Sack the Economists?

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Guest post by Geoff Davies*

Read­ers of this blog will have encoun­tered the idea that near-equi­lib­ri­um neo­clas­si­cal eco­nom­ic the­o­ry is irrel­e­vant to dynam­ic, far-from-equi­lib­ri­um, real mod­ern economies, and that the body of the­o­ry built around the neo­clas­si­cal assump­tions is full of incon­sis­ten­cies.  You will also be famil­iar with the idea that mon­ey and debt play cen­tral, dynam­ic roles in mod­ern economies.

Yet it can be argued there are oth­er equal­ly fun­da­men­tal flaws in the broad­er stream of the­o­ry and prac­tice that might be called main­stream eco­nom­ics.  Some exam­ples, very briefly:  so-called nation­al account­ing implic­it­ly pro­motes many harm­ful activ­i­ties; mod­ern finan­cial mar­kets are pre­dom­i­nant­ly par­a­sitic, desta­bil­is­ing and destruc­tive; the emer­gent, col­lec­tive wealth of prox­i­mate enter­pris­es is over­looked, and hence usu­al­ly cap­tured by spec­u­la­tors; flows of wealth, and respon­si­bil­i­ty, are heav­i­ly depen­dent on the kinds of own­er­ship that are used, yet the full range of avail­able own­er­ship options is large­ly ignored; and there are many iden­ti­fi­able mech­a­nisms that pro­mote unjus­ti­fied wealth inequal­i­ty but that could read­i­ly be adjust­ed to pro­mote more equi­table rewards for effort.

Per­haps the most fun­da­men­tal, desta­bil­is­ing and over­looked flaw in our strange eco­nom­ic sys­tem is the prac­tice of issu­ing new mon­ey to finance invest­ment.  It is arguably the main rea­son why a crash on Wall Street (the cen­tre of finan­cial manip­u­la­tion) caus­es such hav­oc on Main Street (the pro­duc­tive econ­o­my).  Indeed few ever seem to won­der why the fail­ure of some people’s “invest­ments” should cause harm through­out the rest of the econ­o­my, rather than just to the par­ties involved with the invest­ments.

Because of all of these fun­da­men­tal defi­cien­cies, I can only describe neo­clas­si­cal eco­nom­ics as pseu­do-sci­ence, or even as pre-sci­en­tif­ic — myths uncon­strained by any con­tact with real­i­ty.  Its prac­ti­tion­ers seem to think that because it uses a lot of math­e­mat­ics it is sci­ence, but it only super­fi­cial­ly resem­bles sci­ence, it does not crit­i­cal­ly com­pare its prog­nos­ti­ca­tions with obser­va­tions of the real world.  When that is done its irrel­e­vance is man­i­fest, mar­ket crash­es being one of the obvi­ous dis­crim­i­na­tors.

Unfor­tu­nate­ly this absurd col­lec­tion of beliefs is not just an inter­est­ing anthro­po­log­i­cal phe­nom­e­non, because the appli­ca­tion of main­stream eco­nom­ics has cre­at­ed a patho­log­i­cal­ly unsta­ble, inequitable, destruc­tive and frag­ile indus­tri­al soci­ety.

Most crit­ics may not be quite as damn­ing as I am here, but there is, these days, a lot of ques­tion­ing of main­stream eco­nom­ics, because of its almost com­plete fail­ure to antic­i­pate the finan­cial crash of 2007–8, even though oth­ers were issu­ing cred­i­ble warn­ings from 2005 or even ear­li­er.  Worse, main­stream eco­nom­ics cre­at­ed the con­di­tions that led to the crash, and still appeals to the same old con­cepts in its futile attempts to ame­lio­rate the result­ing depres­sion.  Indeed it is wide­ly not­ed out­side the main­stream that neolib­er­al poli­cies are mak­ing things worse, par­tic­u­lar­ly and most obvi­ous­ly in Europe.

Yet the main­stream pro­fes­sion sails serene­ly on, still firm­ly in con­trol of bothpol­i­cy and acad­e­mia, acknowl­edg­ing very lit­tle con­cern with its the­o­ry and meth­ods, indeed insist­ing that the finan­cial crash was so anom­alous no-one could have fore­seen it.  This is a plain admis­sion that they do not under­stand mod­ern economies.  Like all the oth­er proofs of its inad­e­qua­cy, this impli­ca­tion is ignored by the main­stream, to the great frus­tra­tion of many on the fringe.

One expres­sion of this frus­tra­tion came from Dean Bak­er, the promi­nent US com­men­ta­tor who, after rail­ing against the “deficit hawks” and call­ing them flat-earth­ers, said “By all rights, these folks should be laughed out of town. They should be retrained for a job more suit­ed to their skill set – prefer­ably some­thing that does­n’t involve num­bers, or peo­ple.”

Read­ing this, it occurred to me that all sub­tle­ty must be aban­doned.  The mes­sage could only ever pen­e­trate the wall of deaf­ness if it was spelt out in bru­tal sim­plic­i­ty.  The main­stream­ers should be laughed out of town.  They should be removed from all posi­tions of influ­ence.  They should be sacked.  They should not be allowed to prop­a­gate their bale­ful doc­trine.  Hence the title and sub­ject of my new ebook: Sack the Econ­o­mists and Dis­band Their Depart­ments.

The title is not sub­tle, but it is jus­ti­fi­able.  Nor is the con­tent a rant, it is a con­cise sum­ma­ry of major fun­da­men­tal flaws in the the­o­ry and prac­tice of main­stream eco­nom­ics.  It also out­lines the insights that fol­low from recog­nis­ing mod­ern economies as far-from-equi­lib­ri­um self-organ­is­ing sys­tems.  These insights include the clear poten­tial to reform our mar­ket economies so they sup­port peo­ple as whole beings, and so they cease to trash the only plan­et we have to live on.

Not all non-main­stream econ­o­mists will agree with every­thing in this book.  Yet there are some who do agree with each crit­i­cism made.  Not all will imme­di­ate­ly agree with all the diag­noses made, nor all the reme­dies pro­posed.

Nev­er­the­less the sub­ject, and the world, des­per­ate­ly needs real debate on the work­ings of real economies, con­duct­ed with full schol­ar­ly rigour and integri­ty.  All non-main­stream econ­o­mists, and all schol­ars from all rel­e­vant dis­ci­plines (which is most) should be able to sup­port that goal.

*Dr. Geoff Davies is an author, com­men­ta­tor and sci­en­tist. He blogs at Bet­ter Nature.  Sack the Econ­o­mists is now avail­able as an ebook.  As a spe­cial pro­mo­tion, free down­loads will be avail­able from Ama­zon Decem­ber 10–11 (US Pacif­ic time).
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About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.