Economics: Long Live the King?
|By Todd Olive (C), GLOBUS Editor-in-Chief, with contributions from Dr Marta Guerriero (L) and Dr Leon Sealey-Huggins (R), Senior Teaching Fellows, Global Sustainable Development Division, University of Warwick|
Economics: Long Live the King?
‘Has economics failed?’ – the question asked by a Financial Times article read recently by this correspondent, and one that perhaps serves as a keystone to contemporary socio-political conflict. Do fundamental economic theories, and the assumptions that underpin them, still hold? How do they respond to the challenges of automation, changing lifestyles and working patterns? Are they useful or relevant to contemporary problems – or do they obscure the real issues, hiding sight of the wood in favour of the trees?
As a fundamental tenet of sustainable development, this correspondent will seek to explore in this Editorial the various perspectives presented by both the Financial Times and other sources, examining both the basis of the arguments presented, and questioning the fundamental premise of a discipline ‘failing’. To provide further insight, GLOBUS has invited two academics from the Global Sustainable Development Division at the University of Warwick to contribute their own thoughts to this piece: Dr. Marta Guerriero and Dr. Leon Sealey-Huggins, respectively of economic and sociological backgrounds.
1: Has economics failed? (Clark and Giles, 2018)
Provoking the FT’s piece, Tom Clark, editor of Prospect, essentially argues that economics is a study of deviations from an ideologically ‘perfect’ state, in which perfect competition and perfect information create stable equilibria and achieve the economist’s paradigm: Pareto, or perfect, efficiency. It is suggested that students are taught only to achieve pedantic levels of accuracy in the recitation and application of core theories and models to any and all situations they may be confronted with: lacking the application of critical thinking to truly analyse, and therefore leading to the overconfidence and oversights that meant very few economists were able to predict the advent of the financial crash.
Chris Giles, economics editor at the FT, argues instead that “good economists” are not simply warriors of the theoretical, being more akin to the workman with their toolkit, who arrives to diagnose, analyse and correct the problem at hand – in the case of the economist, the toolkit consisting of a variety of “tools, data and theories”. In such an analogy, therefore, the role of the economist is to analyse and predict human economic behaviours in light of historical precedence and prevailing theoretical understandings: not as a successor to Nostradamus, but as in any other profession whose members make educated predictions regarding the effect of option A or B on outcome C – medical researchers searching for a cure, or meteorologists predicting the path of a particular low-pressure system. We do not judge medicine as a failure for not yet truly understanding human consciousness, nor do we condemn meteorology as a failed discipline merely because rain falls a few dozen miles further South – though Michael Fish would perhaps disagree (“don’t worry, there isn’t [a hurricane on the way]!”; BBC, 2017).
This correspondent would not seek to overly discredit either of these perspectives: as a student of economics, he would be naïve to deny that much of his learning revolves around being able to recite central theories (the Three Equation Model, anyone?); on the other hand, it would involve an element of tunnel vision to suggest, given the multidisciplinary nature of this correspondent’s own studies, that contemporary economics exists in a vacuum composed purely of unquestioned theories.
Is it most appropriate, therefore, to ask a preceding question: what does economics seek to achieve? The answer to that, this correspondent suggests, depends largely on the individual’s use for its tools and theories; whether one seeks to support or challenge prevailing theories would likely change whether one believes economics is or is not a definitive, without-error predictor of future events, or rather whether it represents a method of analysing and understanding human behaviours.
2: Britain is being stalked by a zombie elite – time to take them on (Chakrabortty, 2018)
Chakrabortty, of the Guardian newspaper, presents a far more damning perspective on contemporary economics – and particularly its impact on policymaking: “British politics has reached the deepest state of zombie-ism: a zombie minority government, implementing zombie economics, underpinned by zombie ideas.”
Chakrabortty’s fundamental argument is underpinned by the events of the 2008 financial crisis: that the failure of the global financial system exposed the fraught nature of a system supported by flawed, unsustainable assumptions. As the beginning of a series covering real world examples – the extension of local government by councillors, the transformation of housing activists into developers, and energy bosses engaging with customers to explore business management practices are all cited in this ‘cover page’ piece – Chakrabortty suggests that, when considered collectively, the examples he will go on to cover demonstrate that “the grand lie of Thatcherism is exposed”.
3: The Editorial View (Olive, 2018)
It is in the light of contributions such as Chakrabortty that this correspondent draws his own conclusion:
Firstly, it is critical to acknowledge that, as with any social discipline, economics is in danger of stagnation and self-enforcement – the development of a cycle that simply reinforces existing ideas, rather than seeking to challenge them. Indeed, the failure of the discipline to adopt holistic measures of wellbeing or standards of living (such as the Genuine Progress Index), or indeed adapt existing measures such as the oft-criticised GDP, is perhaps an example of this. As a student of sustainable development, were the discipline of economics not moving towards accommodating contemporary theories regarding value and wellbeing measurements, alongside more nuanced views regarding behavioural incentives that go beyond traditional theories of supply and demand, this correspondent would be far more inclined to answer “yes” to the question posed by the FT. If we consider the relatively recent phenomena of emissions trading schemes or carbon taxes, alongside the advent of micro disciplines allied to behavioural economics and the like, this correspondent considers that there remains a strong sense of hope for the discipline.
Where this correspondent takes greatest umbrage with the argument that economics has failed is in its conflation with policymaking. Chakrabortty’s argument fundamentally conflates Thatcherism, or ‘One-Nation Conservatism’, with economics: while orthodox economics, lacking the more contemporary, multidisciplinary or anthropogenically-minded approaches signalled by the aforementioned environmental policies or ‘more human’ disciplines, might be seen by some to support a more neoliberal agenda, it is worth remembering that polemic figures such as Karl Marx considered themselves, and indeed were considered, members of the ‘dismal science’. Here, it is not economics that should be criticised, or considered to have ‘failed’: it is contemporary governance structures, aided by historical inequalities that may have been supported by colonialism as an extreme form of ‘moral-free economics’, that fail to address these issues.
Modern economics, with its – albeit slow – growing grasp and integration into interdisciplinary methodologies, is therefore by no means a failure: if anything, as time goes by while this correspondent writes, it is becoming less of one.
This correspondent would not, however, seek to discourage anyone from making up their own mind – further resources that this correspondent has considered, and would suggest are worth further exploration, can be found – though not exclusively – in the following locations:
- Has economics failed? (Oliver et al., 2018)
- Beware the dangerous orthodoxy of neoclassical economics (Goodacre et al., 2017)
- Economics, Education and Unlearning (Post-Crash Economics Society, 2014)
4: A Sociologist’s Perspective (Sealey-Huggins, 2018)
Has economics failed? A question probably more easily answered by those trained in the subject. My own scholarly training is in the poorer relations of the social sciences, sociology and social policy. As such, I am not as familiar with the terms on which economics might be judged emanating from within the discipline. I am able to comment on areas of what the late sociologist John Urry and others have called the ‘economic imperialist’ overreach, though.
Urry (2011) used the term to identify the way in which a particular, narrowly orthodox, branch of economics had seemed to ‘colonize’ the social scientific response to climate change – hence the obsession with Nicholas Stern’s groundbreaking, but politically impotent, attempt to conduct an economic cost-benefit analysis of the unfolding consequences of climate change. This term did resonate with me as someone who upon embarking on my nascent career, was always at once frustrated and indignant at the narrowness of discussions about climate change.
In the first instance, the field was dominated by natural sciences. This makes sense as these disciplines have invaluably, although incompletely, helped to identify aspects of the crisis. Indeed, we might suggest that the defining of the climate crisis in these socially reductive terms is a both a factor contributing to our inability to fully face up to the scale of the crisis as well as likely being a symptom of it.
It could be seen as a contributing factor to the crisis because we lack the full range of knowledge to be able to intervene in the very social processes causing the harm. It might be seen as a symptom, meanwhile, because the lack of awareness of the interconnections between social and ecological processes is part of what has allowed harmful processes to continue relatively unabated.
Thinkers such as Moore suggest that a tendency to see ‘the environment’ as separate from social and political processes has facilitated the damaging growth of practices inherently harmful to socio-ecological life. The blame for this has been placed not just at the door of those in pursuit of a ‘pure’ science blissfully uncomplicated by the inclusion of messy and chaotic social processes: sociology, too, has been charged with having had a profound reluctance to engage with natural phenomena – for reasons to do with the historical founding of the discipline and its need to assert its object of study as ‘sui generis’, or distinct, from phenomena that were the preserve of other scientific fields.
In this way, we see that the picture of climate change and its impacts has been only partially formed, weaker for the exclusion of the very social processes that pattern the release of the otherwise abstracted molecule of carbon. The neglect of disciplinary approaches that seek to complicate the picture is thus also a symptom of the same social processes that have allowed us to neglect values other than those which are easily measured in predominantly quantifiable, preferably economic, terms.
Moreover, other contributors point out that the approaches sociologists adopt are often antithetical to the co-production of policy and expertise within the current framework of growth-oriented capitalist societies. Economics, then, appears to be a discipline whose approaches are much more readily amenable to the extant socio-political order, but only to the extent that this order is not challenged.
As Olive intimates, however, the very existence of more heterodox fields of economic thought, and the possibility of alternative approaches offers hope for developing a richer body of expertise on which to base our understandings of the climate, and other, crises. A key question remains whether or not these more holistic approaches will be able to dislodge the orthodoxy in time to avert what has already become an apocalyptic experience for too many of the most marginalized people globally.
5: The Dynamic Discipline (Guerriero, 2018)
Since the financial crisis that too few experts saw coming, questions of why economists failed so dramatically have been proliferating – even the Queen asked “Why did nobody notice it?” (BBC, 2012). The reputation of economics itself seemed to burst like many other bubbles. One decade later, public attitudes to economics are increasingly sceptic and leading economists themselves have appreciated the need to critically evaluate their profession (Romer, 2016) and its fundamental laws (Acemoglu and Robinson, 2015).
However, as Ricardo Reis (2017) notes in a recent article, asking somebody who is trained as an economist to assess what is wrong with economics will necessarily produce a biased answer: everything must be wrong with economics, otherwise why should I study and research it? Therefore, similarly to my colleague above, I query how suited I am to answer the question ‘Has economics failed?’.
The idea that economics might have failed presumes the possibility that it could otherwise succeed. But isn’t error a fundamental element of discovery? History of science teaches us how ‘failure’ has been – often very slowly – accepted in much older and more ‘perfect’ sciences, such as medicine or astronomy. Economics is certainly imperfect. The study of human and social behaviour is complex, and our understanding of it is in its infancy. The future is fundamentally uncertain and economists are often wrong. In order to explain the complexities of human and social interactions, economic analysis needs to make several simplifications. So, what question should we really attempt to answer: ‘Has economics failed?’ or ‘Are economists learning from their errors?’.
Consequently, our criticisms should not be moved against the discipline but against the profession, which may have potentially failed. Economists could be blamed for having adhered too rigidly to one main school of thought, mainly producing research that supports the mainstream view and neglects history of economic thought and a variety of heterodox positions and problems. Economists often overlook ethical considerations, such as those related to social and environmental justice, and under-question important assumptions, for example the above mentioned boundless economic growth. Finally, economists could be criticised for having created a fundamentally male-dominated discipline.
However, it is important to recognise that the contribution of the economics discipline has been fundamental, especially for those of us interested in tackling problems of sustainable development. The study of individual incentives, the ability to quantify the value of long-run and short-run decisions, the capacity to predict and evaluate (within a certain margin of error!) the impact of a policy, have all contributed enormously to our understanding of human and social behaviour, including a variety of environmental and development dilemmas. Moreover, the more recent attempts to incorporate other disciplines into the mainstream economics discourse have created new and exciting fields of investigation which study more than one dimension of social interactions, such as behavioural and institutional economics.
Therefore, in the words of John Maynard Keynes (1930), “do not let us overestimate the importance of the economic problem, or sacrifice to its supposed necessities other matters of greater and more permanent significance.”