Model Economics

In science, a theory is abandoned or substantially modified if it does not concur with the emerging facts, fails to predict important events, or is contradicted by experiments. That, alas, does not seem to apply to economic theories.

Capitalism has experienced the second largest economic crisis in history, after the great depression of the 1930s. You would think, wouldn’t you, that those high priests of economics would now be contrite, admit that their models of the market and human behaviour are wrong, or at least are in need of serious modification. Not a bit of it, they just carry on regardless, as if the crash never happened.

Economics undergraduates at the University of Manchester are so disappointed with their courses that they have formed a “post-crash Society”, and have established links with other universities, with the aim of forcing academics to explore other economic models outside the free-market brand that dominates their economics courses. The students are critical, rightly, that their courses have failed to explain the causes of the crash, and why the models failed to predict it.

 The word ‘free’ in free-market or free enterprise  is a misnomer.  The state came to the rescue of the too-big-to-fail banks to the tune of hundreds of billions of pounds, only to see millions of that money paid in bonuses to the very architects of the crisis in the first place. Governments then had to cut their spending through austerity programmes that affect almost everyone, apart, that is, from those who caused the crash in the first place. The hardships and the misery of such cuts are particularly felt by the working poor, the disabled, and the vulnerable. As for the word ‘neo-liberal’, all it means is giving the super-rich the liberty to exploit people and to pay them poverty wages.

Oblivious to the real world, Ha-Joon Chang, a Cambridge University economist, in his book ‘23 Things They Don’t Tell You about Capitalism’, emphasizes his enthusiastic support of capitalism, and frames his criticism of the free-market model with these words:
“Being critical of free-market ideology is not the same as being against capitalism. Despite its problems and limitations, I believe that capitalism is still the best economic system that humanity has invented. My criticism is of a particular version of capitalism that has dominated the world in the last three decades, that is, free-market capitalism. This is not the only way to run capitalism, and certainly not the best, as the record of the last three decades shows.”

Noam Chomsky, in an interview reported in Truthout answers:
“The basic explanation is the usual one. It is all working quite well for the rich and powerful. In the US, for example, tens of millions are unemployed, unknown millions have dropped out of the workforce in despair, and incomes as well as conditions of life have largely stagnated or declined. But the big banks, which were responsible for the latest crisis, are bigger and richer than ever, corporate profits are breaking records, wealth beyond the dreams of avarice is accumulating among those who count, labor is severely weakened by union busting and “growing worker insecurity,” … So what is there to complain about?”

The free-market or neo-liberalism is not a broken model of capitalism - it is capitalism. As long as economists support capitalism they will continue to be required to create explanations and apologies for its failures without fundamentally questioning it.

Adapted from here