Economics

Economics gets a bad wrap in some circles these days. And rightly so, as a system that claims to follow a scientific method it is, generally, a shambles. There are a number of sub-schools of economics that do apply more rigour to their analyses, and as a result tend to lean towards a looser, more pragmatic application of economic theory than neoclassical theorists would like.

I reckon that the criticism of economics usually comes from two camps. First, there are those who dislike the concepts used in economics of quantifying the value people gain from various aspects in life (utility) and the subsequent trade-offs with money. This is more a repulsion at the idea that everything in life can be assigned a dollar value, and the dominance of that valuation in decision making.

The second camp, to which I would mostly align myself (I empathise with camp 1, but it is a little bit naive and irrational), has a problem with the mechanics of economic theory and its application. If economics (I am now referring to the foundational macroeconomic theories) were a physical technology instead of a social/political technology it would be a black and white TV, with a fuzzy picture and only one channel tuned in. It has become a religion that people try to adapt to a world that it doesn't fit. Many of the principles and tools are invaluable - like a religion - but as an overarching framework for guiding government policy it is outdated. Not outdated because the world has changed too much for it - but because the inherent errors were never corrected as they would in a physical technology. There has never been a shortage of economists pointing out these flaws and offering their corrections (e.g. Minsky, Schumpeter and Krugman more recently - and of course Steven Keen). But, like a religion, economics remained unchanged at its core, growing like a weed from its internally inconsistent origins.

Most worryingly of all is the blind adherence to neoclassical economic theory by US Fed Reserve Chairman Ben Bernanke. Because he wrote a thesis on the Great Depression and the economics of its resolution - he is now unable to waiver from his conclusions. So he insists on the formula of quantitative easing without new regulation of the finance sector (not that he can do anything about that other than lobby for it) and the result is that in the US bank reserves are increasing, while lending to productive activities is declining and private deleveraging continues.

Australia hit half the nail on the head with the stimulus payment to the public. This allowed a small amount of deleveraging to occur without replacing consumption - which may have been the kick required to avoid the spiral of recession and further deleveraging.

Anyway - I'm going home now. This was by no means an anti-capitalist rant. But unless economics as a whole genuinely attempts to develop using a scientific approach it will be unable to explain the capitalist economy and the cycle of unsustainable growth followed by huge busts and greater wealth inequality will continue.