Rethinking economics

I was at the London conference of Rethinking Economics over the weekend. Rethinking Economics is an international network of economics students calling for changes in the curriculum of university departments and in the economics discipline in general ( It was formed in 2012 in disgust at the failures of mainstream economics after the Great Recession and against the unwillingness of university economics departments to allow alternative courses or even pluralist critiques of the prevailing neoclassical mainstream. It is financed by George Soros’ Institute for New Economic Thinking among others.

The London conference drew a range of academics and other speakers, first, to explain why mainstream economics is unchanged, despite its failure to forecast, explain or even accept the failure of modern market economies in the light of the Great Recession. Second, the conference had speakers to discuss different strands of alternative or heterodox economics.

The conference themes of ‘alternative economics’ was dominated by the Keynesian view. In my view, Keynesian economics is mainstream, even it is not dominant. By that I mean that Keynesians accept the existing mode of production, capitalism, as eternal and the only one possible. They differ from the neoclassical school in recognising that there are booms and slumps due to a lack of effective demand that has to be dealt with. For example, Paul Krugman, the leading Keynesian, reckons the problem of a ‘lack of effective demand’ recurring in capitalism is just a ‘technical malfunction’ that can be corrected with judicious use of monetary and fiscal policy. For Keynesians, it is frustrating that mainstream economics does not recognise that this problem exists and can be fixed. Paul Krugman complained recently that “anti-Keynesian views, indeed real business cycle theory asserting that inadequate demand can never be a problem, retains a firm grip on much of the profession.”

There are Keynesians who go further than arguing that there is just a ‘technical malfunction’ in the capitalist economy. They reckon that capitalism is ‘inherently unstable’, or at least its financial or monetary sector is; and that there is no perfect market or steady equilibrium growth for capitalism. The ‘market economy’ is imperfect, unstable and the future is uncertain. Indeed, that was the message of many of the speakers at Rethinking Economics.

Indeed, some post-Keynesians, as the more radical heterodox wing of Keynesians are called, reckon the main message that Keynes brings to the understanding of economies is uncertainty. In a monetary economy, in a complex modern economy, with so many variables and human beings often acting ‘irrationally’, everything is uncertain and above all unpredictable.

Professors Victoria Chick ( and Sheila Dow ( presented a session on the methodology of economics in which they argued that mainstream neoclassical economics was based on a ‘mode of thought’ called logical positivism that argued that facts were pure, that theories were socially or psychologically unbiased and that the nature of the scientific method was clear. Dow and Chick reckoned that this was rubbish: facts, theories and method are value laden. Mainstream economists have been ‘socialised’ into a mode of thought that markets are perfect and that self-interest and rational choices are the way humans act. These economists have closed minds to anything else.

I’m sure this is right but what worried me was that Chick and Dow seemed to argue that we could not really do any economic research as they do in the natural sciences because facts and theories cannot be considered objectively in a world of human irrationality and biased ‘modes of thought’. Indeed, we can’t know what is fact or fake, science or not science, because it is all relative. When a questioner asked the professors does that mean “anything goes”, they replied: oh no! But it seemed to me that their level of relativism implied just that.

Now maybe I am naïve, but I reckon that applying the scientific method to issues and problems is not useless. You draw up a set of realistic assumptions about the economy, you develop a theory from it and then you test it with the evidence and facts available. This evidence confirms or refutes the theory. You even make predictions or forecasts based on your theory and results – indeed you should. Others can argue against your theory, evidence and conclusions. Others must try to replicate your work to see if it holds. This is the scientific method and it still seems the way to work, even in a world of uncertainty, imperfection and human or social bias. Otherwise you can do nothing.

In economics, I reckon the right assumptions, theory and empirical study can help us to predict or forecast booms and slumps, or at least explain why they reoccur regularly. It seemed that Chick and Dow thought this was impossible or unwise, even for heterodox economics. But it is one thing to say that neoclassical economics is too certain, dogmatic and has a closed mind; it is another to say that everything is so uncertain, unpredictable and complex that we can do nothing, predict nothing, forecast nothing. In contrast, elsewhere in the conference, Julian Wells of Kingston University ( showed that good work can be done by using the scientific method of the natural sciences in economics (economics can learn from the physical sciences).

Uncertainty, unrealistic assumptions and scant evidence are just as much problems in natural sciences as in economics, but that does not stop physics, chemistry etc from making huge advances in human knowledge. I quote from Bill Bryson’s popular book (A short history of nearly everything): “astronomers have sometimes been compelled to base conclusions on scanty evidence, and there is a mountain of theory built on a molehill of evidence … the upshot is that computations are necessarily based on a series of nested assumptions, any of which could be a source of contention.” But still scientists plough on. Meteorologists face a complexity of ‘weather’ but scientific work has increased the success of forecasting weather dramatically: three-day forecasts are pretty good now.

Anyway, the conference rolled on with one speaker after another basically telling the 300 strong attendees that uncertainty and complexity made making any predictions or forecasts about the economy impossible. Paul Ormerod (, author of Butterfly Economics, told us that human behaviour ‘defies economic theory’; human society is not predictable or controllable; business cycles are natural and normal and cannot be avoided, and that it is better for government not to intervene. “Business cycles are an inherent feature of market economics”, but governments should not attempt to control unemployment, and recessions are “not really a concern”. Economies are so complex, all we can do is just try and improve long term growth through recognising complex problems, not short-term problems of inadequate effective demand. Not very Keynesian really.

Marxian economics got a small mention. Michael Burke (see my recent post, explained the basics of the Marxian approach to an audience of about 10% of all the attendees, probably a fair reflection of the support for the Marxist alternative relative to the Keynesian in among the rebellious Rethinking Economics.

The dominant view of the conference speakers (if not the audience) was summed up by the speech of Will Hutton ( Hutton is a well-known pundit on the economic state of Britain and former editor of a liberal British newspaper. He has written a number of books attacking the neoliberal policies of various UK governments but from a Keynesian view. He started by saying how shocked he has been on the impact of the Great Recession and the growth of inequality in Britain. It’s been way worse than he ever imagined. The problem was that unregulated markets have failed. However, for Hutton, ‘socialised production’ or ‘socialism’ as an alternative would be “a mistake”. It would mean ‘monopoly control’ of the economy and that would deter innovation and technological progress. We need a ‘pluralist’ economy. Hutton said we had to recognise that capitalism is the best system and over the last century it had delivered huge increases in wealth per capita through the exploitation of technology and science.

This sounded much like the famous lecture by Keynes back in 1930 (The economic possibilities of our grandchildren) which aimed to convince his Cambridge students, also engaged at the time in Rethinking Economics in the depth of Great Depression. Keynes was concerned that students would migrate to Marxian economics (which he thought was rubbish) and to communism (which he thought was Stalinist dictatorship). He told his audience that within 100 years, all the world would be rich, people would be working only 15 hour weeks and would have to worry about what to with their leisure time (see my post,
Just like Hutton, Keynes ignored the inequality of wealth and income under capitalism (the issue recently raised by Thomas Piketty and others – see my various posts). Keynes ignored globalisation, wars (a big one was still to come) and poverty for the majority of the world under capitalism. Keynes just talked about the advanced capitalist economies. And he never considered that depressions would be repeated even if governments adopted his ‘technical solutions’ to the recurrent lack of effective demand and monetary crises under capitalism.

Hutton and the dominant Keynesians at this conference left out these things from the nature of capitalism. For them it was simply a problem of uncertainty and imperfection. What capitalism needs is better management and regulation to end myopia (short-sighted investment), better control of credit and stock market speculation and a fairer labour market to boost wages.

If only capitalists could recognise what would be good for them or their system. Chick and Dow suggested that reform would be impossible until we can change the closed mind-set of mainstream economics. As if the issue was a psychological one. Mainstream economics is closed to alternatives because there a material interest involved. The ruling ideology of a society is that of the ruling class, in this case, the capitalist class.

Chick and Dow seem to think that it’s just a question changing the mind-set of those economists that support the market – for their own good because austerity and neoliberal policies are actually bad for capitalism itself. Keynes too thought that the problem was one of ‘old ideas’ hanging around in the heads of economists and governments. But ideas come from social experience and material class interests. It will take more than just ‘rethinking economics’ to change that.

22 thoughts on “Rethinking economics

  1. Amazing! One would think that no one else had ever grappled with these methodological, theoretical, philosophical and political issues before judging from this account. It’s as if they aren’t even aware of the full history of their own discipline and the incredible contributions of various heterodox schools.

    It’s very disappointing that even six years after the most recent major tremor in the global economy an apparently student-led intellectual rebellion is still not interested in thinking beyond a broad capitalist paradigm and merely aspires to fix the discipline’s predictive and regulatory capabilities. They obviously haven’t yet given up hope of careers making loads of money or being well paid servants of power.

    The mainstream discipline is clearly dominated by ‘technicians’ and the ethically and philosophically impoverished who are never going to willingly change – my advice would be ignore the doomed and develop a vigorous and diverse heterodox alternative to guide grassroots social movements.

  2. Its true that at an individual level there is huge uncertainty (similar perhaps to the uncertainty at a quantum level in physics), but that uncertainty tends to disappear at a more aggregated level. There are lots of examples of that.

    In Capital I, Marx quotes Edmund Burke, who wrote that if you take 5 workers there will be considerable variation between them in terms of skill, strength and so on. However, he said, take any group of 5 workers and compare it with another group of five workers, and the aggregate of the two groups will be pretty similar.

    Big Capital certainly doesn’t believe this uncertainty is a problem. Forty years ago, I worked in the Marketing Department of a large pottery manufacturer, and each year we would go out around the country to Women’s Institutes and so on, taking samples of proposed new shapes of ware, and new designs to see which might be potential new lines. What any individual might think was not important, it was the aggregate of opinions that counted.

    Today, the supermarkets encourage you to take loyalty cards, not because they think it will make you loyal, but because it gives them, along with your credit card, instant access to not just what the aggregate is buying, and how trends are changing, but even what individuals are buying so that they can tailor their buying, and the instructions they give to producers accordingly.

    What we did 40 years ago to judge how the market was going, and thereby plan production ahead for the next year or so, is pretty primitive compared to the ability of big capital today to asses how demand is moving, and to adjust their long term investment plans accordingly. But, that is no doubt another reason for capex being muted.

    CNBC had a chart the other day, where they asked Chief Executives what the main concern was they had that was limiting new investment, by far the largest factor 48%, was lack of demand.

    1. The existence marketing shows one of the earliest points Marx made: which is that that supply that drives demand because, as far as I understood, it is fetish, such that even basic staple items are also due instinctual desires for survival, which creates value of use.

      If there are too many commodities with similar or equivalent value of use, it means the market is crowded. Marketing or brands cannot arouse more fetish if there is no new value of use in a commodity (I am excluding collectors).

      Lack of demand means lack of fetish, which means a crowded market. So, if a CEO says lack of demand, that means in marxist terms that a market is crowded, and any production in that segment is overproduction. But, since a commodity must first almost crowd the market so that a company, or a competitor, can figure out a “lack of demand”, it means that the cause of “lack of demand” is the overproduction of a commodity.

      If there is no investment, a vicious cycle will start, since there will new fetish in a new, more advanced, type commodity to make people desire for it.

      So, capitalism fails again.

      1. “Lack of demand means lack of fetish”

        or lack of means. The rise of food banks and discount stores is not a reflection of lack of fetish but a reflection that money it tight. This way supply tags behind demand.

      2. Money is tight because the overproduction leads to a decrease in production which leads to a reduction in labor, that is, there is less abstract labor to be transformed in money from a previous cycle. The machines “strike”, people are fired and/or wages cut. So, demand trails behind.

  3. Weather science is also full of denial. Remember the denial of Global Warming? It’s bad enough like this, but it would just require a small part of overall investment to change, not the fact that the whole system should be changed.

  4. What is it with the London heteros and MMT? Why do they refuse to even consider that it exists? They look like petty academics in this.

  5. Can anyone recommend some sources on heterodox economics (This blog aside)? I’ve read the basics about Sraffian economics and MMT, but none of these schools seem to address the kind of problems Phillip Mirowski has raised in his research. I worry deeply about the problems at the foundations of economics and how uncertain they make any the claims of schools that ignore them.

    1. I’d recommend you Laws of Chaos: Probabilistic Approach to Political Economy [Emmanuel Farjoun, Moshe Machover].

  6. I am constantly amazed at how narrow the conversation on economics remains,that so few will venture out of the box for at least a little theoretical discussion.

  7. “Money is tight”…. exactly where? Where is there a lack of credit? Where are the capital markets shriveling? Money isn’t “tight.”

  8. ““Money is tight”…. exactly where?”

    Among working people, and not everyone feels comfortable about going into debt (though some have been forced down this road). This is why there has been an explosion of discount stores and food banks. People choose these options due to lack of money, it isn’t a lifestyle choice. Maybe you think it is? This is certainly something the right have tried to argue.

    Taking at the aggregate level, maybe money isn’t tight, but if we just focused at the aggregate we could say there were no poor people!

    Anyway, you are being pedantic. Behave!

    Unless of course, you think people are awash with cash?

    1. I’m not being pedantic. “Tight money” is a term used to identify periods when interest rates are high, or rising, and when the availability of cash is restricted. To say “money is tight” for the working poor is worse than being pedantic; it’s engaging in tautologies. They wouldn’t be poor would they if they had money, right? And after all, the “working poor” is exactly what capital has dedicated itself to increasing; to reproducing over last 30 years.

      That’s why I put the second remark in there, hoping you might glimpse the uselessness of talking about money being “tight” or “loose” when the issue is the living standard of workers and poor.

  9. ““Tight money” is a term used to identify periods when interest rates are high, or rising, and when the availability of cash is restricted.”

    Not when it is used by me it isn’t! Maybe this is a British expression?

    “To say “money is tight” for the working poor is worse than being pedantic; it’s engaging in tautologies.”

    But it isn’t a tautology because I put this in the context of an increasing number of food banks and discount stores. This shows a development/process where a greater number of people are struggling to make ends meet. In Britain we have had an explosion of food banks, you can’t say recognising this development is a tautology, a development cannot be a tautology!

    You didn’t need the second remark because it was pretty obvious that I was talking about workers, after all CEO’s don’t go to food banks or discount stores! In fact you actually didn’t need the first remark.

    But my point was to respond to Daniels, in my opinion, flippant and technical description of what amounts to some working people being forced to take a trip to the food bank.

  10. @ Michael Roberts

    I don’t know where to ask, but this is more related to your pieces on profitability, but where and how do get your data on the US rate of profit? And what is your ideal (in terms of predictive strength) measure?



    1. Btw, the reason I ask is because I want to be able to compile such data myself and make those nice looking charts you make when you write on current trends in profitability. But is kind of difficult because I don’t where to begin.

    2. Mikh
      Too much to tell you in a short reply. The data are to be found in the US Bureau of Economic Analysis site.
      National NIPA stats give you the profits data and the fixed assets are also there

      Many scholars manipulate the data in different ways. I discuss the different ways in my post, which also contains my paper on this issue. And also see my post where a number of other papers by others are cited on this issue. And this paper is very good on the ways of measuring the US rate of profit.

      As for prediction, we can use various econometric measures for correlations, long-term trends etc.

  11. Reblogged this on Don Sutherland's Blog and commented:
    Another weird feature of the Keynesian perspective is its inability to deal with the meanings of profits, including their dynamic and exploitation laden relationship with wages and nature. Ask any boss andI any worker what is of absolute importance in the daily, weekly, etc production process and the answer will be about profits. That which is clear to workers and their bosses is lost on the Keynesian.

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