Home > Uncategorized > Love it or leave it?

Love it or leave it?

from David Ruccio

Those of us of a certain age remember the right-wing political slogan, “America, love it or leave it.” I’ve seen it credited to journalist Walter Winchell, who used it in his defense of Joseph McCarthy’s anti-communist witch hunt. But it’s heyday was in the 1960s, against the participants in the antiwar movement in the United States and (in translation, ame-o ou deixe-o) in the early 1970s, by supporters of the Brazilian military dictatorship.*

I couldn’t help but be reminded of that slogan in reading the recent exchange between the anonymous author of Unlearning Economics and Simon Wren-Lewis (to which Brad DeLong has chimed in, on Wren-Lewis’s side).

Unlearning Economics puts forward an argument I’ve made many times on this blog (as, of course, have many others), that mainstream economics deserves at least some of the blame for the spectacular crash of 2007-08 (and, I would add, the uneven nature of the recovery since then).

the absence of things like power, exploitation, poverty, inequality, conflict, and disaster in most mainstream models — centred as they are around a norm of well-functioning markets, and focused on banal criteria like prices, output and efficiency — tends to anodise the subject matter. In practice, this vision of the economy detracts attention from important social issues and can even serve to conceal outright abuses. The result is that in practice, the influence of economics has often been more regressive than progressive.

Therefore, Unlearning Economics argues, a more progressive move is to challenge the “rhetorical power” of mainstream economics and broaden the debate, by focusing on the human impact of economic theories and policies.

Who could possibly disagree?  

Well, Wren-Lewis, for one (and DeLong, for another). His view is that the only task—the only progressive task—is to criticize mainstream economics on its own terms. Even more, he argues that we need mainstream economics, because there should only be one economic theory, on which everyone can and should agree.

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.

The alternative view is that the discipline of economics has a hegemonic economic discourse (constituted, at least in the postwar period, by an ever-changing combination of neoclassical and Keynesian economics) and a wide variety of other, nonmainstream economic theories (inside the discipline of economics, as well as in other academic disciplines and outside the academy itself). Reducing the critique of austerity (or any other economic policy or strategy) to the issues raised by mainstream economists actually impoverishes the debate.

Sure, there’s a mainstream critique of austerity: cutting government expenditures in the midst of a recession reduces (at least in most cases) the rate of economic growth. But there are also other criticisms, which don’t and simply can’t be formulated by mainstream economists. From a Marxian perspective, for example, austerity (of the sort we’ve seen in recent years in Europe and even to some extent in the United States, not to mention all the other examples, especially as part of IMF-sponsored stabilization and adjustment programs, around the world) often serves to raise the rate of exploitation. Feminist economists, too, have lodged criticisms of austerity, since it often shifts the burden of adjustment onto women. Radicals, for their part, worry about the effects on power relations. And the list goes on.

They’re all different—perhaps overlapping but not necessarily mutually compatible—criticisms of austerity policies. They raise different issues, precisely because they’re inspired by different, mainstream and heterodox, economic theories.

Wren-Lewis, in his response to Unlearning Economics, wants to limit the debate to the terms of mainstream economics, which is the disciplinary equivalent of “love it or leave it.”

  1. April 3, 2017 at 7:44 pm

    “and focused on banal criteria like prices, output and efficiency ”

    On the contrary, you can see the problems in current models looking at just prices, output, and efficiency if you just simply add in the assumption “revenues = costs” after adjusting for trade balance and work that through your system. The biggest problem with mainstream models seems to be that they accept simplifying assumptions that force revenues to be greater than costs and they never bother to check for this problem. It is awfully easy to justify supply side economics if your models allow revenues to go up and costs to go down simultaneously.

    “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.”

    Actually this part I agree with. I think he has a different idea on how much might get pruned, though, than most on this blog.

    “From a Marxian perspective, for example, austerity … often serves to raise the rate of exploitation.”

    Actually, I think this is obvious to everybody but Harvard. The missing link is that when you raise the rate of exploitation, you put downward pressure on consumption, which puts downward pressure on GDP growth in consumption-limited countries (like most of the world right now).

  2. April 4, 2017 at 9:54 am

    Markets always do something. But what they do depends on how they’re made and how they’re made to operate. There is no one standard form or functioning for markets. For example, the diamond market is designed to set prices for rocks that have no innate value. The market is designed to make diamonds not only desirable but attractive investments. Without that market diamonds would return to being just rocks. The natural gas/oil oil market focuses primarily on not allowing prices to go too far up or down. It worked better when it was more tightly regulated since regulators always made certain prices remained above average production cost. The market for large electrical equipment centers around China today, since almost all such equipment is manufactured in China. This is a market in which a transformer’s price is $1 million or more and capacitor banks can cost $5 million or more. But if the Chinese chose they could double or even triple these prices instantly. And the companies (including US utilities) that use these devices would pay the new prices and pass them on their customers. The blind faith in markets promoted as scientific fact by economists is just plain wrong. Markets are shaped by cultural factors such as described above. These determine what markets will and will not do. Often factors that economists call economic play little or no part. And change with the actors involved and the historical events that intervene. It is for these reasons I’ll continue to assert that markets are best studied and designed not by economists but sociologists, historians, and anthropologists.

  3. April 4, 2017 at 5:04 pm

    It is possible to take the mainstream on on its own terms. Doing so shows the conceptual vacuity of those terms and how mathemagics glosses over that vacuity.

    I say this not to agree with Wren-Lewis or Brad DeLong –for I don

  4. robert locke
    April 5, 2017 at 7:19 am

    Months ago I wrote on the blog:

    ‘Real World Economists Must Lead

    I think the people in this blog need to show more leadership. That might be hard to understand for those who are use to thinking of the economy as a self-regulating mechanism and of economists as observers and thinkers. But the economic crisis is too important to be left to passivity.
    The problem area is not difficult to identify. It is not socialism versus capitalism or free enterprise versus government, as neoliberal, tea party ideologues would have it. The problem that real world bloggers needs actively to investigate and manage is a massive system of private investor capitalism at the heart of today’s economy. It emerged from five post WWII mostly noneconomic phenomena: First the information revolution that spun out of the Pentagon during the Cold War, which allows twenty-four hour a day trading of financial packages on money markets worldwide. Two, the end of the Cold War, which opened up vast stretches of the former Communist world to private investor capitalism in an integrated system of stock markets and financial service, Three, the growth of institutional investors in associations like private pension funds that funnel unprecedented amounts of money into private equities, hedge funds, and investment banks. Four, the rapid growth of business schools and departments of finance economics that preach an ideology of unrestrained private investor capitalism and furnish investor capitalism’s skilled labor force, and Five, the development of neoliberalism in economics that justifies the ethical bankruptcy of investor capitalism.
    The need for intervention arises not just because the new system of investor capitalism badly distributes the “wealth” the economy generates, thereby making a major contribution to the growing gap between the rich and poor (a subject that many blogs cover), but because it inherently destabilizes markets and is crisis prone, witness the subprime mortgage crisis, the GFC, and the Sovereign Debt-Euro crisis that followed on each other. Economists should not stand around as neoclassical theory specifies and wait for a system that is in fact permanently out of equilibrium to stabilize itself; imbalance requires economists’ active intervention.
    The interventions should take three forms.
    1. The intellectual critique.
    Bloggers have devoted much space, too much perhaps, to a critique of the scientific credentials of neoclassical economics. The orthodox economists, when they bother to reply, usually say that the real world economists have no science to replace neoclassical economics, which for the former ends the debate. But why should this debate be important in the first place. Economics does not have to be science to be useful or admired. It could be a skill, what the Germans call a Kunstlehre or a Technik (a combination of knowhow and science) without the subject being compromised. In Germany engineering is called a Technik not a science but degrees in the subject are just as respected as those in science; whereas in England traditionally a degree in physics is much more appreciated academically than one in engineering, because of a lingering disdain for nonscientific craft based qualifications (which engineering was much longer than in Germany) compared to academically earned science degrees. Neoclassical economists are probably clinging to this sort of academic prestige when they insist on economics being a science. In any event, the discussion distracts bloggers from the sort of careful observation and discussion needed to evaluate the applicability of economics to the management of economies in the real world and from the sort of shape economics would have to assume for it to manage crises effectively.

    2. The institutional critique.

    Also not enough has been said in the blogs about the shortcomings of the institutions charged with the implementation of economic policies (IMF, World Bank, ECB, Federal Reserve, etc.). Fullbrook has pointed out elsewhere that all these institutions are filled with econometricians and neoclassical economists, who are reluctant interventionists. This subject needs to be more thoroughly aired. Nor has much been said about the business schools and departments of economics that house economists. Most people acknowledge that real world economists have little voice in the prestige departments and have problems publishing heterodox articles in the prestige journals of their field. But nothing much is said about how this could be changed.

    Of course, rarely if ever do those within an educational citadel engage in radical change, mostly it is forced on them from outside, from the greater academic community, government, political circles, or the community at large. Example of this extra-mural pressure for change can be found in this blog, where so many of the critics of neoclassical economics are non-economists, i.e., mathematicians, scientists, systems thinker, historians, etc. There is some comment as well from non-economists in the literature about the dysfunctional nature of educational institutions. In my own work on business schools (Confronting Managerialism), my co-author and I recommend reforms that would make BSs less subservient to business and financial interests and more responsive clients to the needs of community.

    It is unacceptable that a discipline like economics that has been so discredited in its science should be left in the hands of neoclassical economists who practice and defend that discredited science, thereby preventing economics from playing any effect role in solving financial and economic crises. People in the blog need aggressively to discuss institutional change

    What has been done, since this comment was posted?

    • April 7, 2017 at 5:32 am

      Excellent comments, Robert. Economics is something of an outlier in the social sciences. The earliest European social scientists first based their actions and theories on physical sciences. Mostly on 19th century physics it seems. These social scientists conceived their goal as the uncovering of natural laws like those in physics. These would be ahistorical rules that described, explained, and predicted human actions and interactions. But as they began work, it soon became clear that human interactions and actions are a mixed bag. Partly the result of biology, physics, anatomy, etc. But also, the result of historical processes that are never fully predictable or repeatable. Perceptive social scientists modified the goals of their work accordingly. Here, economics is the lone exception. American and to some extent UK, and a lesser extent European economists maintained the model of 19th century physics, down to the present. If this paradigm is removed from economics, economists will be forced to invent a new one. With some guidance that new paradigm will include conceptions of their work closer to those of the other social sciences. In time, this can lead to economics and economists rejecting the pariah role. Heterodox economists can, if they choose advance and defend these changes. Or not.

  5. April 9, 2017 at 7:49 am

    The TIMIDITY of the dissent is a major cause of its failure: “the absence of things like power, exploitation, poverty, inequality, conflict, and disaster  tends to anodise the subject matter. In practice, this vision of the economy detracts attention from important social issues and can even serve to conceal outright abuses.”  WHAT ?!?!  This is criticism? Making this critique, is like asking billionaires to give some extra small change to the poor, in order to compensate for the crimes of capitalism. Karl Marx did a much better job of critique: If money “comes into the world with a congenital blood-stain on one cheek,” capital comes dripping from head to foot, from every pore, with blood and dirt. As Lee & Keen complain in “The Incoherent Emperor”, it is common for the heterodoxy to come to the defense of neoclassical economics. Weak criticism like this actually strengthens the system by creating an appearance of tolerance for diversity debate, which does not actually exist.

  6. April 9, 2017 at 11:00 am

    For me classifying neoclassical economics as irrelevant or even harmful to humankind is much simpler. Neoclassical economics is out of step with human history and human evolution. Nothing more is needed to reject it.

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