At last week’s History of Economics Thought conference, the refrain of economics’ undervaluation of its own history was supplemented by a deeper concern about the future of economics itself, as an academic discipline.
The problem is that the public generally buy into economics because they believe that the purpose of economics is to understand the principles of how economies actually work; how people allocate resources and facilitate their collective material well-being.
Indeed economics does give many useful insights into the use of resources in the real world. But, at its core, academic economics represents an idealist project that describes and prescribes an ideal world; a world that can never be and a world that few of us would actually like to live in.
The discipline was in trouble before 2008, because, unlike meteorology, it was not able to tell us much that seemed useful, neither about solving the problems we thought economists were concerned about nor about the problems we feared economists were not worried about.
Then, in 2008 the public was rightly alarmed that mainstream economics was totally blind, maybe willfully blind, to the financial and subsequent economic crisis that we now know as the Global Financial Crisis (GFC). Why should people buy a subject that appears to be completely useless? The emperor of the social sciences was naked.
Economics emphasises the principle of consumer sovereignty. This is the petard upon which economics now appears to be impaled by. We produce more of what people want more of, and are willing to pay for. We produce less of what people want less of. People want less economics, in large part because people haven’t gained the benefits from economics that they paid for. Economics has a credibility problem.
Consumers of Economics
Students, schools, businesses (financial and non-financial), journalists and governments are all consumers of economics. But usefulness to students is more about helping them to gain employment than in satisfying a sense of curiosity about the workings of the world. It is the schools – in particular the universities – that have traditionally directed students into studying economics as a core subject in a business degree, or as a useful option in an arts degree.
In the 1980s and 1990s economics departments moved from social science faculties to business faculties, as economics was increasingly seen as a service discipline rather than as a science. (Pure economics is actually a subject that comes midway between pure maths and classical music; it’s about form, technique and aesthetics rather than about the actual world we all try to make a living in.)
Capitalist businesses have traditionally liked mainstream economics because it did not ask the difficult questions about inequity and exploitation. But, increasingly, economics has been unable to address the problems that capitalist businesses are concerned about; economics has lost its mojo in the very circles that patronised it. Without its business sponsors, academic economics has few places to go.
The only other area of outside market demand for economics is in policy analysis. This is the area that is of most interest to journalists, and of course governments. Increasingly though, it is only the Treasury and the Reserve Bank who are telling policymakers that investment in economics is important. Thus it is mainly economists who are buying economics, as well as selling economics.
Likewise within higher academia. Academic economists are increasingly subject to perverse incentive structures. Prestige in academic economics comes from impressing academic economists, much as birds of paradise try to impress other birds of paradise with their feathery superstructure and their mastery of technique.
So long as academic economists wedded to the idealist foundations of economic liberalism represent the predominant market for academic economics, present incentive structures persevere; structures that discourage research into history, policy, private debt, distribution, public equity, and forms of market failure such as environmental unsustainability. Favoured topics are private property rights, government debt, general equilibrium, efficient markets, prices as the only useful form of information, inflation as a problem that undermines the price mechanism, and econometric technique; an obfuscating mix of equations and assumptions.
Social science, not dogma.
Economics doesn’t flourish as a broad-church social science because of the narrow anti-government assumptions of its founders; assumptions that over-emphasise private and individual action, and under-emphasise those aspects of resource allocation that are inherently collective. Economics is dying because of the intolerance of economic liberalism.
The biggest danger of the present market-driven diminution of academic economics is that it will leave an intellectual vacuum to be filled by a pot-pourri of supposition-based beliefs. Economics needs to reform itself, quickly, before it is killed off by the very marketplace that it espouses.
You, readers of this blog, should be attentive of reforms as they take place. You need to buy into those emergent components of economics that are accessible, and that do address the collective wellbeing of ourselves, our children and grandchildren. Because if you let economics die, the forms of anti-economics that take its place will undermine rather than underpin the wellbeing of humanity.
Incentives do matter; so economics, the science of incentives and their collective outcomes, matters too. We should not throw out the baby of economic understanding with the bathwater of an economic liberalism that espouses form over substance.
NEF – New Economics Foundation in the UK, is a good place to start to look at alternatives to neo-classical economics.
The heartening aspect is that it is only one of many sources for a considered look at economics and how it shapes our world.
The relevant article from that site.
Will this re-think of neoliberal economics start once 1% own 99% of wealth? It’s already 10% owning 90% in New Zealand and very few brakes are being put on the experiment here.
http://www.oxfam.org.nz/news/richest-10-kiwis-control-more-wealth-remaining-90
If we want a change in economic theory in Aotearoa, it’ll be too late soon – for everyone. Brown or white.
Economics is a science, not a branch of mathematics. The sooner economics embraces the concept of evidence and provable theories the better.
https://xkcd.com/435/
Economists like to think that they stand between Maths and Physics. The sooner they get their heads out of their arses and realise that they are on the other end of the scale the sooner it will be respected.
50 percent of “economics” or economic growth is driven by applying constructive psychology, as my comment further below states.
Had an interesting discussion about that over on The Standard with Tom Jackson. It ended with my:
Something so critical needs to be taught right at the beginning. But I suppose saying This is the model that we’re teaching and, BTW, it doesn’t work probably wouldn’t get too many students in to pay fees.
There are many things wrong with the free-market dogma but you never hear about them in the mainstream. All you hear is economics 101 but, as Tom pointed out in that discussion, at that level there’s absolutely no nuance and thus it gives the wrong impression as to what need to be done. That wrong impression is great for the rich though.
I think economics should still be in the branch of science where it started – philosophy. There is, as far as I can make out, not just a question of how the communities resources be distributed but also where they should end up. IMO, there should be no poverty in the society at all and that if there is then we have proof that the system isn’t working.
Inflation doesn’t undermine the price system – it’s an integral part of it. What inflation does is undermine savings especially large holdings of money. In other words, holding onto money has a negative value.
Economics should have very little to do with incentives and a hell of a lot to do with the resources at a sustainable rate that a country and the world has available to it. If you want to start talking incentives then you should probably go to another social sciences department.
NEVER forget, that 50 percent of “economics” is about PSYCHOLOGY, as well versed economic teachers repeated to me again and again. When people feel positive, have trust and get motivated, they will work and deliver, and bring positive economic results. When they endlessly fear and are not motivated, they will tighten their purse strings, do as little as needed to survive, take no risks, and there will be low or no growth.
This government is an “expert government” of the latter “medicine” or “philosophy” just mentioned.
They even turn DISASTERS into “Fantastic” economic growth stories, like the Christchurch earthquakes needing rebuilding. How “smart” is that, I ask? And there is still the “udder miracle”, endless “growth” from “endless streams of milk” from the cows’ udders, and filling paddocks with millions more cows, urinating into our rivers and lakes. What an economic “miracle” that is, is it not?
That is NOT how the Germans and Japanese built up their economies after total destruction, perhaps Kiwis can learn a bit from them, possibly even from the Chinese or at least the Koreans?!
We were learning from them and then the 4th Labour government got in power and threw all that we had learned out and put in place the radical neo-liberal paradigm – a paradigm that had already been proven a failure in the 19th and early 20th centuries. The GFC is today’s equivalent of the Great Depression and it was the same policies that caused both of them.
Anyone with a brain is bracing for impact because modern economics is nothing more than hogwash packaged as analysis, and has had us on completely the wrong track for decades.
Over the next few years the ‘brain-dead’ (i.e. economists and those who still believe them) will discover that:
1. debts and deficits do matter.
2. infinite growth on a finite planet is not possible.
3. without and energy supply nothing happens
4. abrupt climate change related events can demolish infrastructure faster than industrial systems can build infrastructure.
5 without water crops don’t grow. (They’ve just discovered that in California recently)
6. you cannot use economic growth to solve problems caused by economic growth
plus a whole lot of other things.
It gets more ‘interesting’ by the week.
Fot about the last 70 years we have been ruled by either a Labour or National Government. The abject state of our economy must be blamed on those two parties alone. For the last thirty years of that time they have both religiously followed neo-liberal economic philosophy, which has proved an utter failure.
Neither party looks like changing their stripes, so what is the point of all the breast beating about the Labour vote. Madness is doing the same thing repeatedly and expecting a different result. Voters need to abandon both parties. If Labour voters transferred their vote to any other leftish party the balance of power would be no less and we would get some new ideas. We need a totally new tax regime and a new banking system, perhaps like PositiveMoney. IMP members are certainly discussing alternative systems.
IMP needs to get at least 10% to have an impact in this election. Dont be bothered by Kim Dotcom or Laila Harre. If the IMP policy forum on the internet is any guide it is democratic, members appear to be left wing and I doubt if Kim can control them. I suspect the rank and file can work with Mana. Of all the options giving Labour and National another chance is just fiddling while Rome burns.
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