Brain dead economics

In: Uncategorized

11 Jul 2011

Here is my comment from this week’s Fund Strategy.

Back during the financial crisis of 2008-09 it became fashionable to argue that a pervasive free market orthodoxy – also known as “market fundamentalism” or “neoliberalism” – had died.

Yet several prominent figures who wrote its obituary back then have more recently recanted. Joseph Stiglitz, a Nobel laureate and former chief economic adviser to President Bill Clinton, is perhaps the most high-profile figure to have recanted. After the collapse of Lehman Brothers in September 2008 he stated without equivocation that “market fundamentalism is dead”. Yet in a widely circulated column for Project Syndicate last week, he said it had made a comeback:

“I was among those who hoped that, somehow, the financial crisis would teach Americans (and others) a lesson about the need for greater equality, stronger regulation, and a better balance between the market and government. Alas, that has not been the case. On the contrary, a resurgence of right-wing economics, driven by ideology and special interests, once again threatens the global economy – or at least the economies of Europe and North America, where these ideas continue to flourish.”

Anatole Kaletsky, the principal economics commentator for the Times (London), has done a similar U-turn. In Capitalism 4.0, his 2010 book on how the global economy was being transformed, he argued the world was moving towards a more pragmatic outlook and away from “market fundamentalism” (reviewed in Fund Strategy, August 16, 2010). But in a column in the Times last September he argued that the Anglo-American elite had reverted to its earlier outlook:

“A year after Lehman, the era of free market fundamentalism seemed to be over. Instead, business as usual has prevailed. Not only have the banks escaped any wide-ranging reregulation, but politics, at least in Britain and America, has reverted to the language of the Thatcher-Reagan period.”

This is all bizarre since, as I have previously argued in Fund Strategy (May 31, 2011), neither the American nor British economies bear any relationship to the free market model. Indeed, leading politicians are anxious to distance themselves from free market ideas, even on a rhetorical level. The most influential economic thinkers seem intent on attacking a caricature of contemporary policy rather than grappling with messy realities.

It is hard to resist the conclusion that mainstream economics, with its acute fear of engaging with social and intellectual change, is moribund. Its proponents may be alive in body but they give every indication of being brain-dead.