“It’s stupid economists, people”

Posted: 9 July 2012 in Uncategorized
Tags: , ,

It’s mainstream economists, not economists in general. And they’re not really stupid, just dogmatic in their insistence on a particular theory of economics.

But Ross Gittins [ht: tm] does put his finger on a real problem:

Many people don’t realise the economics we hear from politicians, business people, economists and the media, morning, noon and night, is just one way of analysing how the economy works.

Almost everything we’re told about what causes what is inspired by the ”neoclassical” model. It’s long been by far the dominant way of explaining why things happen and predicting what will happen, but it’s not the only way. And it’s far from infallible.

This conventional economics reduces all economic activity to that which happens within markets. It further narrows the operation of markets to the setting of prices, assuming movements in relative prices are the primary thing influencing the behaviour of producers and consumers.

It thus abstracts from the role of ”institutions” – be they organisations, laws or conventions – in influencing market behaviour, so often leads economists to make policy recommendations that prove seriously misguided.

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