| On Planning for
Development: World
Financial Crisis 2008 |
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sanity, humanity and science
real-world
economics review
Formerly the post-autistic economics
review
Issue no. 48, 6
December 2008
Back issues at www.paecon.net
Subscribers: 10,402 from
over 150 countries
How should the collapse of the world financial system affect
economics?
-
After 1929 economics changed: Will
economists wake up in 2009 - Geoffrey M. Hodgson
A remarkable feature of the unprecedented financial crisis that erupted
in September 2008 is the doctrinal shift among world leaders. The
market is no longer seen as the solution to every problem. The state
has to step in to save capitalism. The US Republican Party had been the
champion of free markets and minimal state intervention, yet President
George W. Bush became the exponent of a huge state bale-out of the
banks with a massive extension of state ownership within the financial
system.
Alan Greenspan, former chairman of the US Federal Reserve, belatedly
declared that he had ‘made a mistake in presuming that the
self-interest of organizations, specifically banks’ would protect
‘shareholders and equity in the firms’. He had ‘discovered a flaw in
the model’ of liberalisation and self-regulation (Guardian, 24 October
2008).
-
The economics of collapsing markets
- Frank Ackerman
Big banks are failing, bailouts measured in hundreds of billions of
dollars are not nearly enough, jobs are vanishing, mortgages and
retirement savings are turning to dust. Didn’t economic theory promise
us that markets would behave better than this? Even the most ardent
defenders of private enterprise are embarrassed by recent events: in
the words of arch-conservative columnist William Kristol,
There’s nothing conservative about letting free markets degenerate into
something close to Karl Marx’s vision of an atomizing, irresponsible
and self-devouring
capitalism.
So what does the current wreckage of the global financial system tell us about the theoretical virtues of the market economy?
- Economics needs a scientific
revolution - JP Bouchaud
Compared to physics, it seems fair to say that the quantitative success of the economic sciences is disappointing.
Rockets fly to the moon, energy is extracted from minute changes of atomic mass without major havoc, global
positioning satellites help millions of people to find their way home.
What is the flagship achievement of economics, apart from its recurrent inability to predict
and avert crises, including the current worldwide credit crunch?
The financial crisis
- Reforming the world’s international
money - Paul Davidson
The last two lines of the original manuscript of my book John Maynard Keynes (Palgrave, 2007) was written in July 2006.
In those lines I noted that:
“when, not if, the next Great Depression hits the global economy, then perhaps economists will rediscover Keynes’s . . .
analytical system that contributed the golden age of the post World War II. For Keynes, however, it will be a pyrrhic victory”.
The winter of 2007-2008 will prove to be the winter of economic discontent and the beginning of the end of the classical
theory of the efficiency of global financial markets. For more than three decades mainstream economists have preached,
and politicians accepted, the myth of the efficiency of markets, while burying any thoughts of Keynes’s analysis of
domestic financial markets and their connection via the international payments system.
- How to deal with the US financial
crisis - Claude Hillinger
Some 80 years after the Great Depression the stream of analysis of causes and of actual or hypothetical alternative
policies continues. The analysis of the present crisis, particularly the question of how to deal with it, are still
in a very early stage. The most recent contributions are largely reactions to the 700 billion dollar bailout of the
financial sector proposed by treasury secretary Paulson and after some modifications passed into law. While a
scholarly article is not going to impact the current crisis management in the US or elsewhere, hopefully it can
contribute to understanding and to better decisions in the future.
- The crisis and what to do about it
- George Soros
The salient feature of the current financial crisis is that it was not caused by some external shock like OPEC
raising the price of oil or a particular country or financial institution defaulting. The crisis was generated
by the financial system itself. This fact—that the defect was inherent in the system —contradicts the prevailing
theory, which holds that financial markets tend toward equilibrium and that deviations from the equilibrium
either occur in a random manner or are caused by some sudden external event to which markets have difficulty
adjusting. The severity and amplitude of the crisis provides convincing evidence that there is something
fundamentally wrong with this prevailing theory and with the approach to market regulation that has gone
with it. To understand what has happened, and what should be done to avoid such a catastrophic crisis
in the future, will require a new way of thinking about how markets work.
-
On being "competitive": the evolution of a word
- David George
The communications gap between mainstream economists and the general
public reaches its extreme in the realm of mathematical theorizing.
Agents in the everyday world may (or may not) act as theory predicts
without being even remotely aware of theory. But these same agents,
regardless of background, do often use much of the language of
economists. My goal in this paper will be to offer a preliminary
exploration into the changing importance of certain major economic
words over the last century.
“Competition” and its many derivatives will form the centerpiece of the
paper. We clearly have an instance here of a word dear to mainstream
economists that is at the same time a regular part of most adult
vocabularies in the English speaking world. We also have a word that
shows up in many different contexts. Firms and markets may be
competitive, but so may be sports teams, determined personalities, and
institutions usually outside the realm of “the economy.”
-
The state of China’s economy 2009
- James Angresano
Over the past few decades there have been numerous forecasts predicting an "imminent collapse" of the Chinese economy.
Some of these have a strong Anglo-Saxon ideological bias with little substantive theoretical or empirical support,
while others offer standard economic principles in defense of a negative forecast. More recently, however, these
pessimistic forecasts have been fewer in number and less dire. Meanwhile, some other analysts have offered quite
favorable economic performance forecasts. Who appears to have been correct?
This paper will examine some past forecasts, and then evaluate the current performance of the Chinese economy.
The first section will provide a brief summary of some previous forecasts. Analysis of the recent performance
of China's economy will be presented in the following section, including trends over the past 5 of both
standard macroeconomic and some socioeconomic indicators, using both Chinese and non-Chinese data sources.
The third section will evaluate the overall state of the economy at present, weighting performance indicators
both according to their relative importance to Chinese policy makers as well as to non-Chinese analysts.
The following section will suggest the likelihood that the economy's performance during 2003-2008 is likely
to continue for another five years. The final section will offer a summary and conclusions as to
the likelihood that China's economy will inevitably collapse within the next 5 to 10 years
- Hedonic man:
The new economics and the
pursuit of happiness - Alan Wolfe
When I first began hearing about what Bruno S. Frey, professor of economics at the University of Zurich,
calls the "revolution" in his discipline, my reaction was one of delight. As far as I was concerned, it
could not happen fast enough. Neoclassical economists had insisted upon the primacy of self- interest only
in order to model human behavior, but the way rational choice theory developed (at the University of Chicago
in particular) suggested that self-interest was not just a fact for these thinkers, but also an ideal: not
just how people do act but also how they should act. Their relentless advocacy of market-based public policies
was finally ideological--and, by my lights, ideologically wrong. Also the jargon grew impenetrable, and the
mathematics ostentatious and obnoxious. When Chicago-style economists started to apply their methods to other
social science disciplines, and then to virtually all the perplexities of human life, the charge of academic
imperialism could be added. Friedrich August von Hayek and Milton Friedman had always seemed to me to be marginal
and somewhat bizarre thinkers, especially when compared to such intellectual titans as John Maynard Keynes
and Joseph Schumpeter. The rapid spread of their ideas throughout so much of academia did not bode well for the future.
- Past contributors,
etc.
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Six
winners of the Bank of
Sweden
Prize for Economics have written as follows.
".
. . economics has become increasingly an arcane branch of
mathematics rather than dealing with real economic problems"
Milton
Friedman
“[Economics
as taught] in
America
's
graduate schools... bears testimony to a triumph of ideology over
science.”
Joseph Stiglitz
"Existing
economics is a theoretical [meaning mathematical] system which
floats in the air and which bears little relation to what happens in
the real world"
Ronald
Coase
“We
live in an uncertain and ever-changing world that is continually
evolving in new and novel ways.
Standard theories are of little help in this context.
Attempting to understand economic, political and social
change requires a fundamental recasting of the way we think”
Douglass
North
“Page
after page of professional economic journals are filled with
mathematical formulas […] Year after year economic theorists
continue to produce scores of mathematical models and to explore in
great detail their formal properties; and the econometricians fit
algebraic functions of all possible shapes to essentially the same
sets of data”
Wassily
Leontief
“Today
if you ask a mainstream economist a question about almost any aspect
of economic life, the response will be: suppose we model that
situation and see what happens…modern mainstream economics
consists of little else but examples of this process”
Robert
Solow
Post-Autistic
Economics is about changing this state of affairs.
"Economics
is supposed to be social science, i.e. an intellectual discipline
resting upon empirically-observed facts, in which mathematics and
conceptual frameworks are tools for understanding. But in
contemporary mainstream economics, the tools are often in the
driver's seat, declaring evident facts impossible and reducing the
subtleties of the real world to whatever clockwork economists
best know how to build. Post-Autistic economics is the attempt
to escape the tyranny of these tools and build new ones that
will work properly."
Ian
Fletcher
“Modern
economics is sick. Economics has increasingly become an intellectual
game played for its own sake and not for its practical consequences
for understanding the economic world. Economists have converted the
subject into a sort of social mathematics in which analytical rigour
is everything and practical relevance is nothing.”
Mark Blaug
A
Guide to What’s Wrong with Economics
edited
by
Edward Fullbrook.
contributors: Emmanuelle Bénicourt,
Michael A. Bernstein, Ana Maria Binachi,
Ha-Joon Chang,
Robert Costanza, Herman E. Daly, James
G. Devine, Peter Earl, Susan Feiner,
Edward Fullbrook, Jean Gadrey,
Donald Gillies, Bernard Guerrien,
Ozgur Gun, Joseph Halevi,
Geoffrey Hodgson, Grazia Ietto-Gillies,
Steve Keen, Tony Lawson, Anne Mayhew, Paul Ormerod,
Renato Di Ruzza,
Sashi Sivramkrishna,
Peter Söderbaum, Hugh Stretton,
Charles L Wilber, Richard Wolff, Stephen T. Ziliak.
London: Anthem Press, November 2004, paperback, 323 pages.
Contents
Introduction
Click
here to buy from Amazon.com for $22.76
Click
here to buy from Amazon.co.uk for Ł13.29
The
Crisis in Economics:
The Post-Autistic
Economics Movement:
The
first 600 days
edited
by
Edward Fullbrook.
contributors: James
K. Galbraith, Joseph Halevi, Hugh Stretton,
Jacques Sapir, Gilles Raveaud,
Geoff Harcourt, Steve
Keen, Grazia Ietto-Gillies,
Emmanuelle Benicourt,
Le Movement Autisme Économie. Alan Shipman, Peter E. Earl,
Peter Söderbaum, Susan Feiner,
Geoff Harcourt, Bernard Guerrien, Frank
Ackerman, André Orléan, Edward Fullbrook,
Deirdre McCloskey, Tony Lawson, Sheila
C Dow, Kurt
Jacobsen, Paul Ormerod, Geoffrey
Hodgson, Ben Fine, Michael
A. Bernstein, Julie A. Nelson, Jeff Gates, Anne Mayhew, Bruce
Edmonds, Jason Potts, John Nightingale, Marc Lavoie, Jean Gadrey,
Warren J. Samuels, Katalin Martinás,
George M. Frankfurter, Elton G., McGoun, James G. Devine
London:
Routledge,an imprint of Taylor &
Francis Books Ltd (27 Mar 2003, paperback , 200 pages)
Contents
Here
are more things seriously wrong with traditional economics that
Post-Autistic Economics addresses.
“.
. . the close to monopoly position of
neoclassical economics is not compatible with normal ideas about
democracy. Economics is
science in some senses, but is at the same time ideology.
Limiting economics to the neoclassical paradigm means
imposing a serious ideological limitation.
Departments of economics become political propaganda centers
. . .”
Peter Söderbaum
“Economics
students . . . graduate from Masters and PhD programs with an
effectively vacuous understanding of economics, no appreciation of
the intellectual history of their discipline, and an approach to
mathematics that hobbles both their critical understanding of
economics and their ability to appreciate the latest advances in
mathematics and other sciences.
A minority of these ill-informed students themselves go on to
be academic economists, and they repeat the process.
Ignorance is perpetuated”
Steve Keen
"Undergraduate
economics is a joke -- macro is okay, but micro is a joke because
they teach this stuff that you know is not true. They know the
general equilibrium model is not true. The model has no good
stability properties, it doesn't predict anything interesting, but
they teach it ... "
Herbert Gintis
“The
human economy has passed from an “empty world” era in which
human-made capital was the limiting factor in economic development
to the current “full world” era in which remaining natural
capital has become the limiting factor “
Robert Costanza
“Most
courses deal with an ‘imaginary world,’ and have no link
whatsoever with concrete problems.”
Emmanuelle Benicort
“All
of these textbooks fail to explain how prices are determined in
‘markets’’ and thus how markets work.
Where do prices come from?
Who determines them? How
do they fluctuate? These
questions are never addressed, even though it is through the price
mechanism that the ‘invisible hand’ is supposed to operate.”
Le Mouvement Autisme-Économie
“.
. . mainstream economists seek knowledge
through numbers to stop the messy reality of people, processes and
politics dirtying their invisible hands.”
Alan Shipman
“Multinationals
are everywhere except in economic theories and economics
departments.”
Grazia
Ietto-Gillies
“.
. . the economist must engage him or
herself as a citizen with convictions regarding the public good and
ways of treating it, rather than as the holder of universal truth
that he or she substitutes for discussion in order to impose it on
us all.”
André Orléan
“The
Taliban, and its variety of fundamentalist thinking, has been the
most controlling and oppressive regime with regard to women in
contemporary times. Contemporary
academic economics, and contemporary global economic policies, are
gripped by other rigidities of thinking – what George Soros
has dubbed ‘market fundamentalism.’
Fantasies of control are operative in both phenomena, and
gender is far from irrelevant to understanding their power, and
their solution.”
Julie A. Nelson
“There
is an urgent need for a more realistic economics of the environment,
with theories and analyses that can help to create environmentally
sustainable economic activity.”
Frank
Ackerman
“Modern
economics is not very successful as an explanatory endeavour. This
much is accepted by most serious commentators on the discipline,
including many of its most prominent exponents”
Tony
Lawson
“Because
mathematics has swamped the curricula in leading universities and
graduate schools, student economists are neither encouraged nor
equipped to analyze real world economies and institutions.”
Geoffrey
M. Hodgson
“.
. . the concepts of uneconomic growth,
accumulating illth, and unsustainable
scale have to be incorporated in economic theory if it is to be
capable of expressing what is happening in the world. This is what
ecological economists are trying to do.”
Herman
E. Daly
“The
application of mathematics to economics has proved largely
unsuccessful because it is based on a misleading analogy between
economics and physics. Economics would do much better to model
itself on another very successful area, namely medicine, and, like
much of medicine, to adopt a qualitative causal methodology.”
Donald
Gillies
“Economic
history courses have been disappearing from classrooms across the
world. Once a compulsory part of economics education, they have been
relegated to the remote corners of ‘options’ and even closed
down.”
Ha-Joon
Chang
“In
Smith is a forgotten lesson that the foundation of success in
creating a constructive classical liberal society lies in the
individuals’ adherence to a common social ethics. According to
Smith, virtue serves as ‘the fine polish to
the wheels of society’ while vice is ‘like the vile rust,
which makes them jar and grate upon one another.’ Indeed, Smith
sought to distance his thesis from that of Mandeville and the
implication that individual greed could be the basis for social
good. Smith’s deistic universe might not sit well with those of
post-enlightenment sensibilities, but his understanding that virtue
is a prerequisite for a desirable market society remains an
important lesson. For Smith ethics is the hero-not self-interest or
greed-for it is ethics that defend social intercourse from the Hobbesian
chaos.”
Charles
K. Wilber
“.
. . conventional economics . . . remains
fixated on the view that economics is the physics of society.
In other words, most of the profession behaves as if there
were a single universally valid view of the world that needs only to
be applied.”
Paul
Ormerod
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Topics
Ecological
Economics Ethics
Heterodox
Economics Pluralism
Development
The
Post-Autistic Economics Movement
A
brief history
The
Strange History of Economics
Policy
Implications of Post-Autistic Economics
New
Petition
(May
2008)
Network
Resources
Some
articles on the PAE Movement
“Teaching
Economics: PAE and Pluralism”, (EAEPE, July 2005)
“Post-Autistic
Economics” (Social
Policy, summer 2005)
“Post-Autistic
Economics” (Soundings,
April 2005)
“Signifying
nothing?” (The
Economist, Jan 29, 2004)
“Revolutionizing
French Economics” (Challenge,
Nov/Dec. 2003) pdf
“Fired
up for battle” The
Guardian (UK) 9
September 2003
”Taking
On 'Rational Man'”
The Chronicle of Higher Education (US) 24 Jan. 2003
”The
2002 Nobel Prize in Economics” The Journal of Investing
(US) Spring 2003
“The
Storming of the Accountants” The
New Statesman (UK)
21 Jan. 2002
“Post-autisten'
vallen economische
heilige huisjes
aan” De
Morgen
(Bruxelles) 2 Mar. 2002
English
Translation
“movimiento
económico postautista”
IBLNEWS, 14 March 2002
“Distorted
economic relations: A new movement – the post-autistic economists
want to renew economics” Sueddeutsche
Zeitung
(Munich) 3 April 2002
Some
important PAE texts
The
Student Petition of Autisme-Economie
(June 2000)
French
Petition for a Debate on the Teaching of Economics
(July
2000)
Issue
No. 1 of the post-autistic economics newsletter
( September 2000)
A
Contribution on the State of Economics in France and the World
James K. Galbraith
Autistic
Economics vs. the Environment
Frank Ackerman
Humility
in Economics
André Orléan
)
Real
Science is Pluralist
Edward Fullbrook
Teaching
Economics Through Controversies
Gilles Raveaud
Back to
Reality
Tony Lawson
The
Relevance of Controversies for Practice as Well as Teaching
Sheila C Dow
Opening
Up Economics
The
Cambridge
27
Economists
Have No Ears
Steve Keen
An
International Open Letter
"The
Kansas
City
Proposal"
How Did
Economics Get Into Such a State?
Geoffrey Hodgson
Why the
PAE Movement Needs Feminism
Julie A. Nelson
Kicking
Away the Ladder: How
the Economic and Intellectual Histories of Capitalism Have Been
Re-Written
to Justify Neo-Liberal Capitalism
Ha-Joon Chang
Economic
History and the Rebirth of Respectable Characters
Stephen
T. Ziliak
Some Old
But Good Ideas
Anne Mayhew
An
Alternative Framework for Economics
Jason Potts
and John Nightingale
Susan Feiner
Is
There Anything Worth Keeping in Standard Microeconomics?
Bernard Guerrien
Doctrine-centered
Versus Problem-centered Economics
Peter Dorman
Social
Being as a Problem for an Ethical Economics
Jamie Morgan
The
Petitions
Student
Essays on PAE
Two
World Views: Ecological Economics vs. Environmental Economics
German
Section
French
Section
Portuguese
Section
Spanish
Section
Chinese,
Flemish, Italian and Turkish Sections
The
Perestroika Movement-a sister movement to PAE in political science
Miscellaneous
Some
more articles concerning the PAE Movement
New
Post-Autistic Economics Books
A Brief History of the
Post-Autistic Economics Movement
Theories,
scientific and otherwise, do not represent the world as it is but
rather by highlighting certain aspects of it while leaving others in
the dark. It may be the
case that two theories highlight the same aspects of some corner of
reality but offer different conclusions.
In the last century, this type of situation preoccupied the
philosophy of science. Post-Autistic
Economics, however, addresses a different kind of situation: one
where one theory, that illuminates a few facets of its domain rather
well, wants to suppress other theories that would illuminate some of
the many facets that it leaves in the dark.
This theory is neoclassical economics.
Because it has been so successful at sidelining other
approaches, it also is called “mainstream economics”.
From the 1960s
onward, neoclassical economists have increasingly managed to block
the employment of non-neoclassical economists in university
economics departments and to deny them opportunities to publish in
professional journals. They
also have narrowed the economics curriculum that universities offer
students. At the same
time they have increasingly formalized their theory, making it
progressively irrelevant to understanding economic reality.
And now they are even banishing economic history and the
history of economic thought from the curriculum, these being places
where the student might be exposed to non-neoclassical ideas.
Why has this tragedy happened?
Many factors have
contributed, but three especially.
First, neoclassical economists have as a group deluded
themselves into believing that all you need for an exact science is
mathematics, and never mind about whether the symbols used refer
quantitatively to the real world.
What began as an indulgence became an addiction, leading to a
collective fantasy of scientific achievement where in most cases
none exists. To
preserve their illusions, neoclassical economists have found it
increasingly necessary to isolate themselves from non-believers.
Second, as Joseph Stiglitz
has observed, economics has suffered “a triumph of ideology over
science”.1 Instead
of regarding their theory as a tool in the pursuit of knowledge,
neoclassical economists have made it the required viewpoint from
which, at all times and in all places, to look at all economic
phenomena. This is the
position of neoliberalism.
Third, today’s
economies, including the societies in which they are embedded, are
very different from those of the 19th century for which
neoclassical economics was invented to describe.
These differences become more pronounced every decade as new
aspects of economic reality emerge, for example, consumer societies,
corporate globalization, economic induced environmental disasters
and impending ecological ones, the accelerating gap between the rich
and poor, and the movement for equal-opportunity economies.
Consequently neoclassical economics sheds light on an
ever-smaller proportion of economic reality, leaving more and more
of it in the dark for students permitted only the neoclassical
viewpoint. This makes
the neoclassical monopoly more outrageous and costly every year,
requiring of it ever more desperate measures of defense,
like eliminating economic history and history of economics from the
curriculum.
But eventually reality overtakes time-warp
worlds like mainstream economics and the Soviet Union.
The moment and place of the tipping point, however, nearly
always takes people by surprise.
In June 2000 .................... more
_____________________
The Strange History of Economics
These days
people like to call neoclassical economics “mainstream
economics” because most universities offer nothing else.
The name also backhandedly stigmatizes as oddball, flaky,
deviant, disreputable, perhaps un-American those economists who
venture beyond the narrow confines of the neoclassical axioms.
To understand the powerful attraction of those axioms one
must know a little about their origins.
They are not what an outsider might think.
Although today neoclassical economics cavorts with neoliberalism,
it began as a honest intellectual and
would-be scientific endeavour.
Its patron saint was neither an ideologue nor a political
philosopher nor even an economist, but Sir Isaac Newton.
The founding fathers of neoclassical economics hoped to
achieve, and their descendents living today believe they have, for
the economic universe what Newton had achieved for the physical
universe.
This brief article
roughly traces the strange history of economics from the 1870s
through to the beginning of Post-Autistic Economics movement in the
summer of 2000. ....................
more
_____________________________
Policy Implications of
Post-Autistic Economics
The
neoclassical monopoly in the classroom and its prohibition on
critical thinking means that it brainwashes successive generations
of students into viewing economic reality exclusively through its
concepts, which more often than not misrepresent or veil the world,
especially today’s world. Nearly
all of these neoclassical notions have a bearing on judgements about
social, cultural and economic policy.
Consequently, if society were to learn to think about
economic matters outside the neoclassical conceptual system, it
would almost certainly choose different policies.
One of Post-Autistic
Economics’
(PAE) projects has been
to expose some of the many conceptual lunacies
of today’s mainstream, both in terms of the concepts it uses and
the concepts it lacks. Drawing
on recent essays by PAE economists in A Guide to What’s Wrong
with Economics, especially the chapters by Michael A.
Bernstein, Geoffrey Hodgson, Peter Söderbaum,
Hugh Stretton,
Richard Wolff,
Robert Costanza, Herman E. Daly,
Jean Gadrey and Edward Fullbrook,*
this brief article briefly considers ten such concepts.
Neoclassical
economics regards competition as a state rather than as a
process. It defines
perfect competition as a market with a large number of firms with identical
products, costs structures, production techniques and market
information. But in
real life competition is a process by which firms continually seek
to re-establish the conditions of their own profitability.
To compete in a market requires firms to seek out and exploit
differences between them in production, technology, distribution,
access to information and awareness of trends in consumption.
These differences are the essential dimensions in which
competition takes place. Once
the neoclassical conception of competition becomes imbedded in the
student’s mind, appreciation of real-world competition, and hence
the policies that might enhance it, becomes logically impossible.
Neoclassical
economists love to talk about freedom of choice.
But this is pure rhetoric, because they define rationality in
a way that eliminates free choice from their conceptual space.
By rationality they mean that an agent’s choices are in
conformity with an ordering or scale of preferences.
The “rational” agent chooses among the alternatives
available that one which is highest on his ranking.
Rational behaviour simply means behaviour in accordance with
some ordering of alternatives in terms of relative desirability.
In order for this approach to have any predictive power, it
must be assumed that the preferences do not change over some period
of time. So
the basic condition of neoclassical rationality is that individuals
must forego choice in favour of some past reckoning,
thereafter acting as automata.
This conceptual elimination of freedom of choice, in both its
everyday and philosophical meanings, gives neoclassical theory the
hypothetical determinacy that its Newtonian inspired metaphysics
require. No
indeterminacy; no choice. No
determinacy; no neoclassical model.
This is far from just an academic matter, because society
needs an economics that is able to address questions regarding
freedom of choice.
No
terms in neoclassical economics are more sacrosanct than rational
choice and rationality.
Everyone identities with these words, because everyone wants
to think of themselves as rational.
But few people realize that economists give these words an
ultra eccentric meaning. Neoclassical
economics begins with an a priori conception of markets and
economies as determinate systems that by the action of individual
agents alone tend toward an efficient and market-clearing
equilibrium. This
requires that the individual agents, like the bodies in Newton’s
system, behave in a prescribed manner.
Neoclassicalists have deduced the
particular pattern of behaviour that would make their imagined world
logically possible, then named it “rational choice” or
“rationality” and then declared that that is the way real people
behave. But thankfully
they don’t. Everyday
economic actors do many things that by the neoclassical meaning of
“rational” are “irrational”.
Looking to the choices of other consumers as guides to what
one might buy; buying a stock because you believe other people will
be buying it and so increase its value, spending your money in a
spirit of spontaneity rather than stopping to calculate the
consequences and alternatives up to the limits of your cognitive
powers; a taste for change, that is, buying something because you
did not previously prefer it; these common consumer behaviours are
all prohibited under the neoclassical notions of rational choice and
rationality and so outside its scope of analysis.
These
failings connect with another.
Neoclassical economics is by its own axioms incapable of
offering a coherent conceptualisation of the individual or economic
agent. From where
do the preferences that supposedly dictate the individual’s choice
come from? Not from
interpersonal relations, because if individual demands were
interdependent, they would not be additive and thus the market
demand function – neoclassicalism’s
key analytical tool – would be undefined.
And not from society, because neoclassicalism’s
Newtonian atomism translates as methodological individualism,
meaning that society is to be explained in terms of individuals and
never the other way around.
This
leaves an awful lot in the dark.
In the main, despite the neoclassical axioms, we all
categorise and classify according to prevailing cultural norms.
Likewise our tastes and preferences for this and that reflect
the social conventions and institutions with which we interact.
Consequently individual choice is unavoidably and
inextricably bound up with historically and geographically given
social worlds. An
economics that has nothing to say about the formation of economic
tastes and preferences is silly and irresponsible, especially in an
age of consumer societies and in a world now threatened with
climate-change or worse.
For half a century neoclassical economics has hid its ideology
behind the notion that it calls positive economics.
This is the idea that it contains no value judgements because
it mentions none. Of
course such a notion belongs to an intellectually more naive age
than today, but nonetheless it persists as an effective tool of
indoctrination of undergraduates.
The fact that neoclassical economics requires a highly
restricted focus in order to maintain its atomist and determinist
metaphysics compels it to make many extreme judgements about what is
and is not economically important.
There is not space even to list them.
But an example is its notion of
“economic man”, which is acutely ideological, as
it emphasizes some roles and relationships and excludes others.
By allowing only decisions based on utility maximization, it
excludes other forms of ethics.
As an economic agent, each individual acts in many roles, not
just market ones, and is guided by his or her “ideological
orientation”. That
orientation may be founded on utilitarianism or not.
It may for example be based on social and environmental
ethics. PAE economists
do not believe that economists have the right to select one ethics
as the “correct” one for framing economic analysis.
Furthermore the neoclassical insistence upon the utilitarian
ideology legitimises a kind of “market ideology” and
“consumerism” that increasingly appears dangerous to society and
sidelines the debate about Sustainable Development.
Like rationality, nearly everyone thinks efficiency is a good
idea. Neoclassical
economists adore using this word, especially when addressing the
public. But the meaning
of “efficiency” always depends on what you choose to count.
For example, .............. more
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