BY Sheila Dow Economic ideas are important for the way they shape our lives, through government policy, through the behaviour of markets and companies and through our own behaviour. Governments draw on ways of understanding the economy and how their po …
BY Sheila Dow
Economic ideas are important for the way they shape our lives, through government policy, through the behaviour of markets and companies and through our own behaviour. Governments draw on ways of understanding the economy and how their policies will affect it. But the reactions to policies and what markets, companies and individuals believe is appropriate economic behaviour also depend on economic ideas.
Most notably at present there is an idea that government borrowing in many countries is excessive and that the solution lies in fiscal austerity. We are expected to accept this idea and its consequences as a technical matter. It is important to understand where such ideas come from and what their status is.
Economies are complex and evolving social structures, so any economic model can only capture some economic processes. There is no one best model, and we have seen the inadequacies of the leading models, which failed to predict the crisis. People joke about economists being unable to agree. But in fact it is good that there are different ideas about the economy to draw on, since no one set of ideas can have the full picture. This does not mean that any ideas are defensible, but rather that any set of ideas should be defended – including ideas in favour of fiscal austerity.
What kind of range of ideas are we talking about? The impression we are given by public debate is that it is a question of which model is best. This is the result of thinking of economics as the kind of science which at any one time can produce what everyone should, in principle, be able to agree is the best model and the best set of policies. It is a technical matter. That is only one of the set of ideas about the economy and about economics.
But it is a powerful view because it is the one promoted by the dominant approach to economics. It is presented as being separate from politics and from moral judgements. In fact it is accepted by economists across a wide political spectrum. It is probably a fair assessment however that this view of economics as technical is mostly held by economists who favour free market forces (with some minimal support from government regulation and policy intervention).
But there are many groups of economists round the world who see economics in a different light. For them, any set of economic ideas starts with a particular way of understanding economic processes – some in terms of social behaviour, some in terms of class, some in terms of individualism, some in terms of institutions and so on. Economics also starts with an understanding of human nature and of society, and of what the good society consists of. This profoundly colours the way theory is developed and issues understood.
It also means that any policies which are suggested are coloured by the starting point of the theory and require the exercise of judgement in any particular context. It is not the technical matter implied, for example, by the Maastricht Treaty. So for example one of these groups is the Post Keynesians, who argue for fiscal stimulus as part of a solution to the crisis, but taking different forms when taking account of different countries’ situations. But Post Keynesians also understand the causes of the crisis in terms of the inevitable instability of capitalist economies and see cures in robust regulatory environments and encouragement of social conventions, eg as to the social role of banking.
These groups of economists developing different sets of ideas are growing and becoming increasingly organised with the help of social media of different kinds. The crisis has given new impetus to this trend, as frustration grows with the continuing domination of public policy by the mainstream and the absence of debate in mainstream circles over alternative analyses and policies. Non-mainstream economists are becoming increasingly concerned at the human cost of mainstream policies which have not been properly justified against alternatives. The most recent development is the formation in 2011 of the World Economics Association (http://www.worldeconomicsassociation.org/), which attracted over 7000 members in its first two months.
So even before thinking about which economic theories and policies to support, it is important to think about what is being taken for granted. We are encouraged to take it for granted that governments should follow rules about limiting deficits no matter what the social and economic circumstances, that people should be ‘rational’ in the sense of focusing on increasing their own income and wealth, and so on. But these ideas came from a particular way of understanding the world and ideas about what it should be like. This should all be up for debate.
Emeritus Professor of Economics
University of Stirling
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