This book undertakes an examination of the problems facing economics as a discipline taught in universities. It does so against a background when economics is more influential within public discourse than has been the case in decades while at the same time when the ideas typically identified as the totality of the economics are being fundamentally critiqued and challenged from both within and out with the discipline. The book, written from the perspectives of those engaged with the discipline from across a range of universities, seeks to provide some indication of where the discipline should look for more appropriate theories for the world we live in.
Student-led Post-Crash Societies have been vigorously challenging the dominance of a single approach to the teaching of undergraduate economics programmes. One such society, the Manchester Post-Crash Economics Society , produced their own report in 2014 on the inadequacies of the discipline to address contemporary needs of economics students:
The student is not taught the tools that are needed to be able to judge which abstractions are defensible and which are not and which reasoning is preferable. Students are penalised for considering variety and rewarded for reproducing existing thought by rote, since overwhelming priority is given to demonstrating the ability to apply a prescribed, allegedly homogeneous theory. (PCES, 2014, p. 18)
The economic crisis of 2007 and Brexit have highlighted the inability of mainstream economic theory to explain the real world and hence have given rise to extensive criticisms of orthodox economics. At the same time, it has also generated demand for alternative economic approaches in academic research and teaching. In both cases, economics has failed to provide an explanation for the events or policy for the period that followed. In the first case this was due to a complete absence of foresight to predict events, in the second case the attempted foresight proved opposite to the events that followed. As a result, economistsâ attempts to intervene in public debate on the economy have been criticised for a lack of understanding and inadequacy. Mainstream, or âorthodoxâ, economics with a focus on perfect competition , perfect knowledge and homogeneity within factors of production are central to these failures but continue to be taught largely uncritically in universities across the world.
Mainstream economistsâ intervention in the financial crash was to fail to identify its emergence or understand its importance. As a result, an economic crisis left the orthodox discipline bereft of theory capable of providing explanation or policy. Policy formulation in the form of large-scale bailouts of the banking sector, central bankâs use of quantitative easing and negative interest rates were all absent from the mainstream and established models. The orthodox economics discipline was thus virtually silent on the biggest economic question of our time.
The dominant neo-liberal global economic orthodoxy since the 1970s in the advanced capitalist economies of the United Kingdom , Europe and the United States was to focus on monetary policy as a means to address low profitability within advanced capitalist societies. Austerity policies since the financial crash were themselves an extension of the monetary policy that had emerged from the 1970s and reinforced the problems of low investment and low productivity growth and culminated in the recognition that âsecular stagnationâ was a structural phenomenon in the advanced economies (IMF , 2015). The financial crisis from late 2007 identified high levels of debt as the weak point of global capitalism. State-led restructuring of debt through quantitative easing permitted the financial and banking sector to transfer debt to central banks through the swapping of private bank debt for government finance and for corporate firms to transfer corporate debt to government via government purchase of corporate bonds , again shifting the debt burden from the private to the state sector (Roberts , 2009).
Monetary policy with low interest rates reduced returns from consumer savings and a focus on austerity reduced government transfer payments; the share of personal income as a proportion of GDP ensured that the costs of monetary policy were passed onto the working classes globally. Rising income inequality and divergence between those with and without asset wealth were the outcomes of these policies (Piketty, 2014).
In contrast to the financial crash, the orthodox economics discipline has been far from silent on what has become one of the major political questions of our time, the case of the United Kingdom leaving the European UnionâBrexit . With Brexit, the voice of alternative approaches was virtually drowned out by the voices of economists who intervened on the Remain side (Guardian , 2016). Yet, while the world economy crashed into the worldâs worst crisis following the financial crash, at least as far back as the 1930s, the forecast economic collapse did not occur with Brexit. Indeed, in the case of Brexit, quite the reverse, Brexit represents a political rather than an economic crisis and the economy continued to grow, share prices actually rose and the British export economy has benefited from a traditional competitive devaluation . Nevertheless, alternative economic approaches continued to be marginalised even as the fiscal policy was âresetâ by a new Chancellor of the Exchequer. Thus, the silence over the financial crash was only matched by the economics disciplineâs shouting of wholly inadequate predictions for Brexit that were based upon their orthodox models.
With Brexit , a new industrial policy has a necessity to remerge. The pausing of the decision on a major piece of infrastructure investment , the building of Hinkley Point nuclear power station, suggests that government motives for whatever reason will determine economic policy and not simply market forces. If, as is reported, concerns over the Chinese governmentâs control over UK electricity generation were indeed a key reason for the pausing of the contract, then this will certainly be a marked step away from the orthodox economic market-orientated policy pursed by successive governments (Spectator, 2016). More widely, as Martin Wolf, the editor of the Financial Times, has recognised:
[T]he UK public may well desire greater public spending , relative to GDP . That is a legitimate and workable option: Scandinavia, the Netherlands and Germany , all of which now spend more than the UK , are hardly basket cases. (Wolf, 2017)
Brexit has undermined the orthodox approach to economics and with it the UK governmentâs announcement by Chancellor of the Exchequer Philip Hammond MP that fiscal policy rather than monetary policy will dominate economic thinking signals a marked change in economic policy.
Brexit has been met with a sharp drop in the value of sterling and a concomitant rise in the value of UK equities. Behind the speculation is recognition that a UK economy outside the EU may become an international trading economy in which value adding rather than arbitraging opportunities will be more dominant. Lower real prices for UK products abroad will increase attractiveness for exports in manufacturers in international markets. Conversely, UK arbitrage in financial services which have to be delivered in international currencies, for example, insurance or foreign currency dealings, will rise in real terms as both sterling weakens and transaction costs rise. Brexit potentially represents a sharp shift away from a growing financial services economy towards a manufacturing-based economy via the route of competitive devaluation .
Fiscal policy with its focus on investment and economic growth will potentially have greater beneficial outcomes for manufacturing in relation to financial services. It will represent a focus on the âKeynesian â type of demand management and economic growth rather than neoclassical monetary policy and secular stagnation.
Due to the failure of orthodox economic theories, an alternative set of what is referred to as âpluralistâ and âheterodoxâ economic ideas has begun to emerge and has a greater impact on the economics discipline. Pluralist and heterodox, innovative and alternative approaches are rooted in a range of authorsâAdam Smith , Karl Marx , Joseph Schumpeter , John Maynard Keynes and Piero Sraffa , among othersâwho have played an essential role in shaping the subjectâs theories during the last centuries. These authors have since the 1970s however been marginalised by mainstream âorthodoxâ economics, have been ignored by most of curricula and should be rediscovered as they provide viewpoints and methods which are able to address economic phenomena more realistically.
Pluralism is broadly considered ...