Quote of the week: no nature without man

“Although it should be obvious, there is no state of nature to go back to, a world without us. The environment is now irrevocably man-made, and we have an active, not a passive, duty to do something about it, to make a better man-made world. Conservationists sometimes appear to be against humans, preferring a non-human world of their imagination, a sort of ‘presenting nature without any people’. Rewilding too often means just abandoning, and that of course has the merit for governments that it is at least cheap. Doing nothing in the uplands, for example, might appeal to some cash-strapped National Parks and to the Treasury, but the results may not be quite as environmentally benign as some of the advocates suggest.”

Dieter Helm (2019), Green and Prosperous Land: A Blueprint for Rescuing the British Countryside, London: William Collins, p.267.

Quote of the week: the problems of neoclassical economics

“[I]t’s very inadequate. I think there are situations in which parts of the theory can give you a little bit of insight. It’s not that I am against the theory, per se, as against the hegemony of the theory. I actually think supply and demand analysis can be a useful sort of heuristic device for some things. Where you get into problems is where you start to believe there are actually supply and demand curves out there in the real world and firms actually draw marginal cost curves to come to their decisions. Then you’re starting to take that a lot too seriously. In the curriculum materials I worked on – people are kind of under obligation to teach certain sorts of things in introductory courses, but I think it makes a big difference whether you treat something as “this is the way the world works” versus “this is the way some people have thought about explaining how the world works”. So, neoclassical theory is one of these tools – I often summarise my views as “broader questions and bigger toolbox”. I think economists should be dealing with things like inequality and climate change, the big questions, and use a bigger toolbox to do that. Neoclassical theory can play a role, can be one of the things in one of the compartments in the toolbox, but it’s clearly inadequate also for a lot of other things like deciding at what rate we should combat climate change. Basing that on a mathematical model and a market interest rate is stupid.”

A. Mearman, S. Berger and D. Guizzo (2019), ‘Julie Nelson’ in What Is Heterodox Economics? Conversations With Leading Economists, Abingdon: Routledge, p.120-121.

Quote of the week: heterodoxy versus the mainstream in economics

“I think heterodox economics is a constructive challenge to mainstream economics; and it has posed that challenge since the 1960s. And heterodox economics is a challenge at the same time to the epistemic hegemony of the economic knowledge centred in Anglo-Saxon mainstream institutions. So it’s not only a challenge to mainstream economics, but a challenge to the institutions which are embodying that mainstream economics. As you know very well, there’s a major humanitarian issue at stake at the moment (sic). Heterodox economics claims that the existing economy based on the idea of the free market does not stand adequately for what the economy should stand for, for human beings let alone other sentient beings. The other major thrust of heterodox economics is that it does not accept the fact that the market as described by neoclassical economics is self-adjusting by converging towards equilibrium. It is not only not self-adjusting but, more seriously, it is not just, from the point of view of heterodox economics. Thus, it has mounted an intellectual challenge to the neoclassical view of automaticity of an adjusting system as well as a philosophical challenge to the view that the societies can be just within the kind of economic system based on orthodox economics.”

A. Mearman, S. Berger and D. Guizzo (2019), ‘Karma Ura’ in What is Heterodox Economics? Conversations With Leading Economists, Abingdon: Routledge, p.87.

Different questions, different answers: seeking an alternative economics

“I was working in the desert myself alongside workers from all over the Middle East and India and Pakistan in searing brutal heat and they were paid minimally. And as an engineer you think: well, things could be done much better. So I thought that economics would have an answer as to why there was inequality and poverty and all that, answers to them. It seemed to me that that’s what I should study. When I got to graduate school I realised that economics doesn’t even have the question let alone the answer. That was a big shock.”

This quote from an interview with New School Professor Anwar Shaikh about his decision to study economics and his early experiences brings to the fore some of the concerns of today’s heterodox economists. I can certainly sympathise. My own experiences in studying economics at school and of beginning to read around the subject in books and newspaper commentary generated enthusiasm for a particular approach to the subject, which gives a primacy to the importance of economic policymaking designed to improve the workings of the economy and society and the well-being of its members. I was attracted by left-Keynesian ideas, what I now recognise as post-Keynesianism, which argued for a government commitment to full employment, secured by judicious macroeconomic management, with any resulting tendency towards rising inflation to be mitigated by incomes policies involving negotiated consensus between the state, employers and workers. Of course, such policies reflected the post-war consensus in many advanced economies, which by what was then the mid-1990s had long been abandoned by the Thatcher governments in favour of a focus on controlling inflation as the main target of macroeconomic policy, while the liberal economy in the form of deregulation and privatisation became the focus of microeconomic policy, ostensibly to improve economic performance and raise living standards. Continue reading

Yanis Varoufakis on the flaws in mainstream economics

In the video below, self-styled ‘erratic Marxist’ economist and Greek politician Yanis Varoufakis discusses the flaws in the practice of mainstream economics, including the irrelevance of its mathematical modelling. He argues that this methodology cannot be used to solve genuine economic problems as they exist in the real world, despite the elegance and beauty which these often complex models can display. In fact they can be used to legitimise policies and ideologies which merely serve vested interests and the status quo. Economics has claims to be a science akin to physics, but as a study of part of society involving thinking, reflexive human beings, perhaps it should abandon these lofty ambitions. It should be as much or more social than it is a kind of science.

Having said all that, I do think there is room for mathematical modelling in economics, but Varoufakis’ arguments point to a vital conclusion, that there is a need for a genuine political economy in order to understand the economic system in which we live, and therefore to change it for the better.

Quote of the week: Warren Buffett on how we all benefit from the past actions of others

WarrenBuffettThis week’s quote is particularly short, and comes from the financial investor Warren Buffett. Rather than simply let it speak for itself, I thought I would briefly consider its implications for economics and political economy.

“Someone is sitting in the shade today because someone planted a tree a long time ago.”

Buffett is saying that it is important to take the long view in any venture worth pursuing. It can be seen to be intended for investors but for me it speaks to a far broader set of issues, particularly the notion that we all benefit from the past actions of others and so should be humble and socially and historically aware when it comes to individual success, not least in the field of wealth. Continue reading

Big government, small government, and the fallacy of the growth dividend

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Faster growth is not a precondition of improved funding for public goods and services alongside a smaller state. In fact, it will tend to increase the costs of public provision. There are political debates to be had and choices to be made regarding the size and role of the state under capitalism. Shrinking the state by cutting taxes and squeezing public services can easily become socially damaging, without any economic benefit to show for it. In fact, big government can enable a degree of economic dynamism.

In recent decades, particularly since the advent of Thatcher and Reagan, the political right in many countries has made the case for tax cuts and shrinking the state a totem of policy. This has been justified in various ways. Politically and philosophically, it is claimed that allowing people to keep more of their own money supports personal freedom and choice. Economically, it is argued that tax cuts will spur private enterprise and economic growth through providing greater incentives for money-making, and that everyone will thereby be better off if the economy is larger, even if inequality is greater. Those at the top will gain more, but those lower down the scale will gain too, even if by much less. This is the professed nature of ‘trickle-down economics’.

It is also sometimes argued, in defence of policies which aim to reduce public expenditure, that the higher taxes needed to fund that spending cannot be afforded as they will stifle growth. Faster growth must come first, and increased spending on public goods and services like health, education, welfare and infrastructure can only come later, when they can be ‘afforded’, and in such a way that the ‘burden’ of taxation and public spending is kept to a minimum. This can be termed the ‘growth dividend’, in which only faster growth will allow greater public spending.

For rich countries like the US and UK, this is mostly nonsense. Comparing the share of tax and public spending in overall GDP across rich countries suggests that the size of government measured in this way is mostly a political choice. Of course it does have economic effects, but blanket arguments for shrinking the state, or indeed growing it, without a proper discussion of the role of the state in the economy and society, are highly misleading. Continue reading

Economics is always ‘political economics’ — Real-World Economics Review Blog

from Peter Söderbaum

Mainstream neoclassical economics is attacked by many and from different angles or vantage points. Neither the defendants nor the critics can claim value-neutrality. “Values are always with us” (Myrdal 1978) and economics is always ‘political economics’. The neoclassical attempt to construct a ‘pure’ economics has failed. Neoclassical theory may still survive as […]

Economics is always ‘political economics’ — Real-World Economics Review Blog

Ha-Joon Chang on the nature of economics

Professor Ha-Joon Chang of SOAS, formerly of Cambridge University, is always good value if one favours a critical, open-minded, heterodox and lively approach to economics, or political economy, the term which he favours.

In this short introductory lecture, Chang discusses how to define economics, and briefly explores and compares three schools of economic thought which have been used to justify free markets in today’s economies: the neoclassical, classical and Austrian.

He is critical of the modern approach which defines economics by its methodology and its supposed ability to explain ‘everything’, rather than it being defined by its subject matter, as the study of the economy itself. He notes that the modern approach failed to predict or satisfactorily explain the greatest economic crisis since the Great Depression and was rather complacent in its belief that economic management would prevent such crises from occurring once and for all.

He also favours a pluralist approach to economic theory, using the example of Singapore to argue that no single theory can account for its economic success and distinctive economic structure.

Suresh Naidu on the death of neoliberalism

Another short, informative video from the Institute for New Economic Thinking (INET), the progressive think tank founded by George Soros. Among other aspects, it supports and acts as a platform for all sorts of thinkers who wish to challenge the conventional wisdom in economics, in all its forms. It seems to me to be very open to new ideas and to offer space for pluralism to flourish.

Here Suresh Naidu sounds the death knell for neoliberalism, arguing that the advent of multiple global crises, namely inequality and climate change (and, one might add, the fallout from the pandemic and war), has undermined the basis of this particular ideology. He cheerfully rues that there aren’t that many genuine neoliberals left as a result.