The Economic Ideology: what it is and how it reproduces itself

[This is not exactly finished work. I’m still very much in the process of tinkering with it.]

I want to draw a distinction between economics, and what I call the economic ideology, for the purpose of critiquing the latter. Economics is a complex, nuanced discipline. I have my problems with mainstream economics, but it often has powerful insights. The economic ideology on the other hand is just terrible. You may have met someone in the grips of the economic ideology. Perhaps they said something to you along the lines of “It is basic economics that…” X, where X is usually “Economic or union intervention of Y sort is bad for the economy.”

The economic ideology most commonly proceeds on a few incredibly tendentious assumptions. It varies in its exact nature from circumstance to circumstance, but common presuppositions include:

A) The absence of market power (and other sorts of power!)

B) The absence of externalities and public goods

C) Perfect information

D) The irrelevance of mediating institutions

E) The superfluity of empirical data

The economic ideology is not satisfied merely to begin with these assumptions and see where the evidence goes, instead it clings to them. Often we find that even when people do not believe the claims of the economic ideology, they falsely believe that the economic ideology represents the state of the art in economics.

By distinguishing economics from the economic ideology we can expose the facile character of the claims of the economic ideology. This is not to say that economics itself is innocent- as we we shall see, economics bears its own share of the guilt for the economic ideology. Rather I’m contending that any attempt to engage with economics from a left-wing point of view must both acknowledge, and work to expose, the distinction between economics- a flawed and sometimes blinkered discipline- and the economic ideology- a construction of pure ‘free market’ apologism.

Image result for basic economics

1. The economic ideology in action: the case of the minimum wage

Let us illustrate with the example of the minimum wage. There is considerable empirical evidence that the minimum wage does not reduce employment. Numerous times I have heard people comment on this, sometimes even accepting the results but saying it is a “mystery” because “standard economic theory” indicates that the minimum wage should reduce employment. Actually this is false. standard economic theory indicates that the minimum wage should reduce employment -or have no effect if set low enough- under certain specific conditions (for example, a perfect market would do it). However, standard economic theory also indicates that if firms have monopsony power in hiring workers  then a minimum wage will either have no effect on employment, or might actually increase it.

In other words, people have taken “standard economic theory” to posit that employment markets are perfect. Standard economic theory posits no such thing! Quite the contrary, the existence and features of imperfect markets are discussed in Economics 101 and it is well understood by economists and especially labour economists that labour markets have special features. This is one of the most common forms of the economic ideology: positing a simple supply and demand model to explain a phenomena that is well understood to be more complex than that model would suggest. The basic pattern is always the same- abstract away from any features of actual markets that would pose a problem to the defender of free markets, and on the basis of this illicit abstraction, declare markets innocent and government guilty.

So how do we end up stuck with the economic ideology? I posit six reasons, three resulting from outside the discipline of economics, and three from within it.

A) The sense of power it gives those ‘in the know’.

B) The action of right-wing think tanks and other similar organisations.

C) The indifference of the left to the fine details of orthodox economics

D) The political naivety of much of mainstream economics

E) The absence of any motivation for economists to systematically oppose it

F) The centralisation of economics as a discipline

2. A way of thinking can make you feel like a god

The first reason I want to give for the popularity of the economic ideology is that it makes people feel (at least mentally) powerful. There is a certain sensation we might term “the joy of a system”. The sense that you have found a secret key that gives you a shortcut to decode everything and find answers that others don’t have access to it.

The form of bastardised neoclassical economics we are calling the economic ideology feels like this incredibly powerful, yet suprisingly simple system that gives you access to truths unknown by the unitiated. This sensation becomes both intoxicating and addictive I know the feeling, because Marxism used to feel the same way to me before I saw the shades of grey and nuance. You can become so infatuated by a stripped down, simplified system of thought, with just enough moving parts to make you feel clever, that you forget all the caveats. The simplified, frictionless supply and demand model beloved of the economic ideology can give you this sense of joy and intellectual power, because it can be applied like a cookie cutter to any dough.

3.. The right-wing think-tank complex

There are a lot of very visible organisations on the right that have as a core strategic principle the association of ‘economics’ with right wing ideas and thus, more often than not, the economic ideology. This association is often assisted by advancing a notion of mainstream economics that has as much in common as possible with the economic ideology. These include the Heritage foundation, the Cato institute, the Liberty Fund, the Von Mises institute and so on. While it is true that there are also left-wing think tanks, they are usually not as far to the left as these organisations are to the right. Furthermore, these right wing organisations have mastered the art of being public facing in a way that centre left-wing think tanks, often focused on academic respectability, never really have. There are noble exceptions of course, but on the whole it’s advantage right.

The reach of these organisations is immense. For example, if you type in a series of queries relating to economic terms like “price-floor”, “Say’s law”, “Supply and demand” and so on, more often then not, one of the results on the page will be a Library of Economics and Liberty explainer for exactly that concept.

Even leaving aside formal think-tanks, the right has focused an enormous amount of energy towards being perceived as correct about economics. It has to, because sentiment and the self-interest of most people is against it in the economic sphere. In the abstract and not considering side effects, most people prefer redistribution in some form, so it has become critically important for the right to get good at arguing that redistribution has perverse side effects. As Albert Hirschman argued in the Rhetoric of Reaction, because social justice is intrinsically appealing to most people, the right must argue that attempts at social justice will be futile, lead to perverse outcomes, or jeopardise society in some way. Because of the intrinsic appeal of left-wing ideas, the right must attempt to restrict our notion of what is possible, and the economic ideology is a great tool for achieving this.

This has led to the spread of a simplified, perfect markets focused account of economics among the right, and through them, the population as a whole.

4. Contempt from a great height: The original sin argument on the left

The left shares blame for the popularity of the economic ideology because it has not forcefully insisted on distinguishing real economics from the economic ideology. Sadly, the left, for the most part has chosen not to engage with the fine details of mainstream economics, preferring instead to critique it from a great height. While this might appear to attack the economic ideology -if you condemn an entire field, a fortiori you critique the simplistic application of that field- in practice viewing existing economics abstractly and with disdain lets the economic ideology of the hook, allowing it to masquerade as synonymous with mainstream economics. Sometimes the left, to score rhetorical points against mainstream economics, even equates the economic ideology with economics as a whole.

This is all linked to a line of argument I often see on the left that I like to call the original sin argument. The argument goes that economics makes some original, methodological sin- perhaps methodological individualism, the assumption of rationality or even the subjective theory of value- and from there all the other problems follow. As a result, economics is all bunk and we should focus on doing our own heterodox work, not infected with these methodological errors which make mainstream economics doomed from the start.

Now I’m honestly not unsympathetic to the idea that economics has historically been a little too keen on rational agents, and behavioural economics has done much to challenge this. I also am not against exploring alternatives to methodological indvidualism. However I’m opposed to the idea that some original sin in economics excuses us from the need to engage with it in detail.

The irony is that while Marx and Keynes, the leading lights of two heterodox schools, were often scornful of the establishment, they were rarely ignorant of it. They engaged in great depth and took a lot from it.

II. The Economic’s profession’s share of the blame

5. The Naivety of Economics 

It must be said that economics as a discipline has not always done everything in its power to discourage the economic ideology.

One reason for this is that economists seem to me to be extremely naive about the ways in which various political operatives attempt to influence both the development and public perception of economics. Many economists are either blissfully unaware of political nuance and interests, or very good at pretending such. For example, the uncritical scepticism with which many serious economists have used the Heritage foundation economic freedom measure as if it weren’t a methodological bad joke.

Economists fall into this kind of naivety in various ways. For example, many economists support fairly extensive social welfare programs, higher taxes etc. However, they wish for these things to be accomplished in rather specific ways. The nature of real-politik is that it’s often unwise to strongly publicly criticise a measure which you believe would substantially improves the current state of affairs, but is not the optimal policy, yet economists do so all the time. As a result, all that gets reported is that economists oppose this or that popular measure for its imperfections, contributing to the economic ideology by creating the appearance of all interventions being futile and/or dangerous interference in the market.

6. Ambivalent motivations

The position of economists is also complicated because the economic ideology is flattering to economics. This means that economists have an incentive not to push back against it too hard. If people are going to bat for your discipline, saying it’s a powerful and predictive science that gives clear answers to big questions, it’s hard to bring yourself to say “well actually it’s not quite that great” especially when it is tempting to circle the wagons because economics has been copping flack since well before Carlyle called it the dismal science.

7. Fourcade, Ollion, and Alganon on the unity of economics

One contributing factor in the appropriation of real economics into the economic ideology is that economics, is for a social science, surprisingly unified. Many economists have even boasted of the a great convergence between competing paradigms in the last thirty years or so. This degree of unity, and pride in unity, accompanied by a hostility to heterodoxy unparalleled in the social sciences, lends support to the economic ideology by creating an image of economics as a settled, rigorous enterprise that can provide unambiguous answers, a central premise of the economic ideology.

This unity of ideas well complements, the centralisation of the discipline, and presumably some degree of mutual support between the ideological unity of the discipline and its material centralisation obtains. For a review of the centralisation of economics see this paper by Fourcade, Ollion and Alganon. Some key points include:

Economics is separated out from other social sciences as measured by patterns of citation:

“economics stands out markedly, with 81 percent of within-field citations in 1997—against 52 percent for sociology, 53 percent for anthropology, and 59 percent for political science”

” articles in the American Political Science Review cite the top 25 economics journals more than five times as often as the articles in the American Economic Review cite the top 25 political science journals. The asymmetry is even starker with regard to the American Sociological Review. While only 2.3 percent of the sociologists’ citations go to their economic colleagues (often in a critical fashion, arguably), just 0.3 percent of economists’ citations go to sociologists (again only taking into account the top 25 journals in each discipline).”

Economic education is quite homogeneous:

“In a survey conducted in 1990, graduate education was found to be“amazingly similar” across economics PhD programs”

The economics labour market is more dominated by elite universities than other disciplines

“This correlation between prestige and placement, however, is strongest in economics. There, the distinctions between clusters are more clearcut than in any other discipline. Economics departments at the very top of the pecking order exchange students amongst themselves in higher proportions than in other fields, including mathematics”

Elite universities dominate top tier journals in economics more than in other social sciences

“The economics publications market is also comparatively more concentrated
than in other social science disciplines in the sense that the most-cited journals exhibit
a heavier concentration of papers coming from elite departments in economics
than in sociology”

Elite universities dominate leadership roles in the American Economic association in a way which would be alien to similar academic-professional associations

“AEA leaders are drawn disproportionately from the discipline’s elite
departments: that is, 72 percent of the AEA nonappointed council members are from
the top five departments, in contrast with only 12 and 20 percent respectively for
APSA and ASA.”

To recap: Although real economics and the economic ideology are not the same thing, they share a formal similarity- cohesion. This may not seem like a big deal, but the entire rhetorical schtick of the economic ideology rests on treating economics as settled, clear and uncontested.

Although it’s not strictly on topic I suppose I should say something about whether this unity is a good thing. I can’t pretend to prove here that the suprising degree of unity among the economic profession isn’t due to mounting empirical rigour and accuracy and good old meritocracy- but I have my suspicions. Unity is not, in itself, proof of rigour. In the medieval ages physics was quite unified around the scholastic-Aristotlean paradigm. There were numerous debates of course, but much overlapping consensus. As it turned out, much of this consensus was wrong, and though I am not a historian of science, arguably unhealthy. In terms of predictive power economics seems to me to be a fairly young science, when contrasted with physics, or even biology. Unity seems like approach more befitting an intellectually developed field. We can think of this in terms of the trade-off between exploration and exploitation. If you have confidence your orthodoxy is fairly good, you should cluster around it and exploit its insights. If you don’t have such confidence you should scatter to the winds and seek new insights.

8. How to fight the economic ideology

If the economic ideology has many roots, how are we to fight it? The first step is to stop contributing to it by accepting, implicitly or explicitly, the claim of propagandists to speak on behalf of economics. Beyond that:

Learn your economics: It’s impossible to make the point that the economic ideology is not representative of the discipline as a whole effectively if you don’t know some economics. We don’t all have time to learn a great deal of economics, so we need to build institutional capacity and understanding on the left.

Support left-wing engagement with, and interventions into, mainstream economics: The left has historically faced two options with regards to economics- setup counter-institutions, such as heterodox journals, conferences, departments etc., or stay in mainstream economics and fight for recognition. Regardless of which strategy you think is best overall, fighting the economic ideology, and its equation of mainstream economics with right-wing talking points, is aided by recognising the important left-wing work that is, and continues to be done, within economics.

Don’t just make the point that the economic ideology is wrong, make the point that it’s not really representative of economics: Point to the diversity of ideas within economics, and dispute the claim that the economic ideology is representative of the field of economics as a whole.

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