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NO MORE COMPETING ECONOMIC THEORIES?

August 14, 2017

NO MORE COMPETING ECONOMIC THEORIES?

A friend who understands my interest in economics sent me a January 13, 2017 column written for the Bloomberg View by Noah Smith entitled “Tribal Warfare in Economics is a Thing of the Past.” Smith argues that the Keynesian and Austrian schools of thought have essentially merged and that economists today are not interested in keeping that distinction alive since most economists do not work in macroeconomics, and so the old debates between the two schools are mostly irrelevant. The second reason he assigns for such irrelevancy is that economics has developed a common language, heavy on math and statistics, which allows researchers to mix and match ideas from these old two schools of thought with regression analysis of one sort or another on data.

One of my favorite economists, Joseph E. Stiglitz, who won a Nobel for his work on the asymmetry of information, is a Keynesian (as I am), but Smith says such designation makes “absolutely no sense whatsoever.” I am no economist, having only a single degree in the discipline, but I disagree with Smith.

I think that the areas in which economists work and how they compile their data for analysis he cites as reason for amalgamation of the two schools are more irrelevant than the fundamental approach to the study of the so-called “dismal science,” aka economics, and that Keynesianism and the Chicago School (heir of the Austrian School personified by Milton Friedman and his trickledown nonsense  and the “magic of the market” as announced by a clueless Reagan) are far from merged among the academic class and amateur economists like me.

I cannot see how a Keynesian could possibly agree with Milton Friedman, founder of the Chicago School, and neither could Stiglitz, whose books I have read. I also do not see how a common language and the use of regression and other analyses can provide a rational basis for merger of Keynesian spending when in recession with austerity economics where spending dries up during such downturns leading (in my view) to deepening downturns. I think Smith’s views are of apples and oranges, substance vs. procedure.

Smith writes that the old Chicago School is no more. I disagree; I say that the practice of austerity economics now in vogue both here and in Europe is a direct descendant of Friedman’s “free market” theories and that such theories plus trickledown and political giveaways to the rich and corporate class via tax cuts and lax regulation of their predatory activities (especially banking corporations) is responsible for the underperforming economies both here and in Europe today.

I say that the “free markets” envisioned by Friedman never existed beyond the lecture stage and that such ideas were designed to give libertarian license to corporations to pursue profit unimpeded by public regulation of such activities, as though our economy belongs to the rich and corporate class to the exclusion of the rest of us and that we are bound to do their bidding irrespective of how their activities affect the rest of us.

I say that all of us have a stake in our economy and how it is run and that all parties concerned have a right to be involved in corporate governance in view of the history of corporate collusion, price-fixing, reckless investments and other such practices both here and abroad which brought on international depression and deep recession (see Coolidge’s and Hoover’s Great Depression and Bush’s Great Recession, both brought on by laissez faire politics leading to a tragic lack of regulation of banks and bond and equity markets). As it happens, I claim to personally know of the consequences, having lived through both the Great Depression and Bush’s Great Recession, and it was no fun.

We have been warned of the dangers of uncontrolled corporatism by luminaries in history starting with Adam Smith through Thomas Jefferson, Abraham Lincoln, Teddy Roosevelt and his cousin, FDR, Woodrow Wilson, Joseph E. Stiglitz and Thomas Piketty, among other such politicians and economists. Apparently we weren’t and aren’t listening since we have been persuaded by rich and corporate propaganda (and their Ayn Rand toadies in the Congress) that we have no stake in our own economy and how it is to be run today, which in fact is now being run for the sole benefit of the rich and corporate class under the banner of such wild west libertarians as the Kochs and Mercers, buyers extraordinaire of elections.

I think Smith’s observations are inaccurate, and worse, that they have the effect of preservation of the status quo, perhaps an externality with which he did not reckon. It seems clear to me that Keynesianism and the Chicago School are still at substantive odds with one another and that methodologies and measures of treating data are secondary to the real economic issues of the day, especially the ultimate issue of whether the rest of us have a stake in the economy via regulation of corporate activities or whether the corporate culture will continue to dominate us. Smith did not treat that ultimate issue in his essay, perhaps because, as he wrote: “The idea of different schools makes the public think that the econ discipline is more divided, and more politicized, than it really is.”

Nice try, Mr. Smith, but I think the evidence, both in the real and theoretical worlds, is that the econ world is very divided and more politicized than it has ever been as we sink lower into the Second Gilded Age, and that common research patterns and common language have little or nothing to do with such substantive disagreements. After all, accountants often disagree though all use arithmetic.

What to do? Reassert the right of the public to regulate the corporate culture by electing those who are in favor of such regulation, all to the benefit of all of the participants in our economy rather than just to the benefit of the deep-pocketed and coddled few with their “free trade” and other meaningless chatter, and the sooner the better – for all of us – even the rich and corporate class.     GERALD       E

 

 

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