The Ten Boxes of Heterodoxy, or Why Economics Sucks
Source Max Sawicky
Date 07/07/13/08:02

The Ten Boxes of Heterodoxy, or Why Economics Sucks
By Max Sawicky

ACTUALLY THERE ARE no ten boxes, but I like to use this title to sort things out. Keep in mind I speak for nobody except maybe myself. I'm no big theorist; I'm a dissatisfied consumer. I don't belong in the New York Times. I believe much of what follows is recognized by mainstream, orthodox economic doctrine. It's just that economists act as if it is not.

1. Supply and demand, 1. This celebrated and most basic economic model while in principle multidimensional in practice obscures anything interesting that affects market conditions. It bespeaks militant, ideologically-based reductionism. A good illustration is the minimum wage debate. In the usual supply and demand model, a minimum wage can only reduce employment. Nothing else is logically possible.

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2. S&D, 2. The outcome in an supply and demand model in principle has no inherently attractive qualities, in and of itself, since it depends on the distribution of ability to pay. If Oliver Twist has no money to buy a crust of bread, his zero allotment is "efficient." The lack of any normative foundation is typically glossed over.

3. Gross Domestic Product (GDP). Add up all the quantities in the supply and demand models over the year ("final goods and services") and you get GDP. Solemn assurances that GDP is not synonymous with economic welfare fall easily by the wayside. More GDP (and less leisure time, less environmental quality, a less sustainable economic future) is always better. If terrorists knock down the Empire State Building, GDP could go up. More! Better! Comrade Stalin would approve.

4. Commerce versus The Market. Forgetting about boring concerns of economic justice, the idea of a competitive, functioning market is actually very rigorous. So much so, there are hardly any good examples of such things. (The example often used is grain, undoubtedly by people who have never seen the back end of a cow.) When the Federal government tries to organize markets with the buzzword of "competitive sourcing," the results are even more comical. There is plenty of commerce, but there are very few markets, even though economists pretend they solve most of our problems.

5. In Search Of: The profit motive. Professors tell their gullible students that business firms maximize profits. This induces efficient use of resources and fortuitous allocation of capital. But if you study the economics of firms, even under orthodox auspices, you find out they don't maximize profits.

6. The deficit's gonna getcha. Years of braying about the evils of budget deficits have failed to be borne out by the purported consequence -- high interest rates. The entire traditional macro apparatus fails to allow for the interventions of large foreign lenders who aren't dumb enough to believe what the textbooks say.

7. Capital fundamentalism. As with reductionism of the S&D model, growth modeling zeroes in on private capital accumulation, even though a) other factors are demonstrably important and beg for attention; and b) private capital accumulation may be a consequence of other factors, rather than a cause and appropriate object for policy. Out of an obsession with this premise, the International Monetary Fund has screwed up a lot of countries too weak to ignore its advice.

8. Every import is sacred. Regulation of markets is allowed, unless the market includes parties from different countries. Then it is strictly verboten.

9. The unnatural rate of unemployment. Economists used to say it was 6.0, maybe 5.5 percent. Lower would give rise to ruinous inflation. The huge social benefits of another couple of percentage points less unemployment were -- are -- implicitly discounted. Current rate is 4.5. 'Nuff said.

10. "Power? You want the political science dept." Power looms over economic transactions, except in economic theory. Workers do not hire capitalists. Consumers do not choose merchants. Shareholders do not choose managers. Voters do not choose elected officials.

Maybe tomorrow I'll think of ten more.

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