Mainstream economics and neoliberalism — what is the difference?

21 Jul, 2018 at 17:11 | Posted in Economics | 4 Comments

Oxford professor Simon Wren-Lewis had a post up some time ago commenting on traction gaining ‘attacks on mainstream economics’:

neoOne frequent accusation … often repeated by heterodox economists, is that mainstream economics and neoliberal ideas are inextricably linked. Of course​ economics is used to support neoliberalism. Yet I find mainstream economics full of ideas and analysis that permits a wide ranging and deep critique of these same positions. The idea that the two live and die together is just silly.

The same Wren-Lewis has also felt it necessary to defend mainstream economics against critique waged against it from Phil Mirowski:

Mirowski overestimates the extent to which neoliberal ideas have become ’embedded in economic theory’, and underestimates the power that economic theory and evidence can have over even those academic economists who might have a neoliberal disposition. If the tide of neoliberal thought is going to be turned back, economics is going to be important in making that happen.

Wren-Lewis admits that “Philip Mirowski is a historian who has written a great deal about both the history of economics as a discipline and about neoliberalism’ and that Mirowski ‘knows much more about the history of both subjects than I do.”

den dystra vetenskapenFair enough, but there are simple remedies for the lack of knowledge.

You could start by reading this essay, where yours truly try to further analyze — much inspired by the works of Amartya Sen — what kind of philosophical-ideological-political-economic doctrine neoliberalism is, and why it so often comes naturally for mainstream economists to embrace neoliberal ideals.

Or maybe — if your Swedish is not too rusty … — you could read this book-length argumentation for why there has been such a deep and long-standing connection between the dismal science and different varieties of neoliberalism.

4 Comments

  1. Columbia professor Moshe Adler on why Main Street needs to take economics back from Wall Street.

    Moshe Adler fundamentally rejects the notion that what’s good for Wall Street is good for Main Street. In Economics for the Rest of Us, the Columbia University professor of economics argues that the wealthy have hijacked the dismal science and made life for the have-nots even worse. According to Adler, excessive confidence in the efficiency of free markets has led to increasing wage disparities and the mindset that the way things are is how they should be. Or must be.

    Economics for the Rest of Us seizes on a resurgence of Depression-style Keynesian economics in its examination of employment, equality, efficiency, wages, and economic efficiency. Adler also raises concerns about the limited utility of Pareto efficiency, an economic concept developed in the nineteenth century by Italian economist and philosopher Vilfredo Pareto. An allocation of goods or resources is deemed “Pareto-efficient” when it is impossible to make someone better off without making another worse off. Pareto efficiency says nothing, however, about equitable distribution.

    Adler is the director of Public Interest Economics, an economic consulting firm whose research is used for organizing campaigns, collective bargaining, policy analysis, and eminent domain litigation.

    “Whenever it is necessary to choose sides between the rich and the poor, between the powerful and the powerless, or between workers and corporations, economists are all too often of one mind: according to conventional economic theory, what’s good for the rich and the powerful is good for ‘the economy.’”

    Why is economic theory so one-sided?

    Moshe Adler: Economics is so one-sided, I think, because it’s the rich who hire economists; it’s just as simple as that.

    David Cay Johnston: You talk about a great divide in economics. There is the development of something called classical economics: Adam Smith, Jeremy Bentham, David Ricardo. I am a big fan of Adam Smith; I used him extensively in my last book to illustrate certain points. But that’s not the economics we follow today. Today we follow neo-classical economics. There was a kind of revolution here; can you explain the difference between the two and why we should care?

    Moshe Adler: The origin of economics as a science came during the French Revolution, because this was the first time in human history that people had to decide who the government should serve. Louis XIV said, “L’État, c’est moi.” After the French Revolution, people began to ask, “Okay, now we have democracy, a government of the people. Who should the government of the people serve?” It is very simple to say that the government of the people should serve the people. But if you think about it, it is actually impossible to serve the people because there isn’t such a thing as “the people.” After all, some of the people are rich and some of the people are poor, and you cannot serve both at the same time. https://www.guernicamag.com/adler5_1_2010/

    • Economics is so one-sided, I think, because it’s the rich who hire economists; it’s just as simple as that.
      .
      That’s the core problem: as a whole, economics — especially policy economics — is deeply corrupted. But, I wouldn’t say, it made economic doctrines “one-sided” so much as it tends to re-fashion economic doctrines into a form of agnotology: mainstream economic doctrines function in the society to spread academically induced ignorance and doubt.
      .
      More and more, I think that is an important distinction to grasp when one is choosing interlocutors to argue with, for or against.
      .
      Neoliberalism, as Professor Syll has pointed out, is composed of two or more sides of a conversation and forming their own self-perpetuating dialectic, they validate each others’ credentials and assumptions, while excluding critical attention from a dissenting “middle” (or left) ground of realists. When Simon Wren-Lewis argues that mainstream economics is “full of ideas and analysis that permits a wide ranging and deep critique of [neoliberal] positions”, he is arguing for the efficacy of this exclusive and self-validating dialectic, that one side of neoliberal discourse can be criticized effectively and decisively by the other side(s). He can do this by the simple dodge of failing to acknowledge for a moment that neoliberalism revolves around an axis with more than a single pole. But, neoliberalism is not one thing, one doctrine defending its only redoubt; neoliberalism has been all along evolving and morphing as the dynamic product of a dialogue among various, different but somewhat complementary, generally conservative points-of-view.
      .
      Far from turning the neoliberal tide, this back-and-forth has allowed neoliberalism to dominate mainstream economics, as the nominally opposed forces have validated their chosen opponents within the frame of the neoliberal dialectic even as they have argued “against” them. This dynamic only serves to strengthen neoliberalism’s grip on economics as an academic discipline.
      .
      Just to take one example as illustrative: neoliberalism is sometimes caricatured (not inaccurately on the whole) as “markets in everything” — a policy stance in favor of expanding the scope and dominance of “markets” and market-driven or market-friendly policies, more privatization of resources and economic activity, and so on.
      .
      A sensible economist, not invested in inherited dogmas, would point out that actual markets — as opposed to the entirely metaphorical and imaginary markets of the textbooks — are exceptional in the organizational structure of the economic system. Most economic activity is organized by administrative hierarchies. Prices are administered almost universally; the vast majority are not formed by any process recognizable as a genuine market process (bidding, etc.) This is the institutional reality of modern economies. A competent economist would not waste a moment engaging in the neoliberal dialectic, where treating the economic system as if it were a system of markets is the price of admission.
      .
      To enter into the neoliberal dialectic concerning the non-existent “market economy” is akin to being Alice, following the White Rabbit down the rabbit hole.

      The rabbit-hole went straight on like a tunnel for some way, and then dipped suddenly down, so suddenly that Alice had not a moment to think about stopping herself before she found herself falling down what seemed to be a very deep well.

  2. I agree with Wren Lewis, that Brexit is most likely going to be a huge setback for Britain, the EU and with major implications for worldwide geopolitical stability.

    However, I think these things were set in place before the Brexit vote, and Wren Lewis does not understand how neo-classical economics contributed to this and the rise of neo-liberalism of which all are inter-wined The rapid eastward expansion of the EU, which changed the character of the EU greatly, and that of NATO had major geopolitical implications. And at some point something was going to give. In addition to undermining Russian moderates (pushed by the IMF and neo-classical mainstream who advocated shock therapy policies after the fall of communism), it was accompanied by large movements of labour westwards – a level which was going to become a political problem in certain old northern EU countries at some point – even if you think it was overall beneficial for these countries and the negative consequences simply fiction created by the press, as well as a redirection of German capital eastwards, which was a shock for the Southern periphery. The expansion also greatly complicated the decision making apparatus of the EU, making the tighter political convergence needed for fiscal union impossible in the near term if ever.

    If nothing else neo-liberalism is basically pro-globalisation, in fact in its hey-dey of the 1990s to mid 2000s it was pro hyper-globalisation. It unambiguously saw the deregulation of international trade, goods and labour markets as beneficial. Wren Lewis very simplistically likes to blame the rise of austerity policy, the disconnect between the power elites and the general population and Brexit on the right wing press. If only people listened to mainstream economists and obeyed Model. He plays down deeper problems, of which one manifestation was the financial crisis. What he does not want to do is look neo-classical economics was simply unable to provide the intellectual leadership to see that such events were likely to unfold with hyper-globalisation, and with an inadequately informed understanding of capitalism and society to know how to deal with the fallout. What he thinks is that it is a special case technical problem of the zero-lower bound, and when interest rates return to ‘normal’ levels, its back to Taylor rules and estimation of output gaps – which should be left to the ‘experts’.

    • “it unambiguously saw the deregulation of international trade, goods and labour markets as beneficial.”

      that should of course read international capital, goods and labour markets.


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