Neoclassical economics is without scholarly integrity. It does not belong in universities. It certainly should not be the dominant source of policy advice to governments.
Most scholarly disciplines, be they history, physics or ecology, have a conception of appropriate standards by which the evidential basis of an argument is presented and the reasoning leading to conclusions is explained. The goal is to shed light on the workings of the world, and a criterion for a successful study is that observations or records are consistent with the study’s conclusions.
Neoclassical economics, the strand of economics that has dominated world policies for several decades, fails these criteria. Its conclusions are regularly contradicted by developments in the real world. A dominant criterion for a successful study is that its logic is internally consistent; it thus confuses mathematics with the science it claims to be. It is variously claimed that assumptions on which a theory is based don’t matter, or that the better the theory the more unrealistic the assumptions, or that all theories are wrong. It imagines its theories are useful approximations to reality, and fails to appreciate that more reasonable assumptions can lead to radically different conclusions, so its theories may be deeply misleading.
Analyses of the economic effects of global warming by prominent economists are based on patently invalid arguments, profound ignorance of the global response to solar energy and basic misrepresentation of scientific sources. Their conclusion that the effects are minor is egregiously in error and use of their analyses to advise governments has placed the world in peril.
Economist Steve Keen has published a critique (and summary) of analyses by William Nordhaus and others of the effects of global warming on the global economy. Those analyses, incorporated into official IPCC reports, suggest the effects of global warming are minor. Keen’s critique reveals the analyses to be absurdly deficient, reflecting not only profound ignorance but patently invalid arguments and a lack of scholarly integrity.
We can’t allow growth to continue forever, simply because the Earth is finite. But can we stop it? And if so how? And anyway, growth of what?
Not only do many people agree we need to change our economic system, many are already doing really good things, like forming cooperatives or firms with a social purpose, promoting repair and recycling, growing healthy local food, reducing greenhouse gas emissions and so on. But all these good efforts struggle against the ever-rising tide of ‘growth’. What if our economic system supported the good things instead of subverting them? Could that be possible?
[This longish essay was just published at Real World Economics Review Blog. It is addressed to the “heterodox” community, those diverse economists of various schools that are not the dominant neoclassical school, though otherwise it is not particularly technical.]
Much of the current discussion of reforming economics focusses on the need for pluralism, particularly in teaching curricula, and very recently again on RWER. Pluralist teaching is seen as challenging, because heterodox economic ideas are diverse, have little coherence, and are to a significant extent mutually incompatible.
This theme crops up frequently in discussions on RWER. Now Cameron Murray, in the first issue of Inside, published by the Institute for Dynamic Economic Analysis, proposes to identify over-arching themes that can bring out the relationships among the various approaches. This is commendable but it will not, on its own, result in a reformed economics.
[I expanded the introduction to the original post and sent it to Real World Economics Review Blog, where it is now posted.]
The challenge, and reactions to it
Many economists, and more non-economists, agree that economics needs new ideas, given the comprehensive failure of the mainstream to foresee the Global Financial Crisis and its continuing failure to lift the US and Europe out of deep recession or depression.
[In preparing a pitch to some possibly supportive people, I realised I have not spelt out in brief form the argument that economies are complex self-organising systems. There is a straightforward logic, it is not simply a preference pulled out of the air, or the depths of my psyche.]
Many economists, and more non-economists, agree that economics needs new ideas, given the comprehensive failure of the mainstream to foresee the Global Financial Crisis and its continuing failure to lift the US and Europe out of deep recession or depression. Yet few seem to know where to start, and there seems to be little agreement on how much the subject needs to change. When proposals appear that might begin to address fundamental problems, many economists seem to recoil, and others seem simply to fail to recognise that the proposals have any relevance.
[After a break for family business and time out, here is a bit of vindication.]
Olaf Storbeck is the International Economics Correspondent with Handelsblatt, Germany’s business daily. Based in London, he is writing about current economic research. Here he interviews Andrew Haldane.
Andrew Haldane is the Bank of England’s Executive Director for Financial Stability. I recently talked to him about the crisis of contemporary economics and the way forward.
You are vocal critic of mainstream macro economics. How does this square with the tradition of central banks who historically have been very conservative institutions.
[I’ve wanted to write about this for a long time, and the September issue of Scientific American finally provoked me. They talk about exceeding our evolutionary limits, living beyond 1oo, manipulating ourselves to be smarter (but no mention of wiser), and so on. So, another long essay.]
The term appropriate technology was popularised after E. F. Schumacher’s pivotal work Small is Beautiful. Schumacher argued against the modern economic pathology of endless physical growth, which of course cannot continue on our finite planet. He argued further that some technology only promotes endless growth, or it distracts us from more important things in life, and is therefore not beneficial. Technology that supports a fulfilling life and is compatible with a steady-state or slowly shrinking physical economy he called appropriate technology.
As for technology, so for science. A common assumption by scientists is that if a challenge is there then it is fair game to address it. In fact it is commonly presumed that freedom of enquiry, a central ingredient of an open democratic society, justifies such an attitude. However we need to recognise that such freedom comes with responsibility. This seems to be recognised regarding human cloning, for example, where strong legal and social restrictions have commonly been imposed.
Prior to the twentieth century, science had built up a picture of the universe as a giant clockwork. Starting with an investigation of mechanics by Galileo, a series of “laws” had been inferred, and these laws were extremely successful in describing the physical world. It seemed that the world had been reduced to causes and effects that were precisely known, and therefore it would tick inexorably along according to those laws. This view was very discomforting to philosophers and theologians, among others, because it seemed to eliminate free will, and to imply that our fates were all sealed at the beginning of time. The neoclassical theory of free markets is firmly of the clockwork universe kind.
However science underwent three revolutions during the twentieth century, revolutions that profoundly changed scientists’ views of the universe.