In response to this piece, someone on Twitter/X asked rhetorically: what is political or ideological about the law of diminishing marginal utility or the law of returns to scale?
This question reflects a common defence of economics as a value-free and non-political science, and it is important to explain why that defence itself is political.
At first glance, these laws may appear entirely non-political. However, they shape the lens through which we study the economy, and that choice of lens has serious political implications.
Production is not merely a question of “efficiency,” which the law of returns emphasises. It is also a question of class, power, and social relations — dimensions that mainstream economics treats as secondary or outside its core analytical framework.
Similarly, consumption is not only a matter of individual “utility” preferences responding to quantities, as emphasised by the law of diminishing marginal utility. It is also bound up with inequality, identity, and ecological limits — issues that, again, receive limited attention in mainstream economics.
In this way, mainstream economics reflects political priorities in what it chooses to foreground and what it abstracts away, often relying on oversimplified mathematical formalism to do so.
What is striking is not only that these priorities are rarely acknowledged in economics textbooks as such, but that alternative ways of understanding the economy are frequently marginalized or treated as unscientific.
This is why I keep saying that, today, we're training economists who can build models but don't really understand the economy.
The lens point is the sharper one. What gets foregrounded in a model determines what gets built into policy — and what gets abstracted away tends to stay unbuilt. The alignment between wages, productivity, and the cost of a working life has been treated as an emergent property rather than a designable variable for decades, largely because mainstream economics abstracts away the structural relationship between those components in favor of equilibrium assumptions. The result isn't just a measurement gap — it's a design gap. The system literally has no mechanism to stay calibrated because the dominant framework never identified calibration as something that needed to be engineered. That's not a neutral omission. It's a political one with structural consequences that compound over time.
Yes, politics and the economy are truly inseparable, the management structures of the economy are always political organizations. As Andrew Jackson explained in talks with local party branches during the Bank War, politics is always present when the decision making regarding the deployment or resources or the organization of the physical world are occuring, the only things that vary, and they vary quite alot, is what forms the politics takes, who has access to the politics, and by what means do they access it
The USA’s system was radically transformed over the course of a few decades following WW2; our political parties and our academe being the two most of all (banking/finance a close third).
The old system had achieved so much that combined with lighting strike like historical coincidence and happenstance the USA’s weak national center was able to stretch its influence across the world, incorporate some of elements of that center’s foreign allies into our system, and along with other things become for the firs time a strong national center while transforming the country and then incorporating alien elements into the system
Then the USA’s academe pushed the economics, political organization philosophy, constitutional philosophy, etc. of the Old Republic’s slain opponents who had failed. And capital “G” Globalization looks and functions quite similarly to those systems.
Go to a prestige US acdemes relevant stuff today and the “macroeconomics” you find ranges from Viennese Liberalism to Prussian State Socialism; and of course, like each one of them did at least at some points in time, for the longer running ones, multiple different non continous points in time, the “reasonable middle” between them
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?"
The Holland-Arrow chess story is the one that stays with me. Two agents who have perfectly optimized their expected utility functions, and the result is a game nobody would actually play. That's not a flaw in the agents — it's a flaw in what the model treats as the relevant unit of analysis. In complex systems, local optimization and system-level performance are not the same thing. Often they work against each other. The Jarrow story cuts even deeper though — 'no bubbles was the starting paradigm' is a precise description of how design gaps get institutionalized. When the framework excludes a variable, practitioners stop looking for it. And when they stop looking, the gap between what the model predicts and what the system produces gets attributed to external shocks rather than structural omission. That attribution problem is exactly what makes misalignment so persistent — it's always someone else's fault, never the design's.
Its richly ironic that economists tried to model themselves on physicists. The latter, long ago, realised that there's an enormous gap between what holds at a local (quantum) level and what happens at the system level. Economists carefully ignored that insight.
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.
Another example is the stripping of land from neoclassical theories of income distribution. This was enacted in large part to serve wealthy land-owning interests, as told by Mason Gaffney in "The Corruption of Economics".
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.
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.
The Bhutan example is a precise illustration of something worth naming directly: when a measurement framework becomes influential enough to matter, the people with the most to lose from an honest reading of it tend to redefine what it measures. GNH started as a genuine attempt to capture what GDP was missing. By the time it was institutionalized, it had been reverse-engineered to produce results compatible with the existing framework. That's not an accident — it's what happens when you try to introduce an alignment metric into a system that was optimized around a different set of outputs. The metric gets absorbed rather than adopted. Which is exactly why the design of the instrument matters as much as the intention behind it. A measurement framework without structural protection from the interests it's meant to constrain will eventually reflect those interests instead.
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!
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.
You seem to be conflating "free" markets with "competitive" markets.
Monopolistic and oligopolistic markets can emerge when states protect free markets.
The allusion in the article to the dependence of free markets on the state and society was likely more a reference to the fact that property rights, which are necessary for free markets, require the force of the state (it could also refer to the necessary dependence of commerce on infrastructure, currency, etc). In a free state of nature, of course, freed from the stultifying hand of the state, "free markets" devolve into violent theft.
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."
Couldn’t agree more! I’m about to start my second year of A-level economics, which is way out of the league of my fellow economists in this comments section.
However, in my lessons I always had the question of ‘what does this look like in practice’, to which my economics professor tells me ‘this is how it works, this is the mechanism’. Plain and simple. But I couldn’t help but wonder about so many extraneous factors like labour laws, power, and consumer sovereignty and how they would impact these economic laws and mechanisms. It didn’t make sense that we were looking at demand in such black and white terms.
I’ve been reading the book ‘Chokepoints: economic warfare’, and it started to put this in perspective for me, learning from history what these economic theories look like in practice, and their political implications. For example, the Iran and Libya Sanctions Act, or the Food for Fuel Act and the resulting black markets and diminishing living standards for civilians.
Now I’ve read this article and it’s solidified to me that I’m not stupid for not understanding simple theories like diminishing marginal utility in my economics classes, I was just thinking of the wider, political picture, and struggled to view the economy in this mathematical, marginalist view.
I should clarify, when I say extraneous factors, that’s how it has been taught to me in a way. Like it’s seperate, when actually it’s intrinsic to economics**
Thanks for this essay. You are very gentle on economists, actually. The thing is that in real world, economic decisions are made by politicians, who more often than not maximize their own political interests (staying in power as long as possible). Economists then create their own alternative reality where the laws of physics work.
My German reaction was: wait, this was controversial? Here, from the social market economy to codetermination and collective bargaining, it has always been obvious that markets are politically constructed. Perhaps the real story is not that economics is political, but that parts of the Anglo-American academy somehow managed to forget it—and can now rediscover it as a radical insight.
Apparently, economics is only political when another country is doing it. When America does it, it is called the market.
Very good article. Here is a bit of backstory from an anthropological angle.
William Stanley Jevons, Carl Menger, and Léon Walras were the founders of what Thorstein Veblen dubbed "neoclassical economics" in 1900. Veblen's foundational article was "Why Is Economics Not an Evolutionary Science?" and was published in 1898. Veblen was able to poke holes in the Marginal Revolution/neclassical economics because he was well-read in the anthropology of his day. (One of the reasons Theory of the Leisure Class and conspicuous consumption are still relevant today.) Veblen rejected the idea of stable, self-equilibrating markets, arguing instead that economies are shaped by changing cultural habits and power-driven social institutions.
Nowadays, one can poke holes in neoclassical economics or even Paul Krugman's neo-neoclassical economics very simply using social science principles. 1) Modern neoclassical economics is based on two paradigms, rational actors and efficient markets. Both are false. 2) A basic understanding of anthopology should disabuse a person of the idea of "rational actors." Humans are irrational. Indeed, culture itself requires irrationality to come up with ritual, creative solutions, etc.. 3) Markets are not efficient. If they were efficient, they would not work to the sole benefit of the elites. One can also observe directly how slow and clunky markets really are. 4) Therefore, since rational actors and efficient markets are false paradigms, economics is not a social science. It is really just politics. 5) The emphasis on the "elegant equation" is just a vapid attempt to brand economics as a science because it uses math. This is just childish. Everyone who can balance their checkbook uses math. Bumping the math up to the calculus level is just more complex math. When I talk about the second derivative in collapse studies, I am making a point with calculus that is just as easily made with a drawing of a sine wave and pointing out the inflection point, where the curve changes sign and moves from convex to concave (or vice versa). I don't even need to use an equation to get my point across.
There may be some hope for ecological economics, but it has made little headway so far.
BTW, I grew up in southern Minnesota about 15 miles from Veblen's home farm near Nerstrand. I drove out there once to pay homage. It is now listed on the National Register of Historic Places.
In response to this piece, someone on Twitter/X asked rhetorically: what is political or ideological about the law of diminishing marginal utility or the law of returns to scale?
This question reflects a common defence of economics as a value-free and non-political science, and it is important to explain why that defence itself is political.
At first glance, these laws may appear entirely non-political. However, they shape the lens through which we study the economy, and that choice of lens has serious political implications.
Production is not merely a question of “efficiency,” which the law of returns emphasises. It is also a question of class, power, and social relations — dimensions that mainstream economics treats as secondary or outside its core analytical framework.
Similarly, consumption is not only a matter of individual “utility” preferences responding to quantities, as emphasised by the law of diminishing marginal utility. It is also bound up with inequality, identity, and ecological limits — issues that, again, receive limited attention in mainstream economics.
In this way, mainstream economics reflects political priorities in what it chooses to foreground and what it abstracts away, often relying on oversimplified mathematical formalism to do so.
What is striking is not only that these priorities are rarely acknowledged in economics textbooks as such, but that alternative ways of understanding the economy are frequently marginalized or treated as unscientific.
This is why I keep saying that, today, we're training economists who can build models but don't really understand the economy.
The lens point is the sharper one. What gets foregrounded in a model determines what gets built into policy — and what gets abstracted away tends to stay unbuilt. The alignment between wages, productivity, and the cost of a working life has been treated as an emergent property rather than a designable variable for decades, largely because mainstream economics abstracts away the structural relationship between those components in favor of equilibrium assumptions. The result isn't just a measurement gap — it's a design gap. The system literally has no mechanism to stay calibrated because the dominant framework never identified calibration as something that needed to be engineered. That's not a neutral omission. It's a political one with structural consequences that compound over time.
Yes, politics and the economy are truly inseparable, the management structures of the economy are always political organizations. As Andrew Jackson explained in talks with local party branches during the Bank War, politics is always present when the decision making regarding the deployment or resources or the organization of the physical world are occuring, the only things that vary, and they vary quite alot, is what forms the politics takes, who has access to the politics, and by what means do they access it
The USA’s system was radically transformed over the course of a few decades following WW2; our political parties and our academe being the two most of all (banking/finance a close third).
The old system had achieved so much that combined with lighting strike like historical coincidence and happenstance the USA’s weak national center was able to stretch its influence across the world, incorporate some of elements of that center’s foreign allies into our system, and along with other things become for the firs time a strong national center while transforming the country and then incorporating alien elements into the system
Then the USA’s academe pushed the economics, political organization philosophy, constitutional philosophy, etc. of the Old Republic’s slain opponents who had failed. And capital “G” Globalization looks and functions quite similarly to those systems.
Go to a prestige US acdemes relevant stuff today and the “macroeconomics” you find ranges from Viennese Liberalism to Prussian State Socialism; and of course, like each one of them did at least at some points in time, for the longer running ones, multiple different non continous points in time, the “reasonable middle” between them
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?"
The Holland-Arrow chess story is the one that stays with me. Two agents who have perfectly optimized their expected utility functions, and the result is a game nobody would actually play. That's not a flaw in the agents — it's a flaw in what the model treats as the relevant unit of analysis. In complex systems, local optimization and system-level performance are not the same thing. Often they work against each other. The Jarrow story cuts even deeper though — 'no bubbles was the starting paradigm' is a precise description of how design gaps get institutionalized. When the framework excludes a variable, practitioners stop looking for it. And when they stop looking, the gap between what the model predicts and what the system produces gets attributed to external shocks rather than structural omission. That attribution problem is exactly what makes misalignment so persistent — it's always someone else's fault, never the design's.
Its richly ironic that economists tried to model themselves on physicists. The latter, long ago, realised that there's an enormous gap between what holds at a local (quantum) level and what happens at the system level. Economists carefully ignored that insight.
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.
Economists as the handmaidens of power?
Another example is the stripping of land from neoclassical theories of income distribution. This was enacted in large part to serve wealthy land-owning interests, as told by Mason Gaffney in "The Corruption of Economics".
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.
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.
The Bhutan example is a precise illustration of something worth naming directly: when a measurement framework becomes influential enough to matter, the people with the most to lose from an honest reading of it tend to redefine what it measures. GNH started as a genuine attempt to capture what GDP was missing. By the time it was institutionalized, it had been reverse-engineered to produce results compatible with the existing framework. That's not an accident — it's what happens when you try to introduce an alignment metric into a system that was optimized around a different set of outputs. The metric gets absorbed rather than adopted. Which is exactly why the design of the instrument matters as much as the intention behind it. A measurement framework without structural protection from the interests it's meant to constrain will eventually reflect those interests instead.
Indeed, and now the term "happiness" is serving the interests of Global political power bases.
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!
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.
You seem to be conflating "free" markets with "competitive" markets.
Monopolistic and oligopolistic markets can emerge when states protect free markets.
The allusion in the article to the dependence of free markets on the state and society was likely more a reference to the fact that property rights, which are necessary for free markets, require the force of the state (it could also refer to the necessary dependence of commerce on infrastructure, currency, etc). In a free state of nature, of course, freed from the stultifying hand of the state, "free markets" devolve into violent theft.
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.
This is just a cartoonish strawman of positive economics.
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."
Couldn’t agree more! I’m about to start my second year of A-level economics, which is way out of the league of my fellow economists in this comments section.
However, in my lessons I always had the question of ‘what does this look like in practice’, to which my economics professor tells me ‘this is how it works, this is the mechanism’. Plain and simple. But I couldn’t help but wonder about so many extraneous factors like labour laws, power, and consumer sovereignty and how they would impact these economic laws and mechanisms. It didn’t make sense that we were looking at demand in such black and white terms.
I’ve been reading the book ‘Chokepoints: economic warfare’, and it started to put this in perspective for me, learning from history what these economic theories look like in practice, and their political implications. For example, the Iran and Libya Sanctions Act, or the Food for Fuel Act and the resulting black markets and diminishing living standards for civilians.
Now I’ve read this article and it’s solidified to me that I’m not stupid for not understanding simple theories like diminishing marginal utility in my economics classes, I was just thinking of the wider, political picture, and struggled to view the economy in this mathematical, marginalist view.
I should clarify, when I say extraneous factors, that’s how it has been taught to me in a way. Like it’s seperate, when actually it’s intrinsic to economics**
Thanks for this essay. You are very gentle on economists, actually. The thing is that in real world, economic decisions are made by politicians, who more often than not maximize their own political interests (staying in power as long as possible). Economists then create their own alternative reality where the laws of physics work.
My German reaction was: wait, this was controversial? Here, from the social market economy to codetermination and collective bargaining, it has always been obvious that markets are politically constructed. Perhaps the real story is not that economics is political, but that parts of the Anglo-American academy somehow managed to forget it—and can now rediscover it as a radical insight.
Apparently, economics is only political when another country is doing it. When America does it, it is called the market.
Very good article. Here is a bit of backstory from an anthropological angle.
William Stanley Jevons, Carl Menger, and Léon Walras were the founders of what Thorstein Veblen dubbed "neoclassical economics" in 1900. Veblen's foundational article was "Why Is Economics Not an Evolutionary Science?" and was published in 1898. Veblen was able to poke holes in the Marginal Revolution/neclassical economics because he was well-read in the anthropology of his day. (One of the reasons Theory of the Leisure Class and conspicuous consumption are still relevant today.) Veblen rejected the idea of stable, self-equilibrating markets, arguing instead that economies are shaped by changing cultural habits and power-driven social institutions.
Nowadays, one can poke holes in neoclassical economics or even Paul Krugman's neo-neoclassical economics very simply using social science principles. 1) Modern neoclassical economics is based on two paradigms, rational actors and efficient markets. Both are false. 2) A basic understanding of anthopology should disabuse a person of the idea of "rational actors." Humans are irrational. Indeed, culture itself requires irrationality to come up with ritual, creative solutions, etc.. 3) Markets are not efficient. If they were efficient, they would not work to the sole benefit of the elites. One can also observe directly how slow and clunky markets really are. 4) Therefore, since rational actors and efficient markets are false paradigms, economics is not a social science. It is really just politics. 5) The emphasis on the "elegant equation" is just a vapid attempt to brand economics as a science because it uses math. This is just childish. Everyone who can balance their checkbook uses math. Bumping the math up to the calculus level is just more complex math. When I talk about the second derivative in collapse studies, I am making a point with calculus that is just as easily made with a drawing of a sine wave and pointing out the inflection point, where the curve changes sign and moves from convex to concave (or vice versa). I don't even need to use an equation to get my point across.
There may be some hope for ecological economics, but it has made little headway so far.
BTW, I grew up in southern Minnesota about 15 miles from Veblen's home farm near Nerstrand. I drove out there once to pay homage. It is now listed on the National Register of Historic Places.