Economic Ideas You Should Forget

Lambert: Fun stuff, and I’m sure readers can suggest other ideas to forget, including those of some not-yet-defunct economists!

By Bruno Frey, Permanent Visiting Professor, University of Basel, and David Iselin, Researcher, KOF Swiss Economic Institute, ETH Zurich. Originally published at VoxEU.

Economics is a well-established discipline. Nowadays, students all over the world use similar introductory textbooks and learn the same type of methodology, theory and empirical techniques. There is indeed a great amount of consensus among academic economists.

Yet, there are many puzzles and unresolved issues in economics, especially since the Global Crisis (Coyle 2012). The narrow conception of the macroeconomy as a system in equilibrium, for instance, is problematic (Kirman 2012). Many other questions remain, such as how to deal with interest rates that have dropped below zero. How to measure, and consequently integrate into GDP figures, non-priced transactions such as the ones going on in the ‘gig’ or sharing economy? How to sell the gains of international trade to a mainly national public? A better knowledge is required of what theories still hold, and in particular, which of them are outdated and need to be discarded because they are misleading, or at least no longer fruitful. This is exactly where the problems start. In his General theory of employment, interest and money, John Maynard Keynes (1936) stated, “The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.” Old ideas are ramifying economists’ minds.

John Quiggin in his 2012 book, Zombie economics: How dead ideas still walk among us, labelled those old ideas as ‘zombie’ ideas. In particular, he mentions the ‘efficient markets hypothesis’ and the ‘great moderation’ as two ideas that economists cherished wrongly and for too long. John Brockman and his organisation and website,, continued the funeral of old ideas in 2015 with the book, This idea must die, in which, for instance, Margaret Levi buried the homo economicus. However, this is not the only idea we should forget.

To be fair, economists are often attacked from outside their field for ideas they no longer hold. For instance, this applies to rational expectations as a behavioural assumption in financial markets, the assumptions that markets are always efficient, or the idea that individual utility depends only on absolute consumption.

There are also many examples of economic ideas held by the public that should be forgotten as well. Examples are that pay for performance raises performance, that natural resources bring wealth, that taxes are paid because of expected punishment or that artists are poor and thus unhappy.

Many government programmes are based on ideas that are no longer supported by the majority of academic economists. Examples are that home ownership is a good thing, that helicopter money helps to overcome the present problems in our economies, that public spending reduces unemployment over the long term, that innovation programmes lead to innovation and that abolishing cash can limit corruption and tax cheating.

But let us dig into some examples where economists are also slow to adapt. Much has been written about the flawed concept of GDP (Stiglitz 2009). Even the European Commission has started a ‘beyond GDP’ initiative where the EU is searching for indicators that are more inclusive of environmental and social aspects of progress. Even so, most economists still use GDP as a target variable that should be increased. The reasoning behind this is that per capita production and consumption of goods and services are considered to be the fundamental criterion of people’s well-being. Hence, the conclusion is that growth and well-being go together. Anything that maximises GDP is thought worthy of pursuit. This neglects the fact that well-being is a very individual experience that cannot be measured by external factors.

A counter argument would be that GDP at least allows for comparison over time and among regions, although economists are well aware of the flaws. However, if we never start with challenging GDP as our core variable, economists will be always surprised why people are dissatisfied with their situation.

The same holds true for the trickle-down or ‘a rising tide raises all boats’ allegory. The rising tide proposition is frequently made in relation to economic growth. Increases in GDP, so the argument runs, flow through to eventually improve the economic welfare of the population as a whole. As we just said, to put GDP and well-being at the same level is not appropriate. But why is the rising tide not lifting up all boats? First, economic growth over any given period is always unevenly distributed among sectors, with some sectors growing and others possibly shrinking. Second, economic growth is unevenly distributed among individuals. Does it matter, say, that the top 5% of the population enjoyed a 20% increase in their income if the income of the bottom 5% rose by only 2% over the same period? It does although one could say that the poor are still better off. But the gap between rich and poor will have grown wider, other things being equal, and the negative consequences of increasing inequality in the distribution of income will continue although everybody is supposed to be better off.

So, what could be the answer? One proposal is that it is the government’s task to maximise the happiness of the population. Forget about that. There are many concerns about a benevolent happiness maximiser. First, governments are not per se benevolent and unconstrained. Second, which happiness measure is the right one? Third, a maximisation of reported happiness reduces citizens to ‘metric variables’. Fourth, when there is an agreement on the measurement, there are incentives to manipulate the measure. Fifth, what moral values are behind achieving happiness? Should taking drugs be regarded as a happiness enhancer?

As these examples show, to have a well-balanced view on which economic ideas should be discarded is of importance far beyond the discipline of economics itself. Policymakers and the public should also educate themselves about which ideas hold and which do not. In a recently published book (Frey and Iselin 2017), we make an effort to provide such information. We collect no fewer than 71 contributions from academic scholars all over the world. Some are prominent economists – such as Daron Acemoglu, Alan S. Blinder, Richard Easterlin, David Hendry, John Kay, Margaret Levi, Andrew J. Oswald, Eric Posner, Jeffrey Sachs and Hans-Werner Sinn – and others are lesser known young scholars. The collection also includes contributions from academics outside economics, including from sociologists, psychologists and ethnologists. Younger scholars and ‘outsiders’ may be particularly well-endowed to see ‘dead wood’ in economics which is no longer useful for today’s world. We aim to reveal the diversity of opinions and evaluations, to stimulate the discussion and to push forward knowledge. We see economics as a progressive science that does not lose its force when parts of its theory are empirically rejected. On the contrary, to discard unhelpful and misleading ideas shows that a discipline is vigorous as suggested by Joseph Schumpeter’s idea of ‘creative destruction’.

Ideas are the drivers behind innovation, may they be political, economic, in the arts or in science. “Nothing is as powerful as an idea whose time has come” is a popular remark attributed to Victor Hugo. This is certainly correct. However, the power can also lie in abandoning old ideas before moving to the new ones.

References at the original post.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. Disturbed Voter

    The idea of approximation and convenience keeps old ideas going. We are used to the old ideas, so we keep them around. And isn’t binary an approximation to the real number line? So we abuse approximation …. that mercantilism was an approximation to capitalism was an approximation to self destruction. That hard currency (honest business dealing) and low interest rates are an approximation to soft currency and usurious interest rates (no, interest rates were forced to near zero … if you are a credit card holder).

    And sometimes creativity isn’t your friend. If negative interest rates make sense, why not interest rates that are imaginary or complex numbers? We use imaginary and complex numbers in engineering. What next, quaternions?

    1. Blue Pilgrim

      Binary is just counting by 2s instead of 10s but both can represent real numbers within some precision, but not exactly.

      As for complex numbers, they represent more than one dimension, so a complex interest might perhaps not just money to be paid, but something else, such as perhaps how nice it is to do business with the creditor, or a loan not counted as part of one’s credit rating, or if the principle is used to a vacation or get little Timmy the operation which will save his life.

      But convenience of ideas…
      I see Frey is accused of self-plagiarism (reusing his old writing as if it were new, without citing himself) — but perhaps he forgets he already wrote something? :-)

      Abstract ideas are convenient, but are a hazard in thinking, and especially in economics which often becomes divorced from reality, and even some economists even talk about the economy while ignoring such things as banks, debt, and money. Alfred Korzybski (general semantics) had useful things to say about this and levels of abstraction, such as ‘the map is not the territory’. Even multidimensional interest rates cannot accurately represent reality, and neither can common (simple or compound) interest rates, or money, which are mere abstractions of tangible wealth and subjective values. The problem is inherent is trying to represent things like a full belly with government issued notes, debt, or a bit of gold, or even a sandwich which is yet uneaten.

      A bit trite in phrasing maybe, but abstractions and ideas (and money is an idea) should be our servants and not our masters. Economists should have some understanding of Zen so they do not get hung up on abstractions.
      Alan Watts had good thing to say on this.
      Alan Watts On the Idea of ‘Money’
      [He talks about not being able to build something because there is a slump in inches — the abstraction used to measure wood.]

    2. John Morrison

      Negative interest rates — at least we know what they are. If they can find a useful math tactic involving complex numbers or quarternions, more power to them. Sometimes I think that it would be nice if economists and businessmen understood math as well as used it. (I’m sure some economists understand math; I’m equally sure that many don’t. As for businessmen and math — it’s amazing what one sees labelled as “business math”. Amazingly elementary, that is.)

  2. xformbykr

    I haven’t read it yet, but I will: “J is for Junk Economics” by Michael Hudson. IMO it would be a useful economics re-education resource.

    1. Vastydeep

      There are a lot of great things happening in “new” economics — Kate Raworth and Doughnut Economics, anything from Steve Keen, and the whole Economics Department at UM – Kansas City just for starters. The discipline has the means and people to reinvent itself.

      The problem is that we have a self-reinforcing infrastructure around the “Chicago School” — lots of Nobel Prizes who have seen public policy crafted around “Economism” — ignoring the limitations from Adam Smith onwards. Chicago School is great for generating feudalism from capitalism, but as an optimizer for the general welfare is simply wrong.

      I was an engineer and I remember school examples that taught the basics with the caveat “if you ignore air friction…” Ignoring the effects of non-infinite buyers and suppliers, non-identical products and more has built an economy while ignoring air friction. You could build an airplane that way, but you wouldn’t want to fly in it.

    2. visitor

      For me, a revelation (several decades ago) was when I read Organizations by Herbert Simon and James March. It raised and addressed so many relevant issues with a direct connection to reality: Why organizations? Why are the very large ones not organized internally as markets? Why do countries at war go into full mode as planned economies? Why are markets never “perfect”? Why do individuals and organizations never “optimize”?

      Since then, I read a few other books, older than the new one referred to in the article, that already debunked many of the tenets of economics. One was by Jacques Sapir (in French) Les trous noirs de la science économique (or: the black holes of economic science).

      A stunning one was by Paul Bairoch Economics and World History: Myths and Paradoxes which debunked many of the accounts of economics — free trade did cause prolonged depressions, Europe did not need colonies to industrialize, countries developed by violating the principles of comparative advantage, etc.

      1. justanotherprogressive

        Heresy! Complete Heresy! Because Adam Smith said……

        I think it is time to reject the basic economic Bible (Adam Smith) because he was dead wrong. It is amazing how hard it is for economists to actually look at Adam Smith with open eyes and really think about what he was saying – it would be like asking a Christian to reject the Holy Bible…..

        1. Vatch

          Smith wasn’t wrong about everything. His epigoni cherry picked his writings and created a libertarian caricature of his ideas. He wasn’t the cartoonish free market fanatic that the Koch brothers would like us to believe. Here’s an example from Book V, Chapter I, Part II, paragraph 2 of The Wealth of Nations:

          Wherever there is great property, there is great inequality.

          This clearly contradicts the fanciful notions of trickle down economics.

          1. justanotherprogressive

            I think you too, are cherry picking. Smith needs to be read as a whole and in the context of the time he lived…..

            Yes, there is a lot of morality in his book, but it a morality that supports the behavior of the merchant class, assuming that they would naturally be “moral”, but there really was no economic value to them for that “morality” that would overcome “self interest”, something he could have seen all around him, if he chose to, but something he conveniently ignores…..

            As for inequality, he seems to spend a lot of time blaming the policies of European countries, rather than looking at the inequalities created in his own country by his economic class……his acceptance of the use of colonies to provide wealth is also troubling…..

            Sorry, but Smith wrote a utopia book, based on his beliefs, not understanding or ignoring the effects of the “self-interest” he supported…..

            1. TarheelDem

              I think that Who Cooked Adam Smith’s Dinner? argues that Smith was slow to leave home and was fundamentally an early member of the “professional class” based at a university.

              The Theory of Moral Sentiments always seemed to me to argue that the social panopticon of “seen” middle-class society exerted a power of enforcing norms on economic actors. When that panopticon fails, you see now what happens.

              Where Smith captured the imagination of generations was in his arguments about aggregation (network effects) producing good out of necessity (and greed). The reality of the last 241 years is that he overstated his case, and that there are other network effects in the economy.

            2. Vatch

              I think you too, are cherry picking.

              Yes, I agree, I am cherry picking. I’m just trying to make the point that Smith’s ideas aren’t the same as those of his supposed modern “followers”. There’s complexity in his work that many people ignore.

            3. E3

              Smith’s co-author helped construct the American Creed. A creed Hayek concluded essential to the subject. Von Mises states the solving of our neighbors inconveniences as best self-interst: capitalism versus merchantalism.

  3. cnchal

    Many government programmes are based on ideas that are no longer supported by the majority of academic economists. Examples are that home ownership is a good thing, that helicopter money helps to overcome the present problems in our economies, that public spending reduces unemployment over the long term, that innovation programmes lead to innovation and that abolishing cash can limit corruption and tax cheating

    Let me get this straight.

    Government programmes that are of the notion that home ownership is a good thing, are now no longer supported by the majority of academic economists.

    Helicopter money that is and was lavishly dispensed to those who needed it the least, a great socialist experiment in trickle down theory, is now no longer supported by the majority of academic economists?

    The idea that public spending reduces unemployment over the long term is no longer supported by the majority of academic economists.

    Government “innovation” programmes are no longer supported by the majority of academic economists.

    The government programme of abolishing cash because the idea is that it can limit corruption and tax cheating, is no longer supported by the majority of academic economists.

    Are there any blue collar economists that beg to differ? Like those working under the thumb of a bankster.

    1. LT

      Current economic conditions have changed the degree to which government programs improve well-being for its citizens and these conditions have to do with the total capture of government by the FIRE sector. TOTAL!

      For instance, housing is a speculative investment where most people end up owning mortgages, but never “owning” the home.

    2. Left in Wisconsin

      What is not emphasized, advertently or in-, is that economists are a self-selected band of ideological outliers masquerading as a scientific community.

      To believe that the tropes of “economics” are a valuable approach to studying society requires a very particular take on the world. Either the math makes sense to you (as having this value) or it doesn’t. Economists only come from the first group.

  4. Sound of the Suburbs

    “Why is Economics not an Evolutionary Science?” (1898) Thorstein Veblen

    Someone with a rudimentary grasp of real science spotted the problem some time ago.

    Why isn’t economics evolutionary?

    “Income inequality is not killing capitalism in the United States, but rent-seekers like the banking and the health-care sectors just might” Nobel-winning economist Angus Deaton

    Today’s Nobel prize winning economists are just catching up with 18th and 19th century economists on rent seeking.

    “…banks make their profits by taking in deposits and lending the funds out at a higher rate of interest” Paul Krugman, 2015.

    Monetary theory was better in the 19th Century.

    Real sciences build on established foundations that develop over time as new and better theory comes along to replace older, less accurate theory. Over time this methodology perfects itself and the errors in the reasoning gradually get smaller over-time.

    This is why we can build space craft that can accurately get to the outer reaches of the solar system.
    Francis Fukuyama in 1992 said it was “the end of history” and Capitalism had been the only successful economic system to stand the test of time.

    But we had just changed the fundamental assumptions about capitalism.

    1) 40 years ago, most economists and almost everyone else believed the economy was demand driven and the system naturally trickled up.
    2) Now most economists, and almost everyone else, believes the economy is supply driven and the system naturally trickles down.

    These assumptions are the total opposite of each other.

    This random jumping about on fundamental assumptions would have any real scientists in fits of hysterics.

    If economics ever wants to be a real science, it needs to behave like a real science and be evolutionary.
    You can’t just go forgetting about rent seeking and coming up with a model for global, free trade that ignores the cost of living.

    Imagine a Chinese wage covering a Western cost of living.

    Why the West can’t compete internationally, its labour has been priced out of the global market place.

    All known in the 19th Century when they repealed the Corn Laws to usher in the era of Laissez-Faire.

    You have to get the price of corn down, to lower the price of bread, to lower the cost of living, so employers can pay internationally competitive wages.

    1. nonsense factory

      No, not “evolutionary science” – the question is, why isn’t economics an Ecological science?
      Consider this quote, for starters:

      Economics is a well-established discipline. Nowadays, students all over the world use similar introductory textbooks and learn the same type of methodology, theory and empirical techniques. There is indeed a great amount of consensus among academic economists.

      Well, in the old Soviey Union, Lysenko’s notions on genetics and biology dominated the thinking behind Soviet agricultural programs. There was “a great amount of consensus among Soviet academics” on the issue. They’d hidden themselves away in an academic environment in which criticism could be ignored.

      Look at university academic economics today – they’re safely hidden away in business schools, never having to face basic criticisms of their mathematical models or their propaganda that only serves the interests of wealthy shareholders and corporate executives.

      If economics departments were to be moved over to the natural sciences, then they’d have to consider questions like, “what is the economic picture for fish in a lake”? Consumption, predation, reproduction, population dynamics – these are the same issues that, for example, humans in the Hawaiian islands must face. Everyone needs to eat; food production is an ecological-biological activity. There’s only so much land available on an island, so if the population reaches a certain size, trade with other regions is inevitably necessary to acquire sufficient food supplies. Trade is dependent on transport technologies – air and ocean travel by plane and ship.

      Academic economists are never forced to answer such ecological questions, so they come up with the most asinine mathematical models of human activity that fail over and over again. As it currently stands, the entire discipline could be disbanded with no real effect on anything (other than a lack of PR monkeys to write editorials for major newspapers on behalf of corporate interests, perhaps) – just as the loss of Lysenko geneticists did no harm to science in general. They’re the most ridiculous group of academics in existence today, and they know it.

      1. justanotherprogressive

        Just a point…….the mathematical models are not based on any reality – they are only designed to fit what the economists want them to fit – is it no wonder that they fail?
        I can write an algorithm that will be perfectly accurate mathematically for anything you want to believe – but that doesn’t make your beliefs any truer……

        Economists forget that mathematics is a very useful tool that has to be used appropriately….and it can be meaningless if what you are using it to describe is meaningless…

        1. Dead Dog

          Bashing economists, and lumping all of them in the same pool, becoming a bit of a sport here on NC.

          We don’t all work on wall street plotting to usurp everyone else through crackpot theories.

          Just sayin

          1. a different chris

            Yeah this is kind of turning into a mindless progrom, and *I* have a ton of difficulties with economics as currently explained, at least to us unwashed masses.

            “Real” science doesn’t have as pretty a track record as SoS* lays out. Just consider the techtonic plates guy, for instance. It wasn’t the economics field that came up with the saying “science progresses one death at a time”.

            *But I’m referring to just a short blurb, his/her overall posting on this subject is very good, I want to make that clear. Sigh, the Internets are so hard…

          2. justanotherprogressive

            I believe the article made it clear that there were other economists who don’t subscribe to the current theories……
            However, I do know how it feels to be “lumped”. Have you an alternative as to how to talk about economists so that you aren’t all lumped together? Perhaps I should have said macro economists who adhere to the most prevalent theories?

            1. Dead Dog

              The economists to malign are those that work at c suite levels and above (the enablers) and those in the media (Krugman is the most prominent and deserves everything he gets here and elsewhere for simply lying).

              Don’t forget though, that the true architects of the thing we call neoliberalism are just greedy people. That prominent economists should have called out the failures much, much earlier. Yes, but they weren’t the only people to see what was happening, plenty of others, all drowned out by the media. Even today, heterodox economists struggle to get themselves heard and are considered conspirators by many. Sigh…

              Thanks for response JAP and ADC

              1. Left in Wisconsin

                Don’t forget though, that the true architects of the thing we call neoliberalism are just greedy people.

                Sorry but this seems like deflection. The political project that is neoliberalism is far from just “greedy people.” Prominent economists were/are among its strongest advocates and ideological leaders. The fact that these ideologists have been able to make a comfortable home in “economics” to substantial acclaim (awards, named chairs, etc) and virtually no rebuke is an indictment of the discipline.

    2. saurabh

      Your representation of the way science develops is in my opinion inaccurate. Specifically it discounts the fact that changes in scientific understanding often produce a loss of knowledge. People trained as cognitive scientists who reject the methodology of Jung or Freud also discard any insights produced by that methodology; even if it is true that cognitive science is a “better” paradigm for producing understanding of the human mind (unclear), it must recapitulate previous discoveries in this new framework for this knowledge to be available. This often does not happen, meaning knowledge we once had is now lost.

      1. justanotherprogressive

        I know I am going to create a firestorm with this, but:

        Cognitive scientists? Aren’t those the ones that design tests like the train switch problem? You know the one where there are five people standing on one track and one person on the other track and the object of this test is supposed to decide which track to send the train down? Either he does nothing and the 5 people die or he switches the track and one person dies? Either – or, no alternatives! And you try to make some sort of cognitive analysis of human behavior from that question?

        Meanwhile you completely ignore what a real normal person would do – which is if a person has time to switch the tracks without the train derailing and killing them all, he has time to scream like hell that there’s a train coming and for the people to get off the tracks? That way nobody gets killed?

        Seems like all of the “tests” cognitive scientists use to determine what people do are similar to the above test: Either or only, and no consideration for other, more obvious, options….and you want to insist humans will as a whole behave as your “test results” indicate…..

        Sorry, but cognitive science seems to be more like economics than a science…..based on what people believe or based on what abnormal people do (or people put in abnormal situations do), rather than actual data…..

        1. Chris

          Cognitive science is WEIRD: white, educated, industrialised, rich, democratic.
          The vast majority of the studies have been conducted on US college students, and the results say very little about how the rest of the world thinks.

          1. Damson

            We used to say that the discipline of CS/Psychology told us very little about human nature, but a lot of pretty trivial stuff about college students.

            The central problem with CS, and its sexed-up cousin Neuroscience is, and always will be, validity.

            What are we measuring.. exactly?

            You will learn far more about human nature in literature than from these disciplines. Preferably in more than one language.

            It will also help you resist the main purpose of these disciplines as currently used by the economy – mass-indoctrination.

            Check out the history of the Tavistock institute.

        2. clinical wasteman

          I hope it’s a firestorm of approval, for your comment J.An.P. and those of Chris and Damson below.
          Astonishing that more circumspect physical scientists didn’t swat ‘cognitive psychology’ (along with its ‘-behavioural’ and ‘-personality’ hyphenates) out of their field long ago.
          Less astonishing but no less outrageous that these branches of superstition are routinely applied by Human Resources (cognitive biomass) professionals and various punitive state agencies (eg., in the UK, the outsourced contractors assessing eligibility for welfare while also running prisons and detention centres and removing children from ‘unfit’ parents.)
          ‘Cognitive’ experiments are the Everest of question-begging. The tests are pre-emptively isolated from all context and history (except of course the blissfully ‘neutral’ context of lab, experimenter and student volunteer). Enough to guarantee the unassailable triviality of the results? Oh no! The very solipsism of the procedure is held up as proof that the ‘findings’ apply to some sort of context-indifferent, ahistorical “human nature”.
          Meanwhile, it may or may not also be astonishing that the internal critics who set out to save supply-side/’incentive’-based economics from the pitfalls of the ‘rational choice’ assumption turned to the one branch of accredited science whose faith in measurable, ahistorical ‘human nature’ was even stronger than their own. With the empirical result that ‘Behavioural Economists’ and ‘Neuroeconomists’ have been high-level policy advisors for a couple of decades now, and supply-side superstition lives on, only slightly modified by the new premise that working/poor people are indeed contextless agents of ‘choice’ (and thus to blame for everything that happens), only not rational ones. Rather, our ‘choices’ are still all our own fault, but we are also stupid, so it will always do us good to be nudged with as much violence as is Fit For Purpose.

  5. Sound of the Suburbs

    Neoclassical economics has been around before in the 1920s.

    Debt based consumption and speculation gave the US the roaring twenties and then the Great Depression.

    Keynes recognised this model was not sustainable and used strong progressive taxation to provide subsidised housing, health, education and other services.

    We forgot why Keynes had made the changes he did and went back to the old unsustainable, 1920s, neoclassical economics.

    It was the same.

    You can only saturate an economy in debt once.

    Well the US has done it twice and it took them along time to forget the Great Depression before they did it again.

    Keynes’s ideas are further ahead than todays.

  6. Patricia Marino

    “So, what could be the answer?”
    Philosophy offers several ways to think through the problems of inequality and unequal growth that do not depend on maximizing happiness. The 20th-century philosopher John Rawls, for example, argues for a principled trade-off between overall economic growth and inequality of primary goods. The argument is based on fairness; subjective happiness doesn’t come into it at all. I hope the outsiders invited to comment on these issues sometimes include philosophical perspectives.

    Thx for the interesting post.

    1. Vatch

      John Rawls has some excellent ideas. More people should pay attention to what he said, although I have to admit, I have trouble staying awake while reading his books. Do not try to read him if you are tired! Perhaps I should read books written by others about him. If I ever finish one of his books (and I plan to, someday), it will probably be Justice as Fairness.

  7. Carolinian

    How about the idea that the pursuit of money itself is a positive good and not the “root of all evil.” It’s possible that the most misguided idea of the economics profession is that societies should be organized around economics. Of course the practical failures of past socialisms don’t necessarily suggest that altruism is going to make the trains run on time. But particularly here in the US we seem to have lost all perspective about capitalism and insist on making markets the measure of everything–even things like health care where they obviously don’t work. Is economics as currently practiced a science or an ideology?…

    1. LT

      Well, the idea of America came from people with corporate sponsorship to relocate (and not all willingly). And that ideology (not just from the USA) has been spread around the world with what’s called soft power and with wars of aggression.
      Not organizing a society around economic ideology will be a hard habit to break and will take a great amount of will along with imagination.

      And whether one considers economics a science begs the question of how ideologies have affected sciences.

  8. paulmeli

    “Does it matter, say, that the top 5% of the population enjoyed a 20% increase in their income if the income of the bottom 5% rose by only 2% over the same period? It does although one could say that the poor are still better off. But the gap between rich and poor will have grown wider, other things being equal, and the negative consequences of increasing inequality in the distribution of income will continue although everybody is supposed to be better off.”

    Just because the bottom 5% experienced 2% gains (nominal) does not make them “better off”. A logical fallacy.

    “Gains” in a growing system are relative…you are better off only if your gains exceed parity within the aggregate.

    Better off in real terms only so far as income is concerned.

  9. visitor

    I’m sure readers can suggest other ideas to forget

    I’ll go for the jugular:

    The law of demand and supply does not exist.

    That law is usually presented as the curves defined by the relation between unitary price and total quantity offered, resp. asked for.

    If it is a law, and a fundamental one at that, then it must have been observed in the real world.

    Just open any economics textbook and try to find an exemplary empirical observation of the law, either as supply/demand graph, or as tabulated values, for whatever market.

    Nope. Never.

    You are welcome to use your favourite search engine to find an actual, observed instance of the “law” of supply and demand in the Internet. Good luck.

    Yes, there are demand and supply functions, in the mathematical sense, that depend on a multitude of more or less strongly interacting parameters — and unitary price is just of them — but the “law” deterministically linking price and quantity does not exist. Not even in a “ceteris paribus” framework. Otherwise, “scientific” economists would not be so reluctant to publish them, would they?

    1. lyman alpha blob

      There is a supply of ossified cat turds in my basement. Still waiting for the demand to kick in but when it does…

    2. Kalen

      It is even worse than you posited. In fact, the fact of complete lack of “objective” independent market forces to maintain anything like suppose Supply/Demand “equilibrium” via so-called price “discovery” proves fallacy of efficient market thesis and actually proves complete failure of real markets that must be maintained via artificial administrative means (market makers arbitrary decisions) otherwise they fail to do what they suppose to do, to match price agreed upon by buyer and seller, and hence so called liquidity collapse ensues.

  10. Dirk77

    No. The most important first step is for economists and everyone else to understand is that economics is not a science, will never be, and what that truly means. If you don’t know the limitations of what you are trying to do, you’ll just end up with, I don’t know, a world like it is today.

    1. justanotherprogressive

      I think economics can actually become a science, but just like science, economists have to be willing to throw out old ideas when they no longer work. Where would science be if we insisted on holding on to Aristotle’s ideas? Economists also have to stop “believing” and start seeing. Where would science be if Galileo had not challenged the Church”s beliefs? And then economists have to start gathering and relying on real data, not ideology, because that real data is the key to understanding.

      1. icancho

        Economics could indeed become a real science, were it to adopt science’s basic modus operandi, including such elements as referring hypothetical models, designed to explain this or that phenomenon or process in economics, to serious empirical testing, with modification thereafter.

        The problem— one that is likely to persist under current conditions— is that the specific structure of economic models that get used in formulating societal policy is of great material interest to the members of economically powerful segments of society: their fortunes wax or wane thereby, and they have always found ways to ensure that adopted policies serve to benefit their group. An important plank in such campaigns has always been the development & deployment of learned, academic, opinion.

        So any initiatives towards a wholesale disinterested scientific refinement of models of phenomena and processes in the realm of economics are likely to be resisted, side-tracked or subverted by those who fund think-tanks, endow academic departments, etc. This, after all, is the history of the present triumphs of neoliberalism; it certainly did not rise to prominence on its intellectual merits, or on its superior performance in ‘explaining’ all manner of empirical findings about the world of economics.

        Economics is embedded in society in more ways than those discussed by Polanyi!

        1. Oregoncharles

          That is also the reason there is a shockingly low level of validity in certain fields of science, like nutrition and pharmacology. They’re corrupted by financial interests.

          The problems with psychology (“cognitive science”) are mentioned above – I’m glad others have noticed its reliance on studies of college students. And it, too, is heavily influenced by the interests of Big Pharma.

        2. Dirk77

          Ha-Joon Chang has argued that all economic decisions are political; you decide which group you want to help and economics ideally will provide rule of thumb guides in bringing it about. No guarantee but certainly better than nothing. Thus the reason the field used to called political economics. It will never give “truth” but there is nothing wrong with saying something isn’t a science. The subject is really complicated.

  11. Susan the other

    Well, what an open topic! Let’s forget the idea that we can protect sovereign currencies by crushing inflation, aka austerity. In fact, let’s forget the whole idea of “inflation” since we can’t define it. We know this because everybody who tries to define it just gives everybody else brain damage. Money spent for “public purpose” should be the goal. But we might have to abolish the whole idea that a congress of the representatives of the people is the best institution to decide how money that is spent today creates tomorrow.

  12. whiteylockmandoubled

    The idea that health insurance engenders moral hazard in patients who consequently overutilize services is one of the wrongest ideas in the canon of the dismal science. With a few exceptions, the entire field of health care economics in the US consists of careerist ideological gibberish.

  13. Bryan Snyder

    The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.

    Joan Robinson

  14. John Z.

    Politicians have been using policies that are valid in enterprise context. Policies in enterprise context have been applied in nation context. Tail has wagged the dog, as in dog is something furry and wags from left to right. Context blind people have been doing out-of-context errors.

    1. John Zelnicker

      Wow – Another John Z. We are few and far between.

      I don’t recall having seen your handle before, so if you are new to the site, welcome to NC.

  15. Benedict@Large

    Can we get rid of crowding out yet? How about the money multiplier? How about the idea that capital’s share of profit can be increased without reducing labor’s share (free trade).

    For that matter, we need to get rid of whatever is making economists say we’re near peak employment? And that people prefer to be unemployed even when they are broke.

    1. Scott

      Yeah. I’m with you. And this one:

      Wages and productivity rise together. Hogwash. They only come close when you curb the power of the people in control from taking it all for themselves (Min Wage / Full Employment / Unions).

      And, what’s up with externalities? Since when was it okay to make equations work by just leaving parts out?

  16. John Merryman

    The idea that money is a commodity to be mined, as with gold, or manufactured, as with bitcoin, rather than the contract it mostly functions as, in which the value of the asset is based, at the other end of a long line of middlemen, on a debt. Thus requiring the creation of enormous debt to create the illusion of enormous wealth.

    When we think of it as a commodity, the belief is that it can somehow be stored, but the reality is that as it serves as a medium of exchange, storing notational value is dysfunctional. For instance, in the body, blood is the medium and fat is the store. For cars, roads are the medium and parking lots are the store. Ever try driving on a road that suddenly turns into a parking lot and you might see the problem.

    Consider how much wealth is stored as government debt and ask yourself if much of what it gets spent on was designed to return an equal value, with the supposed interest? Wars and welfare might have their uses, but investment is not one of them.

    It is all an illusion, but why? We like money because it gives us independence. When people existed as small groups, which wasn’t that long ago, evolutionarily, wealth was a group thing. One might have a position in the hierarchy and some personal possessions, but real success and survival was tribal.

    With this atomized society and economy we exist in today, what allows us to function as discrete individuals is the financial medium that allows us to tailor our talents to niches in a global economy, consequently making our bank accounts our economic umbilical cord.

    We are not going back to the stone age, but we do need to recognize the function of finance as a social circulation mechanism. As such, it is the very definition of a public utility, much like government, but not quite the same.

    Government functions like the nervous system, while finance is the circulation system. Politicians live and die on hope and we experience money as quantified hope, so putting the political class in charge of the monetary system is a recipe for inflation. While making it a private function is a recipe for servitude to those with the ability to siphon value out of the rest of the economy, rather than circulating it in ways to benefit the society.

    So how to bridge this divide? Given the banking system, with the creation of the Fed, has made maintaining the value of the currency a public function, we either need to go back to a fully private system, where banks issue and are responsible for maintaining their own currency, which isn’t feasible, or forward to a more public financial system.

    What if the government was to threaten to tax excess money out of the economy and not just borrow it? Then people would have to find ways to store value in other, more tangible assets. Given most people save for the same basic reasons of survival and progress, from housing and healthcare, to children and retirement, investing directly into these functions as communal assets, as a form of public commons, rather than trying to save for them individually, through the financial system, would have a number of benefits, such as less atomized cultures and stronger communities, along with investing in the healthier environments which healthy communities need. Thus making wealth both tangible and organic, rather than notational and massively extractive.

    Banking would still function, but as a recognized public process, like roads. We no more need to monetize everything, than we need to pave everything. As democracy functions best by pushing power and responsibility down to the levels it is most responsive, with local, regional, national and even international systems, so too would networks of local banking systems serve as shareholders in larger systems, with reciprocal checks and balances.

    Another economic assumption which needs to be addressed is the idea the government actually budgets.

    Budgeting is to list priorities and spend according to abilities, but the government simply puts together enormous bills, adds enough goodies to get the votes and the president can only pass or veto them. Which creates a lot of the debt this supposedly market based economy needs to function.

    If they wanted to budget, using the old line item veto as a template, they could break the bills into all their various items, have the all the legislators assign a percentage value to each item and then put it back together in order of preference. Then the president would draw the line. “The buck stops here.”

    This would maintain the legislative function of prioritizing, while putting the responsibility of spending levels with the president.

    1. Kalen

      You wrote:

      It is all an illusion, but why? We like money because it gives us independence. When people existed as small groups, which wasn’t that long ago, evolutionarily, wealth was a group thing. One might have a position in the hierarchy and some personal possessions, but real success and survival was tribal.

      The key is money and its real Machiavellian role within society.

      I found below very unique, interesting and controversial take on money,markets and financial economy, in an important social/historical context you mentioned:

      1. John Merryman

        Money does function as a promise, a contract. Otherwise it would be difficult to introduce. Obviously this can be done through force, but that is expensive as well. Gold based currencies were based on the promise they could be exchanged for gold. Our current debt based currencies are based on the public debt. What this eventually will mean is that disaster capitalism will come home to the US, as public assets are traded for all those piles of debt based dollars. As in Buffet buying Yellowstone, or hedge funds buying roads and putting toll booths on them.
        The basic premise has been working throughout the developed world for decades. Extend the government credit and claim assets when it can’t pay. The irony is the public is also being required to support the value of this currency, so it should be treated as a public utility, but that would require the media actually putting some thought into it and that isn’t going to happen.
        As a circulation system, monetary value should be circulated throughout society. It would be as if the head and heart told the hands and feet they don’t need as much blood and should work harder to get what they do have. Obviously the whole body dies and that is what will eventually happen to our society, with the various parasites eating the body. As my father used to put it, you can’t starve a profit.

  17. WobblyTelomeres

    “Margaret Levi buried the homo economicus”.

    Indeed. When I last visited a business school, the economics department was down the hall from the marketing department. One presumes rationality, the other induces irrationality. It is as if the economists never noticed who had set up shop next door.

  18. CD

    How about forgetting —
    interest on borrowed money
    need to always grow the economy
    profit in industries like health care and education and prisons
    large pay differentials between top and bottom
    oligopolies or monopolies
    that it’s okay to raise prices under high demand
    competition, even if it is “perfect”?

  19. Vatch

    The Koch brothers and their allies have devoted hundreds of millions of dollars to the support of “free market” academics. Their well oiled propaganda machine is vast. From Dark Money, page 448, by Jane Mayer:

    By 2014, the various Koch foundations alone were funding pro-corporate programs ad 283 four-year colleges and universities.

    A student at one of those institutions of learning complained:

    “We learned that Keynes was bad, the free-market was better, that sweatshop labor wasn’t so bad, and that hands-off regulations in China were better than those in the U.S.”

    The introductory textbook that they used also said that:

    “climate change wasn’t caused by humans and isn’t a big issue”

  20. /lasse

    Why not accept that most academia and elite civil servants are the lubricant of power, the grease that smooths the wheels that transfer wealth from the manny to the few. Why these persistent charades that they are the servants of common god?

    It have always been like this, with some rare exceptions. The exceptions was usually castigated while they lived, then in the history books framed as great truth tellers.

    This apply especially for the economist profession, who produce the reality-model that prove to the many that there is no alternative.

  21. /lasse

    Accept it, the full employment and welfare for all in the post war decades was a flaw in the system. That now are beyond expectation repaired. The flaw was caused by technical mistakes and exorbitant greed that surpassed the usual. Then there was the commies that presented an alternative to the many. Taken together it caused a real threat, so the elite had to yield to the masses for a short period to save its own ass.

    Everything has now returned to its normal state of affaires. Get used to it.

  22. /lasse

    yada, yada, yada … won’t change thing. The elite in power will not give in to less than brute force. But that is a risky venture with high stakes and insecure outcome.

  23. John Merryman

    Efficiency is to do more with less, so the ideal of efficiency is to do everything with nothing.
    People think linearly, while nature operates cyclically.
    We evolved in a thermodynamic environment, so time and history is an effect of this wave of creation and destruction. Tomorrow becomes yesterday because the earth turns.
    Mostly we are going to see a breaking down of a lot of these boxes we put reality in and see the underlaying dynamic in ways which cannot be ignored.

  24. Jim Haygood

    John Quiggin in his 2012 book, Zombie economics labelled as ‘zombie’ ideas the ‘efficient markets hypothesis’

    Indeed. Yet a popular book advocating the efficient markets hypothesis — Burton Malkiel’s A Random Walk Down Wall Street — CONTINUES showing up on lists as an “investment classic.”

    If Malkiel’s work has any value to economics students, it’s the same sort of value that medieval works on geocentric astronomy would have to physics students; or works on the Inquisition to theology students.

    One shudders to imagine the damage done when Malkiel’s disinformation falls into the hands of credulous lay people who fail to detect that it’s an elaborate fallacy. That Malkiel’s book remains in print is a rebuke to all of us.

    Not that he’s recanted. Thirty years later, Malkiel was still rabbiting on unfazed about his magificent hobby horse:

  25. Kalen

    Interesting that Nobel himself refused to give Nobel Prize in economics since he did not considered it be a science at all but something liken to scholastic alchemy.

    One time allegedly he responded to somebody suggesting him missing well established back then economics from his Prize list. He responded if he had to give Prize in economics he would have to give a [Nobel] Prize in cooking since economics is actually equivalent to cooking something although in a huge pot of a size of a nation which too often smells bad. Hence, he allegedly continued, it would prohibit any objective judgment of potential achievements in economics since it would have been like judging your mother’s or your love ones’ soup, you know it will always be good regardless of facts.

    So what mainstream economists do are cooking facts so those, whose food they eat, are praised and happy.

    1. Chris

      There is still no Nobel Prize in Economics, although there is a Sveriges Rijksbank Prize in Economics in Memory of Alfred Nobel. The Nobel family want it abolished.

      1. Jim Haygood

        The Sveriges Rijksbank is beyond the control of the Nobel Foundation, unless they can induce Norway to send tanks clanking into Stockholm to shell the Swedish central bank to dust.

        But abolishing the Nobel Peace Prize — whose award to Barack Obama in 2009 by the idiot Norwegians gave Obama moral cover to commit thousands of drone assassinations — is entirely within their power.

        And if abolition is good, retroactive abolition would be even BETTAHHHH!. :-)

        Take back your angry slander
        Take back your pension plan
        Take back your ups and downs
        Of your life In raisin-land

        Take back Vanessa Redgrave
        Take back Joe Piscopo
        Take back Eddie Murphy
        Give ’em all some place to go

        — Tom Petty, Jammin’ Me

  26. UserFriendly

    I hate it when authors like this call to the broader public for things in econ that should be junked and don’t leave anywhere for comments on their original post and neither author has a twitter account.

    1. Damson

      There’s a reason for that.

      No one loves economists ( not even their employers/beneficiaries – they see them rightfully as servants.)

      Of course there is the odd exception, like Michael Hudson.

  27. John

    Ideas that we should forget:

    1. That the global economy will continue to grow like it has over the past two centuries. At 3% growth, the global economy would have to double by 2060 and double again by the end of the century. Even a booming Africa won’t be able to get us those kinds of numbers.

    2. That economic growth is infinite. Capitalism needs infinite growth but the planet has a finite amount of space and resources. Furthermore, economies eventually reach a stage of ‘late capitalism.’ During the 15th, 16th, 17th, and early 18th centuries, economic growth was anemic. It was only during the industrial revolution that we began to see 2-3% growth rates. Urbanization and industrialization are what give economies robust growth rates. Once an economy reaches the ‘post-industrial’ phase, economic growth must come from urban renewal, asset bubbles, or external demand. Secular stagnation (Japanese style) eventually becomes the new normal.

    A manifestation of this is the falling rate of profit in manufacturing; since the 1970’s and the rise of German and Japanese competition, the global industrial sector has been mired in a crisis of overproduction/under-utilization of capacity. Profits are the lifeblood of a capitalist economy, and the shrinking rate of profit takes its toll.

    Keynesianism will eventually fail to restore the magic 2-3% growth rates because there is a finite amount of infrastructure to repair, and demand will still remain low because of the aforementioned problems. Fiscal stimulus is supposed to be a stabilizer, not an infinite source of wealth. Of course secular stagnation might not be so bad if a society is well-taken care of (Japan’s hasn’t been such a bad place to live in the past two and a half decades), but people are addicted to growth and this may lead to reactionary political instability (and strongmen who promise to restore the country to greatness).

  28. Jake

    Diane coyle? Seriously? Dont you guys at nc know better before giving credibility to this article? Read mirowski’s review response at antipode.

    1. Yves Smith

      Make stuff up much? She’s mentioned nowhere in this article. You’ve put yourself on a fast track to getting banned. Not reading the article is one violation, ad hominem attack is another (even if this was Coyle, the onus was on you to rebut the specific argument).

      1. Jake

        Yves, you are mistaken. She’s mentioned in the first line, second paragraph. Reference to her referred work is on the original link- Coyle, D (2012), “What’s the use of economics? Introduction to the Vox debate“,, 19 September.

        As for mirowski, here’s the review I was talking about – (page 7 of 10)

        “Raising the issue of the economics profession brings me, finally, to the review of Diane
        Coyle. She begins with the faux-naïve question whether she is a member of the Neoliberal
        Thought Collective; she claims her perplexity about it is my fault. It is difficult to have a serious
        conversation with someone whose memory is so unreliable that she forgets the most pertinent
        facts about her own career and previous writings. Looking at her vita, one finds a Harvard
        economics PhD turned establishment journalist in the UK, whose work has consisted of
        unabashed cheerleading for the orthodox necoclassical economics profession going back
        decades. She now runs a consultancy, and sits on a number of boards, which means her current
        activities are mostly proprietary and secret, just like numerous other economists profiled in my
        book. (She seems a bit touchy about this in her review.) While there is no public evidence of the
        usual Murdoch/think tank nexus of the NTC in the UK (she has worked in the past for The
        Economist, Investors Chronicle and The Independent), a quick glance at her oeuvre reveals
        where her heart lies.”

        1. Yves Smith

          You have done absolutely zero to establish what if anything is inaccurate about the post.

          You have yet to raise an intellectually valid objection to the post. Your attack is pure ad hominem and so is Mirowski’s. He seems to object that she’s historically a neoliberal who is too commercial for is taste and is also a fickle latecomer to his party. This has absolutely nothing to do with what she said in the referenced work. Joe Stiglitz sometimes says nonsense. Once in a great while Tyler Cowen says something that is insightful.

          Ad hominem attacks are a violation of our written site Policies. I suggest you familiarize yourself with them before commenting again.

          1. skippy

            “raise an intellectually valid objection to the post”

            No, but a very human one.

          2. Jake

            Right. I should have been clearer about my comment.

            If you read mirowski’s ‘never let a serious crisis go to waste’ or his articles on neoliberalism, he makes quite the effort to distinguish between neoliberal and neoclassical economics and economists. A popular example is when he explains David Harvey’s conflation of neoclassical and neoliberal economics. Furthermore, Mirowski often states that neoclassical economics is slowly morphing into neoliberal economics without its practitioners knowing much. Thats why he gives Diane Coyle a hard time in that review. She appears to not even know that she’s supporting neoliberalism. True change, hence of the galilean kind cannot be expected of economists such as her because they’ll always try to scavenge bits and pieces of an otherwise rotting discredited carcass.
            Therefore,my objection to this article was that if the author is citing diane coyle as a credible sound for change, then one should be very skeptical of such an article. Are the authors even serious about change in economics and even if they are how effective will it be?

            1. Yves Smith

              You blatantly mischaracterize how Coyle features in this post. The reference you keep haranguing about is not an exposition of her personal views, which is what Mirowski criticized her for. She is simply recapping a conference in another VoxEU post. For you to misrepresent her as making a substantive intellectual contribution to the post, when it cites economists that were important sources of ideas by name, is a flat out misrepresentation.

              And therefore the Miroswski reference is just a way to dress up an ad hominem attack with an appeal to authority, another invalid form of argumentation.

              You are rapidly accumulating troll points.

              1. Jake

                Fair enough. Apologies.

                I would although still be very skeptical of any intellectual contribution that she would make.

                I would contend her conclusion that “Economists are in the best position to understand the intellectual power and rigour of our subject, and its ability to contribute to tackling the enormous range of challenges in problems in today’s world, not least the continuing financial and economic crisis.”
                Well if economists were as she describes them, we atleast would have had by now a scrapping away of the neoclassical project from the university courses. But that hasnt happened. And its been 5 years since the conference.

                The irrelevant and outdated syllabi that students complain about are a symptom of the internal politics and corruption of the economics profession. They need to sort that out first.

          3. Jake

            By the way I would appreciate if you acknowledged that you were mistaken that Diane Coyle wasnt mentioned in the article.

            And of course allow my previous post to this one to appear.

            1. Yves Smith

              She was not mentioned in the text of the article, when the author in fact cites quite a few other economists by name.

              The Vox article that you are making such a big deal over is her summary of a conference. This is not original work by her and therefore does not even remotely mean that she served as an intellectual influence on the post.

              Your argument is intellectually dishonest on multiple levels. I haven’t let it through until now because it does not merit a response. It is a clear cut and now persistent violation of our written Policies, which you still apparently haven’t bothered to read.

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