Face it: orthodox economics messed up
Molly Scott Cato
14th July, 2009
In drowning out the voices of those economists that don't adhere to neoclassical orthodoxy, the current global financial collapse was inevitable
I can't be alone in feeling frustrated at the repeated claims made in discussions of the economic crisis that it could not have been foreseen. Those of us who read the work of radical and green economists are aware that not only was it clear that the asset bubble would lead to a crash but that voices were clamouring for a change of policy for years before the collapse actually occurred.
The reason that ‘received opinion' failed to broadcast this news was that the narrow range of commentators who are given access to the air waves had a vested interest in the status quo and so encouraged the frenzied growth in asset values, in which they had an intellectual-and probably also a financial-investment. Now we must endure the same self-satisfied voices recommending what policies should be followed in future.
For somebody with any experience of academic economics as a profession this, although deeply frustrating, is not surprising. Economics is a bizarre field-filled with equally bizarre animals. It is surely the only academic discipline that has an orthodoxy so strongly maintained that it is necessary to sign up to the catechism of the superiority of markets and the perfection of competition before you are allowed to advance very far within it.
Promotion is determined through publication in a range of journals all of which are strongly neoclassical in orientation. When Hazel Henderson titled a chapter in her 1978 book ‘Three hundred years of snake oil: defrocking the economics priesthood' she was merely stating in florid terms the widely held view amongst economists, as opposed to the neoclassical brotherhood, that the discipline is more akin to a faith than a science.
It is claimed that economists tend to disagree and Ronald Reagan was not the first US President to call for a one-armed economist so that he could not advise him ‘on the one hand this, but on the other hand that'. For a similar reason corporate and political bodies frequently appoint a Chief Economist so that they do not have to engage in debate but rather receive scientifically based instruction. But economics is a social science; these are complex issues that relate to behaviour and power. Conflict, debate and participation are democratically necessary.
There are heretics. I spent last weekend with a bunch of them at the annual conference of the Association for Heterodox Economics. It was a lively and vibrant place to be as Marxists and institutional economists disagreed over the future of capitalism or the economics of sustainability. The equations and ‘formal models' without which you are not permitted to teach economics in a university setting were almost entirely absent. Instead we listened to, and learned from, each other.
Why did the orthodox economists not predict the financial collapse? To put it politely I might suggest that their attention was focused elsewhere. An example is a paper in one of the top-ranked journals that could gain me the esteem of my peers if I were ever likely to write anything that would gain publication there. It was a highly elaborate regression analysis of the relationship between rainfall and height in Indonesia.
During the AHE conference there was a call for a public enquiry into the economics profession in view of its failure to address the pressing economic problems that face humanity. Nicholas Stern called climate change ‘the greatest example of market failure'; he should have called it the greatest failure of the economics profession. The totalitarian domination of neoclassical and market approaches is a danger to the future of the human species and the demand for pluralism in teaching and research cannot be made strongly enough.
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