Winner of the New Statesman SPERI Prize in Political Economy 2016

Sunday, 26 March 2017

On criticising the existence of mainstream economics

I’m very grateful to Unlearning Economics (UE) for writing in a clear and forceful way a defence of the idea that attacking mainstream economics is a progressive endeavor. Not criticising mainstream economics - I’ve done plenty of that - but attacking its existence. The post gets to the heart of why I think such attacks are far from progressive.

It is very similar to debates over whether economics teaching should devote considerable time to the history of economic thought and non-mainstream ideas, and whether economists have much too much power and influence. More critical thinking, real world context and history - yes. This is what the CORE project is all about. But devoting a lot of time to exposing students to contrasting economic frameworks (feminist, Austrian, post-Keynesian) to give them a range of ways to think about the economy, as suggested here, means cutting time spent on learning the essential tools that any economist needs. As Diane Coyle and I argue, economics is a vocational subject, not a liberal arts subject.

Let me start at the end of the UE piece.
“The case against austerity does not depend on whether it is ‘good economics’, but on its human impact. Nor does the case for combating climate change depend on the present discounted value of future costs to GDP. Reclaiming political debate from the grip of economics will make the human side of politics more central, and so can only serve a progressive purpose.”

Austerity did not arise because people forgot about its human impact. It arose because politicians, with help from City economists, started scare mongering about the deficit. We had ‘maxed out the nation’s credit card’ and all that. That line won not one but two UK elections. Opponents of austerity talked endlessly about its human impact, and got nowhere. Every UK household knew that your income largely dictates what you can spend, and as long as the analogy between that and austerity remained unchallenged talk about human impact would have little effect.

The only way to beat austerity is to question the economics on which it is based. You can start by noting that none of the textbooks used to teach economics all over the world advocate cutting public expenditure in a recession. You can add that governments have not tried to do this since the Great Depression of the 1930. If necessary you can add that the state of the art macro used by central banks also suggests cutting government spending in a deep recession will have harmful effects. You can explain why this happens, and why a Eurozone type crisis can never happen in the UK.

That does not dilute the human impact of austerity. What it does is undercut the supposed rationale for austerity on its own terms: mainstream economics. Having mainstream economics, and most mainstream economists, on your side in the debate on austerity is surely a big advantage.

Now imagine what would happen if there was no mainstream. Instead we had different schools of thought, each with their own models and favoured policies. There would be schools of thought that said austerity was bad, but there would be schools that said the opposite. I cannot see how that strengthens the argument against austerity, but I can see how it weakens it.

This is the mistake that progressives make. They think that by challenging mainstream economics they will somehow make the economic arguments for regressive policies go away. They will not go away. Instead all you have done is thrown away the chance of challenging those arguments on their own ground, using the strength of an objective empirical science.

Where UE is on stronger ground is where they question the responsibility of economists. Sticking with austerity, he notes that politicians grabbed hold of the Rogoff and Reinhart argument about a 90% threshold for government debt.
“Where was the formal, institutional denunciation of such a glaring error from the economics profession, and of the politicians who used it to justify their regressive policies? Why are R & R still allowed to comment on the matter with even an ounce of credibility? The case for austerity undoubtedly didn’t hinge on this research alone, but imagine if a politician cited faulty medical research to approve their policies — would institutions like the BMA not feel a responsibility to condemn it?”

I want to avoid getting bogged down in the specifics of this example, but instead just talk about generalities. Most economists would be horrified if some professional body started ruling on what the consensus among economists was. I would argue that this instinctive distaste is odd, as UE’s medical analogy illustrates, and also somewhat naive. I would argue that economists’ laissez faire view about defining the consensus (or lack of it) has helped the UK choose Brexit and the US choose Trump. I personally think economists need to think again about this.

However to do so would go in completely the opposite direction from what most heterodox economists wish. It would greatly increase the authority of the mainstream, when there was a consensus within that mainstream. It would formalise and make public the idea of a mainstream, and inevitably weaken those outside it.

Economics, as someone once said, is a separate and inexact science. That it is a science, with a mainstream that has areas of agreement and areas of disagreement, is its strength. It is what allows economists to claim that some things are knowledge, and should be treated as such. Turn it into separate schools of thought, and it degenerates into sets of separate opinions. There is plenty wrong with mainstream economics, but replacing it with schools of thought is not the progressive endeavor that some believe. It would just give you more idiotic policies like Brexit.


  1. Exactly right - the impulse of certain social science faculties to teach nonsense must be resisted.

  2. Thanks for responding, Simon.

    Two quick points:
    - You say that using economics is a kind of 'last resort' for opponents of austerity because practically it seems to have more force than humanistic arguments. This may be true as it goes, but I don't think this escapes the point that economics does have a degree of authority that it shouldn't. Is this the fault of politicians, economists or an emergent process? Who knows. But I would like to see a politics where it is no longer true.

    - Well spotted that there is potentially a contradiction between calling for a move away from economics and giving economic bodies like the AEA more scientific authority. But I think the idea that they would condemn and retract *outright errors* like R & R (as opposed to condemning, say, Ricardian equivalence just because it can justify austerity) would keep it within clear bounds - as an 'intellectual garbage disposal', to quote Jonathan Portes. This would at least ensure that economics couldn't be abused so blatantly. Though I suppose that if my first point were fulfilled, this wouldn't be as important.

    1. On the first point, economics is the first resort, because the appeal of those advocating deficit reduction is economic (the household analogy or the 'we will run out of money' scare). If you can show, as you can, that fiscal consolidation should be postponed until monetary policy can prevent any increase in aggregate unemployment, then the austerity policy fails on its own terms. Politics becomes irrelevant, as it should be in this case.

    2. Simon, politics is never irrelevant. Even convincing politicians to implement your particular plan is politics--because you are arguing for particular means and ends. If you really think politics becomes or can be irrelevant, then you betray the very ignorance that many, many people criticize economics & economists for.

  3. There is plenty of time in a three year degree course to teach students the essential tools and alert them to the fact that there are varieties of economics outside neoclassical micro and new Keynesian macro. The trouble is that the later you do the latter, the more students feel that alternative ideas, which some will find more interesting and applicable than the mainstream, have been suppressed. This is not primarily a commercial for Exeter university, but if any 6th formers are reading this..

    1. John - I do not think 'alerting them to the fact' is what non-mainstream people ask for. I cannot see where any comprehensive discussion of history of economic thought or alternative schools could go besides a 3rd year option.

    2. I did not study an economics degree but I took a couple of modules alongside history and politics. It is not the job of economists to decide for people how resources and wealth should be allocated; that is a political decision for elected representatives.

      But, where politicians rely on controversial or inadequate economic theory, they should be called out by the economics profession. For economics to remain relevant therefore, students need a basic understanding of history and politics, in order to exercise influence properly. It is not a question of competing economic models, it is a question of persuading politicians, the media and the public. I personally believe standalone three-year economics degrees are significantly undermined without any modern history or politics (or even sociology).

      I am increasingly wondering though whether modern, global economics is simply too complex for anyone to understand. It's all well and good doing a PhD, but most are too niche to for politicians to draw upon that is relevant to the public in general.

  4. R&R's result always baffled me - that economic theory is such that national debts are only troubling if it it is close to the amount of production during one orbit of our star seems awfully coincidental.

    (And I doubt the alternative interpretation - that planets further out from their stars support larger debt ratios.)

    1. That's a very nice way of highlighting how arbitrary R&R's results seem. However, this result has nothing to do with theory - it's entirely an empirical study and an empirical result.

    2. ... and an incorrect empirical result, now known to be a "spreadsheet error".

  5. I have tried to make a similar argument repeatedly to many of the more radically left leaning people I encountered. It is very obvious to me that economics can serve as a very potent tool for criticism regarding public policy and that critique based on mainstream ideas need not attack all progressive ideals.

    I don't why, but right wing parties seem to have ingrained the idea within the general public that economics is on their side. In my experience, all I hear and read are sloppy applications of concepts pulled out of introduction textbooks without any indication of trying to look at empirical evidence. That attitude is filled with holes -- on its own turf! It's an easy target, but there is this seemingly forced intention of having to ditch economics.

    Ditching economics weakens the left... a lot. It allows rightwing parties to parade as 'responsible'.

    1. Just want to stay I couldn't agree more.

    2. Ditching economics isn't the aim,i use the term flat earth economics for good reason,it is preached & other alternatives aren't allowed the light of day,just has the scientist of yester year were silenced driven underground if they claimed the earth wasn't flat.
      It is this deliberate attempt to maintain the status quo that needs destroying,if humanity is to go forward,surely economist want the truth & yet even this post make me despair, that not just the failure of economics but the believe that the answers aren't possible,for that is what this post indicates,economics is clinging to the fact that the earth is flat,what a shame!!

    3. What we are confusing here is economic theory and manipulation of facts, the Neo-Liberal agenda doesn't recognise right from wrong but pursues minority interests at the expense of others, need I quote Bernie Sanders who said "the 1% are at war with it's own people".

      Margaret Thatcher's kitchen sink analogy has been passed around by right wing Think Tanks as gospel in order to dupe ordinary people into believing a patent lie.

      The real question about conventional economists is why indeed did they not expose this as the obvious lie it was.

      I would hazard a guess that corporate capture has had a lot of influence in that direction and the Bank of England even points out that University text books wrongly explain money creation.

      With the ever increasing reliance on outside money for Universities, how much independence does that offer.

      Suffice it to say, George Monboit has written an explicit article linking the forces that have impacted on the world economy, probably since the last war but definably since the 1970s:

    4. all I hear and read are sloppy applications of concepts pulled out of introduction textbooks without any indication of trying to look at empirical evidence.
      Yes, but why are concepts in introduction textbooks so susceptible to being applied in such a way? I think it points to a methodological problem that turns into a political one. If you start out with a crude abstraction that has little to no bearing in reality and then work your way forward by adding layers of theoretical and empirical 'complications', you're asking for trouble. The politically motivated will gladly use these caricature models for their own purposes. But the professionals are not only complicit in that they are supplying the narrative, but also susceptible to accepting their own caricatures as normative ends / ideal states.

    5. I think it often has to do with the fact that most "economic experts" hired as pundits are not practicing economists. Rather they are economy graduates who then go on to have careers as pseudo-journalist cum political pundits and keep citing the same sources, relying on the public's (and politician's) economical incompetnce. I'm not an economist, I'm a historian but I have a training in both economy and econometrics and oftentimes the basic-conventional level of the economical debate in mainstream media is infuriating. But I do think that the cambridge controversy and marx's theory of value should have a larger place in economist training.

  6. While I agree with the sentiment, the problem is that the body of knowledge that we call "mainstream economics" has also come from a school of thought with its own ideological baggage.

    So while I agree that in an ideal situation Economics, same as Physics or Maths, should have a notion of "mainstream" that is ground on solid foundations, I would say that we are far from that at the moment, at least from the impression I got from my 4 years of experiencing formal education in economics.

    So what I'm saying is that - given the world we live in - arguing to defend "mainstream economics against other schools of thought" is the same as arguing that the specific school of thought that formed mainstream economics is superior to the others. Rather than abolishing sectarianism, you fall into it.

  7. Stéphane: I too agree. Economics as presented by the right (and attacked by the radical left) consists of "concepts pulled out of introductory textbooks" (and early chapters of those textbooks too). This is one of Noah Smith's frequent themes

    I agree even more with the observation that part of the trick is ignoring empirical evidence. Economics is identified with economic theory as of about a century ago. Actual economics as practiced and published has become an empirical science (more in fields where data are more numerous, that is less in macroeconomics).

    SWL Indeed that is my problem. I don't see a very close connection between "the state of the art macro used by central banks " and "objective empirical science". I know you have actual personal experience with macro used by central banks (and how the Bank of England use a new Keynesian core model and then non micro founded corrections) but frankly, I think one can favor either state of the art macro or empirical science but not both. I think I can appeal to the authority of Krugman, Blanchard,P Romer & Kocherlakota but, of course, I would never think of appealing to authority.

    I have my own objection to unlearning economics. Economics does not say that social welfare = GDP. Neoclassical micro has plenty of room for discussion of poverty and inequality (if not power, exploitation & disasters). It's hard to think of a right of center general equilibrium theorist (David Cass was stumped when I asked him). The representative consumer commonly appears in mainstream macroeconomics but not the whole main stream of mainstream economics.

    I don't see a contrast between "good economics" and evaluating the "human impact" of policies. For one thing, if R&R had been right, the human impact of debt over 90% of GDP would be severe. Of course, I do see see a marked contrast between "good economics" and a lot of the economic research published in top journals (for example any discussion of social welfare which ignores inequality -- and there is a lot of it)

  8. As much as I disagree with these positions, I appreciate your presenting them. I don't know if blog pingbacks and such work these days (with blogger or otherwise), but I've responded here:

  9. Simon,

    You say that mainstream economics is necessary to counter the politics of austerity. Given that austerity is practiced in the UK and Europe, mainstream economics has hardly been very useful in stemming the austerity tide. Secondly, mainstream economics is hardly a coherent body of theory - the purveyors austerity pick and choose which ever mainstream theory supports their purpose. Thirdly, austerity politics is founded in ideology more so than economic theory. In such circumstances, mainstream economics is merely a stalking horse for austerity politics. I do think that your arguments have no force or usefulness and are an exceedingly poor excuse for excluding heterodox economics from university teaching programmes.

  10. Conservatives have increasingly tried to eliminate economics as a science since Reagan. Their objective was erasing costs in economic policy to have only benefits. Further, axioms of exotics as a science make things conservatives like to increase bad, ie profits. Like physics, economics must be zero sum, something conservatives hate, leading to erase cost from the economy every way possible.

    I call it free lunch economics.

    I'm old enough to remember constant attacks from the right on Regulation Q that were more heated than attacks on taxes. I'm old. So, I learned that profits indicate any economy that is performing badly.

    Why are profits bad? First they mean all factors of production are not fully employed. Second they violate zero sum: consumers are paying less than they earn as workers. If workers pay a price equal to their wages from producing what is sold, that is zero sum. To have profit, the price must be higher than wages which means consumers have too little income to pay the price.

    Increasingly, progressives try to reverse the free lunch faith with the price being lower than the wages paid.

    Thus, both progressives are just like conservatives in calling for cost cutting and lower prices with higher wages and incomes.

    But all costs are ultimately labor costs. Cutting costs always cuts jobs, wages, or both. The momentary cases where small sectors of the economy deliver jobs after cost cuts are rare. Computer from 1950 to 2000, maybe. But cutting cost of food is ALWAYS bad for workers.

    Given most of the working poor end up in jobs doing food or similar where cost cutting to cut prices has made them worse off, Bernie should have been campaigning to increase food and clothing prices based on higher labor costs to support much higher wages for the working poor.


  11. Weren't you the target (or Portes?) of Diane Coyle in this?

    'A macroeconomist tells me off' Posted on June 20, 2012 by Diane Coyle

    'I’ve been taken to task by a friend – a macroeconomist – for being overly dismissive about macroeconomics. I won’t name him – he can always do so himself if he likes.

    He agrees that macro is not covered in glory at the moment, but disagrees with my charge that its intellectual flaws are substantial, and that it does not stand on the same kind of increasingly sound empirical footing as much of microeconomics. He also is sure, absolutely sure, that UK government policy is wrong-headed and what we need is an urgent dose of fiscal stimulus.'

    Leading Krugman June 26, 2012 'Economics, Good and Bad' to say

    'Jonathan Portes pursues a debate with Diane Coyle over the state of economics; since my name comes up both in his piece and in Coyle’s, I think I should weigh in and add some further points.

    Portes is set off by Coyle’s claim that macroeconomists have no claim to authority in this crisis, because the public despises them. As Portes points out, the reality is that macroeconomics – at least as he and I practice it – has actually performed spectacularly in the crisis...I mean, it’s not as if the assumptions underlying standard micro theory are, you know, true – utility maximization? Really? Micro is consistent in a way macro is not, but for the most part it’s best viewed as a metaphor that’s helpful as long as you don’t take it too seriously.

    But isn’t there a lot of solid empirical work in micro? Yes – and in macro too. The difference is that for the most part there isn’t as much of a politically-based determination to deny the empirical results in micro. Yet even there, when it comes to areas where there are strong political stakes, like health care economics, you see the persistence of politically convenient views no matter how strong the contrary evidence. I originally heard the term “zombie ideas” in the health care field, not macro.

    So to return to the original point: the fact is that these have been glory days for standard macroeconomics, which has done amazingly well under crisis conditions. If you’ve heard different, blame politics, not the economics itself.'

  12. Thank you. Excellent comment. I can understand your being puzzled by right-wing parties fooling the public about economics - many of the most influential economists, think Arrow, Solow, Samuelson, Kahn, etc., strongly supported liberal/progressive policies. But since their heyday, academic, reseearch and professional practising economists have become increasingly constrained, comflicted and compromised by the institutions, firms and bodies which fund their activities or hire them. He who pays the piper calls the tune.

    Economists who are hired or retained by corporate capitalists, high net worth individuals (HNWIs), private equity magnates or shadow bankers totally lack credibility in the public policy sphere. And when many governments are suborned and ostensibly public disinterested bodies are funded by these economic actors the economists employed are often as compromised as if they worked directly for these economic actors.

    It is the perfect illustration of the ever-applicable Upton Sinclair aphorism about getting a person to understand something..etc.

    Add to this the left-wing penchant for seeking to establish and define an ideology - neo-liberalism - against which it can rail, but which provides the right-wing with an almost perfectly plausible deniability. (The latest effort by Larry Elliott in the Guardian is to label his bete noire as "unpopulism".) What's wrong with capitalism - because that's what it is - even it constantly mutates?

    And a further problem is the left-wing failure to adapt collective action in response to the privatisations, marketisations and financialisation pursued by the right since the late 1970s. The unthinking knee-jerk reaction is to argue for a return to the status quo ante - e.g., let's privatise the railways, let's privatise the energy companies; or let's impose a price cap on the energy companies. (Of course it would be very simple to establish a statutory collective energy buyer for those consumers who are currently being ripped off with the exiating suppliers bidding in an auction to supply the collective buyer. This would be the most effective means of discovering the efficient market price. But this would horrify the right and the left lacks the understanding to advance or implement it.)

    Finally, in addition to the inevitable - but totally unproductive - conflicts between liberals and progressives, many of those on the left retain a horror of market mechanisms, an unswerving faith in taxation as a solution to market failures and a naive and touching belief in the omniscience and omnipotence of the state. (It appears we have a Shadow Chancellor of the Exchequer who believes in the labour theory of value.)

    No wonder the right wins hands down.

  13. One thing is whether or not pluralism is an efficient way to challenge mainstream economics and economics teaching.

    Another totally different thing is "economics is a vocational subject, not a liberal arts subject".

    The real issue lies within the second…

  14. Unfortunately Simon it is the malicious way that narratives are sold to the public has whole equations.Hence why Austerity could be sold as economic policy,everything else in the equation had to be tossed aside to deal with a problem that had been proved to be wrong in the whole scheme of the the equation the last time such policies led us to the exact same point! it's because the IEA,ASI the tax payers alliance have such media time & political influence to push these false narrative that only the destruction of all there principles & assumptions (mainly false) for the chance for change to take place.
    But one would hope that what (yes little) they do offer! will by rigorousness examination stay relevant.
    Am afraid your attitude is to believe little is wrong with modern economics but am afraid flat earth economics needs ditching & has soon as possible & economist realise the gravity of not changing quickly enough,will be the only way that they can regain the trust of the masses!

  15. Simon: But do you not think that mainstream economics did in fact lend some credibility to the austerity idea (/madness)? Aside from Rogoff's paper, there were many others. What about papers like "Large Changes in Fiscal Policy: Taxes Versus Spending"? Alesina's and Ardagna's paper was sitting very firmly within the core of macro, and was used many times by austerians to push their agenda.

    I woute from Paul Krugman (2013):
    As Mark Blyth documents, this idea spread like wildfire. Alesina and Ardagna made a special presentation in April 2010 to the Economic and Financial Affairs Council of the European Council of Ministers; the analysis quickly made its way into official pronouncements from the European Commission and the European Central Bank. Thus in June 2010 Jean-Claude Trichet, the then president of the ECB, dismissed concerns that austerity might hurt growth.

  16. The non-existence of economics
    Comment on Simon Wren-Lewis on ‘On criticising the existence of mainstream economics’

    There is no such thing as economics, there are are FOUR economixes and they are constantly played against each other. First, there is theoretical and political economics. The crucial distinction within theoretical economics is true/false, the crucial distinction within political economics good/bad. Economics exhausts itself since 200+ years in crossover discussion, that is, by NOT keeping science and politics properly apart. As a result, it got neither science nor politics right.

    Heterodox economists say that orthodox economics is false and in this very general sense they are right. Heterodox economists have debunked much of Orthodoxy but this has not enabled them to work out a superior alternative. The proper task of Heterodoxy is not the repetitive critique of Orthodoxy but to fully replace it, that is, to perform a paradigm shift: “The problem is not just to say that something might be wrong, but to replace it by something ― and that is not so easy.” (Feynman)

    Because Heterodoxy has never developed a valid alternative it advocates pluralism, more precisely, the pluralism of false theories. The argument boils down to: if Orthodoxy is allowed to sell their rubbish in the curriculum, Heterodoxy must also be allowed to sell their rubbish. Economics is not so much a heroic struggle about scientific truth but about a better place at the academic trough.

    The fact of the matter is that neither Orthodoxy nor Heterodoxy has the true theory and that, by consequence, the political arguments of BOTH sides have NO sound scientific foundation.

    Traditional Heterodoxy knows quite well that it has nothing to offer in the way of progressive science and therefore argues for dumping scientific standards altogether and to focus on politics pure and simple: “The case against austerity does not depend on whether it is ‘good economics’, but on its human impact. Nor does the case for combating climate change depend on the present discounted value of future costs to GDP. Reclaiming political debate from the grip of economics will make the human side of politics more central, and so can only serve a progressive purpose.”

    This is a good idea, economists should no longer pretend to do science but openly push their respective political agendas, after all, this is what they have actually done the past 200+ years. Neither Orthodoxy nor traditional Heterodoxy satisfies the scientific criteria of material and formal consistency. So, both, orthodox and heterodox economists have to get out of science because of uncurable incompetence.

    It was John Stuart Mill who told economists that they must decide themselves between science and politics: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.”

    Both, orthodox and heterodox economists violate the principle of the separation of science and politics on a daily basis. Economics is what Feynman famously called cargo cult science and neither right wing nor left wing economic policy guidance has a sound scientific foundation since Adam Smith/Karl Marx. It is high time that economics frees itself from the corrupting grip of politics.

    Egmont Kakarot-Handtke

    1. «The argument boils down to: if Orthodoxy is allowed to sell their rubbish in the curriculum, Heterodoxy must also be allowed to sell their rubbish. Economics is not so much a heroic struggle about scientific truth but about a better place at the academic trough.»

      That is a very bad argument for dismissing "pluralism": maybe all current approached to studies of the political economy are wrong, but even if they are all wrong, supporting the privileging just one of the wrong ones would prevent any correct approaches, were they to arise, from being discussed.
      Even if all current approaches are wrong, only the discussion of all (or the major) approaches can eventually result in one or more correct approaches to be discussed and compared to the wrong ones.

    2. Blissex

      There is genuine pluralism and look-alike pluralism. Heterodoxy advocates the wrong type. In science, pluralism is NOT a virtue, it is what Popper called an immunizing stratagem.

      The scientific protocol demands (i) to tackle only questions that allow for clear-cut true/false results (and leave the rest for philosophical wafflers), (ii) to take only materially and formally consistent theories into the corpus of scientific knowledge, (iii) to throw out refuted theories.

      Scientific ethic means that the scientific community relies on self-governance which in turn means that everybody sticks to the protocol and accepts refutation if it so happens. This, though, never worked in economics. Morgenstern reminded his fellow economists: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.”

      The situation is this: the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the pivotal concept of the subject matter, i.e. profit, wrong. So, what we have is the pluralism of false theories. Economics is a failed science but Walrasianism, Keynesianism, Marxianism, Austrianism is still around “as if nothing had happened.” Methodology has been softened to the point of anything-goes by economists to rationalize overt failure.#1 Blaug called this playing tennis with the net down.

      Because the representative economist is NOT a scientist but an agenda pusher he feels quite at home in the swamp where “nothing is clear and everything is possible” (Keynes) The beauty of vagueness and ambiguity and inconclusiveness is that it cannot be falsified: “Another thing I must point out is that you cannot prove a vague theory wrong.” (Feynman)

      This has always been the life insurance of incompetent scientists. In economics, pluralism is an immunizing stratagem. There is theoretical economics (= science) and political economics (= agenda pushing). Theoretical economics is a failure and political economics is a fraud.

      Economics needs a paradigm shift in order to overcome the pluralism of false theories. The take-away for Heterodoxy and Blissex is: stop rationalizing and justifying proto-scientific methodological rubbish.

      Egmont Kakarot-Handtke

      #1 For details see ‘Failed economics: The losers’ long list of lame excuses’

  17. Problem with mainstream is the underlying condition is surplus so you cant look at it like economists with simple unconditional "supply and demand!" allegedly creating "equilibrium!" in one sub-system...

    We are not in equilibrium (system wide) we are in surplus...

    so the flow is towards the areas where there is better recognition/distribution of the surplus...

  18. What flumoxes me is how economists apparently aspire towards being scientific and yet there isn't the sort of rigorous program of forecasting and evaluation of forecasting acuracy, that say meterologists engage with to work out what sort of approaches actually have predictive power. I'm not talking about subtle and precise predictions, I'm talking gross directional stuff, such as the pro-austerity argument (that Harvard tenured mainstream economist did advocate) or whether government borrowing in a currency other than the government's own has adverse effects. Science is prediction, nothing more, nothing less.

    1. «Science is prediction, nothing more, nothing less»

      That why the social disciplines are not sciences, in that sense: they are mostly about understanding rather than prediction. The understanding can be quantitative and somewhat predictive, but it cannot result in predictive laws like physics has, not even "inexact" one.

      Conversely precisely because social disciplines have something more than qualitative understanding, but also have a degree of quantitative tools allowing some limited predictions in particular contexts, they are not arts either.

      A philosopher, Chaim Perelman, has published well developed arguments that western academia has taken the cartesian way of thinking excessively seriously, making too sharp a distinction, as our blogger makes, between objective science and subjective arts, and that there is a vast world of interesting disciplines in between, and I think that studies of the political economy are in there. But neoliberal thinkers, whether pro or anti austerity, seem to believe in the "end of history" or at least that Economics is ahistorical and acontextsua, and thus there is no need to understand «schools of thought» in Economics any more than in Physics.

    2. And why do we have this theory and math fetisism instead of proper scientific methods?

    3. But the only way to know whether you actually have any understanding is by finding out whether the understanding you hope you have enables you to make some level of prediction. Meterologists know perfectly well that they can't do the equivalent of predicting planetary orbits. But they have the rigour and humility to actually expose themselves to the test of finding out what approaches do allow predictions to what level. As a result meterology is very valuable indeed. They can warn us of such events as there being a big risk that a certain hurricane may make landfall etc etc. From what I can see economics isn't yet able to do the equivalent of saying whether average temperatures go up or down as altitude increases. Even the most basic issues are still up in the air.

    4. The "1981 statement by 364 economists" looks to me like a classic example of an episode where economics would have massively benefited were it conducted against a backdrop of continuous rigorous evaluation of predictions (as done for meteorology). To this day, that episode still just evokes contradictory hand waving as to what it implies for economic theory or policy. Compare and

  19. «economics is a vocational subject, not a liberal arts subject.»

    That is a very interesting point of view even if I would have never suspected someone could hold it. That «vocational subject» remind me of the aspiration by JM Keynes that political economists could be:

    «If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.»

    But that of course would be ridiculous, because there is no such thing as an Economist (as JM Keynes understood very well) there are just political economists, which is quite different.

    Also the contrast with «liberal arts» is quite loaded: political economists understand very well that while the study of political economies is not a vocational subject, in the sense that no mechanical rules from a textbook can be applied universally as in plumbing or dentistry, it is not entirely based on perception and taste, like liberal arts subjects.

    «Economics, as someone once said, is a separate and inexact science. That it is a science, with a mainstream that has areas of agreement and areas of disagreement, is its strength»

    Well, that seems to me the usual propaganda by neoliberal Economists, where they represent their own brand of politically motivated interpretation as "science" (with its connotation of "objectivity") with a small range of disagreements in particular details as variations amoung the (objective) "scientific" mainstream. There is no neoliberal "end of history" that makes "calculemus" (whether to 1 or 4 decimal points of inexactitude) possible as to Economics.

    The opinions of other political economists, and I could mention JM Keynes, Doug Gwin and Chris Dillow, is that studying the political economy cannot be an objective science, however inexact, because the political economy changes with time and is partially driven by subjective goals and tastes, but it is not a liberal arts subject either, as there is more to it than subjective judgement and tastes, and there are somewhat stable features of it.

    For these people, as I understand it, studying the political economy amounts to a mixture of quantitative tools to study the mechanisms that are parts of a particular economy and subjective judgement and insight to understand their relationships and evolution (the "political" in "political economy").
    Being it neither a science, studying "objective" natural laws, nor an art, studying subjective judgents and tastes, it is more generically a "social science", something that I would call a "discipline", that is a systematic approach to studying complex systems.

  20. To counter a simple narrative like this you need a simple counter like "how can you become bankrupt if you can print your own money."

    1. «you need a simple counter like "how can you become bankrupt if you can print your own money."»

      That is not a very difficult challenge, plenty of countries have gone bankrupt while printing their own money, even in recent times. There is a tendency among many people who misunderstand MMT to fantasize that creditors are relentlessly stupid.
      The more realistic one understand very well what Hyman Minsky wrote:

      «Both the monetarist and standard Keynesian approaches assume that money can be identified quite independently of institutional usages.
      But in truth, what is money is determined by the workings of the economy, and usually there is a hierarchy of monies, with special money instruments for different purposes.
      Money not only arises in the process of financing, but an economy has a number of different types of money: everyone can create money; the problem is to get it accepted.»

      That paragraph is almost everything one needs to know about "money", in particular that "money" in most modern chartalist economies is issued by purchasers, endorsed by banks, accepted by vendors.

  21. Ah damn "l'esprit de l'escalier" :-), I feel the need to go on and on, as usual :-), as this is one of my many pet peeves.

    «The opinions of other political economists, and I could mention JM Keynes, Doug Gwin and Chris Dillow»

    Well, I hope here that the late JM Keynes and Andrew Glyn (ooops) and the very living Chris Dillow would agree with that is my understanding of their point of view.

    «it is more generically a "social science", something that I would call a "discipline", that is a systematic approach to studying complex systems.»

    To me it is similar to something like architecture, when it is not just an excuse for sculpture or a thin wrapper for civil engineering: archiecture is a discipline based on a mixture of quantitative and objective engineering, not quite quantitative nor quite objective judgement as to the functionality of a design, and a subjective judgement as to the beauty and feeling of the design.

    Therefore in studying the political economy there are indeed «different schools of thought, each with their own models and favoured policies» and only by studying and understanding the applicability of each it becomes possible to gain fruitful, part science part art, insight on a given historically rooted political economy.

    The usual invidious comparison with physics: reading physicists of 200 years ago is usually not a fruitful activity for understanding today's physics, as approaches and understanding has much improved even on the topics they were studying then; but reading historians or economists or architects of 200 years ago is often illuminating on today's issues because despite the poverty of their quantitative methods, their lack of DSGE models :-) or sophisticated statistical techniques, their insights as to how the whole works together are still useful, just as reading de Tocqueville today returns excellent insights as to the USA, or culture and politics in general (and even some political economy). Even reading the obscure writing of venetian proto-political 18th century economist G Ortes is fruitful; as to him K Marx in the footnotes to chapter 25 of "The Capital vol 1" calls him "an original and clever writer", and claims that Malthus works are largely a repetition of Ortes and others. And also just those chapter 25 footnotes seem to me to contain more insights on the political economy than many current "end of history" Economics textbooks, regardless of what I think of the politics of Marx.

  22. But isn't mainstream economics also just one of the schools of thought? On what basis then should it be selected as the "right" or "correct" school of thought? Economics is a branch of subjective opinions and objectives.. a branch of political systems, religions, and other belief systems. Calling it a science is an assertion that it only has one foundation and nature of being. This is clearly a false assertion so economics can't be called a science. The sooner economists fess up to the is fact, the sooner it can get on with the subject of understanding that there are always differing schools of thought in subjective subjects... then deal with the differences and their outcomes rather than selection one which a consensus at one moment in time decides is the "mainstream" consensus. This shuts out any new schools of thought, maintaining therefore the status quo... applicable or not.

  23. «But isn't mainstream economics also just one of the schools of thought? On what basis then should it be selected as the "right" or "correct" school of thought?»

    On this my understanding of our blogger's argument is:

    * "mainstream economics" is whatever is published in "mainstream top journals" by "mainstream scholar at top institutions"
    * In "mainstream top journals" one can find also a vast literature of fairly reliable quantitative investigations yielding fairly reliable predictions in limited contexts, mostly as to microeconomics (behavioural, business and finance), but also some occasional macro.

    If that is the argument, my objection is that defining "mainstream economics" that way is too convenient, and that usually "mainstream economics" is intended to mean a family of theoretical approaches, not a body of publications, and the specific theory based on JB Clark style marginalism and the Arrow-Debreu-Lucas or Hicks-derived macro models, that is "mainstream economics" means DSGE, RBC, New Keynesian approaches to macro. This is reconized by B DeLong in a recent comment on his blog:

    «And the problem is that Carmen Reinhart and Ken Rogoff are not "City" but mainstream economists—as are Martin Feldstein, John Taylor, Greg Mankiw, Glenn Hubbard, Eugene Fame, Robert Lucas, Robert Barro, and a huge host of others pro-austerity throughout 2008-2017. That is the elephant in the room that Simon needs to face.»

  24. Austerity and the idiocy of political economists
    Comment on Simon Wren-Lewis on ‘On criticising the existence of mainstream economics’

    Unlearning Economics argues: “The case against austerity does not depend on whether it is ‘good economics’, but on its human impact. Nor does the case for combating climate change depend on the present discounted value of future costs to GDP. Reclaiming political debate from the grip of economics will make the human side of politics more central, and so can only serve a progressive purpose.”

    In other words UE says, let us put the whole squabble whether economic theory is true or false aside, the real issue is whether a policy measure serves the 1-percenters or the 99-percenters. Economics is progressive if it serves the 99-percenters and regressive if it serves the 1-percenters.

    This amounts to abandoning science altogether. The criterion of science is true/false with truth defined as material and formal consistency: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

    The problem of economics is that neither Orthodoxy nor Heterodoxy has the true theory. Therefore, the economic policy proposals of BOTH orthodox AND heterodox economists lack sound scientific foundations.

    The discussion about austerity delivers the proof of the utter scientific incompetence of political economists. Neither Orthodoxy nor Heterodoxy got the fundamental concept of economics, i.e. profit, right.#1 To make the argument short, the correct profit equation for the economy as a whole is given here as Qm≡Yd+(I-Sm)+(G-T)+(X-M) which reduces to Qm≡G-T for Yd, I, Sm, X, M = 0. The reduced macroeconomic profit equation says that the monetary profit of the business sector Qm is equal to the deficit G-T of the public sector.

    So, from the standpoint of simple self-interest the 1-percenters and their useful academic spokespersons should argue FOR deficit spending and the 99-percenters and their academic spokespersons should argue AGAINST it. Just the opposite happens since Adam Smith railed at public debt.

    The fact of the matter is, that the measured increase of the relation between profit and wage income in the past decades has no other cause than the increase of public and private deficit spending. It has NOTHING AT ALL to do with greed, or productivity, or the smartness of business people. These factors only influence the distribution of overall profit Qm between the firms.

    Because neither Orthodoxy nor Heterodoxy has the true profit theory#2 their economic policy proposals are counter-productive or regressive for the social groups/classes they speak for. The fact of the matter is that nobody has done more for the 1-percenters than deficit spending heterodox economists who claim to “serve a progressive purpose”.

    Economic disasters happen since 200+ years because political economists ― both orthodox and heterodox soap box blatherers ― lack the true theory.#3

    Egmont Kakarot-Handtke

    #1 For details, references, and proofs proceed to Meta-references
    #2 “A satisfactory theory of profits is still elusive.” (Palgrave Dictionary, Desai, 2008)
    #3 See also ‘Mass unemployment: The joint failure of orthodox and heterodox economics’

  25. "Turn it into separate schools of thought, and it degenerates into sets of separate opinions" It most certainly does not, of course we can evaluate different approaches- that IS the point of critical thinking

  26. Hard to see how mainstream economics can be used as a potent method for criticizing anything other than essential human values. Children constitute a dead loss for parents and are economically inefficient. The logical economic solution allows parents to rent out their children as sex slaves, or, as in 19th century Britain, to sell their children to coal miners to use for hauling coal carts instead of horses (since 12-year-old girls are much cheaper to replace than horses when they die from overwork).
    Likwise, economic efficiency dictates monopolies in all goods and services, which, in the real world leads to catastrophic inefficiencies and rent extraction as well as rubbish goods and services. Economic efficiency replaces hospitals with firing squads--no people, no medical problems as a Stalinesque version of Milton Friedman would say.
    Likewise, economic efificiency replaces marriage with rape, particularly in countries like Italy/Germany/Japan suffering from low birth rates. "Relax and think of Friedman," as one might say.
    These atrocities prove so abhorrent to anyone with a conscience, yet so economically unimpeachable, that the entire profession must be rethought from the ground up -- particularly in its assumptions concerning markets and the "law" of supply and demand. The real world tells us that markets in luxury goods/services like health care and housing simply don't work.
    The law of supply and demand does not apply in the normal way in these kinds of markets. The greater the supply of luxury goods, the faster the price rises; prices are not just sticky, but positively adhesives. And since in the developed world, housing and health care and jobs paying a living wage and education at a decent university have become luxury goods, the entire mathematics of markets and assumptions about price clearing have become invalid for a huge swath of the goods and services in developed countries today.
    In particular, mainstream macroeconomics has no place for the concept of control fraud as a possible danger in the macroeconomy, or hidden wealth secreted overseas via tax shelters. Gabriel Zucman has shown, in the article "The Missing Wealth of Nations: Are Europe and the U.S. net Debtors or net Creditors?" Q J Econ (2013) 128 (3): 1321-1364, that monies hidden overseas via tax shelter amount to such staggering sums that they convert countries like the U.S. from debtor to creditor nations when correct accounting is used.

  27. Whatever the merits of mainstream economics, teaching economics as if it is a "settled" discipline is dangerous. It leads to intellectual sloppiness of the highest order. Pick up a copy of Blanchard/Giavazzi's textbook on European Macroeconomics, or any standard undergraduate macro textbook on the market. Check out the chapters on growth theory. You will get the impression that the only way to look at economic growth, if you are an economist, is through the prism of an aggregate production function and the Solow model (with all the implicit assumptions that involves). Try to find a reference to Adam Smith, Ricardo, or Arthur Lewis. One could get the impression nobody thought about issues of growth before the 1950s. One might wonder where Smith's division of labour and the link to the size of the market vanished to.

    Or look at the chapters on interest rate determination, where the starting point is invariably "assume the money supply is fixed.....". There then (typically) follows a lengthy discussion of the demand for and supply of money, without any discussion of how central banks actually function, their role in managing liquidity to stabilize the short term rate, the role of commercial banks in credit creation, and questions of endogeneity. Textbooks are close to complete fiction on these issues. Or take another (related) point - the ultimate "determinants" of interest rates. I read in texts that they they are determined by the supply and demand for "loanable funds", without any clear definition of what those are. Or by the demand and supply of saving, though this is barely coherent, as aggregate saving is not a decision variable.

    The laziness in presentation of material, even by such smart authors, is staggering, and the intellectual dishonesty even more so. And this dogma in teaching is underpinned and reinforced by methodological dogma. That anything that is not based on a fully micro-foundational model cannot be "science" in any meaningful sense (except when we choose to ignore that precept and have representative agents). That assumptions can be unrealistic, literally untrue, so long as you can calibrate effectively to real data (total nonsense, and unscientific, but a lot of economists buy that one too). And what gives this dogma credence? The fact this rubbish is presented as a settled discipline, and this is stuff that your professors, way smarter than you, expect you to "know" and not to question. I am not someone who believes all mainstream economics is junk. That would be stupid. Mainstream economics is the product of a lot of smart people working for decades in an established paradigm. But there are many big holes in the way mainstream economics is taught, and a failure to see those holes for what they are is costly. You end up with people unable to critically assess the quality of economic arguments - precisely because they have not been taught to think critically about the implicit assumptions underlying simple "workhorse" models. And their professors are there telling them not to worry ... not questioning these basics is part of being an economist. Phooey. I am firmly convinced that the only way to avoid mass brainwashing of students is to make the issue of "mechanisms" central to the teaching of social science. In this I am with Jon Elster. To create good social scientists you need to equip them with a large mental tool kit of possible causal mechanisms - from analytical models, theories, or just via verbal explanation - partly by exposure to multiple schools of thought (each of which tends to have their own insights), partly by requiring more history, and partly by cross-reference to other social science disciplines. Students need to read economic history, both to learn humility (Irving Fischer said what?!) and to appreciate that a lot of economic "truths" are contextual, or non-reductionist in nature (A might occur, but only if B also occurs).

  28. Just to add ... where I DO agree is that we should not see economics as logically separate theologies, where you just believe what you like and call yourself an Austrian, or a post-Keynesian, or whatever. Clearly that is no route to progress. Schools of thought have to engage on concrete issues or they are just quasi-religions. The right level of engagement is discussions of the causal mechanisms at work in a particular context.

    But accepting that there may be better or worse answers to a given economic question, that we are not all relativists, is not at all the same thing as claiming that the economic "mainstream" embodies some kind of optimal synthesis of competing views, which is what you come very close to suggesting.

    1. rjw

      You say: “I am not someone who believes all mainstream economics is junk. That would be stupid. Mainstream economics is the product of a lot of smart people working for decades in an established paradigm.”

      It is a matter of indifference what you believe. The scientific criteria are true/false with truth objectively defined as material and formal consistency. Science is NOT about belief but about PROOF.

      Fact is: the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent. Not only mainstream economics is junk but heterodox economics, too.

      The one thing that is common to all these failed approaches is that they do not get the fundamental economic concepts profit and income right. This is like medieval physics before the concepts of force, mass, energy, etc. were properly defined and understood.

      You say: “Mainstream economics is the product of a lot of smart people working for decades in an established paradigm.” Yes, but this proves NOTHING. Geo-centrism was the product of smart people working more than 1500 years in an established paradigm. Unfortunately, this paradigm was FALSE and they were not smart enough to realize it.

      The representative economist is not smart enough to realize that Walrasianism has already been dead in the cradle 140+ years ago and Keynesianism 80+ years ago.

      Economics is proto-scientific junk but economists celebrate each year the ‘Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel’. The plural may well be a little excessive.

      Egmont Kakarot-Handtke


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