Home > Uncategorized > Mainstream economics and the public

Mainstream economics and the public

from David Ruccio

Mainstream economics has clearly had a great fall.

Just two days ago, I argued that—after the crash of 2007-08 and, now, Brexit—mainstream economists have had “nothing to offer, either in terms of insight or a path moving forward.” Also recently, Antonio Callari challenged Brad DeLong’s attempt to reduce economics to the mainstream debate between supply-siders and demand-siders and his argument that there’s no room for economists as public intellectuals.

Now, Mark Thoma has stepped forward to explain why it is that “in recent years the public has lost faith the in the economics profession.” And since by the “economics profession” Thoma is essentially referring to mainstream economists, he’s absolutely correct.

One reason for the lack of faith is the failure to predict the Great Recession, but the public’s dismissal of macroeconomists is based upon more than the failure to foresee the dangers the housing bubble posed for the economy. It is also due to false promises about the benefits to the working class from globalization, tax cuts for the wealthy, and trade agreements – promises that were often used to support ideological and political goals or to serve special interests. 

Even more, mainstream economists simply don’t have “a solid understanding of the mechanisms that drive the economy.”*

Therefore, in Thoma’s view, economists need to exercise more humility and flexibility:

more humility about what we do and do not know, more willingness to change our minds when the evidence disagrees with our favorite theoretical model, and the willingness to acknowledge disagreement within the profession. But most of all we need to take a strong stand against those inside and outside the profession who misuse economic theory and empirical results for political and ideological purposes.

I’m all in favor of theoretical humility and flexibility. I certainly do not hold to the idea that our processes of producing knowledge can, or even should aim to, give us access to a complete or definitive model of the world. And I’m quite willing to admit—against the pretensions of most mainstream economists—that all we have (and can have) are partial and local and incomplete knowledges, which themselves are always changing.

But, while a good start (given the arrogance and rigidity with which much mainstream economics has been and continues to be produced and disseminated), that’s not enough. The real challenge, it seems to me, is to go beyond that and criticize both the theoretical models utilized by mainstream economists and their self-identified status as scientists who are somehow outside and independent of the world of politics and ideology.

There are, according to all three of us (Callari, Thoma, and myself), good reasons why mainstream economists have fallen in the eyes of the public. And try as they might, it’s doubtful “All the king’s horses and all the king’s men” can or should put mainstream economics back together again.

What’s needed is a fundamentally different way of doing economics and of thinking about the role of economists—economic theories that focus on issues of power and class (instead of relegating them to the margins) and a conception of economists as real public intellectuals (who play “a galvanizing role in the production of public knowledge and policy, where ‘public’ means not just ‘for’ the public, the people, but also ‘of’ and ‘by’ the people”).

I recognize that’s a radically different way of defining economics compared to the mainstream tradition. But, as it turns out, it’s a move Humpty Dumpty himself would have recognized.

“The question is,” said Alice, “whether you can make words mean so many different things.”

“The question is,” said Humpty Dumpty, “which is to be master—that’s all.”

 

*Thoma’s list of issues on which mainstream economists simply don’t have answers includes the following:

  • Why has productivity fallen? Will it stay low in the future?
  • What has caused the decline in labor force participation?
  • How strong is the economy’s self-correction mechanism in recessions, and how does it work?
  • Is there a Phillips curve (i.e. a reliable relationship between inflation, inflation expectations, and unemployment)?
  • How are expectations formed, and do they converge to rational expectations over time?
  • What is more important in the determination of wage and capital shares of income, marginal products or bargaining power and other institutional features of labor markets?
  • What frictions should we focus on? Price and wage stickiness? Financial frictions? Both? How do these frictions vary over the business cycle?
  • How high can the minimum wage be raised before there are significant employment effects?
  • What is the cause of inequality? Is it baked into the capitalist system, or is it the result of political and institutional forces?

And, according to Thomas, “that’s nowhere near a complete list of the things we don’t fully understand. We don’t even agree about what caused the Great Recession.”

  1. Garrett Connelly
    July 2, 2016 at 1:27 pm

    Focus on the transformation of a dying planet producing environmental friction instead of the free lunch appropriated and exploited by corporatistas.

    Even Yanis Varoufakis and his wonderful analytical mind is utterly blind to the impossibility of using deficits to stimulate European growth above its current level of four planet resource and pollution recycling economic intensity.

    Economists cannot logically discuss anything of any importance to humanity until they are able to describe an economy that heals Earth rather than destroying it.

  2. Hepion
    July 2, 2016 at 1:55 pm

    Mainstream economics is odd, insular field where fools debate with charlatans.

    Mainstream dogma acts like a filter system that drives away all intelligent people. Only fools and right-wing ideologues are left

  3. July 2, 2016 at 3:10 pm

    People have no faith in economics anymore? Do the Sexit now!
    Comment on David Ruccio on ‘Mainstream economics and the public’

    Mark Thoma summarizes: “In recent years the public has lost faith the in the economics profession. One reason for the lack of faith is the failure to predict the Great Recession, but the public’s dismissal of macroeconomists is based upon more than the failure to foresee the dangers the housing bubble posed for the economy.”

    This, of course, is a misleading explanation. It rests on a misunderstanding of what economics is and what science is. First of all, science does NOT ‘predict the future’ because as a genuine scientist said: “The future is unpredictable.” (Feynman, 1992)

    What is called prediction in science is categorically different from the commonsensical meaning of ‘predicting the future’. The sole criterion of science is true/false and not predicting the next crash or any other extraordinary event. This is the job of prophets, fear mongers, astrologers, gold bugs and other freaks/swindlers. In marked contrast, science is about invariants or ‘eternal’ laws.

    The real problem with economics is not commonsensical prediction but that it is NOT a science yet pretends to be one. It is of utmost importance to clearly distinguish between political and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics scientific standards are observed.

    Theoretical economics has to be judged according to the criteria true/false and NOTHING else. The history of political economics from Adam Smith onward can be summarized as utter scientific failure. A closer look at what is naively called economics as if it were a homogeneous entity shows that theoretical economics has been captured by the agenda pushers of political economics. Smith and Ricardo fought for liberalism, Marx and Keynes were agenda pushers, so were Hayek and Friedman, and so are Krugman and Varoufakis.

    As a consequence, what we actually have is Walrasianism, Keynesianism, Marxianism, Austrianism, and all four are false. This has NOTHING AT ALL to do wit faith, trust or credibility but with PROOF.

    Economics started as Political Economy. It tried to become a science but failed. The ultimate reason is scientific incompetence. However, the fact of the matter is that the general public cannot assess scientific competence and has to fall back on all sorts of proxies like published opinion or authority.

    There is one thing that economists can immediately do to correct false expectations. Let us call this the scientific exit, or Sexit for short.

    The rules of conduct of the scientific community demand that the actual state of economics is at all times unambiguously communicated to the general public. This implies, as the VERY FIRST step, that the word sciences is deleted from the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.

    Economists cannot be accused of being incapable of ‘predicting the future’ but of falsely claiming to do science. What can legitimately be demanded of Thoma and the majority of economists is to retire as soon as possible because of PROVEN scientific incompetence.

    Egmont Kakarot-Handtke

  4. Enquiring Mind
    July 2, 2016 at 4:52 pm

    The public perception of economists would be helped in part by the latter reaching out to the public in lay terms instead of what is often perceived as jargon or obfuscation. There is also a perception among many that the profession is dominated by too many from MIT and Harvard, or Chicago, similar to how the legal profession has so many at high levels (e.g., SCOTUS) from Harvard and Yale, and that they appear to shout down outsiders.

    While there are inside-baseball arguments to be made about the relative merits of those and other programs, there also appears resistance to have any dialog with any economists that are not part of the Orthodox culture. That culture is also perceived as being too cozy with Wall Street, limiting objectivity and increasing appearance of conflicts of interest and declining intellectual integrity.

    The economics profession would do itself a big favor by observing the current populist and anti-neoliberal trends unfolding around the world and identifying ways to connect with the citizenry. They live in the economy every day and are subject to impacts of policy decisions that are oversold, manipulated or watered down.

    People don’t want to have to keep hearing “who are you going to believe, the economists or your lyin’ eyes?”

  5. July 2, 2016 at 7:34 pm

    In their book, “Do Economists Make Markets?: On the Performativity of Economics,” Donald MacKenzie, Fabian Muniesa, Lucia Siu present several possible answers to this basic question. But the overall answer is yes, economists are one of the actors involved in making markets. There are many other actors involved, from bankers and investors to MBA programs to the physical layout and equipment of markets. They also conclude that not all markets look or operate alike or lead to the same ends. The commodities differ from market to market as do the buyers and sellers involved and the way payments are calculated and made. Among these many markets there is what MacKenzie, et al call the “textbook” market – the market designed to look like the market in economics textbooks. They describe an experiment in which a French strawberry market was designed to be a textbook market, and then document just how short a time it took for the perfect design to breakdown and become a wholly different operating and form of market. Only two of the authors or editors of the book are economists, Philip Mirowski of Notre Dame and Edward Nik-Khah of Roanoke College. The others are anthropologists, sociologists, historians, philosophers, political scientists, and science and technology analysts. While there is no consensus among the authors they certainly flesh out and examine in the detail many of the concerns and uncertainties involved in creating markets, using markets, and market failures. And they do this without a single mathematical equation or complex chart. Amazing what can be done when one is not interested in protecting a particular theory, or promoting a particular economic solution, discussing differential equations of one sort or another, or just being a general pain in the ass know it all. To keep in mind — studying markets and making markets are often intertwined. This should be first sentence in all discussions of markets in economics textbooks.

  6. July 5, 2016 at 12:52 am

    ““The question is,” said Alice, “whether you can make words mean so many different things.”

    “The question is,” said Humpty Dumpty, “which is to be master—that’s all.”

    The same word, “money” has two different meanings.

    Quote Frederick Soddy
    ” It is important to realize that whichever way it works it is a case for the bank of
    ” Heads I win, tails you lose “…”…(U)sually by some such lying phrase as ” Every
    loan makes a deposit ”
    “Genuine and Fictitious Loans.
    For a loan, if it is a genuine loan, does not make a deposit,
    because what the borrower gets the lender gives up, and there is no increase in the quantity of money, but
    only an alteration in the identity of the individual owners of it. But if the lender gives up nothing
    at all what the borrower receives is a new issue of money and the quantity is proportionately
    increased. So elaborately has the real nature of this ridiculous proceeding been surrounded with
    confusion by some of the cleverest and most skilful advocates the world has ever known, that
    it still is something of a mystery to ordinary people, who hold their heads and confess they
    are ” unable to understand finance “. It is not intended that they should.”(The Role Of Money)

    • July 12, 2016 at 6:57 am

      Money, in fact all economics begins in practice, in performances among a wide variety of actors. Economists are one of these actors, but only one and in most situations not actually a very important one. These actors create the organizations, explanations, and institutions, give them names, and decide how they will live and die. Sociologists, anthropologists, and historians who study these creations have shown this over and over again. And in the words of Viviana Zelizer, “Turning away from abstract theories and plunging into the messiness of actual economic practices, sociologists, anthropologists, psychologists, and others are slowly but surely revolutionizing how we understand life’s commerce. … these scholars expose a rigid concept ‘homo economicus” as a rusty,, old-fashioned notion ready for retirement. Even some economists [perhaps the heterodox ones of this blog], while fully embracing rational choice models [which sociologists, etc. have also largely scraped], have broadened their vision to provide often surprising and instructive explanations for the economics of everyday life.” My main objection to Zelizer’s comments is they seem to imply that there is everyday and non-everyday economics. That clearly is not the case. In the messy habitation where economics is created it is created for every situation and every actor involved. Economists need to give up their mad pursuit of physics-like theories and complex mathematics and just open their eyes to see the creative work going on everywhere around them. Or soon they will be not only irrelevant but also unemployed.

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