Also, I appreciate your spelling out the problem but I wonder do you also plan on pointing towards / uncovering solutions? I'm trying to work on the latter, with a podcast and documentary in the making. If you have thoughts or would be interested in collaborating, here is a quick summary of my ToC:
Essential reading for everyone. Some examples to back your article:
At the 2007 Global Derivative Conference in Paris I was asked to introduce Robert Jarrow of Cornell who was giving a keynote speaker talk on market bubbles. Since there were no questions from the audience, I asked him why economists used to deny bubbles could exist when they were visible everywhere. He was taken aback and said an honest question deserved an honest answer. He said, "Nasir, no bubbles was the starting paradigm. And if you wanted to make your career in academia that's what you worked with. You also didn't see bubbles because you only saw only the no bubbles framework in academia."
In 2017, I finally decided to learn some mathematical economics to see the actual theory behind rhetoric and laws as presented in textbooks. Prof Rangel of Caltech went through the whole Kuhn Tucker optimisation to arrive at how the market clears based on aggregated supply and demand curves from agents optimising their expected utility functions. I waited for the connection to the real world. Prof Rangel then explained we didn't need to worry about the actual utility functions because the existence of prices in the real world meant that we could work with actual numbers directly. I them sent him a written question, "So in the physicist's language, we are saying that real world observations are is due to these unknown background system potentials, but when the time comes to connect to the real world, we say that the background potentials are unknowable, but the existence of the real world proves that they lurk underneath. But all that has been shown is that there is one possible mechanism for prices and clearing. It hasn't been shown that that is the unique mechanism. One can map many mechanisms into observed data" To my surprise, Prof Rangel agreed and said it was for the very reason that he was moving to neuro-ecomomics, where he would study the effects of neurological processes on economic decision making.
Another example is from the 1980s when John Holland and Ken Arrow sat down to play a game if chess. It's related in the book "Complexity" by M Mitchell Waldrop, published in 1993. Holland made the first move, a pawn, and said "Checkmate." When Arrow looked up in surprise, Holland said, "We are both economic agents who have optimismed our expected utility functions. Now tell me, Ken, does anyone play chess this way?"
There's a hidden pearl in here worth noting, though it's a diversion from the point of the article. The line says more than one might guess: "...we have largely stopped thinking about ethics and about what constitutes human well-being. We are technocrats who focus on efficiency." In the 90s, Bhutan defined the "Gross National Happiness (GNH)" scale and incorporated it into their policy as more important than GDP. At that time it was based around preserving a sense of well-being, via cultural values and numerous other factors that would align with the dictionary definition of happiness. Later, the U.N. adopted this terminology, and hijacked the term "happiness" to include a number of economic indicators, yet completely removing the dictionary definition of happiness. Happiness was no longer a state of mind, it was a way of directing a society, and related to GDP. Bhutan no longer even qualified as a happy country. Finland consistently ranks as one of the happiest countries in the world based on the UN publication. Interestingly, Finland has one of the highest suicide rates in the world so I guess a lot of happy people are jumping off bridges.
This is a strong critique, but I’d push it one step further.
Economics didn’t just depoliticize itself, it repositioned itself as a legitimacy layer for decisions already made elsewhere.
Markets, monetary policy, and trade regimes now execute first, while economic theory explains why that execution was “inevitable” after the fact. The danger isn’t false neutrality, it’s delayed accountability.
A great point. The economic sphere has come to dominate the political one. Then, the orthodox academics are funded to reify all the falsities and mythologies that prop up such structures and policies. I’d say this phenomenon happens with most social sciences, but with economics they turn it up to 11.
I remember back in my Global Governance and International Organization class, I causally proclaimed, “every economic decision is also a political one”. I felt a wave of unease ripple through the class, and since then, I have thought about this grandiose statement a lot, to try to come up with the example of an economic decision that was stripped of any political implication. So far, I have failed.
I do feel vindicated after reading this article, which argues my spur of the moment assertion a lot more comprehensively and logically.
I only have one note though. I I do not agree that the markets cannot appear freely when people are left to their own devices. I believe they can and do appear without government intervention or influence; however, as things go, a government can intervene and reset the dynamics or a market which at one time was unsupervised or completely “free”. So, while I don’t agree with the premise, the conclusion holds. Not least because even leaving a market to its own devices is also a political decision.
I think the contention here is surely that while markets can naturally emerge, they do not naturally emerge "free" in a meaningful sense. That is, they are not stably free, and may even emerge with obvious unfree elements. It strikes me, historically and anthropologically, that heavily regulated guild society with some market elements is by far the more "natural" way for human exchange to evolve. Free markets - for all the good they have brought - are an unnatural government imposition.
Yeah I do agree with that. That government intervention is the only "unfree" force in a market has to be one of the most successful nuggets of corporate propaganda.
Some days ago, we were discussing the effects of President Bola Ahmed Tinubu's decision to remove fuel subsidy with some colleagues. One of my colleagues, a PhD holder of Energy Economics, said the fuel subsidy wasn't 'Pareto Optimal.' We countered by saying that the wellbeing of people should come first, ahead of textbook theories.
Love how clearly you debunk this. I wrote an article drawing a parallel between economics and anthropology, showing how both of them treat capitalism as the elephant in the room. However, while most anthropology focuses on culture without looking at capital, there are schools that treat capitalism and systems of exchange seriously, from the economic anthropology that Polanyi built on, to anthropology of global systems more recently.
Kewl. I will have an article on political economy out in a couple of weeks entitled "The Neoliberal Mode of Economic Governance vs. The Social Democratic Mode of Economic Governance."
This article really hit home! I am almost finished with my Bachelor's in economics and your point strongly resonates with me. When I started my degree I was hoping to understand how the economy works and how to make it work better for most people. Instead I was greeted with endless exams about assumption heavy models, statistics, econometrics, and little reference to the real world.
As someone in an applied economics PhD program at an ivy league institution, I 100% agree with this take. Especially the statement about economics graduates being able to build a model without having the tools/framework to explain what’s actually going on in the economy. Ive spent an inordinate amount of time, studying concepts like the moment generating function of a probability distribution, but not nearly enough time actually learning about the political forces shaping the economy. I have to seek out knowledge for this myself by reading books or articles from economists in the public or private sector. I wish I had known how truly disconnected graduate training economics was from the real world before pursuing the PhD. Thanks for bringing attention to this!
Great article. Wish you would delve more into some of the later development of neoclassical economics and the bald hypocrisy of figures like Milton Friedman. I understand this was meant to be a more concise refutation of prevailing understanding of economics as a discipline (and a great one at that). Couldn’t help but be reminded of this paper by Varoufakis and Arnsperger in which they critique the most base axioms of neoclassical econ:
In addition to the works I've referenced, I would recommend Ha-Joon Chang's ”Breaking the mould” (article) and Quinn Slobodian's ”Globalists” (book).
Hi Jostein, as you cite Polanyi, maybe you would be interested in contributing something here? https://www.karlpolanyisociety.com/fl-blog/
Also, I appreciate your spelling out the problem but I wonder do you also plan on pointing towards / uncovering solutions? I'm trying to work on the latter, with a podcast and documentary in the making. If you have thoughts or would be interested in collaborating, here is a quick summary of my ToC:
https://youtu.be/42oiE-VKWvg?si=dnh0aX8Dz3rK_EwA
Essential reading for everyone. Some examples to back your article:
At the 2007 Global Derivative Conference in Paris I was asked to introduce Robert Jarrow of Cornell who was giving a keynote speaker talk on market bubbles. Since there were no questions from the audience, I asked him why economists used to deny bubbles could exist when they were visible everywhere. He was taken aback and said an honest question deserved an honest answer. He said, "Nasir, no bubbles was the starting paradigm. And if you wanted to make your career in academia that's what you worked with. You also didn't see bubbles because you only saw only the no bubbles framework in academia."
In 2017, I finally decided to learn some mathematical economics to see the actual theory behind rhetoric and laws as presented in textbooks. Prof Rangel of Caltech went through the whole Kuhn Tucker optimisation to arrive at how the market clears based on aggregated supply and demand curves from agents optimising their expected utility functions. I waited for the connection to the real world. Prof Rangel then explained we didn't need to worry about the actual utility functions because the existence of prices in the real world meant that we could work with actual numbers directly. I them sent him a written question, "So in the physicist's language, we are saying that real world observations are is due to these unknown background system potentials, but when the time comes to connect to the real world, we say that the background potentials are unknowable, but the existence of the real world proves that they lurk underneath. But all that has been shown is that there is one possible mechanism for prices and clearing. It hasn't been shown that that is the unique mechanism. One can map many mechanisms into observed data" To my surprise, Prof Rangel agreed and said it was for the very reason that he was moving to neuro-ecomomics, where he would study the effects of neurological processes on economic decision making.
Another example is from the 1980s when John Holland and Ken Arrow sat down to play a game if chess. It's related in the book "Complexity" by M Mitchell Waldrop, published in 1993. Holland made the first move, a pawn, and said "Checkmate." When Arrow looked up in surprise, Holland said, "We are both economic agents who have optimismed our expected utility functions. Now tell me, Ken, does anyone play chess this way?"
There's a hidden pearl in here worth noting, though it's a diversion from the point of the article. The line says more than one might guess: "...we have largely stopped thinking about ethics and about what constitutes human well-being. We are technocrats who focus on efficiency." In the 90s, Bhutan defined the "Gross National Happiness (GNH)" scale and incorporated it into their policy as more important than GDP. At that time it was based around preserving a sense of well-being, via cultural values and numerous other factors that would align with the dictionary definition of happiness. Later, the U.N. adopted this terminology, and hijacked the term "happiness" to include a number of economic indicators, yet completely removing the dictionary definition of happiness. Happiness was no longer a state of mind, it was a way of directing a society, and related to GDP. Bhutan no longer even qualified as a happy country. Finland consistently ranks as one of the happiest countries in the world based on the UN publication. Interestingly, Finland has one of the highest suicide rates in the world so I guess a lot of happy people are jumping off bridges.
This is a strong critique, but I’d push it one step further.
Economics didn’t just depoliticize itself, it repositioned itself as a legitimacy layer for decisions already made elsewhere.
Markets, monetary policy, and trade regimes now execute first, while economic theory explains why that execution was “inevitable” after the fact. The danger isn’t false neutrality, it’s delayed accountability.
A great point. The economic sphere has come to dominate the political one. Then, the orthodox academics are funded to reify all the falsities and mythologies that prop up such structures and policies. I’d say this phenomenon happens with most social sciences, but with economics they turn it up to 11.
I remember back in my Global Governance and International Organization class, I causally proclaimed, “every economic decision is also a political one”. I felt a wave of unease ripple through the class, and since then, I have thought about this grandiose statement a lot, to try to come up with the example of an economic decision that was stripped of any political implication. So far, I have failed.
I do feel vindicated after reading this article, which argues my spur of the moment assertion a lot more comprehensively and logically.
I only have one note though. I I do not agree that the markets cannot appear freely when people are left to their own devices. I believe they can and do appear without government intervention or influence; however, as things go, a government can intervene and reset the dynamics or a market which at one time was unsupervised or completely “free”. So, while I don’t agree with the premise, the conclusion holds. Not least because even leaving a market to its own devices is also a political decision.
I think the contention here is surely that while markets can naturally emerge, they do not naturally emerge "free" in a meaningful sense. That is, they are not stably free, and may even emerge with obvious unfree elements. It strikes me, historically and anthropologically, that heavily regulated guild society with some market elements is by far the more "natural" way for human exchange to evolve. Free markets - for all the good they have brought - are an unnatural government imposition.
Yeah I do agree with that. That government intervention is the only "unfree" force in a market has to be one of the most successful nuggets of corporate propaganda.
Some days ago, we were discussing the effects of President Bola Ahmed Tinubu's decision to remove fuel subsidy with some colleagues. One of my colleagues, a PhD holder of Energy Economics, said the fuel subsidy wasn't 'Pareto Optimal.' We countered by saying that the wellbeing of people should come first, ahead of textbook theories.
Whatever doesnt fit within neat mathematical formulas have been given a nice name. 'Externalities' !!!
Love how clearly you debunk this. I wrote an article drawing a parallel between economics and anthropology, showing how both of them treat capitalism as the elephant in the room. However, while most anthropology focuses on culture without looking at capital, there are schools that treat capitalism and systems of exchange seriously, from the economic anthropology that Polanyi built on, to anthropology of global systems more recently.
Kewl. I will have an article on political economy out in a couple of weeks entitled "The Neoliberal Mode of Economic Governance vs. The Social Democratic Mode of Economic Governance."
This article really hit home! I am almost finished with my Bachelor's in economics and your point strongly resonates with me. When I started my degree I was hoping to understand how the economy works and how to make it work better for most people. Instead I was greeted with endless exams about assumption heavy models, statistics, econometrics, and little reference to the real world.
This is just a cartoonish strawman of positive economics.
As someone in an applied economics PhD program at an ivy league institution, I 100% agree with this take. Especially the statement about economics graduates being able to build a model without having the tools/framework to explain what’s actually going on in the economy. Ive spent an inordinate amount of time, studying concepts like the moment generating function of a probability distribution, but not nearly enough time actually learning about the political forces shaping the economy. I have to seek out knowledge for this myself by reading books or articles from economists in the public or private sector. I wish I had known how truly disconnected graduate training economics was from the real world before pursuing the PhD. Thanks for bringing attention to this!
Great article. Wish you would delve more into some of the later development of neoclassical economics and the bald hypocrisy of figures like Milton Friedman. I understand this was meant to be a more concise refutation of prevailing understanding of economics as a discipline (and a great one at that). Couldn’t help but be reminded of this paper by Varoufakis and Arnsperger in which they critique the most base axioms of neoclassical econ:
https://www.paecon.net/PAEReview/issue38/ArnspergerVaroufakis38.htm
Will be sharing this with everyone I can. Great post!