On mainstream economics and neoliberalism

mirowskiOne of the most intriguing questions facing the merry band of wanderers interested in the philosophy and history of economics is how mainstream economic approaches appear to have emerged relatively unscathed from the Global Financial Crisis.

Casual observers might well find this a bit of a puzzle. A body of knowledge that professed itself unable to shed any light on one of the most profound social events of recent human history, even though it was squarely in the middle of the relevant intellectual terrain, is on the face of it paradoxical.

Of course, the response from the cognoscenti, bolstered by unfalsifiable doctrines such as the efficient markets hypothesis, is that events such as the GFC are fundamentally unpredictable. So economics cannot be held deficient for failing to do so. And, anyway, mainstream economic ideas such as incentive-incapability in markets subject to significant information asymmetries can do a good job of explaining key aspects of the crisis in retrospect. If that’s any help.

Less enlightened souls might retort that had economists stepped out the ivory tower, removed their theoretical blinkers, and spent a bit more time getting down on the frontline trying to understand the way institutions and behaviours were changing in an increasingly financialised economy then perhaps they wouldn’t have been quite so surprised when a Global Crisis they considered theoretically impossible actually happened. [Read more...]

On knowing what’s going on

Leading active members of today’s economics profession … have formed themselves into a kind of Politburo for correct economic thinking. As a general rule—as one might generally expect from a gentleman’s club—this has placed them on the wrong side of every important policy issue, and not just recently but for decades. They predict disaster where none occurs. They deny the possibility of events that then happen. … They oppose the most basic, decent and sensible reforms, while offering placebos instead.

James K Galbraith

Last weekend in a brief post over at Pop Theory Clive poses one of the key social scientific questions of our time – What do economists know? Of course, the answer depends on which economists one is talking about. As the epigraph above notes, the mainstream of macroeconomics largely misses the point. It didn’t see the current economic turmoil coming and has little to offer by way of solutions. One striking thing about Galbraith’s comment is that it was written in 2000. Not a great deal has changed since then. These deficiencies with mainstream approaches have been recognised by some high profile mainstream practitioners, as I noted last month in the aftermath of this year’s Nobel prize in economics.

Yet, it is not as if economics has nothing sensible to say on the matter. [Read more...]