The Econocracy: The Perils of Leaving Economics to the Experts

The Econocracy: The Perils of Leaving Economics to the Experts by Joe Earle, Cahal Moran, and Zach Ward-Perkins

The Econocracy: The Perils of Leaving Economics to the Experts

This book attracted interest because it is associated with Rethinking Economics, a gestating global movement of renegade graduate students in economics bent on reforming economic thinking. They are revolting against the models and doctrines they are being fed. Much of the book is taken up with their surveys and reflections on university curricula in economics, mostly in the United Kingdom, but also elsewhere. Rethinking Economics is radiating from the UK and Europe; four of their 48 global sub-groups are already in North America. The book is the bedrock of Rethinking Economics’ intent, a manifesto for a global social reform movement without specifying any magic solutions. We’ve had enough mystifying non-magic.

The students are on to something. Both the Brexit vote in the UK and the surprise election of Donald Trump in the US indicates that much of the public distrusts existing institutions and the experts guiding them. Voters may be confused and divided on what they want, but a status quo in which they are mere pawns tossed about is not it.

Who knows? Perhaps these rebels will inspire students of business in finance, accounting, and marketing to revolt against the economics based business doctrines they are being fed. (Note: The reviewer is an ex-professor of business.)

The students are rebelling against neo-classical economics, its models, and its assumptions. As taught, neo-classical economics admits of very little outside its narrow framework, and the decision makers emanating from this cocoon tend to interpret everything from that framework. It’s not working; it’s time for it to go. This theme is endorsed by many dissident economists, including Andrew Haldane, chief economist at the Bank of England. But leave it to Noam Chomsky, a particularly flamboyant dissident to set the stage:

“Economics, as practiced in university economics departments, regurgitated by policy makers, and summarized by mainstream media, has become a form of propaganda …. a dangerous ideology hidden inside a mathematical wrapper.”

Once past the inflammatory opening, the book settles into methodically picking apart the flaws of neo-classical economics without proposing an alternative ideology. Here’s what nettles the dissidents:

  1. The predictive powers of neo-classical models are waning. Inability to foresee and to forestall the crash of 2008 and the Eurozone Crisis are prime examples.
  1. Economists present policy concepts in arcane terminology that the public struggles to understand. These experts call too many shots on public policy decisions and cannot explain their rationale to the public.
  1. Social considerations are shorted or excluded because economic models exclude them on the ridiculous assumption that we are all rational actors – according to their models. Economics has to start over from the idea that it is one aspect of a bigger social milieu.
  1. Economic decisions that cannot be understood are technocratic, not democratic. (In a poll of the public, only 12% said that reports about the economy or economic issues were easy to understand.) The density of the jargon even confuses economists.
  1. Our most important crises today – environmental catastrophe, soaring inequality, and financial crises – are either grossly simplified or simply ignored. They are outside the model. Cost-benefit analyses are cans of worms.
  1. External costs (to the model) are difficult to assess, or they are ignored, but external costs may be the ones most relevant to a decision.
  1. The neo-classical model and its assumptions have led to practices so abstract from the reality of most citizens that perhaps they are a separate reality universe. For example, in June 2000 the total notional amount of traded derivatives contracts was reported to be $108 trillion, or $18,000 for every living human. But what do such mind-boggling numbers have to do with whether we have enough water left to take a bath?
  1. Everything is framed in a transactional marketing framework, and usually short term. Unfortunately, not all human activities are marketable. They are relationships and long-term preparation. When dealing with education, health care, and resilience to natural disasters and changes, the framework breaks down. Sentimental value, as for a home place, cannot be valued; but for a neoclassic economist, everything is for sale.This blind spot is serious. People saturated in transactional systems and thinking miss relationships – that everything depends on energy and water, for instance. In the lean world, they are surprised to discover process flow, and the waste in it. In addition, they are apt to think of human learning as just training, and a line item to minimize. (The authors are dimly beginning to see through this fog.)
  1. The goofiness of defining Gross National Product (GNP) is thoroughly worked over. Much that is important, like unpaid work, is left out. GNP can’t measure “social capital” or “environmental capital.” For example, war may destroy a great deal and then rebuild it. Both the destruction and the rebuilding add to GNP.
  1. And finally neo-classical models depend on unending expansion and financial growth. All their prescriptions depend on resuming economic growth. But when we can no longer expand our consumption, but shift to unending learning and adaptation, we enter a world outside this fundamental assumption of neo-classical business models. Without the classic assumption of expansion, they evaporate, and to neo-classic true believers, that is the end of their world. The kids have to invent a new one.

Econocracy does not propose any ideal model to replace the neo-classic one. Instead it proposes first reforming university curricula in economics, and letting a new generation create a new way. Economists have to become much more open-minded learners. The curriculum should emphasize a variety of economic systems and theories – and the history of how these theories have worked in practice. Other recommendations are more liberal arts in the curriculum, and practice solving complex problems without reference to neo-classical models.

In other words, despite all the arcane math formulas, neo-classical economics is linear thinking, confined to a narrow view of what is “better.” Economists have to learn how to deal with non-linear complexity in both the natural world and in human societies.

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