Mirowski: Can Neoclassical Economics Be Saved?

[This is one of several posts discussing Philip Mirowski’s plausible and well-referenced Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown (Verso, 2013). Mirowski uses the term ‘neoliberalism’ for what I call ‘economism’; for purposes of this blog I have relabeled his ideas accordingly.]

When I wrote The Golden Calf, I tried to remain agnostic on the subject of neoclassical economics (NE)—not a hard thing to do, given my lack of any training in the field of economics. I tried to acknowledge a spectrum of opinions, all the way from NE and economism are joined at the hip, to economism represents a distortion and basic misunderstanding of NE, which itself remains fully valid even if economism turns out to be a sham.

Mirowski is qualified to take a firmer stand on the matter, being a professor of economics at Notre Dame. (Indeed, the only thing he needs to explain is his own existence as such an individual. He offers a good case for thinking that NE has been essentially taken captive by economism, and accordingly all economists who don’t toe the orthodox NE/economism line have been purged from university econ departments. Why he is not among the purgees is never explained.)

Anyhow, be that as it may, Mirowski offers a number of thoughts about NE that are worth cataloguing as a supplement to what’s in The Golden Calf.

·         Mirowski agrees with my account that both at the time of its origins in the 1870s and later on, NE is marked by a severe case of physics envy. Believing that only a field that outwardly resembles physics can claim to be any sort of “science,” NE has fallen in love with mathematical models, quite apart from whether those models actually predict anything useful about the real world, or are based on a set of sensible assumptions. Mirowski describes NE today as full of what he derides as “toy models” which merely “explain” after the fact things that have already happened, mostly things that the moneyed interests who line the pockets of the economics professors want to hear.

·         Regarding the Great Recession of 2008, the main focus of Mirowski’s book, NE simply lacked any theoretical tools to predict such an event, because all of its theories and models said that no such event could ever occur. Once the NE forces managed to regroup after the debacle, however, they lost no time in proclaiming that the Recession proved that nothing was basically wrong with NE. Mirowski notes that George Soros, who’s credited with coining the term “market fundamentalism,” sponsored a conference in Cambridge in April, 2010 called the “Institute for New Economic Thinking,” at which 70% of the speakers stoutly defended NE as in fine shape and requiring no substantial modification. Mirowski added sardonically, “If this was New Thinking, one trembles to contemplate what Old Thinking had looked like.”

·         Given that economism’s principal working short-term strategy when faced with any crisis is to spread doubt and obfuscation (http://theeconomismscam.blogspot.com/2013/09/mirowski-why-economism-spreads.html), the point above illustrates NE’s incredible value for economism when things like the Great Recession happen. What could be better to sow confusion among the populace than to have an event as severe as the Recession happen, and then to have the world’s greatest economists saying things like nothing at all is wrong with any of their theories, or that their theories are just fine because really, they predicted that this would happen all along; or that actually they didn’t predict it but that’s just fine because it’s really not the job of NE to predict things anyway, or so many contradictory things before breakfast that no one could make any sense of it?

·         One of the features of economism is its attempt to reduce all of human life and society to one vast Market and then to insist that Market principles and rules explain everything important in human life. Mirowski claims that that’s not economism run amok, but that NE itself has taken this turn. It has fallen in love with “choice theory,” and has found, no surprise, that a great deal of all of human life seems to be about choices. “Yet explanatory hubris brings its own special tragedy: it is a philosophical commonplace that a doctrine that nominally explains ‘everything’ in fact explains nothing at all. Everything can potentially be portrayed by neoclassical economists as the orderly product of disembodied ‘self-interest’ so long as the ‘interest’ is defined in a sufficiently post hoc manner, order is conflated with the status quo, and the ontology of the ‘self’ changes from one application to the next. As with all good zombies, there is something missing where a brain should be.”

·         Mirowski quotes one rather astoundingly candid statement from an NE star: “As the economist Paul Romer is reported to have said, ‘Every decade or so, any finite system of financial regulation will lead to a systemic financial crisis.’” This assessment is on the one hand fully in keeping with the dictates of economism—if what seems to us mere mortals is something terrible happening, it can’t really be bad, because it’s nothing more or less than The Market adjusting itself and the world according to its inexorable laws; what makes it seem bad is our own inability to understand such sublime reasons. The problem is of course that when NE practitioners are eagerly sought out by the media and treated like visiting royalty, it is with the naïve idea that these people first, can tell us that something bad might be on the horizon, and second, actually advise us what to do to head it off. So NE has a serious problem getting its real beliefs in line with its preferred public persona. (Though economism doesn’t much care whether NE succeeds in this or not, because either way, that much more confusion is sown among the public.)

·         For all of the above reasons, Mirowski’s judgment is that NE cannot be salvaged and needs to be at least radically overhauled if not completely jettisoned. Mirowski thinks badly of one of the economists I have been most eager to quote, both in this blog and in The Golden Calf, Paul Krugman. Mirowski views Krugman as a sort of fake leftie, mainly because he refuses to let go of his basic adherence to NE theory and practice. Despite saying mostly the right things about how flawed economism-inspired policies are for the US and the world, and how trying out such policies has uniformly led to disaster, Krugman persists in employing NE-based reasoning whenever he has to do any actual economic modeling or forecasting.