Opinion pieces and speeches by EPI staff and associates.

[ THIS PIECE ORIGINALLY APPEARED IN TPM CAFE BLOG ON MAY 31, 2007. ]

The trouble with economics

By Max Sawicky

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“Involuntary unemployment should be confined to cases of specialized skilled workers . . . Such unemployment is far below the levels usually characterized as the “noninflation-accelerating rate of unemployment,” sometimes referred to as the “natural” rate of unemployment, in one of the most vicious euphemisms ever coined.”

— William Vickrey

The intellectual chauvinism of the profession’s academic elite has consequences for the real economy, for the living standards and life chances of billions of souls the world over. It’s not that the accepted wisdom has produced error. That is true in every discipline. It is that the errors all run in the same direction — favoring the interests of those with power. Perhaps that is to be expected as well, but it doesn’t mean we should blind ourselves to the reality.

Nor is it my contention that the assortment of reigning theories and methods are intrinsically at fault.

“Micro” theory in my view is interesting, enlightening, and highly adaptable (albeit not often adapted) to a variety of perspectives. Macro theories are plentiful and diverse. It is also true that the canon shows some adaptability. As far as math goes, there are intricately mathematical heterodox models.

In other words, there’s nothing wrong with pasta, just because it’s Tony Soprano’s favorite food. It’s what goes on late at night in the back room of Satriale’s Butcher Shop.

Alien notions are absorbed but coopted in the process. Energies focus on unearthing counter-evidence to unwelcome empirical findings. Otherwise qualified people with a tendency to make waves are filtered out of the leading departments. The personal testimony on this is overwhelming, and nobody has offered any rebuttal. It’s the politics.

The politics narrows the field of enquiry, the answers that are arrived at, and the people who get to provide the answers. Now of course economists are entitled to any politics they like. And they are free to pretend they are above politics, just like politicians do. And I’m here to tell you theirs is not a discipline founded on objectivity.

What is the result? From a policy standpoint, all the elaborate research funnels into the following precepts:

• Measurable, private-sector GDP is preferable to public goods, leisure, non-market amenities, and not incidentally consideration of policies that promote the sustainability of the economy and ultimately human survival. (You know, the little things.)
• Private capital formation is preferable to consumption.
• Zero inflation is preferable to high employment.
• Inequality in terms of income, gender, and race are (pick one) inevitable, a sign of sound policy, morally praiseworthy, not interesting, not really happening, impossible to remedy.

Consider the Vickrey quote at the top. Professor Vickrey was thoroughly ‘neo-classical’, as mathed-up as anybody else for his time, acclaimed all around for his work. Nobel prize winner, president of the American Economic Association. He asserted that a basic theory in macroeconomics going to a fundamental public issue was not merely wrong, but “vicious.”

Who do you think he was talking about?

Max Sawicky is an economist at the Economic Policy Institute in Washington, D.C.

[POSTED TO VIEWPOINTS ON JUNE 11, 2007. ]