How economists doomed our economy
The dismal science is often criticized for being detached from reality, but it’s much worse than you think.
If you are like me, you were probably always a little bit suspicious about economics. Maybe it was certain economists that turned you off. Many, particularly the ones keen to comment on politics in print and on TV, do seem to flout their arrogance a lot more publicly than other expects. See for example the hard-core liberal condescension of Paul Krugman, or, on the other side the seemingly flexible relationship to facts of Stephen Moore.
For me though a big part of my skepticism comes from my education. I’m trained as a physicist, currently in my last semester of my PhD. (Yes, I am procrastinating hard by writing this essay rather than a section of my dissertation.) I should admit that we physicists sometimes struggle with egos of our own. The success of some physical theories, particularly quantum mechanics, has led to a general conceit that we are the only ones who really know how to do science. We are even invading other disciplines as the frontier of fundamental physics becomes smaller (and the remaining problems get much harder). Biophysics and physical chemistry (or chemical physics) are already decades old subjects that you can get PhDs in. And sure enough, econophysics is even a subject now.
All of which is to say that I am certainly not an unbiased commenter when it comes to economics, and you certainly should read all the following with that in mind. When I started to dive deeper in economic theory about a year ago, I expected to roll my eyes a fair bit at some of the modeling approaches they choose. What I didn’t expect was to find was a discipline that not only makes unrealistic assumptions, but that fundamentally ignores aspects of the real world that we know are important in the dynamics of an economy.
Hence this essay. I hope that I can convince you that our “experts” on the economy are in fact experts in a way of modeling the economy that has very little to with the real economy, and that applying the results of this modeling to the real economy laid the foundation for much of the current malaise we find ourselves in. Most of what I will discuss applies to the mainstream school of economic thought, which is commonly referred to as the “neoclassical” school. There are many others, and I’ll say more about some such heterodox economists below, but when it comes to the elite cadre of economists, particularly those serving in the U.S. Federal government, this is school to which they belong. So here it is, my take on how economists wrecked the economy.
The current economy and the current state of economics
From the economic headlines at the time of writing, you would be justified in asking what exactly I’ve been smoking. We are currently in the longest bull market in history. Unemployment is at the lowest rate in fifty years. Aren’t we in the boom times?
Probably if you have made it this far, you are aware of several other not-so-rosy economic indicators. Real wages haven’t significantly grown since the 1970’s. Non-trivial fractions of U.S. families are so cash strapped they cannot afford an emergency expense of $400 without borrowing. Our economy now has the greatest income inequality the U.S has seen since the Gilded Age.
I could discuss problems with the economic metrics, e.g. how the unemployment doesn’t count all people who are not working but could. I could also bring up many other not so great problems of the economy: the record high corporate debt, the skyrocketing cost of college tuition, the similarly rising cost-of-living for many Americans, and many other problems written about in the press, and on Medium. But I think you get my point: clearly the economy isn’t serving many Americans all that well.
Why are we in this mess? I wouldn’t presume I know the complete answer. But I, among others, tend to connect many of them to an incomplete and anemic recovery from the 2008 Financial Crisis and the following Great Recession. One statistic that illustrates this point nicely is a graph of the labor participation rate before and after the crisis.
As a fraction of the economy, less a people are working than before the crisis began. In light of this, the ~3.5% unemployment becomes much less impressive.
Most economists famously had no inkling that such a crisis was coming. In fact, many were celebrating the “Great Moderation.” Nobel laureate Robert Lucas, then head of the American Economic Association, proclaimed in 2003 that “central problem of depression prevention has been solved” [1]. This should be enough to give anyone cause for concern about the state of the dismal science, but it seems the public at large, and certainly most of the financial press, have treated 2008 as though it was more akin to unpredictable natural disasters such as an earthquake or tsunami. You only have to watch the Big Short to know that many people did see the growing problems with the housing market and mortgage back securities, some of whom were able to get rich off their eventual collapse. So how did economist by and large miss a massive banking crisis fueled by mortgage debt?
You might be surprised to learn that banks and debt are omitted in the most popular economic models used today [2,3]. This is rationalized with an argument that these are “loanable funds”, with one patient economic actor lending money to an impatient economic actor, with banks simply serving as an intermediary. Therefor debt just acts as a sort of spatial-temporal shift in spending, and therefore doesn’t impact the economy as a whole. Banks are just the institutions that facilitate this shift and are likewise omitted.
In physics we would call this a “hand wavy” argument, which is to say that it’s likely wrong. While we do borrow some money from friends and family, by far most of our loans are from banks. For these loans banks also charge us interest, which forms a significant portion of a bank’s income. This incentive is where loanable funds runs into problems. If all banks did was first collect deposits and lend them out it would work, however in practice this is not at all what happens. In reality, a bank’s reserves have little impact on its lending practices [2]. In other words, a bank works in the other direction: they lend out the money then look for the reserves to keep legal later. Banks issuing loans in that sense actually creates money (not in actual printed dollars, but numbers in accounts), but this bit of reality is rarely acknowledged by academic economists. However while the debt is an asset for the bank, it is of course a liability for the borrower.
Understanding this, it is easy to see how concoctions like mortgage back securities could skew a bank’s incentives. Vehicles like MBS’s make it possible to squeeze ever more profit from the debt banks issue. So why not issue more and more of it, regardless of an individual borrowers ability to pay it back? Ditto for witches’ brews like collateralized debt obligations, allowing banks and non-banks to gamble on debt, which itself is often done with significant debt. In hindsight it is not very surprising at all that these vehicles could get out of control in a massive debt bubble. But if you were an economist in the early aughts, even a Nobel prize winning one, debt bubbles don’t even exist, let alone a crisis caused by one.
A quick look at this graph is enlightening. I put this together using data from the St. Louis Federal Reserve, and it shows the non-financial private corporate debt as a percentage of GDP. (Note: I did this quickly, and I am not 100% sure that the dollars reported in both datasets are equivalent. However, the trend should not be affected by this). The dramatic rise is obvious to nearly 60% percent of GDP in recent years. Look closer at the relative peaks in the graph and you’ll see that they occur around time of financial crises or recessions. If the loanable funds model where correct, there should be no relationship between levels of private debt and recessions, but there clearly is [2]. If you were educated in the neoclassical school of economics, you might argue that this could be a correlation with some underlying variable, i.e. loanable funds is still correct and the relationship below is just coincidental. It’s possible, but it’s bad analysis to assume a priori that there is no casual relationship, but that’s exactly what is done in the standard approach.
Here is another feature of many models: like debt and banks, there is no money. The economy is instead modeled as pure barter system, goods exchanged for other goods [2]. This might seem superficially reasonable. It did to me at first. Most of us work a job performing some service, for which we are compensated in dollars that we then exchange later for stuff. In a way you might say money is a store for the value of our service, and the particular number we assign to that value seems arbitrary. If my salary was doubled but so was the price I pay for my apartment and everything else, there is nothing fundamentally different in my situation.
This story breaks down upon deeper thought. In math terms, one would call the example above very linear. Linear relationships between things means the ratio between them does not change if you double (or triple, triple-and-a-half, etc.) the value of one. But you only have to remember that interest on a loan is compounded, to realize that there are non-linear processes in our economic system. This non-linearity is why what you owe on your loan grows over time, unless you’re very strict on paying off the interest. If you double the loan principal, the compounding of interest causes what you owe in the end to more more than twice otherwise. Considering that the size of private debt is on order the total GDP as in the above chart, interest on debt is not something that should be omitted in a model of the economy.
One more feature: despite being a huge sector of the economy, neoclassical economics generally leaves out the government entirely [3]. Just take a glance at data from the OECD shows that government spending accounts between 25% to more than 50% of GDP. For the U.S. it’s about 40%. To state it bluntly, neoclassical economics models the economy often by leaving out nearly half of it.
Even the names of some the most used economic models are deceptive. Some of the most widely used fall under the grandiose sounding title of dynamic stochastic general equilibrium. It is an impressive name is also incredibly misleading. Look up a paper using one of these models and you’ll probably struggle like I did to understand how it is dynamic, at least if you we expecting a set of time-differential equations, or something similar, as you would usually find in a model of from dynamical systems theory. Time is often not explicitly represented at all in DSGE equations. If had to describe them in terms I’m familiar with, I would stay DSGE equations are “quasi-static.” That’s not necessarily a bad thing, but it’s more than a fudge to call a quasi-static theory dynamic. The stochastic general equilibrium seems more straightforward: the economy is modeled as being in equilibrium (meaning the economy is in a steady-state [2]) and only sometimes knocked out by random “shocks” from outside of the economy. Common examples of shocks in include “advancements in technology” and “instabilities in demand,” or even the crash in housing prices. Of course, this invites questions of how can technology and housing prices be considered outside the economy?
General equilibrium is a feature not just of DSGE models. It seems the standard approach of economists to modeling the economy is to assume it to be in a default steady state [2]. This is a massive assumption that I can’t see at all could be justified when trying to model the real economy. Many complex systems have equilibrium states. In fact, most have more than one. But most complex systems are generally never in equilibrium. If this math speak is confusing just think of the weather, which is commonly modeled as a complex system. Equilibrium states are, in essence, states where the system doesn’t change. While this might be sort of true at times, you would never think to model the weather as always being the same. So, if a general complex system is almost never in equilibrium why should the economy be?
The criticism I have leveled so far has all been laid on macroeconomics. I could levy similar attacks on microeconomics. There’s the ill-defined utility function, unique to each person that we all are presumed to maximize, to the axioms of revealed preference that are used to derive market demand curve by assuming everyone is the same, to rational expectations, that we are all Homo economicus’ that act independently and never succumb to group think. Even the familiar totem of price being determined by the intersection of “supply and demand” seems to be largely a fiction. Whole books have been written on this subject (see references [2] and [3]). But I think I’ve made my point. Economic models are often very far from resembling the actually economy.
How bad economics led to bad policy
I think it is fair to say that among all the academic disciplines, economics has the most power. And by power, here I mean ability to influence those in power, more specifically lawmakers, business leaders, and financiers. Think of entities like the White House “council of economic advisers”, or elite economists like Lawrence Summers, who’s held several important government positions as examples. Sure, physics has significant cultural swagger these days, possibly helped (or hurt) by the Big Bang Theory. A few physicists have served at the cabinet level such as Steven Chu and Ernest Moniz. But it’s usually only when lawmakers or regulators really need to know “what the science says” is a physicist brought in. There is no White House “council of physical advisers,” and honestly, I can’t see how there would ever be a need for one.
To say it differently, how many of our laws are directly implicated by physics, versus how many are directly implicated by economics? I must imagine that the latter number is much greater. If our leaders rely on experts for good policy, it follows that bad economics can lead to bad economic policy. Because of this, unlike bad physical theories (which there are many), bad economic theories marketed as being true have a much greater probability of harming people.
I’ve already mentioned aspects of this in regard to the Financial Crisis: with an economic theory that does not include debt and banks it would be easy to miss a banking crisis fueled by excessive debt. This seems to be also true of many of the leaders of Central Banks. Olivier Blanchard, then chief economist at the International Monetary Fund, wrote in a working paper (ironically titled “the State of Macro” and published in 2008 no less) about DSGE models, “Nearly every central bank has one, or wants to have one.” [4] Presumably that would include the Federal Reserve in the early 2000’s, then headed by Alan Greenspan.
In the myriad of bad decisions that led to near meltdown of the world economy in 2008, among the most cited is the massive flow of “easy money,” enabled by the Fed keeping interest rates at historic lows, allowing the housing debt bomb to grow out of control. Many point to Greenspan’s notable “free market” ideological leanings as factor in this decision, which I would suspect is at least partly true. It is easy to heap a lot of blame on Greenspan, but keeping the interest rates where they were becomes much more forgivable when in the most advanced economic theory the debt is hand-waved away in the loanable funds model. The same could be said for regulators ignoring risks associated with fancy financial concoctions like derivatives and collateralized debt obligations, devices made of debt and bought with more debt.
While 2008 looms large over the modern landscape, for the United States at least the root of the rot can be traced further back. The stagnation of real wages after all began at least in the 1980’s. Some of the story has been well told by now. The triumph of Reagonomics in the decade was followed by a long series of de-regulations and privatizations through the ’80s and ’90s, along with the scaling back of many public services. All of which was accompanied by a general movement of investment from the real economy into the financial one.
Not coincidentally the 1980’s was also the time when the “rationalists revolution” took over macroeconomics, laying the foundation for the models that would become DSGE. Notable leaders of the revolution are probably familiar to you. One I mentioned above, Robert Lucas, but another is the esteemed Milton Friedman.
Much of the anti-government revolution has clear motivation in the economics of rationalism. If people are people are perfectly rational, there would seem to be little need of regulation. We could ask questions about herd behavior or group think. Would these phenomena make it possible for large scale problems to emerge for a collective mistake or misjudgment? Needless to say, such questions don’t seem to have been deemed very important given the current state of economics and the economy.
As an aside, Milton Friedman I have a particular bone to pick with. The famed economist, besides being the grandfather of rational expectations, was very vocal evangelists of a particular view concerning the assumptions of economics theory: the view that they do not matter [2]. As long as it fits the data, the assumptions that the theory is predicated on are superfluous. In fact, he even suggested that the more important theories will have the yet more unrealistic assumptions.
This is just fatuous. First, in hindsight it’s clear that theory does not fit the data especially well, since major phenomena like a financial crisis aren’t even possible in the theory. Second, of course assumptions matter. Very often they define the domain over which your theory applies. Sometimes you can get away with assumptions that are technically wrong but still realistic. For instance, engineers assume materials are completely continuous, when in reality all materials are made of discrete atoms. But unless they are working at the scale of the atom (about a one tenth of a nanometer) the error from that assumption is very small. And as long as you don’t apply the theory to cases where that assumption breaks down, you’ll be fine.
I cannot see how assuming equilibrium is realistic. The same applies for ignoring government spending on economic development. To be fair I can’t be certain how common this view is today, or was in the later nineties and early aughts when much of the developments that resulted in the Great Recession took place. But the considering the legendary status that Milton Friedman has in economic thought, particularly conservative economic thought, I have to think it had some influence, to all our detriment.
Self-serving business governance
The influence of economic theory is not limited solely the stodgy world of government policy. Ideas from economics also influence the decisions of business leaders. As I mentioned above there is a lot to be said of the weaknesses of microeconomics. But there is one idea that is very much worth stressing that found dominance in the 1980’s in the area of corporate governance: the idea the that companies should be run to maximize shareholder value. Previously, what has become known “stakeholder capitalism” was common [5], where stakeholders not just the shareholders but also (crucially) the employees, customers, suppliers, and whoever significantly depends on a company.
The theoretical origin of maximizing shareholder value comes from agency theory, as applied to the workings of an individual firm. The crux of the argument is that shareholders by investing in company’s stock are the “principals” of a company, and the executives (and other employees) are the “agents” of the principals [6]. The idea is that because shareholders invest their money in the company, they assume risk, and corporate executives, or managers if you like, assume little to no risk because they are paid a salary regardless of company performance. Therefore, a company should return the majority of its profits to shareholders as reward.
Like all the other economic assertions discussed above, there is some appeal to the argument, but it’s not hard to find complications. For one, it seems dubious that an executive or other employee assumes little risk in the operation of a firm. Raises and bonus clearly depend a company remaining profitable. Employees plan their futures predicated on having a particular income. If that income is disrupted, it can have major consequences, which is a point that I think is obvious to anyone who’s worked a normal job. Secondly remunerating shareholders doesn’t improve the competitiveness of a firm, at least not directly.
Nevertheless, agency theorists won the argument, though it would dishonest to claim that this transformation of business governance philosophy was purely their doing. Many trends certainly had a effect: the lackluster economic performance of the 1970’s (i.e. low growth and high inflation) as well as the growing financialization of American business writ large, to the emergence of the corporate raider targeting companies that low share prices for arbitrage. All of these were all important factors causing maximizing shareholder value to become the defining goal of corporate governance [6,7]. What agency theory supplied was justification for a policy that favored stockholders over everyone else. The overall consequence is that the stupendous profits made by corporations like Apple and Exxon Mobil are siphoned off into finance, notably Wall Street.
The obvious way this is done is through dividends, which have always been high in the United States, but as of the 2000’s have eaten up more than 60% of net corporate revenue [7]. However, the bigger vehicle by which corporate cash is transferred to shareholders is stock buy-backs.
Stock buy-backs are exactly what they sound like: a company using its free cash (or taking on debt) to repurchase their own stock, boosting the price. Open market stock buy backs where once upon a time considered to be market manipulation (since buying a stock on the open obviously doesn’t’ change any business fundamentals of the company), and as such were largely frowned upon by regulators. But in 1982 the SEC, under head John Shad appointed by Ronald Reagan, legalized open market stock buy-backs so long as they did not exceed 25% of the firm’s average trading volume for the previous week [7]. That might sound restrictive, but for the mega corporations this easily amounts to hundreds of millions of dollars per day, clearly enough to manipulate the stock price, even though nothing has changed in the profitability of the company.
A proponent of maximizing shareholder value might argue that buy-backs allow a firm to stabilize the share price against a panic sell-off during a market correction. But this seems to be mostly false or insignificant, since most buy-backs programs are announced during market highs [8]. The massive value of buy backs since the Trump Tax Cuts, amounts well into the hundreds of billions of dollars, when the stock market was hitting record levels also cuts against that reasoning.
It is hard to find any point of view in which buy-backs are nothing more than a means to transfer corporate money to the stock market. The scale of this transfer has reached the point that buy-backs have inverted the relationship between business and the markets. In theory the stock market enables firms to raise capital by issuing stocks and bonds. But since the 1990’s the net equity issuance, which measures the dollar amount of new stock minus stock that is bought back or retired by merger or acquisition, has gone negative to nearly half a trillion dollars per year [7]. In other words, stocks are now a way for business to fund shareholders. Or to put it in slogan form, Main Street now funds Wall Street through the stock market.
I would argue that this transfer is largely self-destructive. With so much revenue leaving the firm instead of being reinvested for use research and development or working training, businesses are sacrificing their long-term health in favor of short-term gains in the stock price. A natural question is why corporate leaders are so readily going along with this ideology? That answer to that is very easily seen the way corporate executives are paid.
The outrageous compensation of corporate executives is a much discussed topic that has obvious relevance to today’s extreme wealth inequality. Salaries and bonuses are perhaps the most familiar piece of this. But, both by percentage and by incentive, stock-based pay is more significant. In 2013, mean CEO remuneration was $32.2 million. Of that only 5% was in the form of salary and bonuses, whereas over 75% was stock based [7].
The stock-based compensation of corporate leaders lays bare how self-serving “maximizing shareholder value” is as a philosophy. It is ready justification for corporate leaders to pay themselves more money, even if it comes at the expense of all other stakeholders.
It’s easy to see fingerprints of this ideology in some of our recent disappointing economic trends. Stagnant wages are not very surprising since corporations have been seeking to minimize their payroll expenses so that the cash can be passed onto shareholders. The crowding out of the investment in the long-term growth of a company, may explain the relative dearth of higher paying new jobs [7]. Even the low inflation combined with historically low unemployment become at least partially explainable. How can firms raise prices and expect to sell as much product if the overall spending power of the average worker is that same as it was four decades ago?
Of course, some things have risen in price, and there are other costs that exist now that didn’t 40 years ago. The cost of living for most Americans has continued to rise. This is especially true for those living in superstar cities live New York and San Francisco, where many longtime residents have been priced out of their homes. Cell phones and internet connections have become essential products for most workers which they definitely were not in the 1970’s and ‘80’s. Health care has always risen faster than the rate of inflation. College tuition has risen faster still. All of this is summarized nicely in the Atlantic as the “Great Affordability Crisis.” Given all these factors eating up wages of most workers, why are economists so surprised at the anemic growth?
Getting a better economy needs better economics
So why did I write this essay? In short, I’m pissed.
I am angry not because economics has inconsistencies and even fundamental problems as a discipline, though it is surprising that some ideas have proven so enduring despite obvious inconsistencies with the actual economy. What angers me much more is that despite these problems economists still confidently assert that these theories do still describe the economy.
Despite the Financial Crisis and the subsequent reputational shellacking that the discipline endured, the standard approaches to macroeconomics are still being taken. See, for instance, a column from a few years ago by Paul Krugman. The subtitle begins “Macroeconomics is better than you think…” This was written after the Financial Crisis.
Krugman at least acknowledges the weaknesses in microeconomics, and, though doesn’t name, clearly criticizes DSGE models. But he still fundamentally defends the equilibrium approach, excluding debt and money. He casually dismisses missing the Financial Crisis as being a problem of “financial economics” and not macroeconomics. This is specious considering finance now accounts for a quarter of corporate profits [8], financial economics cannot really be considered separate from macro. Moreover, he defends macroeconomics by essentially arguing that even though they didn’t predict the housing bubble and the accompanying downturn, the theories worked well besides that. But to paraphrase a line from George Cooper in his book Fixing the Dismal Science, this like an engineer claiming that the airplane flew great, besides the crash.
That sad fact is that all the criticisms I’ve written above were made long ago, sometimes by scientists and scholars in other areas, but mostly by economists themselves. Like all religions economics has a great many heretics, usually described as “heterodox” economists. Joseph Schumpeter realized the important roles of debt and credit in the latter 19th and early 20th centuries and was an early critic of equilibrium. Piero Sraffa pointed out flaws in the assumed diminishing marginal returns which underlies the derivation of the supply curve of microeconomics in 1926. Irving Fisher also criticized the reliance on equilibrium in the 1930’s and showed how excessive debt could lead to depressions. Hyman Minsky, partly inspired by Schumpeter, showed the importance of debt-financing in fueling economic booms and the subsequent crashes. Given the relevance of his work to the many crises we’ve had in recent decades, Minsky should be a household name post crisis, or at least a famous one among economists, but he remains relatively obscure.
It’s not just past economists. Outside of the dominant neoclassical school, there are many heterodox economists making biting criticisms that the mainstream is keen to ignore. A few I relied on here include William Lazonic at the University of Massachusetts, Lowell (who’s a strong critic of maximizing shareholder value and stock buy-backs and whom I relied on heavily for that section), Ha Joon-Chang at the University of Cambridge, and the renegade economist Steve Keen, formerly of Kingston University in London, who’s now crowd funding his research.
Yet the neoclassical school with its old theories of “supply and demand,” its macro incarnation of IS-LM, and equilibrium thinking still dominate. Krugman often rails against “zombie ideas” in economics, usually on the conservative side, doing so recently on Medium. But he seems at least slow, if not unwilling, to recognizes many of the zombie ideas of his own. This seems to be the case of many of the elite economists, especially those from the sterling US schools like Harvard, MIT, and the University of Chicago.
This zombification is a problem because it prevents the field from advancing. More importantly it’s stalling efforts to improve the economy, which most economists (being still human) do care about. The recent meeting of the American Economic Association illustrates this, bluntly summarized by Megan Greene, a senior fellow of the Harvard Kennedy School, in the Financial Times as “Economists cannot agree on what ails the global economy.” According the Greene, the AEA can’t decide if the problem is one of supply, or of demand. No discussion of the massive amount of private debt in the developed economies, or of business governance rules that prioritize cutting jobs and depressing pay. Greene does discuss stock buy-backs, but only as an indication of weak demand. Krugman’s “zombie ideas” in other words even effect the non-economist observers of the economy, and most definitely some of our current political leaders.
There are some glimmers of realization among economists that their understanding of the economy is poor. The worry of some about mysterious structural changes or secular stagnation, which are often invoked as phantom menaces afflicting the economy, shows at least some awareness of economic theory’s deficiencies. The popularity of behavioral economics, particularly the work of Daniel Kahneman and Richard Thaler, shows a similar realization in the reading public at large. There are also signs that the newer generation of economists are less dogmatic, as can be seen in the emerging stardom of Raj Chetty at Harvard who has a strong empirical focus in his economics. But without a larger paradigm shift in the discipline, economists are going to be giving the same tired advice to our leaders, with the same effects on the broader economy. These will range from the ineffectual, e.g. quantitative easing, to dangerous, especially in underestimating the effects of climate change.
If we are going to improve the economy in such a way that it actually begins to work for the majority of people, we first have to understand how the economy actually works, not how it might work in some alternative world of perfect competition. As far as I can tell that understanding isn’t coming anytime soon. The leading reformers in economists, which include Paul Krugman and Joseph Stiglitz, still approach this problem by adding “frictions” and other such tweaks to the standard equilibrium approach (See a recent lecture on YouTube featuring them and Thomas Piketty, humbly titled the “Genius of Economics.”). Until leaders of the field, like the aforementioned Nobel laureates, change their tune and acknowledge the shaky foundations of much of economic theory, progress will likewise but limited to tweaks here and there. If a 2012 online debate between Krugman and Steve Keen is any indication, this change-of-heart might never happen.
So, I am sorry everyone. We are stuck with a mediocre economy at best, characterized by record wealth inequality, massive debt, and uncertain futures. An economy that is, by convenient smoothing over the imperfections, often touted by our leaders as best in decades. Many of the unwise decisions that got us here were, and still are, justified by an economics built on ideological rather than empirical foundations. Worse yet, the ideology has ossified to the point that even a century of brilliant critics has failed to effect reform. But I like to hope that some reading this, or any of the other critiques by heterodox economists and outside acute observers, will realize that there are problems in the dismal science, and fight for solutions that will actually work, rather than ones that flatter our preconceptions.
References:
1 Lucas, R. E., Jr “Macroecnomic priorities.” American Economic Review 93, 1–14 (2003).
2 Keen, S. Debunking Economics: the Naked Emperor Dethroned? . (Zed Books, 2011).
3 Cooper, G. Fixing Economics: the story of how the dismal science was broken — and how it could be rebuilt (Harriman House LTD, 2016).
4 Blanchard, O. “the State of Macro,” NBER Working Paper Series (National Bureau of Economic Research 2008).
5 Reich, R. B. Saving Capitalism: For the Many, Not the Few. (Alfred A. Knopf, 2015).
6 Lazonick, W. & O’Sullivan, M. “Maximizing shareholder value: a new ideology for corporate governance.” Economy and Society 29, 13–35, doi:10.1080/030851400360541 (2000).
7 Lazonic, W. “Labor in the Twenty-First Century: The Top 0.1% and the Disappearing Middle-Class, “ INET Working Papers (Institute for New Economic Thinking, 2015).
8 Foroohar, R. Makers and Takers: How Wall Street Destroyed Main Street. (Crown Business 2016).
