Done Over?
How strange.
On the very day I have vented about the odd state of economics and its profound disconnect from reality I read in Paul Krugman’s blog a short piece that links to something by John Quiggin.
Allow me to summarize:
A recent book, written by someone at the Richmond Federal Reserve, purports to be a non-technical view of the history of big ideas in macroeconomics, which is the economics of big stuff like the economy as a whole. The problem seems to be that when Quiggin read the book he found virtually no traces of any of the things he considers macroeconomic issues. The index has no entry for unemployment. Nor for recession, depression or business cycle. There is no entry for money, and none for either monetary or fiscal policy.
In other words, to someone like Quiggin, the book isn’t about macroeconomics at all.
How could this be?
Unfortunately the answer is at once simple and depressing. And it goes back to my contention that much of the economics profession is not studying economies, which are littered with things like unemployment and money, but economics, which is not at all encumbered by such things.
To our Richmond writer – someone called Kartik Athreya – proper economics is stuck in the classical tradition and especially in in its modern incarnation to encompass and become an extension of Walrasian theory. Now, since the classical tradition had virtually no references to the economy at large, but focused intensely on smaller scale things like the inner workings of markets and the so-called price mechanism it is hardly surprising it doesn’t have much to say about unemployment. Further, since the Walrasian project is simply a grand exercise in applied mathematics trying to resolve all the moving parts of a series of markets simultaneously, and which too, ignores artifacts of economies such as money, it is easy to see how the what is called orthodox or mainstream economics is utterly irrelevant.
It doesn’t even try to theorize about the economy.
It studies itself.
This is also why in the aftermath of our recent near depression any economist rooted in mainstream thought has generally looked and sounded like an utter fool whenever they’ve opined on what’s going on. They have no experience of, no contact with, or understanding of an actual economy. All they can talk about is what goes on within the hermetically sealed and self-contained thought experiments they conduct within the confines of their corner of the world.
Asking such a person to discuss a real economy is akin to asking a nun to talk about the sex life of Amsterdam. You’ll get a lot of noisy abstraction, but not much valuable exposition.
From the perspective of the history of ideas Athreya’s book is of great value. It helps us understand why so much of economics is of no use, and why the mainstream is doomed to the dustbin of oddball and futile ideas. This, of course, doesn’t help much unless we actually get on with the ostracizing of its practitioners and its banishment to the dusty attic it deserves.
Think of it this way: the recent crisis has debunked the central tenets of mainstream theory. What’s left is an incoherent pile of useful insights that now need to be cobbled together somehow and appended to a broader and more modern theory that actually does try to speak about real economies and things like unemployment.
I wonder when such a more general theory might appear? Let me hazard a guess: 1936?
Surely not.
