The Crisis in Economics

Edited by Edward Fullbrook

Routledge, 226 pages

In June of 2000 a group of French university students published a petition protesting the narrow scope of the economics they were being taught, calling for educators to adopt a more “pluralist” approach to the subject. This book consists of nine documents or “manifestos," including the original petition, forming the basis of the “post-autistic economics” movements, as well as 43 brief essays by prominent academics discussing the movement. As it is impossible to do justice to such a diverse body of material in a brief review such as this one, I will simply draw attention to particular highlights and general themes in the book.

The four bullet points of the student's petition are:

1. We wish to escape from imaginary worlds!

2. We oppose the uncontrolled use of mathematics!

3. We are for a pluralism of approaches to economics!

4. Call to teachers to wake up before it is too late!

(Yes, each item really ends in an exclamation point.)

The best essay in the book is Tony Lawson’s “Back to reality.” Lawson debunks the notion that the aim of science, a la Friedman, is to hunt through data for event regularities. Instead, the goal is to find causative factors. The naïve hunt for event regularities has yield little economic knowledge; indeed, “econometricians repeatedly find that their supposed correlations are no sooner reported than they are found to break down.”

Another fine essay is Deirdre McCloskey's “Books of oomph,” on how other subjects, such as literary criticism and linguistics, have achieved a high degree of precision without the use of mathematics. (McCloskey, however, does not seem to understand what Collingwood meant by "scissors-and-paste history.")

I award the prize for the worst essay to James Galbraith. Writing in the wake of 9/11, Galbraith is positively gleeful in declaring that America faces “an economic calamity” and must embrace “the war economy,” by which he means state planning, massive government spending increases, exchange rate controls, and so forth. He is anxious that the effects of his policies not be “dissipated in savings,” reviving the daft Keynesian notion that saving is a form of waste.

Many of the authors suspect that neoclassical economics is a cover for libertarian ideology, which is somewhat amusing, given that people like Murray Rothbard often suspected it of being a cover for interventionist ideology! Geoffrey Hodgson exemplifies this tendency, writing: “To some extent [the Cold War] may explain why Western economics was increasingly dominated by pro-market ideology from 1948 to 1991.” But surely “pro-market ideology” became even more popular with the fall of the Soviet Union in 1991!

Many of the authors in this volume are guilty of misdirecting their attacks on the currently dominant, “rational choice, utility maximizing” approach to economics, an approach that has invaded other social sciences, most notably political theory. A recurring motif in these essays is that rational choice theory paints an egregiously distorted picture of human behavior: real people are not flawless, utility-calculating supercomputers possessing all data relevant to their situations. Nor, these critics protest, do actual humans choose a course of action based purely on a rational appraisal of how to best satisfy their own, selfish desires—real people, in their choices, take into account social norms, unexamined customs, religious beliefs, and the approval and well-being of others.

However, if rational choice theory is reduced to its essential core, then these complaints are irrelevant. The bare fact that a person chooses to act logically entails that he is acting to improve his situation as he understands it. The truth of that insight is not contingent upon the accuracy of that person’s view of his circumstances. From this abstract perspective, an action is “rational,” not because some reasonable observer judges it to be a sensible way of proceeding, but solely based on its meeting the formal criteria of being an undertaking deliberately to achieve an end.

Furthermore, the relevance of rational choice theory, in its pure form, does not hinge upon any restrictive assumptions concerning an agent’s motives or goals. One person might act solely with the aim of achieving the greatest sensual pleasure, while another might choose thoroughgoing altruism. But both actors are pursuing self-chosen ends by the most efficacious means they have conceived.

However, rational choice theory, as it is often employed today, is open to a serious criticism, one that most of its adversaries in this work have failed to isolate. The defect plaguing many current applications rational choice is that, in order to compel the basic theory to produce quantitative predictions about real-world economic phenomena, practitioners often introduce further, arbitrary assumptions into their models, for example, positing that all agents in the model are motivated solely by a desire to maximize their monetary gains. Such an assumption certainly makes it easier to plug numeric values into a model and churn out an ostensibly precise answer. But, strictly speaking, that assumption is always false, and may be wildly off the mark in particular cases. It is such modified versions of rational choice theory, rather than the basic theory itself, that are open to the objections raised in this work.

However, despite these flaws, this book offers a useful survey of the state of heterodox economics today, as well as holding out some encouragement that the hegemony of the mainstream is not invincible.