Mainstream Economics as Ideology: An Interview with Rod Hill and Tony Myatt — Part I

Rod Hill and Tony Myatt are Professors of Economics at the University of New Brunswick in Saint John and Fredericton (respectively). Their new book, The Economics Anti-Textbook is available from Amazon. They also run a blog at

Interview conducted by Philip Pilkington.

Philip Pilkington: Your book seems to me a much needed antidote to the mainstream economics textbooks and can either be read alone or together with them. I think that’s a great approach because it allows students to become familiar with what is being taught in the classroom but also allows them to take a critical perspective on this material. So, let’s start with the format of these textbooks. In the book you say that they “cloak themselves in an aura of objectivity”. You then relate this to the fact that economics is not a value-free discipline and contains necessary ideological judgements. Could you talk about this a bit?

Tony Myatt: That’s correct. We say the texts cloak themselves with an aura of objectivity while at the same time implicitly (and repeatedly) making value judgements that reflect a particular ideology. Indeed, one of our main objectives in our Anti-Textbook is to provide overwhelming evidence of that. We believe that students subjected to the mainstream textbooks sense the bias in those texts (and the courses that rely on them) and it turns them off. They realize they are being sold something. They don’t like being bamboozled. Evidence for this is provided by the recent walkout from Mankiw’s introductory economics course. Even though the students could not elaborate very clearly the nature of the bias (in the letter they wrote explaining their actions), which unfortunately made them seem quite naive, those students were correct that the bias is there. One might say they intuitively sensed it.

Delightfully for us, Mankiw replied to these students in his New York Times column, saying “I don’t view the study of economics as laden with ideology…It is a method rather than a doctrine….a technique for thinking, which helps the possessor to draw correct conclusions.” Notice the wording he uses, “correct conclusions.” If there were “correct conclusions” to be drawn from using the economic method of thinking, there would be a consensus among economists on most positive economic questions. And while the mainstream texts always claim that such a consensus exists, the evidence suggests otherwise. I’m not just talking here about the profession’s response to the financial meltdown and the ongoing economic crisis, but even more mundane questions such as the effect on unemployment of an increase in the minimum wage. So, Mankiw is simply showing his own bias by implicitly claiming a consensus, by saying there are “correct” conclusions to be drawn.

Our perspective is that there is an ideology that pervades mainstream economics, especially in the way it is currently practiced and taught. There is an important point here: that we can distinguish between neoclassical economics itself, and the mainstream practice and teaching of neoclassical economics.

The point is that it is more difficult to argue that there is a bias in neoclassical economics itself. The neoclassical paradigm is remarkably malleable. It is capable of transforming itself, of shedding many an unappealing feature in the hands of ‘this analyst’ or ‘that analyst’ or ‘this paper’ or ‘that paper’. Moreover, the boundaries of mainstream neoclassical economics are blurry. It is not clear, for example, whether recent work on ‘limited rationality’ lies within the neoclassical paradigm or is a direct assault upon it. As another example, the work on imperfect information by Joseph Stiglitz overthrows many of the neoclassical presumptions about the efficiency of otherwise competitive markets, and the harmfulness of government intervention, and we see his work as being squarely within the neoclassical paradigm. One could even use neoclassical economics to show the importance of community ties and social cohesion, even though in the normal practice and teaching of neoclassical economics these things are totally ignored.

That’s why we called our book an “Anti-Textbook”. The mainstream textbooks are remarkably uniform and do reflect a narrow range of world views. This is a much easier target to attack. And the mainstream textbooks do reflect the core beliefs of mainstream economists that inform their policy prescriptions.

Your question to us was to explain why we feel economics is not a value-free discipline and necessarily contains ideological judgements. We can answer that question. But first, to understand what we did in our book, let’s answer the easier question of why textbooks must necessarily contain ideological judgements.

The textbooks necessarily contain ideological judgements because they are necessarily selective. They must include and emphasize some things and exclude or downplay others. They ask certain questions and not others. They place some topics and questions in the forefront, and put others in the background or leave them out entirely. Those decisions reflect implicit value judgements about what is interesting and important. No ‘objective’ account is possible. For most people – including many economists – this is not a controversial claim.

So, our methodology, our way of getting around the amorphous nature of the neoclassical paradigm, is to focus on the mainstream neoclassical textbooks themselves. We point out their biases of omission and commission. We notice when claims are made without any supporting evidence, or when the so-called evidence is irrelevant or out of date. We notice when two thirds of the text assumes perfectly functioning markets which prohibits (by assumption) the importance of power.

This focus on the textbooks does not mean that we feel there is no bias in neoclassical economics itself. Far from it. Every approach has a bias just as all economists have a bias. Our perspective is that it’s best to acknowledge that fact at the outset. But I’ve said enough. Better let Rod have a turn…

PP: The issue of power is an interesting one. I think what many students who feel instinctively critical of economics courses note from the outset is that the theories taught imply some sort of level playing field. Yet, you would have to be blind not to notice divisions of class and race in even the most prosperous societies. Could you talk about this a bit?

Rod Hill: I think power is central to understanding the reality of economic life. For that reason, it’s important that it be effectively obscured in the principles texts as students are taught how to ‘think like an economist’. The texts typically manage this very well, although I’m sure their authors have no conscious intention to set out to do this. (This remarkable aspect of our propaganda system helps to make it so effective.)

The texts do indeed imply a sort of ‘level playing field’ between buyers and sellers in both markets for goods and services as well as in the labour market. This follows from the central place that’s given to the supply and demand model (which is “short-hand” for the perfectly competitive market).

There, everyone is a ‘price taker’. There is no room for businesses to use their bargaining power to squeeze workers’ wages, to prevent workers from unionizing, to force down their suppliers’ prices, or to raise their selling prices once they’ve eliminated their competition. (Think Walmart.)

But ‘market power’, the ability to push the price away from a hypothetical competitive level, is just the tip of the power iceberg. At least the texts acknowledge this form of power, even if they downplay it. If students think for themselves, they could realize the practical irrelevance of the perfectly competitive market structure. More likely, at least with those who stick with economics, they will start to see the world as composed of competitive markets, regardless of their actual structure. Indeed, some textbooks explicitly justify this by asserting that most markets are ‘competitive enough’ to be approximated by perfect competition.

Most aspects of power remain discreetly out of sight in the texts, even though, as you say, you’d have to be blind not to see them in real life. I like to paraphrase a line from Ben Bagdikian’s The Media Monopoly: the texts can’t tell you what to think, but they can tell you what to think about.

So while they focus students’ attention on these powerless markets, they say little or nothing at all about the power of the wealthy, or the businesses they own, and how they can influence the ‘rules of the game’. As Ha-Joon Chang reminds us in the first chapter of 23 Things They Don’t Tell You About Capitalism, there is no such thing as a ‘free market’: all market exchange takes place within a set of rules and institutions and those matter to market outcomes. But any serious discussion of what determines them would draw attention to the links between economic and political power. It would also provide an extra reason to be concerned about the rapid growth of economic inequality in many countries.

In the world of the texts, the managers of profit-maximizing firms allegedly spend all their time trying to hire the right combinations of labour and capital while spending no time trying to increase profits by influencing laws and regulations. In the world of reality, small armies of lobbyists and corporate lawyers work to do just that, even helpfully drafting laws for busy legislators whose political campaigns they help to finance.

Incidentally, the one notable exception to this in the texts is the discussion of regulating monopoly. The story is that regulators are often ‘captured’ by the industry they are supposed to regulate so that with government screwing up (as it often does in textbook examples) no regulation might be the better option. An ideologically convenient story!

Other aspects of power are also absent. The firm is largely treated as a black box, so authoritarian relations within it are ignored; questions of economic democracy do not arise. The analysis of trade and foreign investment ignores the effects of the relative power of different countries.

I can’t prove how all this affects students. But in my own case I feel I was effectively blinded for an embarrassingly long time to many of these obvious aspects of the world.

PP: And how do you think the textbooks go about hiding these sorts of assumptions?

Rod Hill: In a way, I think the texts hide these assumptions in plain sight while using the magician’s trick of focussing the students’ attention elsewhere. When the supply and demand model is introduced, the texts don’t stress the unrealistic assumptions of the perfectly competitive model (perfect costless information, no geography so that all transactions take place on the head of a pin, no one has any power over prices, no product differentiation). In part, this is because these are deemed to be not important for the questions being asked.

Students’ attention is directed to questions where the model’s predictions seem to accord with common sense: demand goes up, prices rise; costs go up, prices rise, and so on. The student might think this looks plausible and, for much of the text and the course, it’s the only game in town.

But the model also predicts ‘no advertising’, ‘no political contributions by firms’, ‘little or no research and development spending’, ‘all sellers sell identical goods for the same price’ , and ‘people doing the same work get the same wages’ in the labour market. However, no questions about those things are asked, so the predictions are not confronted by the evidence that would refute them. Students would have to figure this out for themselves. And not coincidentally, these questions also raise issues of power: firms’ power over consumers, firms’ power in the political arena, firms’ power over their workers.

So independent-minded students could ask these questions, but (unless they stick around long enough to go to graduate seminars) they are not shown any way of thinking about them in their principles of economics class.

Tony Myatt: And I’d add to that it’s not just a question of emphasis – that the texts assume perfectly competitive markets for three quarters of the book. It’s also a question of placement and progression. The usual progression is an early chapter on methodology, which emphasizes that the realism of assumptions doesn’t matter – it’s predictive power that matters. This is followed by a section often called ‘How Markets Work’, which applies demand and supply to every conceivable type of market. If students are paying attention they might notice that the results of these applications are usually treated as facts – not predictions that need to be tested against the evidence – and certainly not treated as predictions that need to be compared against the predictions of alternative models. And this is a real irony: having sold the student on the unimportance of the realism of assumptions and the overriding importance of predictive power, the texts don’t follow their own methodology. They never take the business of comparative model testing seriously. And for practicing economists, we know that’s where the real fun begins.

Emphasizing (or assuming) perfect competition is the same as assuming away power because in this market structure there are no ‘large’ market participants who can exercise influence over either market outcomes or political outcomes. Neither buyers nor sellers have influence over prices. Sellers are small and lean, just covering their costs. On their own, they lack resources and the incentive to lobby politicians. Such firms would also lack resources to invest heavily in research and development. And this is another irony, because technological change is the one thing that you could say capitalism has done well. Yet, the texts emphasize a market structure that is incapable of explaining this exact feature!

PP: You say that no alternative models are taught in the classroom. I’ve heard this criticism raised many times before and it has always struck me as rather strange. In just about every other social sciences class it is a prerequisite that the lecturer teach the major different approaches, to do otherwise would be considered biased. In your opinions, how do economists get away with this where others cannot?

Tony Myatt: Well, we need to be careful here. Other models of market structure besides perfect competition are taught. Monopoly, monopsony, imperfect competition, and oligopoly are all taught. But they are placed towards the end of the book. Later, when we need to explain the distribution of income, or the benefits of trade, the texts return to assuming perfect competition, to the demand and supply framework, as if that intervening stuff never happened. The argument is that perfect competition is simpler, and is good enough as a first approximation to all markets. But perfect competition is actually a lot more complicated than monopoly. Why not apply monopoly as a first approximation? But that would have a huge ideological impact. It would mean that power, cronyism, and exploitation are potentially important. It would mean that the economy doesn’t necessarily operate efficiently (as a first approximation), and that unions don’t necessarily cause inefficiencies. It would mean that there is a potentially much bigger role for government regulation. And the point is, when discussing a particular topic – international trade say – the texts don’t say “if we assume perfect competition we get these predictions; if we assume imperfect competition we get these predictions; now let’s compare the predictions to the facts”. This is thought to be too complicated, too advanced. But this is a cop out, a dereliction of duty, and is inconsistent with the methodology which the textbooks purport to endorse.

So, while other models of market structure are taught, they are downplayed. On the other hand, no other paradigms are taught. The mainstream textbooks only contain information about the neo-classical paradigm. How do they get away with this?

Again, it’s a question of keeping things simple. They argue they don’t want to confuse the student. It’s hard enough to teach neoclassical concepts without further confusing students with critiques of what they are learning. There’s a nice video of Stephen Marglin addressing the Occupy Harvard movement where he discusses this. (Here’s the link ). He tells how, in his “critical perspectives” introductory economics course, he begins by teaching the neoclassical theory. Then he introduces several critical perspectives. And he acknowledges that this is a huge undertaking. He acknowledges that it takes most students most of their time to get their heads around the neoclassical concepts. But he also acknowledges that in most economics departments there is never a good time for the critique. If it’s too hard for first-year economics students, it’s certainly too hard for high-school students. And then graduate students need to have a ton of maths packed into the curriculum, so there’s no time there. So, as he says, “economists are all for critical thinking, just not today…tomorrow.”

In fact in my own “critical perspectives” course I use our Anti-Textbook. I teach the mainstream material (that’s the first part of each chapter). And the students teach the Anti-Text material (the second part of each chapter). They enjoy shooting me down! So far, it seems to work well. But I’ve been fortunate to have a small class.

Rod Hill: I’d just add that the dominance of the neo-classical paradigm (at least in the English-speaking world) means that there’s less internal pressure within the profession to provide other viewpoints in a principles course than there might be in, say, sociology. Lecturers trained only in neo-classical economics are comfortable using textbooks that contain only that viewpoint.

Most students come to their undergraduate studies in economics with no knowledge of different approaches so they are not in a position to ask ‘Hey, what would ecological economics have to say about that?’ They rely on their instructors to tell them what economics is.

I remember as an undergraduate stumbling upon a copy of Galbraith’s The New Industrial State in a used book shop, reading it and finding it interesting, and wondering ‘Why have I not heard about this in my courses?’ But I rarely asked such questions and had no access to the kind of guidance that we’re trying to provide in The Economics Anti-Textbook.

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  1. YankeeFrank

    Thanks for the interview. The anti-textbook sounds like a pretty good approach given the seeming universality of the neoclassical paradigm in western universities. I’ve tried to discuss these issues with students who have already gone through econ 101 and they are usually totally brain-washed and even get angry when you comment on the flaws in the models they were taught. Indoctrination is a powerful thing, and I find students at the ivy’s are the most dogmatic and close-minded. Ironic.

    1. Stephen Nightingale

      “Again, it’s a question of keeping things simple. They argue they don’t want to confuse the student. It’s hard enough to teach neoclassical concepts without further confusing students with critiques of what they are learning.”

      Funny thing, they don’t shy away from the complex problems when teaching mathematics, or physics, they march right into them, right up to the point where students begin to ‘pyramid out’. Why the need to structure economics teaching in a way that ‘protects’ the student from the complexity and/or confusion? Are they somehow less mentally or emotionally capable than math and physics students?

      In physics, assumptions are critical and predictivity is critical, and empirical testing is the only acceptable way to keep the discipline honest.

    1. LeonovaBalletRusse

      toxymoron, the plot thickens. Well now, are we witnessing the deroulement of The American Way as we participate?

  2. craazyman

    I would propose Conrad’s Heart of Darkness as an introductory economics textbook.

    Kurtz could be your average management employee. The ivory trade could be the industry under examination. The nameless and faceless Brussels bureaucrats could be the head office executives. The workers are, well, you know, the folks in the bushes.

    Marlow. Now he could be the “economics student”. Espeically when he answers the Russian with the phrase “no method at all” (you’d have to read the book) ha haha. And the Russian, he could be the neoclassical theorist.

    too much funny stuff at 6 am. How is this possible? Because I had half a bottle of red red wine last night and fell asleep at 8:30 so I’m ready to go.

    Phil do you drink Guiness? What about those two econ dudes in the interview? Are they party animals just having fun yacking it up or are they ready to martyr themselves in some Occupation tied to a treed and getting pepper sprayed and batoned like saints from the Bible? I’m not sure I’m ready for the baton beating. I’m no saint but I’m not much of a sinner either. It’s hard to change the world, one idea at a time. Especially when you sit around thinking about it like a math equation.

    1. LeonovaBalletRusse

      craazyman: “Conrad’s The Heart of Darkness” as elementary textbook.

      Brilliant recommendation!

  3. jake chase

    The very best anti-economics book is Veblen’s Theory of Business Enterprise (1904), It is 100 pages long in paperback and explains everything anyone needs to know about contemporary capitalism, except for the Federal Reserve System which did not exist. As for the Fed, its real mission is to foster usury by the major banks and protect these banks from the consequences of the folly known as growth. It is through the Fed balance sheet that CDS and shadow banking meltdowns have been thus far avoided at the expense of real economic activity, unemployment, and impoverishment of retired citizens. Another contemporary economic reality is the systematic looting of the corporate sector by executives enabled by stooge directors. Nothing can be done about any of this unless and until enough people wise up and fix our two party conspiracy referred to in media as American Democracy, but those hoping to protect themselves and any wealth they may be lucky enough to have or hereafter accumulate are advised to begin by understanding how the game really works.

    1. LeonovaBalletRusse

      jake chase, it is a de-facto Criminal Conspiracy.

      Of course, Veblen all but disappeared from history. He saw and spoke too clearly.

    1. LeonovaBalletRusse

      Eric Patton, don’t you love that *indifferent* heart of Academia, revealed by the anti-septic language?

    1. RueTheDay

      That is the absolute beauty of the complementarity between the Chicago School and the Austrian School. The Friedmanites, with their F-Twist, get to say “assumptions don’t matter, they don’t have to be realistic, all that matters is predictive power”. The Austrians, with their praxeology, get to say “economics is just a system of logic, it’s too complex to be predictive, what matters is that your assumptions are axiomatic and cannot be refuted”. Add the two together, and neither assumptions nor predictive power matter. Perfect.

      1. F. Beard

        The Austrians, with their praxeology, get to say “economics is just a system of logic, it’s too complex to be predictive, what matters is that your assumptions are axiomatic and cannot be refuted”. RueTheDay

        Spot on! But their supposed logic wrt gold as money has been refuted by history and experience and is absurd on its face. And then there is the hypocrisy of supposed libertarians being for a government enforced gold standard. And there is their devotion to usury which they justify as “the time preference for money” as if only a single money supply exists or should exist.

      2. LeonovaBalletRusse

        Rue the Day, in other word, they declare: “We are the AGENTS making your realilty, so SHUT UP! and be satisfied with your meager bowl of gruel.”

        How well, oh how well, Charles Dickens understood our *World Given*.

    2. Lil'D

      I suppose predictive power doesn’t matter in the academy. Look at academic economics as compared to, say, literature. The rewards are publications and tenure. To get published, editors have to referee and approve your paper. To get tenure, you have to have a bunch of publications and please your chair (and senior faculty). So, you descend into neoclassical math(per)turbations the same way literature faculty latched onto playing the deconstructionism game. [let’s call Bill Gates’ yacht the “text” and set up a dialectic between what it appears to say and what it might say in some alternate view… to make up a potential lit crit abstract on the spot]
      Those who have to go out and practice economics tend to get it right more often.

      And, when we get a resume from a guy from Chicago, we know he’s a “B” student, since the “A” students have learned that what we do can’t be done.

  4. William Neil

    Thanks very much for this. I have just happened to fire off an Email to the AFL-CIO asking why they don’t teach “political economy,” or at least, a history of economic ideas in their labor “colleges.”

    And at the same time I am reading the last and least known of John Kenneth Galbraiths “trilogy,” “Economics and the Public Purpose,” which came out in 1973, just before the American economic century fell apart. The book is rife with criticisms of neo-classical models and assumptions, many along exactly the same lines described in this interview. Especially important is the reality that the closer one looks at any given market, the more one realizes how far markets often diverge from the assumptions in textbooks.
    Think about the power of Wal-Mart and the recent two part New York Times series on Apple and where and our “electronics” are made,which reminded us of Mike Daisey’s penetrating bullet point: “There are no humane electronics.” These two firms have enormous power over their entire now extremely elongated supply chain,with the ugliest and most brutal parts of it (the worst of the inhumane labor aspects) hidden from the sight of those delicate upper middle class American eyes, whose same ears are plugged with the latest in the hyper-innovative electronics. Talk about being customer driven, hyper-efficient (those constantly falling prices)…it would all seem to be model capitalism …until you realize how it actually runs and the costs and how imperfect and one-sided the information actually is in the hands of consumers.

    But all these wonderful (from the neoclassical assumptions) “efficiences” are creating the great downward pressures on American wages, elevating the firms and the entrepreneur to all the inside tracks in politics inside the Beltway, and are major contributors to the great international trade imbalances – which are not supposed to happen under neoclassical free trade assumptions, are they, and have been dimissed as unimportant for decades in economic academe.

    Here’s a challenge for all you sharp NC readers: take your classic market assumptions and work them forward in time along the history of American agriculture- farming, from Jefferson’s day through the populist revolt to the elimination of farming (nearly) as a significant employer of people today. Is that a market success story? Externalities anyone (dead zones, soil loss, chemical pollution inside bodies and waterways)? How should employees look at this type of capitlaistic success story which involves the liquidation of the “occupation itself?” What if this is a broader trend, as clearly ua suggested by those famous Toyota robotized factories that Tom Friedman loved to visit before he had lunch with all those globalization salesmen?

    Let me conclude with the fine thought that a “current” Apple executive left the NY Times readers – and we the public with in that long article “How the US Lost out on iPhone work,” from Jan. 21, 2012: “We sell iPhones in over a hundred countries…we don’t have an obligatin to solve America’s problems. Our only obligation is making the best product possible.'”

    That wouldn’t be so horrible if we were still ignorant of the whole context of Apple’s story,or if entrepreurs and globlizers weren’t at the same time as pleading their case for efficiency weren’t also dominating the political processes around the world, and also mightily influencing the intellectual ones inside the economics profession…but it is an ideology, and it’s as one sided and as dangerous as laissez-faire once was in the late 19th century. The entrepreneur has, granted all that they have invented and marketed, come to eclipse all other social types inside the political process, and as a more than a few have pointed out, the logical conclusion is appearing now in the Greek-German-EU debates: let the market interpreters – the economic technocrats, and not elections, run the country; as if the elections were actually still offering a serious alternative….

    1. TK421

      “we don’t have an obligatin to solve America’s problems. Our only obligation is making the best product possible.”

      And yet most politicians (our president included) think the best way to solve America’s problems is to shower benefits upon corporations like Apple.

    2. LeonovaBalletRusse

      Mr. Neill, your definition of an “entrepreneur” is skewed to the meaning of those dedicated to the *murderous efficiency* characteristic of the Third Reich, the AGENTS of which are described in Gotz Aly’s “Architects of Annihilation.” They have annihilated the JUST entrepreneurial model exemplified by my father’s successful, completely ethical, independent “small” business practice from the 1940s through the 1980s. He was satisfied to make a LIVING within this frame, but was later exploited (if not tortured) by Manufacturers whose *Deciders* sought to make a KILLING.

      He was a building materials wholesaler who conducted creative, adaptive, entrepreneurial practices that were virtuous. From the mid-1960’s, he was screwed over repeatedly by formerly ethical Manufacturers, after he had MADE THE MARKET for their products locally and regionally, at his expense.

      Looking back, I am convinced that there was a huge .01% Global CONSPIRACY to DESTROY American small businesses and their entrepreneurial Presidents from that time forward. This purpose of this CONSPIRACY is evident in the unbridled success of WAL-MART, whose corrupt HQ is in Arkansas, the same State that gave us the Arch Conspirator William Jefferson Clinton, who was an Agent of the nefarious Anti-American British Imperial CONSPIRATORS embodied in the Milner Roundtable and the Rhodes Trust. Moreover, MENA, ARKANSAS was the prime LINK leading to the explosion of the Global Illegal Drug Trade designed to DESTROY the American Body Politic (the C.21 equivalent of the “Opium Wars” of the British Empire); and this was effected by Agents George H. W. Bush and Ronald Reagan, with the COMPLICITY of then Governor of Arkansas, William Jefferson Clinton, a Rhodes Scholar.

      There WAS a time when an American entrepreneur (small businessman) could make a very good living ethically and consistently. But the SYSTEM of business that supported many such ethical, successful entrepreneurs was DESTROYED DELIBERATELY, to serve SOLELY the MATERIAL INTERESTS of the Global 1%.

      All of our Presidents from Nixon through Obama have been Willful Agents of this Foreign Power. And still, *None Dare Call it Treason*?

      Bring RICO. Cry Treason! Bring “The Tyrannicide Brief.” OCCUPY Charlotte!

      Chris Hedges: Secretary of State

  5. Enrique

    Thanks for the interview.
    The critics against the classical model are ok, but they miss in many points ( I did not read the book!)
    1. Abstraction “not real” : Abstraction per se is not bad. Moreover, I find it , the model thinking , very useful when I need to simplify a complicated situation to its essence, especially in economics. The problem is that the models are not taught as such but as a normative, objectives “optimal” solutions in the social sense.
    2. Lack of historical perspective. I think that the first year of Economic Degree should be dedicated to ONLY learn history and economic history. The models are a simplification of OUR world , OUR era … but in other times, under other technological and material circumstances the economic world behave differently… and will probably be different 100 years from now.
    3. The closeness of the models : The classical equilibrium models can explain the Equilibrium point,,, fair enough. But they fail to incorporate the “external shocks ” that actually make the whole equilibrium move to some other XY point… So if the model cannot explain the trigger of a dynamic economy , it becomes useless……
    Last personal comment : I decided to go to study economics after reading ( in less than 8 hours ) Galbraiths book ( “The New Industrial State”) . He showed me that economics is not just about money but something more deep

    1. William Neil


      The point you made about economic history is a good one, and Keynes biographer Robert Skidelsky has made a very similar one about how economists should be taught; he wants them to get a broad humanistic education and lots of economic history before they specialize.

      But it’s a dangerous thing,isn’t it, to have students full of Braudel’s wonderful three volume history of “Civilization and Capitalism, 15th to 18th Century,” before they prostrate themselves under the assumptions of the simplified models?

      And, by the way, Braudel references JK Galbraith’s two tier model of capitalism a number of times,and agrees with it: a “market sector” of many small firms who can’t plan and control their prices,” and the “planning sector,” dominated by the large ones who can.

  6. F. Beard

    But all these wonderful (from the neoclassical assumptions) “efficiences” are creating the great downward pressures on American wages, elevating the firms and the entrepreneur to all the inside tracks in politics inside the Beltway, and are major contributors to the great international trade imbalances – which are not supposed to happen under neoclassical free trade assumptions, are they, and have been dimissed as unimportant for decades in economic academe. William Neil

    Efficiency is good. The problem is that the profits of efficiency are not “shared” as they would be if the corporations were forced either by government or by economic pressure (preferable?) to use their common stock as money.

    How should employees look at this type of capitlaistic success story which involves the liquidation of the “occupation itself?” William Neil

    People don’t need jobs to stay occupied; money is sufficient for that purpose.

    I also note that it is the counterfeiting cartel, the banking system, that led to family farms being confiscated by economic means.

    1. William Neil

      On money being sufficient and severed from jobs…I would like to think that we were approaching that visionary land that Keynes saw after the worst features of capitalism had been eclipsed and its wonderful productive powers turned to the service of a more humane society…but if you understand the widespread appeal for the austerity “doctrine” – among politicians today in both parties, you realize that we are “Still all sinners in the hands of an angry Market” – so that money and pay will have to be linked to doing some job – work, in other words – the task being to make sure it is useful and meaningful work that isn’t being done by the market – and it isn’t hard to find examples of that in the US,is it?

      And I should add, perhaps an even greater challenge is to break the monopoply that the private sector insists upon, that “only it can create jobs” – that is still the dominant view inside the Democratic Party, as well as the economics profession…

      1. F. Beard

        And I should add, perhaps an even greater challenge is to break the monopoply that the private sector insists upon, that “only it can create jobs” – that is still the dominant view inside the Democratic Party, as well as the economics profession… William Neil

        Obviously, the government can create jobs since that’s where the money comes from. And there is a legitimate role for government “to promote the general welfare” on such non-controversial things as roads, parks, infrastructure, etc. But let’s not imagine that the national government can do any better than simply handing out money to the population when it comes to many non-tangibles such as education, care for the old, drug program, etc.

        1. F. Beard

          Of course if we had an ethical money system then even the need for government to hand out money would eventually “wither away” not to nothing but to far less than the need today.

  7. James

    Free market economics is essentially the new state religion and its practitioners the new priests. Overly complicated and virtually undecipherable mathematical theories form the group’s literature and is viewed as revealed truth to the inner circle cognoscenti, while serving even more effectively to keep the blasphemers and the merely dull (and mostly poor) at bay. It’s not for nothing that economic theories are bent – aka reinterpreted in light of the facts at hand – to support whatever political ideology happens to hold sway at the moment. While the economic priesthood is certainly as dissembling bunch as you’re ever likely to find, they’re not stupid either. They know full well that their privileged status is granted only as political favor for a price, and that while they may indeed rule the land of soft-science academia from which they sprang, the opportunistic pols and corporate chieftains who use and abuse them so flagrantly rule everything else. Free market economics: an old-fashioned religious belief system in search of intellectual justification, no matter how flimsy. No competing ideas entertained or long tolerated, other than to be held up for ridicule of course.

    1. F. Beard

      Free market economics: an old-fashioned religious belief system in search of intellectual justification, no matter how flimsy. James

      What is free market about a government backed/enforced counterfeiting and usury cartel, the banking system? Nothing? Exactly.

      The bankers want a free market for everyone but themselves since it does insure maximum productivity from the cattle.

  8. Min

    Well, I was fortunate, in a way, in that my school district was so poor that it used antiquated social studies texts, written, I guess, in the 1950s. As a result, we learned about Robber Barons and anti-trust laws, and several ways that corporations used their market power. When I hear people extol the virtues of laissez-faire capitalism, I always wonder if they have heard of the 19th century. ;)

    1. William Neil

      That’s pretty amazing,that such a perspective could have survived.

      It reminds me – speaking of neoclassical models and free market assumptions, how is it that the left of today – and certainly the center – is so unaware of that “other book” written in 1944, the left’s answer to Hayek’s “Road to Serfdom” – I’m thinking of Karl Polanyi’s wonderful “The Great Transformation.” It has some very powerful passages about “the market” how it is so brilliantly cruel and abstract that no one – businessmen, bankers, farmers, or workers can live with in its “pure” form for very long, everyone is too busy trying to “humanize it” to soften the blows, which Polanyi said if not softened would destroy society and the environment.

      Now consider this: Nicholas Wapshott has written a good book on the duel between Keynes and Hayek, subtitled “The Clash that defined Modern Economics,” and I recommend it as a book for the interested citizen, but Polanyi is not even mentioned, not a sentence, not a paragraph. And we need Polanyi’s insights as well as Keynes…

  9. Aquifer

    Glad to see Ha-Joon Chang’s book mentioned – that, for me, was a great “text”.

    I am perpetually reminded, in discussions like this, of Whitehead’s Fallacy of Misplaced Concreteness and wonder why every text doesn’t start out with this concept – it, IMO, has an almost universal application in just about any field …

    Was wondering if someone could provide me with some specific citations about how raising minimum wage doesn’t increase unemployment – have been having a discussion with someone who claims it does, but I cannot “cite” proof to the contrary – would be much appreciated …

    1. j.grmwd

      “Do Frictions Matter in the Labor Market”, Arindrajit Dube et al, 2011.

      This is a recent paper you can find on-line. The references will give you the important early work if you’re interested.

    2. John M

      “Myth and Measurement” by Alan Kruger and David Card.

      Also, imagine a marginal benefit function to a firm, in hiring the next employee, or deciding to lay off an employee, as follows: It’s $50/hour up to the 19th employees, $20/hour for adding the 20th employee, and zero beyond the 20th.

      In other words, if he has more than 20 employees, he can lay off those above 20 and distribute their work among the remaining 20. The 20th employee’s work can only partly be distributed among the remaining 19; the rest is left undone. The marginal benefit of workers beyond 20 is zero.

      The solution in this case is that he hires 20 employees until the minimum wage surpasses $20/hour, whereupon he hires only 19 employees. If the minimum wage surpasses $50/hour, he hires nobody.

      There might a factor one includes in cost beyond the minimum wage itself, so the change might occur somewhat lowe than $20/hour.

  10. Aquifer

    Having spent my professional years in medicine – and watched as the “the market model of life” has increasingly encroached on it to the point where patients become “consumers of health care” and hospitals look for increasing their “market share” of “consumers”, it has become increasingly obvious to me that trying to make healthcare a “market” endeavor is like putting a square peg into a round hole – and the effort necessitates cutting so much of the corners off that the “consumer” is bleeding to death … when healthcare became a “business” instead of a service and a profession, the “health” was removed and the “care” was reserved for “bottom line” which was increasingly not that of the patient ….

    I really would like to see an open discussion of which parts of our society are inherently amenable to a “market” model and which parts are not. Then we can proceed to optimizing the markets for those that are and formulate other models for those that are not …

    1. William Neil


      Turning medicine over to markets is a great place to begin the discussion. John Gray’s “False Dawn” was a brilliant attempt to point out, back in the late 1990’s, that the world could be subject to a utopian experiment, and excess, from the Right as well as the left, the attempt to apply market fundamentalism to all areas of human experience – schools now too! In the mortgage market disaster, MERS was an attempt to create one large, hyper-efficient recording system along these lines…and fits right in with my comments above to take close look at those markets!

      I consider this to be the worst nightmare for a patient: to wake up in a hospital with Larry Kudlow, Stephen Moore and Dick Cheney standing over the bed, in white coats and with clipboards in hand, considering your future course of treatment.

      Although it’s not easy for me to say it: give me the old “Sisters of Mercy” anytime instead.

      1. LeonovaBalletRusse

        TK421, thanks for the link to this thoughtful blog by Paul Krugman.

        Is there not only one conclusion to draw from this *harsh reality*?

        “Eliminate the Middlemen” — the Third Party Administrators between We the People and our Physicans, Surgeons, Nurses. Eliminate *Insurance* Vampires who NEVER will cease to suck the life blood out of ethical practice of Medicine. Let’s re-establish the time-honored human RELATIONSHIP between People and Medical Practitioners, who once again must rise to the occasion to govern their own practices and the hospitals affiliated with their practices. We the People and We the Physicians/Surgeons/Nurses must assert our AGENCY for our own health care, within the abiding FRAME of ONE DESIGN and INFRASTRUCTURE for the PUBLIC HEALTH CARE SYSTEM with a *MUTUAL* PUBLIC FUNDING SYSTEM, in order to foster HEALTH as a COMMON GOOD. The advanced technologies of C.21 should make this outcome possible.

  11. Ralph Crown

    Apparently, not much has changed since I took Economics 101. More than anything else, economics led me into critical thinking, because I could sense the disconnect between the theory and the reality. At the time I couldn’t put my finger on exactly what that was. Thank you for this article. Now I know.

    On a related topic, a recent study found that the main difference between an expert and an amateur in a given field was their confidence in their predictions. Not much difference in the accuracy of the predictions, only in how sure they felt. My impression is that establishment economists, when they unquestioningly follow and disseminate these implicit principles, miss opportunities to learn new things. Their tools need to evolve to keep pace with the world they measure.

  12. diptherio

    Good article. It’s nice to know that just because I got looked at strangely when I brought these things up in my undergrad classes, I’m not, in fact, crazy.

    I was also taken aback by the utter lack of consideration for the positive feedbacks between economic and political power. So far as I could tell, none of the grad students and all but one of the professors (my adviser, Dr. John Photiades) seemed unconcerned by this oversight. My contention that the firm is a fictional entity composed of many real-live people, and that actions that are “good for the company” may in fact be detrimental to the majority of the people who make up that company, was treated as a philosophical eccentricity. As was my point that insisting on positive economics, as opposed to normative, was itself a normative stance.

    I once had the temerity to question my intro to micro prof on his claim that price ceilings always led to shortages (and were therefore bad). I asked, “what if the producers are colluding to arbitrarily keep prices above the natural equilibrium?” His response: “What, so you think all the landlords are getting together and conspiring to keep your rent high?” (he had been using the example of rent controls). His sarcastic belittling of me got a laugh from a number of students and I learned to keep my questions to myself.

  13. Hugh

    Rod Hill does acknowledge that mainstream economics is propaganda but he doesn’t finish the thought. It is propaganda which gives cover to kleptocracy. This is important because he maintains that the academic textbook writers don’t realize that they are obscuring the basic power principles which control the real economy.

    As I have said before, what some people, in this case the textbook writers, know is not the point. It is what they should be reasonably expected to know. The example I give is of military historians discussing the period 1939-1945 without any reference to the Second World War. In such a case, we would have no problem dismissing the argument that their belief that the Second World War was irrelevant to the military history of this period could in any way be defended or justified. Because by the very nature of their profession as military historians, they should know, indeed know better than anyone, that the Second World War not only was important to this period but defined it.

    Believing something, even one’s own propaganda, does not insulate one from acting in bad faith. The essence of bad faith is acting wrongly when you knew or should have known your actions were wrong.

    This is where modern economists, the media, politicians, Wall Street, the judiciary, the regulators, the whole of our elites fall down. It is in the very definition of themselves as elites, –the rationale which they use to justify their wealth, positions, and privileges,–that they know better than we of the 99% do. Yet at the same time we are asked to believe that their failures to address or even recognize either the disasters in the real economy or the massive holes in their theories are somehow good faith errors, or possibly not errors at all, even though these failures and what led up to them are obvious to us even as they have enriched our elites and increased their control over us.

    In brief, our elites, textbook writers and all, are acting in bad faith. What they believe or pretend to believe is beside the point.

  14. LeonovaBalletRusse

    This makes you wonder how these greenhorn students–being force-fed neoconlib *economics* boilerplate under the tutelage of *successful* shills for the Global Master Class in the *hallowed* halls of Academia–would respond if they had been forced to study Aristotle in depth (even in translation) before they entered the Gateway to Heaven for the .01%.

    What’s so striking is the retardation in psychic and social development of the students, coddled all of their lives by rich *helicopter* parents. Whatever became of *adolescent rebellion*? Why is this?

  15. Jim

    Questions for William Neil:

    Based on your comments at 12:48 and 12:49.

    Do you agree with Robert Skidelsky when he charaterizes Keynes’s “General Theory” as a morality play, in which Depressions are the wages of sin, only the sin is in not spending too much but in spending too little?

    Do you agree with Skidelsky when he argues that Keynes’s critique of thriftiness had it origins in Keynes’s revolt against Victorian morality (Puritan instincts) and only later did Keynes link this insight to the economic argument that the more virtuous we are (in terms of thrift) the more our incomes would have to fall?

    Do you argee with Skidelsy when he argues that Keynes’s break with orthodoxy centered around a transvaluation of values–so that thriftiness becomes (under the most uusual circumstances)a pathology not a sign of health and virtue brings catastrophe on the societies that practice it?

    Do you agree with the above authors and apparenly Keynes, that an objective account of economics is impossible?

  16. Eric L. Prentis

    The US is four years into a credit crisis, beginning in December 2007. Unemployment in the US remains elevated at 8.5%, yet academic economists are not revising their teaching curriculum or predictive models.

    I believe it is because the political establishment and financial elite have yet to give economists permission to proceed. I applaud professors Rod Hill and Tony Myatt—who seem to be doing this on their own—for their efforts.

  17. Susan the other

    I like the Anti-Textbook teaching model. Nothing like a good, old-fashioned econ 101 class to make you narcoleptic for the rest of the afternoon. Funny how salient, material facts are interesting and monotonous factless verbage is, well, boring. I wonder if boredom and brainwashing are closely related somewhere in the brain.

  18. ChrisPacific

    I agree with the comment that economics as currently practiced is inherently biased. I wouldn’t give up hope of a theory that accords with observation sufficiently well to be treated as a scientific theory (i.e., with a certain degree of objectivity) but I don’t think economists have come close to producing one yet, and if they continue ignoring their assumptions or minimizing their importance they will never get there.

    It seems to me that economics in practice (i.e., in the way that it acts as an influence upon society) is based less on actual theories and more on parables, fables and aphorisms that are based on somebody’s interpretation of them. The theories are often quite complex and difficult to read, not because of the mathematics (which is usually pretty simple) but because of the tangle of definitions and assumptions that they rest on. Frequently these are not clearly defined, and when they are they are often just plain wrong. The end result is that you have a theory that takes a lot of time and intellectual effort to understand, and when you’ve done so you realize that you wasted your time because the premises are mostly broken and there’s very little of value actually in there. So people don’t bother, especially if they lack a background in economics or mathematics. Instead they rely on someone else to do it for them and to put it in terms they can understand. The most memorable of these, and the ones that tend to have the most influence on non-economists, are often stories and parables – like ‘The Ant and the Grasshopper’ for example.

    This is where the bias enters. Economics as it’s currently practiced is so nebulous and reliant on plausibility arguments that it’s easy to cherry-pick the parts of it that support your own platform and make a compelling story out of them. This gets picked up on by others who believe the same thing who then point to it and say “see, it’s just basic economics!” Much of what passes for economic thinking in the media these days (and, I suspect, nearly all of what passes for it in politics) is nothing more than this.

    In some ways it’s human nature, so it makes sense to acknowledge this and allow for it. I still hold out hope that there is room for a truly scientific theory of economics that predicts reality sufficiently well that it can’t be ignored even by its opponents. (You don’t hear a lot about Theory of Gravity deniers, for example). But it’s never going to happen unless economists start serving science rather than vested interests, and I’m not sure how we get there from here.

  19. Joe Firestone (LetsGetitDone)

    Approaches to economics or economic schools of thought are best thought of as Knowledge Claim Networks (KCNs) and I think all such KCNs either assume or explicitly state value statements which they rarely expose to critical evaluation.

    Over the last month, a dispute broke out in the blogosphere among people who favored the Modern Monetary Theory (MMT) approach, and a group broke off, now calling itself Monetary Realism (MR). I wrote a series from the MMT point of view on the issues raised by the conflict. The series introduction and guide to its various posts is here:

    Parts 14 -16 are about the MMT KCN, how it differs from MR, and the ideas that are at its core. Part 14 on the nature of KCNs is here:

    If you read it, you’ll see that they’re viewed as fusions of facts and values. Part 15 lists the MMT components and Part 16 identifies the MMT core and shows how different that is from MR. While I don’t to label MR ideologically at this point, since it’s so new. I think it’s correct to sat that MMT is much closer in spirit to the economic approach that motivated FDR’s late New Deal thinking during the last years of his life — FDR’s unfinished business.

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