What’s Wrong with Economics Today?
Three years of graduating in Economics from arguably the best university in India, and I have learnt one thing about how economic theory works: it “assumes”. That’s it. That’s all there is to it. None of the rigorous models stand in real life. None of the growth models. Not the ones on inflation. Not the one’s on trade. Nothing. Not the Lewis model. Not the Harrod-Domar growth model. Not Harris-Todaro. Not the Phillip’s curve. Not the Ricardian theory.
Somehow, just somehow, real world data just doesn’t stand upto it consistently. The problem, of course, is that there are way too many ideal-world assumptions.
In Scott Adam’s words : Unfortunately, economics is not common sense. It’s a mix of science, calculus, chaos, expectations, and voodoo. In other words, if you think you understand economics, that’s proof that you don’t.
It’s no surprise then, that I think the study of political-economy is the real thing. It is also the reason why neo-classical free-marketeers are a subject of much criticism by most economists. Real world data, I repeat, just doesn’t stand up consistently.
And yet, the teaching of such models must not be stopped at schools. The reasons are obvious. For one, students of the subject must know what does not work in economics. They must understand why not. And as Debraj Ray, the noted economist puts it, models are a good way to organize one’s thoughts. It’s like a process of cleaning up the clutter in the mind using simple equations and graphs.
Unfortunately, some people take every word of their Principles’ textbooks as gospel. That’s why the Republicans were wrong- and have been wrong ever since I remember- about the economy. That’s why tax increases are looked as a no-no. That’s why trickle-down theories still have believers. That’s why the belief is that the government can only screw things up. But it’s too late. It’s popular culture now.
[Will Capitalism End? (Post-capitalist World)]
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The Learning Curve – Copyright 2008
Greetings…
I have done my BA Hons. Economics from DU as well and I quite consistently agree with what you say.
Economics from being a study of scarcity and choice making or the science of wealth has rather become an instrument to make wealth through the means of idiotic (cant find a better word, sorry) theories.
However, I have never quite consistently agreed with Marxism as well (not in the ignorant popular notion of it being understood as necessarily left) where many of the economists proclaiming a much broader and reasonable critique feel comfortable.
Take care, and keep up the good posts
Wonderful to know that, Syedshoaib.
It is important to note that even Karl Marx never considered himself an Marxist! It’s in his own words. I still think that Marx’s theory on changes (Marxian Materialism et al) of economic systems is the one that is most consistent with history than any other on the issue. Also, his criticism of capitalism is the best among the rest (even pro free market magazines such as Time and Economist proclaim so).
But this is as far as I “agree” with Marx. Frankly, I am not qualified enough to disprove Marx’s other theories, particularly that of Communism.
And I certainly disagree with Leninism. The idea of the Communist Party movement is plain wrong. I reckon even Mark would have disapproved had he seen how it was done.
Also, Marx was pro freedom of speech, press etc. He was for democracy (the term “dictatorship of the proletariat” meant democracy where the majority, which he considered to be the poor, would have say, and not that the poor would be “dictators”, for that is impossible! His statement was on his belief that the current systems of democracy give excessive powers to corporations and the rich. In India, for example, the average MP is a crorepati, while the per capita income of India is barely in the tens of thousands).
Do read: http://bigotblog.wordpress.com/2008/10/24/will-capitalism-end-the-post-capitalist-world/
For the fear of some right wing nuts reading this who might pick this out of context, let me clarify: I disagree with most Marxists that followed Marx. I disagree with the Leninist forms of communist states. I have no opinion on Communism as Marx defined it, as there has never been a state like that ever, and because I don’t know enough about it. (nor do even most Marxists, because Marx died after having written only 3 volumes of Das Kapital, when in fact many were planned).
I generally support freer markets, although only if the state can successfully ensure welfare of those displaced by it.
Anyway, thanks for commenting!