Right now, mainstream economists are both congratulating themselves and bemoaning their fate.
Mainstream economists (such as Justin Wolfers and Paul Krugman) are congratulating themselves for having achieved a virtual consensus on the positive effects of fiscal stimulus. But they’re also complaining about the fact that the rest of the world (such as politicians, central bankers, and others) doesn’t seem to be listening to their expert advice.
Just two quick comments on this approach to consensual economics:
First, of course there’s a consensus among mainstream economics! That’s what their theories and models are supposed to do: produce and reproduce a consensus in terms of the basic analysis of macroeconomic events (although, of course, there can still be disagreements about particular aspects, such as the exact size of the fiscal multiplier and so on). And anyone who doesn’t use those models, and therefore reaches a different set of conclusions, is declared to be outside the mainstream, and therefore not worth reading or being listened to.
Second, how is it possible to declare—in the midst of the Second Great Depression—that mainstream economics has been an unqualified success? To arrive at such a conclusion would mean to overlook, at a minimum, the role that mainstream economics played in creating the conditions for the crash of 2007-08, in failing to include even the possibility of such a crash in their models, and in confining themselves to a package of monetary and fiscal policy measures—and not to even consider the possibility of larger, structural changes—as tens of millions of people lost their jobs, were stripped of their wealth, and were pushed further and further down the economic ladder.
Those engaged in consensual economics are, it seems, too busy congratulating themselves and bemoaning their fate to want to recognize the gorilla in the room.
Clearly, U.S. capitalism continues to face a serious legitimation crisis.
According to new Pew survey [ht: db], 62 percent of Americans now think the existing economic system unfairly favors the powerful, and 78 percent think too much power is concentrated in the hands of a few large companies. The only group that thinks otherwise—on the Right or the Left—are “business conservatives.”
Here’s the breakdown according to the political categories devised by Pew:
Most Americans, then, believe current economic arrangements are unfair.
That should invite a robust discussion—in the academy, in the public sphere—of alternative ways of organizing the economy. We can and should be debating how to create more economic fairness and how to change the way corporations are organized so that, instead of wielding excessive power over the rest of the economy, their power might be democratically exercised by their employees and the communities in which they operate.
But we’re not there yet. Capitalism’s legitimacy continues to be called into question but alternatives to capitalism are still, for many people, hard to imagine. As Antonio Gramsci wrote during the last Great Depression, “The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.”
Back in 2009, in the midst of the Great Crash (and therefore at the start of the Second Great Depression), a colleague and friend asked me whether I expected the teaching of economics to change. His view was that, since mainstream economics had so miserably failed in both predicting the crash and providing a guide as to what to do once the crash occurred, it was obvious the economics being taught to students had to fundamentally change. My answer was that, while the need for a change was obvious, I didn’t see it happening—and it probably wouldn’t happen (thinking back to the emergence of the Union of Radical Political Economics in the late-1960s) unless and until students of economics demanded a different approach.
Well, in various places (starting almost a decade before the current crises, with the eruption of the Post-Autistic Economics movement in June 2000), students have been demanding a fundamental change in the way economics is being taught. The latest effort to move that project along is a report from the University of Manchester Post-Crash Economics Society. Here are some of their key findings, which refer to how economics is taught at Manchester but clearly have much wider relevance, in and beyond the United Kingdom:
- Economics education at Manchester has elevated one economic paradigm, often called neoclassical economics, to the sole object of study. Other schools of thought such as institutional, evolutionary, Austrian, post-Keynesian, Marxist, feminist and ecological economics are almost completely absent.
- The consequence of the above is to preclude the development of meaningful critical thinking and evaluation. In the absence of fundamental disagreement over methodology, assumptions, objectives and definitions, the practice of being critical is reduced to technical and predictive disagreements. A discipline with a broader knowledge of alternative perspectives will be more internally self-critical and aware of the limits of its knowledge. Universities cannot justify this monopoly of one economic paradigm.
- The ethics of being an economist and the ethical consequences of economic policies are almost completely absent from the syllabus.
- History of economic thought is an optional third year module which students are put off taking due to it requiring essay writing skills that have not been extensively developed elsewhere in the degree. Very little economic history is taught. Students finish an economics degree without any knowledge of momentous economic events from the Great Depression to the break-up of the Bretton Woods Monetary System.
- When taken together, these points mean that economics students are taught the economic theory of one perspective as if it represented universally established truth or law.
No, I’m not referring to the ignominious fall of the once-mighty Red Devils.*
Instead, it’s the news that the University of Manchester [ht: adm] has decided to cancel the year-old Bubbles, Panics and Crashes module, which had been developed to answer student protests at the dominance of orthodox free-market teaching.
Students said the U-turn undermined the credibility of senior staff who promised reforms and meant the department was actively obstructing debate over the causes of the financial crash and why economists failed to see it coming. . .
The row broke out last year when students claimed that mainstream economic teaching failed to address the underlying causes of the banking crash, and was in part responsible for politicians and financial watchdogs relying on free-market theories and light-touch regulation.
Undergraduates in Manchester formed the Post-Crash Economics Society and joined groups at the London School of Economics, Cambridge University and University College London to rebel against what they saw as the dominance of discredited theories that rely on mathematical formulas and not real-world examples.
In response, several university departments agreed to implement a new curriculum that would incorporate a wider range of viewpoints, including Keynesian economic thinking. Sponsored by the Institute for New Economic thinking, based in New York, the Curriculum in Open-source Resources in Economics project was set up to develop “a new approach to economics teaching for undergraduates”.
Manchester University’s economics department, which faced the brunt of student criticism, went further when it agreed to run the Bubbles, Panics and Crashes course. The decision to close it down after only one year has dismayed students.
*Manchester United Football Club are now seventh in the table, 17 points off the top, less than one year after winning the Premiership by 11 points.
Let’s leave aside for a moment whether the participants were the right ones to call on (I would have turned to plenty of better commentators, who have read both Marx and contemporary scholarship on Marxist theory, to offer their opinions) or even whether they get Marx right (very little, as it turns out).
What’s perhaps most interesting is that the New York Times felt the need at this point in time to host a debate on the question “was Marx right?” and, then, that most of the participants admit that Marx did in fact get a great deal right.
The problem is, of course, that at this point in time mainstream economics (in either its neoclassical or Keynesian varieties) is not a particularly good guide for analyzing or proposing solutions to the key economic problems of soaring inequality, massive unemployment, and generalized insecurity of a broad mass of the population in the United States and in other high-income countries. So, I suppose it’s not surprising people continue to turn to Marx for ideas about how to make sense of the economic contradictions that caused the Second Great Depression and the new contradictions that right now are preventing a full recovery of capitalism.
In the end, what is key to Marx is not this or that prediction (of which, as it turns out, there is very little in the texts, although there certainly are lots of tendencies that critics are hard put to ignore or effectively counter) but, instead, the idea of critique. Because what Marx set out to do over the course of the three published volumes of Capital was provide the cornerstones for a far-reaching critique of political economy. And the method of that critique—a two-fold critique, of mainstream economic theory and of capitalism as a system—is what endures, precisely as a challenge to what passes for serious economic analysis today.
Marx, then, was surely right about one thing:
if constructing the future and settling everything for all times are not our affair, it is all the more clear what we have to accomplish at present: I am referring to ruthless criticism of all that exists, ruthless both in the sense of not being afraid of the results it arrives at and in the sense of being just as little afraid of conflict with the powers that be.