Imperfect economics in an imperfect world

Posted: 10 May 2011 in Uncategorized
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I have no opinion, one way or the other, on Edward Glaeser’s decision to stop writing for Economix. But his sign-off essay is a perfect example of how imperfect mainstream economics is in this imperfect world.

Actually, that’s an understatement. First, because the world could not be more imperfect right now, with millions of people unemployed for longer and longer periods of time with no relief in sight. Second, because mainstream economics itself could not be more imperfect, since it offers little in the way either of understanding why so many people remain unemployed for so long or of suggesting what can and should be done.

As it turns out, Glaeser’s essay demonstrates exactly why mainstream economics is so imperfect. His view is there are three things he and his mainstream colleagues have to contribute: (1) positive economic analysis, as opposed to normative economics; (2) the discipline created by mathematical models and statistics; and (3) an emphasis on individual freedom. His statement of these principles couldn’t be clearer.

It also couldn’t be more misguided. It’s as if Glaeser hasn’t read (or, alternatively, understood) a word of methodology since John Neville Keynes. Why? Because for the past hundred years or so, both the radical distinction between positive and normative economics and the idea that science is equivalent to the use of models and statistics have been called into question.

In addition, Glaeser identifies economics with a commitment to individual choice and freedom, without a single mention of issues of inequality, fairness, or justice. Readers will certainly notice the inconsistency between his slavish adherence to positive economics and the argument that “our theories start with the assumption that giving individuals more choices is a good thing.” But, even more, his identification of economics with expanding freedom and choice is the basis of the deregulation of markets and the growth of inequality that created the current crises in the first place.

And one last thing: Glaeser cites Adam Smith as the basis of the “longstanding tendency to view the interests of the government as being distinct from the welfare of the people.” What he fails to recognize is that Smith also pointed out that the interests of capitalists were often distinct from the welfare of the people.

Glaeser wants to argue in favor an economics for an imperfect world. What he offers, instead, is an economics that could not be more imperfect for the increasingly imperfect world in which we live.

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