Home > The Economics Profession > “Sack the Economists”

“Sack the Economists”

from Geoff Davies

Non-mainstream economists are all-too aware of the failure of mainstream economists to anticipate, let alone avoid, the Global Financial Crisis and the ensuing Great Recession.  The mainstream profession is also failing to fix the problem, and is actually making it worse.

It is hard to get alternative views heard, and the mainstream carries on almost totally unperturbed, despite being centrally responsible for a global disaster.  This is of course extremely frustrating.

After reading yet another cri de coeur from yet another frustrated economist, I thought perhaps we need to spell out the message in all bluntness: we need to sack the economists (the mainstreamers).  We also need to derail their baleful ideology.  That means we need to disband the departments of neoclassical economics, so the poison is not passed on to any more hapless generations.

When I say “we”, I really mean “we, the people”.  The job can’t be done by a small band of isolated reformers.  That means people need to be informed and persuaded.  They need to be spoken to in terms they understand;  not everyone, but opinion leaders and interested laypeople, of whom there are many.

Thus was I moved to write the short ebook: Sack the Economists and Disband Their Departments.

The title may seem to be a bit confronting at first, but the book is a concisely argued case, not a rant.  The bluntness is justified by  the fundamental flaws in mainstream economic ideas.  There are not just one or two flaws, there are many.  Neither are they just obscure theoretical flaws.

For example, private debt is ignored in mainstream macroeconomic models and thinking.  It is ignored because, supposedly, “one person’s debt is another person’s asset”.  But that would only be true if loans comprise 100% savings.  They don’t of course, somewhere between 90% and 100% of a new bank loan is new money created out of nothing.  That means loans affect the money supply, the purchasing power available to the economy.  As debt rises and falls, so the economy booms and busts.  Steve Keen has been leading the way explaining and demonstrating this, for example in Debunking Economics.  This seems to be the most immediate reason why the mainstream utterly failed to foresee the 2007-8 Global Financial Crisis.

At an even more mundane level, the near-universal use of Gross Domestic Product as a measure of economic success, and by implication of quality of life, does not even qualify as basic accounting.  This is because the GDP measures “activity” involving money, but makes no distinction between useful, useless and harmful activity: the cost of cleaning up pollution is added to the GDP.  This would be like a shop keeper entering all his transactions (income and costs alike) in the credit column of his ledger, adding them up, and claiming his business is booming.

What is needed of course is a balance sheet.  It would also be helpful to separate economic, social and environmental factors.  All of these things are available, but they languish because politicians love the GDP and mainstream economists fail, collectively, to point out the falsity of using GDP as a measure of welfare.

The so-called efficient markets hypothesis is a joke.  If all financial market players made independent assessments of relevant information and their mean assessments were accurate, then there could be no market crashes.  It is well known that many market players follow trends, not fundamentals, so their assessments will not be independent.  If players assessments become correlated, in other words if they behave as a stampeding herd, then their mean assessment can be seriously in error, and subject to sudden correction.  That of course is what happens in a market crash, and every crash invalidates the hypothesis.  (Can I have my pseudo-Nobel Prize now, please?)

The central absurdity of mainstream economics is of course the neoclassical theory, and its prediction that free markets will bring about the General Equilibrium.  It is hard for a scientist like myself to conceive that this theoretical abstraction could have survived for a century or more, let alone become the dominant paradigm.  It is based on absurd assumptions, and there are many manifestations of disequilibrium in real economies that contradict its main conclusion.

Financial market crashes are obvious manifestations of disequilibrium, but so, for example, are extreme and increasing inequalities in wealth (an instability in the distribution of wealth), and the exponential growth to dominance by a few firms in many market segments (commonly due to economies of scale and the coloniser effect, both of which are excluded from the theory).

The neoclassical assumptions should disqualify it from serious consideration anyway.  We are all assumed to have complete knowledge, to be able to predict the future, to be immune to fashion, to social and psychological pressures, and so on and on.  If you drop these assumptions you predict a very different kind of system:  a far-from-equilibrium, self-organising system that probably qualifies as a complex system.  The neoclassical theory can never be even a rough first approximation to such a system.  Rather, it is completely misleading.

As well as silly assumptions, there are also important things missing from mainstream thinking.  For example, why is the pivotal role of ownership not highlighted as a dominant determinant of the flow of wealth, and responsibility?  There are many possible kinds of ownership, but our system is dominated by only a few, and they tend to favour the wealthy.  Why is social credit almost universally ignored.  This is the term often used Henry George’s followers – a modern systems term might be emergent community wealth, the wealth that accrues from the proximity of businesses, people, infrastructure, above and beyond the individual investments.  It is this wealth, that belongs to no individual entity, that is allowed to be captured by land speculators, thus facilitating one of many economic injustices.  Then there is the monetary system, perhaps the most important and most neglected economic factor of all.

Sack the Economists lists seven readily identifiable mechanisms that transfer wealth to the rich, from the rest of us.  Neoliberals rail against “wealth transfers” that attempt to re-balance the distribution of wealth, but are oblivious to copious transfers in the other direction.  This is an example of rhetoric that can be turned back on neoliberals.  Other examples given in the book are social engineering, political correctness and class warfare.

Mainstream economics is incomplete, grossly misleading and destructive.  It reflects the gross ignorance and long-term intellectual isolation of its practitioners.  It uses a lot of fancy mathematics, but this does not mean it is science.  The mathematics can’t disguise the fact that mainstream economics is not science – it is pseudo-science.

I think we need to proclaim these simple facts as widely as possible, using a few simple examples of the kind I have just mentioned.  I think it’s a waste of breath trying to argue with the true believers, theirs is not a rational discipline.  Don’t debate arcane details, there are so many bits of nonsense that you’ll tie yourself up forever and just play into their hands.  Don’t just ask for equal time with the neoclassical theory, it is a bad joke that can’t be justified in any curriculum, except as an example of deviant, non-scientific thought.  Seek to displace the neoclassical theory.

I am an outsider to economics, though one who has been exploring its thickets for fifteen years, so perhaps you’ll indulge me quoting some real economists in my support.

This book raises many interesting questions, most importantly, why does anyone take economists seriously when it comes to discussing the economy?Dean Baker, Co-Director, Center for Economic and Policy Research, Washington D.C.

Geoff Davies has a very good idea. Economics has locked itself into an intellectual cul-de-sac.  Even its failure to anticipate the global economic crisis was not enough to force it out.  So let’s sack the economists and let real scientists take over this vital but currently dangerous discipline. – Steve Keen, Economist and author of the popular book Debunking Economics

With delightful wit and insightful analogies, geophysicist Geoff Davies dissects the inconsistencies — and the inanities — of mainstream economics. … In the end, Sack the Economists helps us understand, plutocracy never works — and neither does an economics that refuses to discomfort our plutocrats. – Sam Pizzigati, Institute for Policy Studies, Washington, D.C., and author of The Rich Don’t Always Win.

  1. December 7, 2013 at 6:53 pm

    The people are severely fooled by these omissions, so sack the system.
    “The Public Be Suckered”

  2. December 7, 2013 at 11:50 pm

    Reblogged this on Parchment in the Fire.

  3. robert r locke
    December 8, 2013 at 7:22 am

    Where were you when I began to write about the shortcomings of economics as an analytical tool in my first book on the subject in 1984. And in every book subsequently. Better late than never I suppose, but unless you figure out a way to manage the change you seek and not just engage in lamentations you won’t succeed.

    • Geoff Davies
      December 9, 2013 at 1:27 am

      The book is not just lamentations Robert. And in 1984 I was a mid-career scientist with no thought of writing about economics. That’s if the comment is addressed to me.

      • robert r locke
        December 9, 2013 at 2:35 am

        No Geoff, don’t make an enemy out of a 82 year old man. It is overkill. I just meant that some of us have known since the 19th century that neoclassical economics was flawed but that did not stop it from taking-over academic economics, nor is just writing books for academics a way to get them out. Need to see how change in systems is brought about and engage change managers to pursue effective transformations.

    • Geoff Davies
      December 9, 2013 at 3:45 am

      Sorry Robert, your comment seemed a bit challenging. We’re on the same side. But just to clarify further, my book is for general readership, this web site is as close as I’ll get to academia. And yes, I fully (if briefly) acknowledge in the book that there have been fundamental criticisms for a long time. And indeed the change will still be a big challenge, my strategy is to empower sceptical non-economists by assuring them they are right to doubt the current regime.

  4. Nell
    December 8, 2013 at 3:41 pm

    Will check it out. There are a couple of sites I can post links to help spread the word, including a facebook site set up by students who are campaigning to open up the economics curriculum in UK universities.

  5. December 8, 2013 at 7:22 pm

    One practical way to help correct the problem is to stop using loans to finance public infrastructure. Go directly to savers for the funds to build long term public infrastructure and give them a fair inflation adjusted rent on their savings but without rent on rent. This reduces the funding cost of infrastructure while giving a fair safe return on savings.

  6. December 8, 2013 at 11:42 pm

    I fully 1000% agree. Economics as it has been practised for the past many years has been science fiction (or rather, fiction masquerading as science).

  7. December 9, 2013 at 7:29 am

    It seems to me that economics cannot be a science until it does at least three things:
    1. Stops conflating Land with Capital – in classical economics, these were distinct, with nearly opposite characteristics. All the classical economists from Adam Smith to Karl Marx, and especially Henry George, knew this.
    2. Acknowledge the role of money and debt properly, and that money is not necessarily created in sufficient quantity to meet public need based on productive capacity, certainly not by a private banking system (stop the knee-jerk prescription to “privatize” everything when public banks and public debt/interest-free money might be a better option).
    3. Based economic theory on history and empirical evidence, not just on abstract mathematical theory.

    I’m sure there are other elements to consider, but until at least these things are done, economics can’t make predictions. And if it can’t make predictions, it is not a science.

  8. ivansml
    December 10, 2013 at 9:56 pm

    I find the arrogance of somebody, an academic even, who thinks he can denounce the whole discipline without referring to any actual research from that discipline, sort of fascinating. Looking through bibliography of “Sack the economists” (helpfully available for free today), there is exactly one reference to a mainstream piece of academic research (that being Eggertson & Krugman QJE paper). I repeat, one. Apparently, it’s possible to write a strongly worded critique of economics without reading any of its textbooks or journals, at least according to Geoff Davies.

    So, regardless of what one thinks about “neoclassical” economics, what’s the value added of what’s essentially an angry rant rehashing third-hand criticisms collected from other books and blogposts? Zero. I just hope that research standards in author’s original field are higher.

    PS: Have you guys figured out how to predict earthquakes yet?

    • December 18, 2013 at 6:15 pm

      Ivansmal uses is using the “attack the messenger” defense. If the arguments cannot be defended then attack the credentials of the messenger.

  9. George
    December 11, 2013 at 5:04 am

    I have read the Scientific American Publication for a long time.
    I have never found any article or story, or research dealing with the Science of ECONOMICS.
    Society has to firmly determine what the STATE is supposed to do for the wellbeing
    of the people. No Government has found a solution, despite all the various
    economic theories proposed as a way to go about it.
    Henry George, in Progress and Poverty, suggested the most plausible theory
    for consideration. In my opinion.

  10. neil
    December 21, 2013 at 1:16 am

    I was a biologist-biochemist before business school conversion and teaching. There has been very little I’ve recognised as science in any of the social sciences. There is rarely any reliable data to work with and always a morass of assumption science would challenge in public scrutiny. It’s hard to believe economics could be scientific without a transparent money system, democratic foreign policy and systems designed to provide evidence rather than obfuscate. I suspect the tale is at least as old as the Greeks writing on virtue ethics and doing nothing about slavery. I’d say too that we need to understand much more about argument in its biological-evolutionary context (Dan Sperber is an example). We tend to make convenient arguments with ready-to-hand ‘evidence’, not the best.

    • December 21, 2013 at 11:38 pm

      I fully agree about economics, but not all “social sciences” are science fiction. Psychology, sociology, anthropology can be rigorous. Of course, their findings are not seen to be against the interests of the multinationals. Follow the money.

  11. neil
    December 22, 2013 at 4:33 am

    I don’t really disagree Bob, though in my experience signal to noise ratios were low. The textbooks are generally dubious, especially those around in the business schools I generally worked in. Motivation at work theories were generally in chapter three. Typically, we would ask students to critically evaluate process and content theories of such (answer in chapter three) when we should have asked ourselves why we were teaching such discreditable rot and not asking students to consider how many lottery winners continue to work and let them build systems from the way they see the world (and how this might be wrong).

    I suspect a big part of the problem is that we haven’t noticed the incompetence of clever-stupidity and fear in our systems that lead to conformity and supplication in argument. The Emperor is never naked as the tailors spin further invisible cloth whilst explaining the sky will fall if we ever let our eyes see what is in front of them. It all gets complicated from this unstable beginning and we are forced to make argument ‘coherent’ by exclusions – almost as restricted as the special subjects in Mastermind.

    I’d want to read Geoff’s book before comment, but the tone sounds like Fred Soddy before WW2 or the editor of the Lancet (Horton?). My own feeling on economics is it would need to take on the modern church (whatever this is now as the conventional wisdom of the dominant groups) and face the instruments of torture before becoming a science.

  12. Bhaskara II
    December 22, 2013 at 5:55 am

    And after their sacked?

    Hire who?

    (I have ideas of my own but don’t want to lead the answers.)

  13. Geoff Davies
    December 23, 2013 at 5:12 am

    neil –
    By all means read the book. I perceive a lot of confusion in the heterodox community about what is scientific, and whether economics ever could be scientific. A chapter of my previous book Economia is posted on my blog: http://betternature.wordpress.com/my-books/otherbooks/economia/neoclassical-scientific/ .

    Some key points. I think science is about perceiving patterns in the world, deducing the implications of the pattern, and comparing the implications with more observations of the world. Notice I said nothing about “prediction”, especially about “prediction of the future”, nor did I say anything about accuracy or precision.

    Bhaskara –
    I see your question is rhetorical, but for anyone else – if you read the post or the book you’ll see I’m really criticising “mainstream economics”. There are others who have much more useful things to say – either from the margins of the profession or from other disciplines. Even your average shop keeper might do better than, for example, the ECB.

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