Why economics is Rot

In: Uncategorized

18 Apr 2011

This is my latest comment from Fund Strategy.

Earlier this month saw a high-powered conference organised by what must be a contender for the title of most peculiar organisation in the world: The Institute for New Economic Thinking (Inet).

Although it often claims to favour a “fundamental shift in economic thinking” it is hard to imagine an organisation more embedded in the contemporary orthodoxy.

It has six Nobel laureates on its advisory board, is funded by a billionaire and the speakers at its recent conference in Bretton Woods included Gordon Brown (Britain’s former prime minister), Larry Summers (a former American Treasury secretary), Adair Turner (the chairman of Britain’s Financial Services Authority), and Paul Volcker (a former chairman of the Federal Reserve). It is hard to think of a more unlikely bunch of revolutionaries.

Fortunately the proceedings of Inet’s recent conference are available on its website so it is possible to get a better idea of its real preoccupations. From there it is clear that Inet’s real goal is the Rehabilitation of Old Thinking (perhaps rendered as “Rot”?) rather than the creation of anything new.

Inet participants frequently caricature arcane economic theories or relatively uninfluential free market thinkers as a counterpoint to what they present as sensible economics.

Therefore Dynamic Stochastic General Equilibrium theory is bad but ahistorical theories which separate an understanding of finance from the real economy are regarded as good.

On balance it would be far better if, rather than trying to resurrect mainstream economics, the discipline was ditched entirely. It is hard to see what useful role it plays.

As a way of understanding the world it is superficial and technical. As a tool for those trying to run a business it is largely impractical.

The nineteenth century separation of economics from the rest of the social sciences was a mistake in the first place. Far better to integrate the study of the material world with that of the rest of society.