Economics as Neoliberalism?

Boston Review: Economics after Neoliberalism
  by Suresh Naidu, Dani Rodrik, Gabriel Zucman

This essay really is a demonstration of how impervious economists and economics as a discipline are to fundamental criticism.

The criticisms are acknowledged but their response is to tout the need for "a broad and deep public discussion of new policy ideas".  Apparently, they think "a policy framework" -- essentially a new coat of paint in a brighter color -- is all that is needed; economics as it is, is sound, but misunderstood.  They think the problem with economics -- that economics is wielded as a dogma to support neoliberal policymaking -- is a matter of deceptive appearances.

They acknowledge that it looks bad for economics, as neoliberalism's unwavering policy sponsor and rationalizer. 

In the eyes of many, the turn towards neoliberalism is closely associated with economic ideas. Leading economists such as Friedrich Hayek and Milton Friedman were among the founders of the Mont Pelerin Society, the influential group of intellectuals whose advocacy of markets and hostility to government intervention proved highly effective in reshaping the policy landscape after 1980. Deregulation, financialization, dismantling of the welfare state, de-institutionalization of labor markets, reduction in corporate and progressive taxation, and the pursuit of hyper-globalization—the culprits behind rising inequalities—all seem to be rooted in conventional economic doctrines. The discipline’s focus on markets and incentives, methodological individualism, and mathematical formalism all seem to stand in the way of meaningful, larger-scale economic and social reform. In short, neoliberalism appears to be just another name for economics.

It has all been just a terrible misunderstanding, you see. 

Many of the dominant policy ideas of the last few decades are supported neither by sound economics nor by good evidence. Neoliberalism—or market fundamentalism, market fetishism, etc.—is not the consistent application of modern economics, but its primitive, simplistic perversion.  

No True Scotsman? 

Economics is in a state of creative ferment that is often invisible to outsiders. 

Yes, invisible.  For decades.

Weirdly, though they claim that market fundamentalism "is not the consistent application of modern economics", they go on at length praising markets and economic analysis of markets as central to economics as a discipline and doctrine.

Economists study markets (among other things), and we naturally feel a certain pride in explaining the way markets operate to those who lack our specialized knowledge. When markets work well, they do a good job of aggregating information and allocating scarce resources. . . . The typical course in microeconomics spends more time on market failures and how to fix them than on the magic of competitive markets. . . . the “competitive equilibrium model” in which free markets are maximally efficient—even if they are not good for fair distribution—is the dominant framework only in introductory economics courses. Thoughtful economists (of which there are many) quickly move away from it. . . . Economists still have a strong bias towards market-based policy solutions, and the policy prescriptions endorsed by economists tend to be narrowly focused on addressing precise market failures. . . . Economics does have its universals, of course, such as market-based incentives, clear property rights, contract enforcement, macroeconomic stability, and prudential regulation. These higher-order principles are associated with efficiency and are generally presumed to be conducive to superior economic performance. 

Their core argument is that economics is more flexible than fundamentalist.  Even a fairly stupid economist can produce an argument in favor of her own prejudices.  And, this is treated as a feature, not a bug.  No really, they make that argument!  I quote:

.  .  . the science of economics has never produced pre-determined policy conclusions. In fact, all predictions and conclusions in economics are contingent: if x and y conditions hold, then z outcomes follow. The answer to almost any question in economics is “it depends,” followed by an exegesis on what it depends on and why. Back in 1975, in a collected volume entitled International Trade and Finance: Frontiers for Research, an economist named Carlos F. Diaz-Alejandro wrote: “by now any bright graduate student, by choosing his assumptions . . . carefully, can produce a consistent model yielding just about any policy recommendation he favored at the start.” Economics has become even richer in the intervening four decades. We might say, only slightly facetiously, that today the graduate student need not even be that bright!

 Oh, my, god.  Just look at this reasoning -- in one paragraph, they go from "the science of economics has never produced pre-determined policy conclusions" to "any bright graduate student . . . can produce a consistent model yielding just about any policy recommendation he favored at the start" without noticing the contradiction!

Well, I was once a mediocre graduate student and I could tell them where they went wrong: it was at the beginning.  Neoclassical economics, the economics of the market economy, is in the nature of a Big Lie, in Goebbels sense, that is, a colossal lie consistently adhered to.  If you accept the premise of the lie, if you follow the White Rabbit, you will soon find yourself down the rabbit hole in Wonderland with no way out.

The White Rabbit, in this case, is the presumption that the political economy can be usefully understood to be organized by and as a system of markets.  There are few actual markets in the actual, institutional economy, and pretending otherwise will rot your brain.  Certainly, the institutional realism and turn to empiricism that the authors hold up as the great hope for the future will remain out of reach as long as they adhere, as they assiduously do in this essay, to the Big Lie that the political economy is a system of markets.

There may well be a great deal of value to salvage from economics as bits and pieces, once the architecture of the market is abandoned as the organizing principle and the intellectual structure collapses.  But, these fools are not going to do anything but get in the way of that project.

Feeling the itch just a bit

I find myself feeling the itch to rant just a little bit about what is wrong with economics.

I don't mean the High Theory of salt water v fresh water, or the academic politics of orthodoxy v. heterodoxy.  (Much of that is wrong factually and morally, though I just don't care.)

I mean to find fault with the intuitions of "Econ 101", that all-too-familiar rhetorical framework used in the Media and in political shout-fests about political issues plaguing our "market economy" and as the foundations for neoliberal "there is no alternative" (TINA) preaching.

I created this blog in a brief but ephemeral moment when I was particularly incensed by the way I see people on the internets continually getting sucked into the same fruitless cant-filled "debates".

"Just stop!" I want to say.  "Be quiet for a while, and then try to say something real."

I am not sure that I, myself, have anything "real" to say, beyond the imperative, "Stop!"  But, maybe, I can usefully explain why "Stop" is the right thing to do.

To summarize, many of the meaningless conventions and clichés of economics that we repeat endlessly and which we use to engage in conventional discourse on political issues that turn on economics -- well, those meaningless conventions are meaningless.  That's my whole point in a nutshell.  (cliché)

Using the conventional frameworks and vocabulary of economics, aka Econ 101, doesn't so much connect you with the genuine expertise and deep thinking of the academic profession of economics as it simply neuters your politics with meaninglessness.

So, what is such a convention?  You want an example.  Well, "market economy".  That's a convention.  It is also a Big Lie, a propaganda technique.  As soon as you utter this conventional phrase, your economics IQ plummets into double-digits and there's really no coming back into the realm of normal adult functioning.

A market is a possible economic institution and relation.  You go out to a market and exchange with others on a basis of rough legal equality and to mutual benefit by bidding price and quantity, transacting freely with those willing to agree to transact in accord with a proposed bargain.  Grand really.  But, not the way we live and work.  Not anything like the truth about the way the economy is organized as a system.

Professional economists have used the market system metaphor to organize their "thinking" both formal (analytic, theoretical) and intuitive (informal, ideological) in quite an elaborate way, building up formal analytic models as is their rigorous wont, and also building up a lot of informal intuition which is not rigorous at all mostly by talking repetitively among themselves and selling their apologias for the rich to the rich as a protective ideology, but that investment of over a century in various related ideas all organized around the notion that we live and work in "a market economy" is a pile of stinking crap and its purveyors should be hooted at and humiliated in the streets as frauds and fools.  Imho, of course.

These people, even with the best will in the world -- and some are well-intended and politically liberal enough, though others do not care and are in it for the money and there's plenty of money in defending the interests of the very, very rich -- these people are locked into a big lie.  They become liars even when they intend to be honest and to serve a public good.

Best to free yourself from such myths and give these fools and frauds a wide berth.

Now, we will see if I have anything more to say, both in the way of critiquing the lie "market economy" and about the actual economy.  There's quite a number of useful bits of insight floating about in economics, once you have pried them free of the central, organizing metaphors and away from the conventions that prevent critical thought from prevailing.

Nothing I write either in critique or in highlighting what I regard as worthwhile bits of economic insight is likely to be original in the smallest degree.  Except of course insofar as I may manage to make some original mistakes.  But, in my experience, even my mistakes are not original.  I am not that guy, that genius guy.  I like to think, but I am not strong or brilliant, just persistent in searching for system and mechanism along these few lines.  I've returned in my mind to these themes many times over decades and have trodden this path so many times, parts of my course have been compressed into solid ground.  So, though I will not be original, given that I am ranting and railing against a common, though bankrupt conventional wisdom, I think some might feel they've learned something.

Assuming, of course, that I feel like following up this post with a series.  We shall see.

Well, it has been more than a year . . .

And, what is wrong with economics is still wrong.

And, what is wrong with our politics is still wrong.

We've had a global financial crisis, and five years later,
  instead of effective reform, we are looking at . . . a global financial crisis.

What's wrong with this picture?

Larry Summers Speaks

I have a fantasy, where I am at a conference, where the featured event is a Q&A with Larry Summers, and I get to ask the last question.

My question, I explain, is really to the audience, but I will direct it to Professor Summers:  "Why the hell are you up there, you stupid, failed fat f***?!?"

This morning the Financial Times inaugurates a series of commentaries, it calls the A-List, with a column by Larry Summers, former Treasury Secretary in the Clinton Administration and former economics adviser to the Obama Administration, on the topic, "How to avoid our own lost decade", arguing for Keynesian remedies for our current economic malaise.

Larry Summers was one of the chief architects of the Global Financial Crisis of 2008, and the chief architect of the Obama Administration's response.  He's responsible.  He did this to us.

Larry Summers is what is wrong with economics.

no coherent picture whatsoever

Paul Krugman:

Discussions like this really disturb me; they indicate that there are a lot of people with Ph.D.s in economics who can throw around a lot of jargon, but when push comes to shove, have no coherent picture whatsoever of how the pieces fit together.

Welcome to my world, Paul.

Do economists, generally, have any clue as to how "the pieces fit together"?  If they do, they disguise it pretty effectively behind that jargon.  More on that in future posts, no doubt.  To the matter at hand . . .

The Maestro Speaks!

Alan Greenspan:

 "Today’s competitive markets, whether we seek to recognise it or not, are driven by an international version of Adam Smith’s 'invisible hand' that is unredeemably opaque. With notably rare exceptions (2008, for example), the global 'invisible hand' has created relatively stable exchange rates, interest rates, prices, and wage rates."

unredeemably opaque?  notably rare exceptions?

What Atrios Said

Atrios, recovering economist, says, ". . . the ignorant bullies took over the profession . . ."