Economics students begin to revolt

Economics students of the world have nothing to lose but their ideological chains. A revolt appears to be brewing — an international coalition of economics students has issued a public call for the teaching of a variety of schools of thought so that the field might actually find solutions to the world’s problems.

This is a radical departure. Orthodox economics, dominated thoroughly by Chicago School ideology, exists to justify extreme inequality and class dominance, which is why its adherents, who occupy critical financial posts around the world, continue to implement ruinous policies. At universities, the teaching of economics is similarly dominated by the Chicago School.

University of Chicago

University of Chicago

Not all students are content with this state of affairs. The international coalition International Student Initiative for Pluralism in Economics has issued a manifesto taking direct aim at the extraordinarily narrow curriculum. What makes this especially noteworthy is that this coalition comprises 42 student associations in 19 countries — and has a web site in seven languages. The manifesto says:

“This lack of intellectual diversity does not only restrain education and research. It limits our ability to contend with the multidimensional challenges of the 21st century — from financial stability, to food security and climate change. The real world should be brought back into the classroom, as well as debate and a pluralism of theories and methods. … [P]luralism carries the promise to bring economics back into the service of society.”

The very need to drag economics “into the real world” speaks for itself. The ideological narrowness of the field leaves students unprepared, the manifesto says:

“Where other disciplines embrace diversity and teach competing theories even when they are mutually incompatible, economics is often presented as a unified body of knowledge. … This is unheard of in other fields. … An inclusive and comprehensive economics education should promote balanced exposure to a variety of theoretical perspectives, from the commonly taught neoclassically-based approaches to the largely excluded classical, post-Keynesian, Institutional, ecological, feminist, Marxist and Austrian traditions — among others. Most economics students graduate without ever encountering such diverse perspectives in the classroom.”

Nor should economics wall itself off from other disciplines, as if the economy is independent of the rest of human activity:

“[E]conomics education should include interdisciplinary approaches and allow students to engage with other social sciences and the humanities. Economics is a social science; complex economic phenomena can seldom be understood if presented in a vacuum, removed from their sociological, political, and historical contexts. To properly discuss economic policy, students should understand the broader social impacts and moral implications of economic decisions.”

That such things need to be said, once again, speaks for itself.

How can a science call itself “sacred”?

Orthodox economists — or “neoclassical” as they are called in the field — like to present themselves as hard-headed realists who dispassionately crunch numbers. Yet consider that one of the most important Chicago School economists, Frank Knight, wrote in a leading academic economic journal that professors should “inculcate” in their students that these theories are not debatable hypotheses, but rather are “sacred feature[s] of the system.”

Under this “sacred” system, economic activity is treated as a simple exchange of freely acting, mutually benefiting, equal firms and households in a market that automatically, through an “invisible hand,” self-adjusts and self-regulates to equilibrium. Households and firms are considered only as market agents, never as part of a social system, and because the system is assumed to consistently revert to equilibrium, there is no conflict. Production is alleged to be independent of all social factors, the employees who do the work of production are in their jobs due to personal choice, and wages are based only on individual achievement independent of race, gender and other differences.

Underlying these assumptions is a concept known as “perfect competition,” a model that assumes that all prices automatically calibrate to optimum levels, and that there are so many buyers and sellers that none possesses sufficient power to affect the market. The economist Robert Kuttner, in a 1985 Atlantic Monthly article, summarized the unreality of this concept:

“Perfect competition requires ‘perfect information.’ Consumers must know enough to compare products astutely; workers must be aware of alternative jobs; and capitalists of competing investment opportunities. … Moreover, perfect competition requires ‘perfect mobility of factors.’ Workers must be free to get the highest available wage, and capitalists to shift their capital to get the highest available return; otherwise identical factors of production would command different prices, and the result would be deviation from the model.”

The real world bears no resemblance to that artificial ideological construct. Rather than question their dogma, adherents instead insist government regulations get in the way, sullying what would otherwise be a pristine market. This is where “magic” comes in, as in the “magic of the market” that is routinely invoked. Because orthodox economists often treat Adam Smith’s works as sacred books, it is not inappropriate to note that Smith himself wrote that “Providence” guarantees that everyone, including the poor, has enough to eat:

“When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition.”

A couple of centuries of refutation

Although Smith’s writings tend to be cherry-picked by his epigones — inconveniently, Smith acknowledged that capitalists have advantages over employees and believed that labor should be fairly compensated — he drew conclusions that long ago showed themselves unsustainable. Smith believed that capital accumulation inevitably leads to increases in employment and wages, that commercial exchange leads automatically to moral behavior, and that a free market without restrictions would restrain big merchants and manufacturers while benefiting employees and consumers.

Smith wrote in the 18th century at the dawn of the Industrial Revolution before his ideas could be put to the test; today’s orthodox economists who repeat them in the face of massive evidence to the contrary are motivated by something other than scientific rigor. Keep this mind the next time Karl Marx is dismissed as irrelevant because he wrote in the 19th century. At least Marx based his works on rigorous analysis of the actual workings of capitalism.

One of the “sacred” features of capitalism verboten to question is its alleged high levels of efficiency. Were we to examine this question from, for example, an Institutionalist perspective, we might find that is not so. Institutional economics is a school that believes economic and social behaviors are cultural phenomenon, conditioned by cultural parameters, and incorporates a focus on the deployment and concentration of power, in particular the role of institutions in shaping economic behavior.

This is one of the neglected traditions the International Student Initiative for Pluralism in Economics manifesto said should be added to economics curriculums. A leading Institutionalist economist, Marc Tool, argues that competitive market economies are inefficient because they provide no way for wants and preferences to be appraised, leaving it instead to media advertising to create demand artificially, and that markets fail to address the problems of gross income inequality. As a result, many people have their choices in life constrained

“to the point where intellect, creativity, compassion, and commitment are stunted or destroyed for those denied. We then live in a layered or tiered community suffering from elitism and privation alike. This would appear to be inefficiency of really monumental proportions.”

More idle capacity, more unemployment

Unemployment is high at the same time that plants sit idle. Total U.S. industrial capacity utilization as of January 2014 is only 78 percent, and although that is higher than the figure was in the years following the onset of the global economic downturn, there has been a persistent decline in capacity usage since the 1960s. European industrial capacity is 79 percent. Despite this unused capacity, unemployment remains high in both regions.

Another way of looking at this inefficiency is that shrinking numbers of people, in all parts of the world, who have steady employment that pays a living wage. John Bellamy Foster and Robert W. McChesney in their 2013 book The Endless Crisis calculate that the “global reserve army” — workers who are underemployed, unemployed or “vulnerably employed” (including informal workers) — totals 2.4 billion. In contrast, the world’s wage workers total 1.4 billion.

The mystery surrounding orthodox economists continuing to insist on policies that have brought such ruinous results vanishes when we realize that they are promulgating ideology for the benefit of industrialists and financiers and not science on behalf of humanity. Lately is has become fashionable to advocate for a return to the Keynesian policies of the mid-20th century — even these, safely within capitalist bounds, are marginalized within the economics profession.

Keynesianism is the belief that capitalism is unstable and requires government intervention in the economy when private enterprise is unable or unwilling to spend enough to lift it out of a slump. Alas, we are not living in the mid-20th century. Keynesianism depended on an industrial base and the availability of new markets into which capitalism could expand. A repeat of history isn’t possible because the industrial base of the advanced capitalist countries has been hollowed out, transferred to low-wage developing countries, and there is almost no place remaining to which to expand.

Moreover, capitalists who are saved by Keynesian spending programs amass enough power to later impose their preferred neoliberal policies, as they began to do by the late 1970s. The “Keynesian consensus” was a temporary phenomenon tolerated by capitalists because their profits were rising despite the higher wages they were paying. If the world is undergoing a structural crisis of capitalism, then policies intended to stabilize capitalism can’t provide a long-term solution.

Study of the widest reasonable range of economic ideas is not simply a matter of healthy debate but necessary to finding a path to a better, more humane world.

Bringing alternative economic ideas back into the mainstream, especially those critical of capitalism, is part of a larger social struggle. The one percent’s preferred ideas that dominate did not fall out of the sky. As Karl Marx once wrote: “The ideas of the ruling class are in every epoch the ruling ideas, i.e. the class which is the ruling material force of society, is at the same time its ruling intellectual force.”

“Ruling” ideas create priesthoods, which are best left outside of economics departments and central banks.

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18 comments on “Economics students begin to revolt

  1. Reblogged this on Hello.Lenin! and commented:
    Indeed, it’s high time to break with old economic ideas!

    • High time, indeed. But some people disagree with us. A reader placed a link to this post on Reddit, and I have kicked a hornets’ nest judging by the vitriolic reactions in the comments there. It would seem that those who have a vested interest in neoliberalism are most displeased at being challenged. Those brave students challenging the economics curriculum will have a difficult fight ahead of them.

  2. Alcuin says:

    I read today that Facebook bought the fitness tracking app Moves. Since the start of 2104, Facebook has spent $20 billion buying companies. You write that for capitalism, “there is almost no place remaining to which to expand.” Ah, but capitalism has an unmatched ability to change and find new methods of accumulation. These acquisitions by Facebook are evidence of that ability, I think.

    More power to these students. I wish them well. I’m going to see if I can find E.F. Schumacher’s essay, Buddhist Economics.

    • To clarify, what I meant is to expand geographically. I did not intend to suggest that technical innovation is drawing to a close; I am sure we will see plenty more, useful and not useful. But I would note that Facebook’s buying binge is an attempt at expansion through entering new product lines, perhaps a sign that the company is unsure of its ability to significantly expand further its core business. Given the tendency of younger folks to quickly move on to new technologies, that fear, if I am accurate in seeing it, is reasonable.

      Expanding into new lines and mergers with competitors are ways for individual corporations to continue to expand when a market becomes mature. Expansion of the system as a whole — that is, the growth of capitalism from a corner of Europe to a truly world system — has been a necessity to keep it going. But there are few corners of the world left untouched. Thus, companies gobbling up each other and/or buying companies to move into newer product lines will likely accelerate.

      That trend toward monopolization has been going on — mature markets had experienced this on a national level and it is now occurring on an international scale, as explained well in The Endless Crisis. When there are no more geographic markets to conquer, then cutting costs (especially labor) is the route to maintaining profits. In other words, austerity. For folks who don’t have time to read that whole book, my review of it is here. If you have only one book to read about why the world has arrived at its current place, that would be the one.

      • Alcuin says:

        From what I understand about the Moves app, it tracks all of your fitness routines. Moves promised never to share that data with third parties. Guess what happened when Facebook bought Moves? Yep – Facebook gets to take a look-see. The privacy policy was “updated” so that Facebook can fine-tune their advertising pitches to generate more profit for their clients because individual users are surely not the focus of Facebook. Individual users are just cows to milk. We surely agree on capitalism’s unmatched ability to find new methods of accumulation.

        I’ll read your post on The Endless Crisis. While I’m doing that, could you post a link to the Reddit discussion for those among us who are challenged in trying to figure out how to access that “discussion”?

  3. Alcuin says:

    Well, I have to say that the Reddit “discussion” is interesting, if nothing else. It surely demonstrates the ignorance and ideological straight jackets that so many people have when it comes to economics (and a whole bunch of other subjects, too!). And it demonstrates the core truth of the entire Modernist project: a exclusive faith in science to solve problems when other approaches are called for. One commenter wrote of the billions of people all over the world doing their own thing and how economists struggle to figure out how to do the “right thing” or something to that effect. Such arrogance on the part of economists! Interesting, too, was the fact that the Food For Thought category had the most responses. Socialism and Economics didn’t have nearly as many comments.

    Lots of armchair economists and for those who commented and read the responses here (not many, I’ll bet), I’ll say this: read 4 – 6 posts by Systemic Disorder and think. I know, thinking is not permitted in academia. God forbid that you challenge the professors or the institution!! Above all, don’t even consider that capitalism might be a secular religion. No, no, no, no, no!!!!

    • Timothy says:

      Those Reddit commentators should have heard what Nobel-winning Paul Krugman said: that most macroeconomics of the past 30 years was “spectacularly useless at best, and positively harmful at worst”. It cannot even predict, explain, and find a solution for our current global financial crisis.

      In the other hand, a marginalized, most criticized, and demonized alternative theory from the 19th century had already predicted, explained, and proposed a solution for every capitalist crisis, not just the recent ones.

      It’s not surprising that students (real students, not “believers”) were disappointed and not satisfied with what they have been taught on economics, which is either “spectacularly useless” or even harmful.

      • Those Reddit commentators should have heard plenty of other economists saying more or less the same thing as Paul Krugman. I would guess they would consider him “ignorant,” too.

        There was one recent occasion where students did challenge the professor — in fact, they walked out on none other than Gregory Mankiw, one of the most prominent promoter of neoliberal economics. Here’s a video of it.

  4. Alcuin says:

    Buddhist Economics. I hope this is one of the economic systems that the students are clamoring for.

    • I readily admit I have no knowledge of Buddhist economics, but the author of the essay you linked to wrote a book with the subtitle “Economics as if People Mattered.” That sounds like an excellent goal.

      • Alcuin says:

        Yes, E.F. Schumacher wrote Small is Beautiful: Economics as if People Mattered in 1973 and it was an instant hit when it was published and it has since become a classic. It has been many years since I read it and it is high time that I read it again. In researching Schumacher’s ideas this time around, with the benefit of age and experience, I found this article, published in The Distributist Review, in July, 2010. In the article, the author writes that “[f]ew realized when “Small is Beautiful” was published that E.F. Schumacher’s economic theories were underpinned by solid religious and philosophical foundations, the fruits of a lifetime of searching.” I was certainly one of those many.

        I’m not a church-goer, but as my quest for the roots of the current crisis has developed over the last five years, it has become apparent to me that there is a spiritual and moral dimension to the continuing crisis that we have experienced for at least the last 300 years – a dimension that is rarely, if ever, dealt with by the Left.

        The Distributist Review is a platform devoted to Catholic Social Justice and, as such, deserves critique. Of that, there is plenty. If you go to the home page of the magazine, you will find plenty to consider.

        In the article, the author states that Schumacher’s choice of Buddhism to present his economic ideas was “purely incidental; the teachings of Christianity, Islam, or Judaism could have been used just as well as those of any other of the great Eastern traditions.”

        What is interesting about Schumacher is that during WWII, according to his daughter and biographer, Barbara Wood, he was a committed Marxist. He grew disillusioned with Marxism and evolved to a position in which he blamed three men for “modern man’s refusal to accept or recognize individual responsibility. These were Freud, Marx and Einstein. Dubbing them the ‘devilish trio’, he considered that they had all been corrosive agents in a world which had lost its way. Freud, through his teaching that perception was subject to the complex interplay of the ego and the id, both of which in turn were subject to sexually based imperatives, had subjectivized perception, literally rendering it self-centred. This led inevitably to a change of attitude in human relations where self-fulfillment took precedence over the needs of others, Marx, by seeking a scapegoat in the bourgeoisie, had replaced personal responsibility with a hatred for others. If something was wrong with society someone else was to blame. Einstein had undermined belief in absolutes with his insistence on the relativity of everything. The application of ‘relativity’ in the field of morals led logically to a rejection of all morality except that which was personally convenient.”

        I do believe there is something to Schumacher’s assertion that “Marx, by seeking a scapegoat in the bourgeoisie, had replaced personal responsibility with a hatred for others.” I certainly encounter more than enough evidence to demonstrate that many Leftists like to point fingers and never look at themselves as contributors to the crisis. I’ve said it before and I’ll say it again: in the immortal words of Pogo, “we have met the enemy and he is us.”

        Marx, of course, is just one of the many “corrosive agents” of the Modernist project. I think it is rather simplistic of Schumacher to pick out just three men, when there are so many to pick from. But that is just a quibble and I don’t reject his thesis just because he picks on Freud, Marx, and Einstein.

        I found the article to be most interesting and recommend it to readers of this blog.

        • I would more than quibble with each of the three criticisms, and I am no fan of Freud. There is a school of thought, persuasive in my opinion, that Freudianism is often deployed as a mechanism to make people in subordinate social circumstances conform to the prevailing social order. The Age of Oprah: Cultural Icon for the Neoliberal Era by Janice Peck has excellent insights there.

          Schumacher’s accusations against Marx are baseless (although I agree with you that too many Leftists seek to find blame rather than take a more systematic approach). Marx brilliantly analyzed the class nature of capitalism; he was a critic of the system, not the class that benefits from the system.

          His blaming of Einstein for cultural relativism is absurd. The theory of relativity has to do with quantifiable laws of physics, not social relations. Einstein did not attempt to extend his discoveries of the laws of the physical universe into sociology. “Relativity” in these separate senses have nothing to do with one another. Moreover, Einstein was a socialist while post-modernism, an expression of relativism, is anti-socialist to its core.

  5. Jeff Nguyen says:

    From my layman’s perspective, the shock (and awe) doctrine provides cover while the elite keep their eyes on the prize…land, labor and resources. These are the lifeblood required for the elite to accumulate and maintain their extravagant lifestyles, social status, wealth and, by proxy, power. While factoring in religious contexts, nearly every war of the 20-21st century was fought with land, labor and resource as the pot of gold at the end of the rainbow. The Chicago School, in my non-economist opinion, is thug capitalism, plain and simple. At this point, we can only hope the next gen of economists doesn’t “discover” a cure that is worse than the disease.

  6. Steve says:

    I was thinking the other day about something Tyler Durden added at the end of one his posts at Zero Hedge which went something like this:

    This certainly isn’t the country I remember when I was growing up.

    “Amen to that!” I thought to myself. But then I thought back to when I was a kid, in the fifties, to an afternoon when my father and I were torching an infestation of tent caterpillars in a pear tree. Yeah, times were pretty good. We lived in a small, mostly agricultural town in southeast Michigan, officially thirty-two miles north of Detroit, but it seemed like a far foreign country to me whenever we went down there. I could ride my bike the five or six downhill blocks to school and not have to lock it up. We seldom locked the house, the car keys were always in the ignition, our dog was free to run, like all the other dogs and cats in the neighborhood, but was always there when I got home from school.

    It was also the time when there was talk of bomb shelters and we practiced crawling under our desks at school, should the Russians ever decide to bomb us. It was also the time of making Central America safer and more profitable for the big fruit companies, using the most violent means available other than outright destroying those poor countries. And I remember asking my father what was wrong in paying a fair price for our coffee or bananas? since being fair, honest, sharing, and doing my chores were the conditions necessary for getting my measly allowance so I could go to the “show”, or add to my baseball card collection, for accession to a successful adulthood. Why couldn’t we pay a little more, a fair price, so the farmers down there could lead a decent life too?

    Then, looking over the hills to the north (from where I figured a Russian missile come), I asked why a Russian farmer would want to fight with an American farmer anyway? I thought WW II had settled all those questions.

    Of course I was not aware of the coup we had engineered in Iran or the discovery of well number seven in Dhahran, but took it for granted that gas was cheap, maybe a nickel a gallon, and that, later on, for five or ten bucks we could race around the dirt country roads all we wanted and stop in at the local A&W to have a tray loaded with burgers and “pop” hung on the window and, if the weather conditions were right, listen to WABC from New York, WOWO from Ft Wayne, or some station out of Nashville just as a change from the Detroit stations. The regionally cultural differences still existed back then, and we dreamed about our “two Jacks”, London and Kerouac, and having our own convertibles rather than our fathers’ station wagons and sailing the world and wandering around exotic seaports.

    In fact, my first car was an old beat-up, cigar-smelling 1959 white Ford wagon, six cylinders, three on the column, with bald tires my father sold me for fifty bucks out of the small fleet of identical Ford wagons that the salesmen used. This one became available because Larry, one of the most successful sales guys, one Saturday night decided to hook a hose to the tailpipe right there in the warehouse. They found him sometime on Sunday, the car still running. I was pretty creeped out about driving Larry’s car, and later found a brand new bottle of Jim Beam under the spare tire, which I hid in an old filing cabinet behind a pile of old office stuff and damaged kitchen cabinets that probably wouldn’t be moved for years, if ever.

    Obviously, it wasn’t the car of my dreams, but it was wheels, and even if one of the conditions of having it was taking inventory every Sunday night, and turning up dead tired about five in the morning, so be it. If I wasn’t working or playing baseball, I was either learning how to make that old wagon go faster down at a small garage where the guys who worked there, and where I bought my gas, thought it was pretty funny that I spent so much time on that old thing, or simply driving the dirt roads that stretched for miles in any direction around town, idling along, wondering if the cornfields or orchards looked any different in Russia or Iowa, or if I would ever screw up the courage to ask Bobbie Eisenhardt out for a date, even though she was a year older.

    So yes, Mr Durden, I would agree with you that the world we have now certainly isn’t the world of our childhoods, except … that, in fact, it was, and still is. Those dreamsy childhood days were an illusion, a camouflaged, Disneyesque version, custom built just for you and me and millions like us. In spite of Ike’s warning about the military-industrial complex, the money men had been scheming since the get-go. They were organizing the European Union, overthrowing the governments everywhere, doing all sorts of stuff that we were accusing socialist and communist states of doing. And until the race riots broke out and some of the truth about VietNam became apparent, too many of us had been happily lulled into submission by having lots of useless stuff.

    Just like the world we have today where, a few exceptions aside, we still have that uniquely American vision of things, except for the fact that instead of idling down that country road towards some dreamy future, we are accelerating, pedal-to-the metal, into a nightmare.

    • When I read materials written in the 1930s or years earlier, I notice the activists of those days said the same things we do. Indeed, the innocent days of the past are not at all innocent. We’re going back to the 19th century economically.

      I was a sheltered kid in New Jersey suburbia in the 1960s, with no idea what was going on in the world. I suppose I could wax nostalgic about how wonderful everything was, but there was that world with all its brutality out there and today I couldn’t possibly ignore that.

      Even on an everyday, local level, I couldn’t say that. One memory from early childhood that has always stayed with me is the Memorial Day flood of 1968, when parts of my home town were under several feet of water. Many more floods have happened there since, a couple even more severe than the one in 1968. Not to mention floods in too many other rivers to count and along shorelines around the world. Yet we keep insisting we will tame nature.

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