Home > Uncategorized > A golden age of microeconomics? Really?

A golden age of microeconomics? Really?

October 22, 2012 Leave a comment Go to comments

from David Ruccio

A Nobel prize and a few well-paid neoclassical microeconomists and the Economist declares a golden age of micro.

Really?!

It’s become a common refrain in recent years: mainstream economics finds itself in shambles (true that) but microeconomics, well, it’s doing just fine.

Except that it isn’t. Not when neoclassical economics, for all the attention to market (and, in my view, nonmarket) design, is still based on a theory of markets in which money plays no significant role (and therefore Say’s Law still holds). And in which income inequality is just a reflection of given technology, human capital, and globalized markets (such that nothing can be done about it). And in which the problems of economic development are reduced to microfinance and providing incentives for individuals to make the “right” individual decisions (and thus land reform plays no significant role).

Accept the pronouncements of the Economist (and the imprimatur of the Nobel committee and of major corporations like Google, Microsoft, Amazon, and eBay), and you might imagine that we’re in a golden age of microeconomics. However, as it turns out, this is really a golden age of the critics of neoclassical microeconomics.

About these ads
Categories: Uncategorized
  1. Paul Schächterle
    October 22, 2012 at 5:21 pm | #1
    Reply | Quote

    Maybe we should distinguish between game theory and the creation of matching systems on one hand and the neoclassical micro models you find in your standard text book (indifference curves, decreasing returns, etc.) on the other hand.

    While I think that the former indeed has its merits, the latter is clearly almost total nonsense.

  2. William Neil
    October 22, 2012 at 6:36 pm | #2
    Reply | Quote

    Interesting and needed skepticism here. May I offer professional economists and citizens interested in the broader, macro questions of political economy an excellent lecture on the big unaswered questions of our day, courtesy of Robert Skidelsky, one delivered in October, and entitled “Keynes, Hobson, Marx,” the link to which is here. it turns out to be nine pages when printed out: http://www.skidelskyr.com/

    Drawing upon the works of these three famous authors, Skidelsky asks how their findings about inequality, globalization (termed imperialism in Hobson’s day) and the relationship between investment and unemployment bear upon our contemporary problems. I happen to believe that this lecture , if combined with Roubini’s (et al) “The Way Forward” from one year ago, would equip citizen’s – (and debate moderators?) – to ask better questions of their social “betters” – among which I include economists and what the Republican Right calls the job creators.

    For example, thinking of the maldistribution of income,and labor just not getting its fair share of productivity gains, going on decades now, we might ask of Mr. Romney and President Obama both: just how much greater share of earnings and wealth do the “job creators” need before they will invest in jobs, and what guarantee do we have the jobs will be in this country? This in an age which Roubini has described as having a “glut of both labor and capital”; Skidelsky describes it this way in terms of the broader hopes for Keynes of a golden age of capital abundance: “Eventually Keynes thought that ‘depreciation funds would be almost sufficient to provide all the gross investment that is required.” Interestingly, this is close to the claim that James Livingston makes in his very interesting book “Against Thrift,” that the claims of business for ever greater and greater tax breaks in belied by long term trends in net investment, showing productivity gains made manifest simply by the existing deductions for depreciation and the replacement of aging equipment. Sheer heresy, right?

    Unfortunately for Keynes, and for us, Skidelsky tells us in his new book, that Keynes’ “two mistakes…was (were) to underestimate technological progress,which constantly supplies us with new goods, and insatiability which constantly supplies us with new wants. Both push into a distant future Keynes’s golden age of capital abundance.” (Its hard not to miss the relevance of this for the IPod5 technological frenzy, and also Wendell Berry’s deeper comments on where the process has led in his Jefferson Lecture of this year – on a value plane which must challenge professional economists…who ignored the lecture)

    And the follow up question seems ever more pressing: if capital (investment) went abroad in the 1970′s in search of higher returns and continues to seek them there, where does it go when the BRIC’s are entering recession or worse?

    Or, returning to the micro focus with which this blog began, consider this observation by Skidelksy about economists, and Keynes having redifined economic’s problem as one of a search for better theories, not structural flaws in capitalism itself: “Keynes’ re-definition of the economic problem of his day as a technical problem in economics was politcally very convenient. Practical businessmen are quite receptive to new ideas providing they allow them to keep their profits and managerial prerogatives.” (Thus nicely avoiding the questions of class, political power and their ideological manifestation in our day and of the past 30 or more years, what I have called the age of “Market Utopianism.” My term would cover both micro and macro, by intent.)

  3. Henry Law
    October 22, 2012 at 10:40 pm | #3
    Reply | Quote

    Economic decisions are ultimately made at the micro level but the economy is more than the sum of its parts. However, what happens on the ground is important and the problem is that purported micro-economists ignore the role in which land plays in the process. By “land” I mean not just land used for primary production and mineral extraction, but land used for industry and commerce, which is several orders of magnitude more valuable and more important to the economy.

    • Jim Whitman
      October 23, 2012 at 6:51 am | #4
      Reply | Quote

      To Henry Law
      No, the instututional is not the micro nor has it ever been – from the tribe, to the temple, to the joint stock company and the bank, and all the other non-reducible agents from which social relations emerge. Economics is not the sum of the micro. Not even remotely.
      Jim

  4. Bruce E. Woych
    October 22, 2012 at 11:25 pm | #5
    Reply | Quote

    If class structured progression over time.(led by a sub-class of CEO’s oriention towards a corporatist republic ), rather than the formation of mutually beneficial relationships in democratic economies (including income distribution of demographic wealth / and labor economics) are the substrate populations for a micro-economic gold rush…then Hedgefunds and Private Equity servicing sovereign wealth are the foundation for a neo-con “golden age” mentality.

    You have to leave an awful substantial portion of Humanity out of the equation to see things that way (but then, indications are plentiful that the financial service sector serves a stratified society in just that way, shape and form).

    The problem with “matching” theories is that it is actually the foundation for ideal government as well…and it simply gets corrupted too readily as a function of opportunity, greed, and human manipulations to obtain specialized (self-interest) outcomes. In reality it should be argued that flash trades are already doing a perverted “matching” program…and when game theory is applied to competitive matching techniques the results are a kind of inbred class/economic warfare (or counter-insurgency applications in market determining capture). Overall the micro-economics or 1% has been precisely pitting the micro-cosmology of wealth against the macro-misery of a global economic decline. In fact the industry of crisis driven micro-management is called “privatization” and it is having a real hay day of a time in this inverted gilded aging process.

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

Gravatar
WordPress.com Logo

You are commenting using your WordPress.com account. ( Log Out / Change )

Twitter picture

You are commenting using your Twitter account. ( Log Out / Change )

Facebook photo

You are commenting using your Facebook account. ( Log Out / Change )

Cancel

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 1,287 other followers