speri.comment: the political economy blog

Mainstream economics and the crisis of imagination: Part II

New initiatives can transform economics to make it part of the solution rather than part of the problem

Jamie Morgan, Department of Economics, Analytics and International Business, Leeds Beckett University

Jamie MorganI concluded Part I of this blog by noting that mainstream economics is extremely influential in the world of public policy. Mainstream economic practice is predicated on policy presence, even when theory begins from caveats regarding real world relevance.  Moreover, despite the well-worn adage that there will be six disagreements if there are five economists in a room, mainstream economists seek to intervene based on a unity and self-confidence that no other social science fosters.  It is, therefore, significant that the discipline barely responds to its own internal problems.

This is not to suggest economics is unchanging. Rather it is highly conservative and tends to iterate rather than transform. In the last decade or so, mainstream economics claims to have changed significantly: it has undergone an ‘empirical turn’ and a ‘credibility revolution’.  Behavioural economics and information-theoretic economics have introduced institutions and some ‘history’ to mainstream economic theory: economic agents are no longer always understood as infinitely efficient rational calculative machines able to pursue optimal states based on self-interest.  Research now often involves laboratory experiment (on the behaviour of ‘real’ people) and quasi or field experiment (random control trials).  However, whilst such changes have been deviations from ‘core’ mainstream commitments they remain referenced to them. Core commitments include:

  1. Methodological individualism: one builds up a theory from agents and the whole is a sum of agents activity allowing only a thin notion of institutions or social structure. This excludes any possibility of an adequately conceptualised conditioning socialising context.
  2. An instrumental or means-end rationality of action: everything is about achieving goals, although achievement can be sub-optimal based on limited agents who have only partial rationality. This excludes any possibility of a complex and possibly contradictory reasoning being, or fully realised human, endowed with humanity (there is a significant difference between seeking and preserving reputation and doing the ‘right’ thing)
  3. A referencing of any economic situation to an equilibrium state: some idealized point or tendency to which a system continues to return based on underlying conditions. This excludes the possibility that reality is an endless process of reproduction, change and transformation that is cumulatively causal and hence historically punctuated.

Many economists recognize that this core is ‘unrealistic’, but justify it as abstraction (though it is not really this since it is idealization) or suggest that assumptions are irrelevant to good theory. At the same time, the main underlying reason to retain the commitments is that they facilitate mathematical tractability.  The rational goal-directed individual who in aggregate is always returning to a given state is one that can be defined and ordered mathematically.  This feeds the sense of economics as a particular kind of quantitatively based science.

It is the unreasoning commitment to a kind of science that economics cannot be that gives it power in the ‘real world’, whilst also ensuring it lacks adequacy as an account of that real world. Its influence then lends legitimacy to political projects that conflate particular positioned theory with universal common sense of how things actually operate.  It is from this basis that many have argued that mainstream economics has provided the ideational framework for neoliberalism (despite many economists self-identifying as left-of-centre, and most would reject that they are ideological).  To see the problem here one need only consider how mainstream economics took little interest in the problem of inequality until Thomas Piketty’s work. The Kuznet thesis simply assumes that all ultimately benefit from economic growth and that it is through freeing markets that this is achieved. The theory on which this is based has moved far from Keynes’ basic insight that equitable wages and incomes are central to capitalist reproduction, and may require institutional intervention.  In a world of production functions, wages become just a cost of production and it is via individual marginal productivity that labour is rewarded – the system is by definition distributionally just and efficient (and where it is not this is a problem of distortions: trade unions, or the failure of individuals to develop their human capital).  This theory is not neutral, it has dominated during a period of increasing wealth and income concentration (a period of wealth capture as well as wealth creation).  It plays to a world of self-equilibrating, efficient-as-just, technologically dynamic free markets, imbued with indispensable corporate leadership by pioneering entrepreneurs.

Economics is, then, unusual among the social sciences. It fails in its own terms, yet changes in ways that reproduce the basis of its own failure.  It is unrealistic and tends to put aside many of the issues and concerns that a non-economist would think were vital to understanding and explaining an economy: what norms are to be pursued, what history tells us about processes, how particular institutions create possibilities and consequences, where power lies and how it is used.  At the same time the terms of its knowledge framework legitimise ‘depoliticised’ policy projects that favour some over others and actively close down democratic spaces.  The Trans-Atlantic Trade and Investment Partnership (TTIP) is a good example: it is positioned simply as an agreement to reduce trade barriers, yet it contains within in it mechanisms that reduce the capacity of states to intervene in corporate activity in their own jurisdiction.  These ‘depoliticised’ projects become areas of technical expertise, and in turn are colonised by economists who emphasise their technical skills. When such projects receive criticism many economists reply that critiques miss the point for the appropriate context for such comment is politics or sociology not economics, as though this were an adequate response to inadequacy.  Few within mainstream economics would recognize a reference to Mont Pelerin or be aware of the work of Philip Mirowski, or would have a clue who Robert Cox, Barry Gills or Stephen Gill are, or know what a Gramscian war of position means.

Yet critique persists because the basic problems continually resurface in new guises. Economics thus has its own particular form of failure of imagination and contributes more broadly to a failure of imagination in the public sphere.  It is part of ‘the problem’ in so far as it is a key constituent of dominant ways of conceptualising, constructing and intervening in the world, which solve problems by perpetuating them. However, though the science may remain dismal, the prospects for change are not hopeless. The Global Financial Crisis and its aftermath have given renewed impetus to critique.  Organizations offering alternative ways of doing economics, student movements within economics and broader social movements deeply concerned with the power of economics have all emerged or grown over the last few years.  These may well indicate a renewed double movement in Polanyi’s sense (though his own emphasis was more on the state market relation than social movements).  There are many organizations one should be aware of here, and which any person concerned with the state of economics and its power in the world might consider participating in.

One of the most successful has been the Real World Economics movement. Though no one person can ever be said to be solely responsible for a movement its principle organizer over the last couple of decades has been Edward Fullbrook.  Its main outlet, the Real World Economics Review, is now the world’s largest open access economics journal; it has a widely-read blog and hosts the World Economic Association, which has more than 13,000 members. This growing movement embodies a deep commitment to pluralism in economics and actively works to encourage changes in how economics is taught.

These are issues that have been recently taken up in the UK by the various student branches of Post-Crash economics and beyond the UK by the related International Student Initiative for Pluralism in Economics, Rethinking Economics and Reteaching Economics.  These movements in turn have given further impetus to existing organizations, which promote alternative schools of thought for economics.  These include: the Association for Heterodox Economics, the International Initiative for Promoting Political Economy, the Post-Keynesian Economics Study Group, the Association for Social Economics, the Association for Evolutionary Economics, the Cambridge Social Ontology Group, the Union for Radical Political Economics, the Green Economics Institute and The World Interdisciplinary Network for Institutional Research.

Within these organisation and initiatives there is great scope for things to be otherwise than they are. By challenging mainstream economics there is the potential to transform economics to become a source of solutions rather than problems.

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