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April 19, 2013

This speech, by Irish President Michael D. Higgins caught my eye because I increasingly think of neoclassical economics as narrow decision theory: appropriate in some circumstances, chiefly for the last 10-20 years in the fields of money-making and finance, but completely useless in others, such as in development and macroeconomics.




Mainstream economics works in certain circumstances and at certain times for certain purposes. It’s not really economics, which is about providing for each other. Most critics get it wrong; they talk about ‘the failure of economics’ when it doesn’t fail for the purposes for which it was intended, which are mostly to make a lot of rich financiers even richer.

A profitable route for economists who don’t like the mainstream would be to develop a set of theories or a project that marginalises what now passes for economics in its narrow sense, and departs from it, building a new set of beliefs and techniques which help us provide for each other. Economics needs to be closely linked to practice, meaning the actual on-the-ground conditions in which most ordinary people live, which are not conditions of western luxury.

The two billion or so people who live on less than $2 a day do not benefit from economics as it is currently practiced. It’s not for them. Neither are the complicated mathematical contortions that pass for empiricism relevant for how most people live. These endless regressions reduce people to mere aggregates, components of an imaginary system, when in reality people are independent, critical and sentient, and capable of unpredictable behaviour.

The problem with critiques hitherto is that nobody accepts them because bits of economics clearly do ‘work’, for a time, for certain groups, in their narrow field — like Black Scholes, Modigliani Miller and the efficient markets hypothesis. But these theories don’t always work and they are useless for the wider task of political economy. They don’t help us provide for each other.

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