaken understanding of human behavior and sources of human welfare due to failure to recognize the relevance of heart and soul of human beings.

With this as background, we turn to a more concrete and specific explanation of how economic theory is based on seriously mistaken methodological ideas.

Even though economic theory claims to be positive – that is purely a factual and objective description of human behavior – it has all three elements: positive, normative, and transformative. That is, it describes actual state of affairs, it describes an ideal state of affairs, and it explains how we can make changes to get from the observed imperfect state to the desirable ideal state. However, the positive and normative elements are seriously mistaken. That is, the description of human beings as homo economicus misses the mark completely; human beings rarely behave in this way. Furthermore, the normative idea that this is rational behavior is seriously wrong; Amartya Sen in his essay on “Rational Fools” explain why it would be extremely foolish to behave in ways that economists consider as rational. In particular, the normative idea that the purpose of our lives is to maximize the pleasure that we obtain from a lifetime of consumption is deeply mistaken about the nature of human welfare, which is not tied to consumption. Recent research has confirmed the Easterlin Paradox, which shows that rising levels of consumption have zero correlation with human happiness and welfare. In fact, happiness depends on character – compassion, generosity, trust, contentment – and on social relationships, family, friends, community; loving, and being loved. As per Hadeeth, a Mo’min loves and is loved.

Conventional economics claims to be positive, but conceals poisonous normative messages within its framework (for details of these poisons, see Julie Nelson: Poisoning the Well: How Economic Theory Damages Our Moral Imagination). In contrast, the methodology of Islamic Economics is based on three distinct and explicit components. One is a positive element, which describes actual human behavior. The second is the normative element, which describes ideal human behavior; for this, we have been sent the perfect model, which is the behavior of Prophet Mohammad SAW. The third element is transformative. It explains the steps we need to take to create the changes required to realize the potential for excellence within each human being.

On the positive front, Islam provides us with a far more complex and accurate picture of the realities of human behavior, relative to the hopelessly primitive model of homo economicus of economic theory. According to Islam, every human being has a Nafs-e-Ammara which is motivated purely by pleasure and has no moral component. As a result, it frequently invites towards evil. At the same time, every human being has a Nafs-e-Mutmai’nnah which informs him of the good, and is attracted towards the good. As the Quran states, every human being is created in the best of forms and reduced to the lowest of the low. This means that every human being is built with the capability of rising higher than the angels, and also has the potential to become lower than the beasts. The human heart is a constant battleground between the forces of good and evil. The goal of our life on this earth is not the maximization of the pleasure obtained from consumption, but rather it is Tazkiya  — cleansing and purifying our hearts, so that the  love of Allah, and His Prophet Mohammad SAW, and the struggle for the Deen become the most beloved. To achieve this goal, we must obey the orders  of Allah in the manner shown by the most excellent model for all human beings, our prophet Mohammad SAW. Thus, Islam provides a positive theory which describes actual behavior, a normative theory which shows us the ideal behavior, and a transformative theory which explains how we can change and purify our own hearts, and also how we can invite others towards the good.

When this knowledge was given to man via our Prophet Mohammad SAW, it created the greatest revolution ever seen in the history of mankind. It took ignorant and backwards Arabs from the bottom, and made them the leaders of the world. The teachings of Islam launched a civilization which dominated the planet for a 1000 years. The question of the greatest importance for the Muslims is: Does this message have the same power today? Can it create the revolution today that it did 1400 years ago? Unfortunately, as prophesied, Islam has become a stranger to the Muslims. Today, in economic theory as well as in all realms of knowledge, the Muslims believe that it is Western education which is required to change the condition of the Ummah from its current sad state. They no longer believe that the message of Allah is perfect and complete, and sufficient for our guidance today (see the Modern Mu’tazila). Islam as a way of life has become a stranger because in all domains of our life – political, social, economic, educational, etc. – we are following the ways of the Christians and Jews, even to the extent of crawling into lizard holes after them. The main message of my talk is that Islam itself provides us with the methodology required to implement the teachings of Allah in our personal, social and collective lives, which is needed to re-awaken the Ummah from its sleep. The message of Allah has the same power today to revolutionize our internal lives, and to create a revolution in the world, as it did 1400 years ago.

Video Recording of ENTIRE Welcome Session (in Turkish)

Achieving High Growth

published in The Nation, on 17th April 2018. Summary of Pre-Budget Seminar at QAU on 17th May 2016. 23m Video Recording of Talk:

Many successful examples show that it is possible to achieve high growth. BRICS countries have achieved enviable economic progress. In particular, Chinese workers have gone from using oxen-driven carts to automobiles within a lifetime, while median income has doubled within a decade. Similarly, the East Asian miracle is a recent event. Even our neighbors, India and Bangladesh, have had higher growth trajectories than those of Pakistan.

It is obviously possible to achieve high growth, but it has not been happening. So, what are the obstacles to achieving high growth rates? The greatest obstacles lie not in the lack of material resources, but in the wrong economic theories, which lead us to wrong policy decisions. On the patterns described in “Confessions of an Economic Hit-Man”, powerful international organisations backed by corporate power use strategies to persuade us to adopt policies against the interests of masses, which prevent development. In particular, financial organisations make money by extending loans to poor countries, and do everything in their power to keep them poor. While loans are called “foreign aid” and advertised as being beneficial, the terms often ensure that the money goes back to the original country, or into the pockets of the corrupt, while the public is saddled with repayment for decades. The consequences are obvious in the form of trillions of dollars of tribute flowing from the poorest of the countries to the wealthiest.

Substantial evidence can be provided that countries are persuaded to pursue policies which are supposed to be beneficial, but in reality help the powerful financial lobbies. For instance, World Bank published a study in 1993 entitled the East Asian Miracle which lists the policies pursued by the East Asian countries which enabled them to achieve dramatic growth, transforming agricultural economies to industrial ones. In 1995, the World Trade Organisation was formed, supposedly to facilitate trade. However, all signatories to the WTO must sign an agreement forbidding them to use ALL of the policies listed in the World Bank publication as the sources of the East Asian Miracle.

Major Multinational corporations can easily dispose of local competition, but find it hard to compete with Government backed enterprises. Despite many well-documented cases of disastrous outcomes following privatisations, IMF and WB insist on privatisation as one of the keystones of public sector reform. At the insistence of World Bank team led by Jeffrey Sachs, Russia carried out massive privatisations of its huge public sector. As a result, billionaire were created overnight who acquired public assets cheaply, while a huge number of people went into poverty. Overall GDP in Russia fell by 50% as a result of the shock strategy of rapid conversion to free market enforced by the World Bank team.

If we are not deceived by propaganda for policies against our self-interest, it is easy to see the policies required to achieve high growth. The key is to increase local, domestic capabilities of production. The greater our own public participates in the growth process, the more rapidly we can achieve growth. By encouraging and allowing Community Driven Development, we can create a million engines of growth. However, pursuing this type of policy requires a major paradigm shift on part of the planners. Instead of controlling and driving the process, for which the capacity is lacking at the government level, the government needs to empower and enable communities to pursue their own agendas. Also, our policy makers need to learn to see through appearances and recognize the Washington Consensus for what it is: The Washington Agenda to enable Multinational Corporations and Global Finance to rule Pakistan.

We must start with the realisation that the people of Pakistan are our most valuable asset, and investing in them is surest and most rapid route to growth. All the talk of FDI, exports, raising taxes, budget deficit, exchange rates etc. is just a red herring and a distraction which prevents us from paying attention to our highest priority: improving the lives of the people of Pakistan. It is thought that we don’t have enough resources to provide for our people. The reality is that massive sums of money are already being spent on social service programs. This spending would already have been enough to change the lives of millions by graduating them out of poverty, if it had been done in a planned and coherent fashion.

The secret to rapid growth is community driven development. Current thinking among policy makers in Pakistan is hierarchical and top-down: we will make the plans, and create development, and then share fruits with the people. Instead, we need to take the back seat, and simply facilitate, energize, and empower the living communities to undertake the activities required for development. This will create millions of drivers of change, and rapidly transform Pakistan. The problem is to change mindsets, as giving power to the people involves reducing the power we wield in the center. Great leadership is required to change mindsets from domination and exploitation of the people to the service orientation required for community driven development.

Abandoning the advice of foreign experts who have successfully ruined economies around the globe, if we open our eyes to local possibilities, we can identify several game-changers which could provide a rapid turn-around in our domestic economy. Enabling finance is a key to creating change. This requires understanding that banks create credit out of thin air, backed by Central Banks. Using the same pattern, local community banks can create a large amount of credit needed to finance community based development projects. The German economy used this method to create rapid growth in the post-war period, and we can learn much from their experiences with community banking. Another game-changer is to go for investment in social welfare, health, and education. The current system of private finance does not allow for this, since this does not generate quick short-run profits. However, investing in the people is the surest route to rapid and robust long run growth. The free market fails miserably in directing investment money towards social welfare, which is why it has never been successful in producing development anywhere, despite claims to the contrary by its advocates.

 

The Illusion of Scarcity

Islamic Economists have been deceived by the illusions of modern economic theory. This has prevented the construction of a genuine alternative, in the form of Islamic Economics

WEA Pedagogy Blog

(continuation of previous post on ET1%: Blindfolds Created by Economic Theory)

Economists have performed an amazing piece of magic, successfully creating a mass deception which has taken in the vast majority of the population of the world. Seeing through this complex and sophisticated trick requires separating, studying and understanding many different elements which all combine to create this illusion. One of the elements is a binary theory of knowledge, according to which theories are either true or false, and this is the only characteristic of theories that we should study. This prevents us from looking at the historical context in which the theories originate, and the functions that these theories serve, in terms of advancing the interests of powerful groups in the social struggles then going on. Social theories cannot be understood without this context, and hiding this context, and the relationships between knowledge and power, is an essential…

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ET1%:Blindfolds Created by Economics

In my paper presented at an Istanbul workshop on Islamic Economics, I explained that conventional economics is ET1% — the economics theory of the top 1%. In contrast, Islamic Economics is ET90%, and defends the interests of the general public against exploitation and oppression by the rich and wealthy. This post provides a start, and an introduction to the paper.

WEA Pedagogy Blog

In my paper on “The Empirical Evidence Against Neoclassical Utility Theory: A Survey of the Literature”, I have argued that economic theories act as a blindfold, preventing economists from seeing basic facts about human behavior, obvious to all others. For instance, economists consider cooperation, generosity, integrity (commitments), and socially responsible behavior, as anomalies requiring explanation, while all others consider these as natural aspects of human behavior.

Far deeper insight into the blindfolds created by economic theory is obtained when we realize that these are not random mistakes, made due to defective reasoning or neglect of empirical evidence. If the shopkeeper systematically makes mistakes which always increase the total bill, we can conclude that the mistakes are purposeful. Similarly, strong and repeated commitment of exactly the same mistakes, flying in face of all empirical evidence, reveals the deep ideological commitments which create these systematic errors.  In particular, the goal…

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Statistics: An Islamic Approach?

On Thursday, 5th April 2018, I had a extended discussion for over three hours, with students and faculty of business and economics at the Ibn-e-Haldun University in Istanbul, Turkey, which has been launched with a view to re-integrate Islamic teachings into a modern education. I discussed themes covered at length in my lecture AM29 on “Origins of Western Social Sciences” which is 29th lecture in my Advance Micro course. This lecture explains how social sciences arose in the West after the rejection of Christianity, as an attempt to find alternative bases for the study of human beings and societies. The foundations of this approach are anti-thetical to religion, even though this is concealed within a mask of objectivity and rationality, which has deceived Muslims into accepting these sciences on face value. Once we understand these origins, the necessity for creating a radically different approach to social sciences in general based on Islamic ideas becomes very clear. [shortlink: bit.do/az001 ]

In the context of this discussion, I described the many courses I have developed to illustrate this concept. The idea that there could be an “Islamic approach” to statistics was puzzling to the audience. How can one say whether “2+2=4” is Islamic or otherwise? There are some common elements of knowledge which would be universally acceptable to all rational human beings, lying outside the scope of religion. Statistics seems to have this nature, where the body of the knowledge has no overlap with religion. These ideas about the nature of knowledge, which are part of modern Western approach, have been absorbed my Muslims without realizing that they conflict with Islamic teachings about knowledge. The MAIN idea of secular modern thought is that there domains of knowledge with are completely outside the scope of religion. On the other hand, Islamic teachings provide comprehensive foundations for all aspects of life, and any knowledge relevant to how we should act lies within the realm of Islamic teachings. This rejects the secular idea of realms of knowledge outside the scope of the religion. Because the secular ideas have taken firm roots in our minds as a result of the western education we have received, it is necessary to explain this further, to clarify certain common confusion which arise regarding the matter.

The first lecture of my course on Statistics: An Islamic Approach, is devoted entirely to answering the puzzle created by the title – how can their be an Islamic approach to a purely technical subject based purely on mathematical manipulation of numbers, with no apparent links to moral or spiritual concerns which form the core of Islamic Teachings? A 40m video lecture solely devoted to answering this question is linked below:

For the whole course, with lectures, slides, transcripts, and related reference materials, see “Introduction to Statistics: An A Islamic Approach”. Below I explain a few key points which show why we need an Islamic approach even to the teaching of apparently purely technical subjects like statistics.

Note that we have been only created for worship, and our living, dying, struggle and sacrifice must all be for the sake of Allah, the Creator, Protector, Sustainer, and Cherisher of all Worlds. So the first question to ask is: how can we teach statistics so that the teacher and student are both engaged in acts of worship. Since the ink of the scholars is more valuable than the blood of the martyrs, would it be true that the ink used for notes made by students in the statistics course would carry heavy weight on the day of judgment. I believe that this can be true but only if we use an Islamic approach to the teaching of statistics, and not if we use the standard Western approach.

Since the worth of actions depends on intentions, the first step to turning teaching and learning statistics into worship is make the correct intentions. I ask my students to make the intention to use the knowledge they gain for the purpose of providing benefits to the Ummah, and the entire creation, which is the family of Allah, for the sake of the love of Allah. When we study the subject with this intention, it will obviously be an act of worship. More specifically, as many books and papers show, it is easy to deceive people by using statistics. For example, see “How to Lie with Statistics” as well as “Confessions of an Economic Hit-Man”. So we can make the intention to learn statistics with the intention of protecting the Ummah from being deceived in this way. As Joan Robinson said, one learns economics not to acquire answers to economic questions, but to avoid being deceived by economists. Similar concept is valid for statistics – as famously quoted: there are Lies, Damned Lies, and Statistics.

The second step towards an Islamic approach requires understanding that the Prophet Mohammad SAW prayed for useful knowledge, and prayed for protection from useless knowledge. Useful knowledge that which enables us to carry out and implement the orders of Allah in our personal and social lives, so as to enable us to fulfill the goal of our life. Useless or harmful knowledge is that which distracts from this goal, or else creates temptation to go against the orders of Allah. Since Islam differentiates strongly between the two kinds, while the West does not, it is essential for Muslim teachers to ensure that what they teach constitutes useful knowledge.  To achieve this goal, it is crucial to break down an artificial and false barrier created by the West between theory and practice. According to Western ideas, statistics is purely manipulation of data in form of numbers, while applications require looking at the real world context in which these methods are to be used. The statistician relies on the field expert for the application and is concerned purely with the numerical part. In my course, I emphasize that one cannot do statistics without knowing the real world context and the problem which we are trying to solve. Statistical DECEPTION depends heavily on this separation, where theoretical manipulations on numbers are done without any knowledge of the real world origin of these numbers. My course uses an integrated approach and argues that what statistics we use depends crucially on the real world context, and cannot be done without it. Exactly the same set of numbers will require different types of analysis depending on the real world problem that needs to be solved using this analysis. Contrary to western teachings, the statistical consultant cannot remain detached from the issue of the purpose for which the analysis will be used. Once we focus on the real world purposes, then the necessity of using Islamic teachings becomes apparent, because for all real world purposes, we would have to engage in moral judgements regarding the worth of the purpose. In particular, the Islamic statistical consultant would refuse to do analyses which are intended to deceive people to achieve some evil goals.

These are just a few of the highlights of the differences which an Islamic approach make. It is not just a matter of starting with Bismillah, and then teaching a standard western course. The subject matter itself changes radically when we make a serious effort to ensure that concepts being taught are useful and relevant to solving real life problems which face us as a society. See link for a list of significant differences and other features of the Intro Stats: Islamic Approach, which differentiate it from conventional stats courses.