Policy Implications of Post-Autistic Economics

The neoclassical monopoly in the classroom and its prohibition on critical thinking means that it brainwashes successive generations of students into viewing economic reality exclusively through its concepts, which more often than not misrepresent or veil the world, especially today’s world. Nearly all of these neoclassical notions have a bearing on judgements about social, cultural and economic policy. Consequently, if society were to learn to think about economic matters outside the neoclassical conceptual system, it would almost certainly choose different policies. One of Post-Autistic Economics’ (PAE) projects has been to expose some of the many conceptual lunacies of today’s mainstream, both in terms of the concepts it uses and the concepts it lacks. Drawing on recent essays by PAE economists in A Guide to What’s Wrong with Economics, especially the chapters by Michael A. Bernstein, Geoffrey Hodgson, Peter Söderbaum, Hugh Stretton, Richard Wolff, Robert Costanza, Herman E. Daly, Jean Gadrey and Edward Fullbrook,^* this brief article briefly considers ten such concepts.

Neoclassical economics regards competition as a state rather than as a process. It defines perfect competition as a market with a large number of firms with identical products, costs structures, production techniques and market information. But in real life competition is a process by which firms continually seek to re-establish the conditions of their own profitability. To compete in a market requires firms to seek out and exploit differences between them in production, technology, distribution, access to information and awareness of trends in consumption. These differences are the essential dimensions in which competition takes place. Once the neoclassical conception of competition becomes imbedded in the student’s mind, appreciation of real-world competition, and hence the policies that might enhance it, becomes logically impossible.

Neoclassical economists love to talk about freedom of choice. But this is pure rhetoric, because they define rationality in a way that eliminates free choice from their conceptual space. By rationality they mean that an agent’s choices are in conformity with an ordering or scale of preferences. The “rational” agent chooses among the alternatives available that one which is highest on his ranking. Rational behaviour simply means behaviour in accordance with some ordering of alternatives in terms of relative desirability. In order for this approach to have any predictive power, it must be assumed that the preferences do not change over some period of time. So the basic condition of neoclassical rationality is that individuals must forego choice in favour of some past reckoning, thereafter acting as automata. This conceptual elimination of freedom of choice, in both its everyday and philosophical meanings, gives neoclassical theory the hypothetical determinacy that its Newtonian inspired metaphysics require. No indeterminacy; no choice. No determinacy; no neoclassical model. This is far from just an academic matter, because society needs an economics that is able to address questions regarding freedom of choice.

No terms in neoclassical economics are more sacrosanct than rational choice and rationality. Everyone identities with these words, because everyone wants to think of themselves as rational. But few people realize that economists give these words an ultra eccentric meaning. Neoclassical economics begins with an a priori conception of markets and economies as determinate systems that by the action of individual agents alone tend toward an efficient and market-clearing equilibrium. This requires that the individual agents, like the bodies in Newton’s system, behave in a prescribed manner. Neoclassicalists have deduced the particular pattern of behaviour that would make their imagined world logically possible, then named it “rational choice” or “rationality” and then declared that that is the way real people behave. But thankfully they don’t. Everyday economic actors do many things that by the neoclassical meaning of “rational” are “irrational”. Looking to the choices of other consumers as guides to what one might buy; buying a stock because you believe other people will be buying it and so increase its value, spending your money in a spirit of spontaneity rather than stopping to calculate the consequences and alternatives up to the limits of your cognitive powers; a taste for change, that is, buying something because you did not previously prefer it; these common consumer behaviours are all prohibited under the neoclassical notions of rational choice and rationality and so outside its scope of analysis.

These failings connect with another. Neoclassical economics is by its own axioms incapable of offering a coherent conceptualisation of the individual or economic agent. From where do the preferences that supposedly dictate the individual’s choice come from? Not from interpersonal relations, because if individual demands were interdependent, they would not be additive and thus the market demand function – neoclassicalism’s key analytical tool – would be undefined. And not from society, because neoclassicalism’s Newtonian atomism translates as methodological individualism, meaning that society is to be explained in terms of individuals and never the other way around.

This leaves an awful lot in the dark. In the main, despite the neoclassical axioms, we all categorise and classify according to prevailing cultural norms. Likewise our tastes and preferences for this and that reflect the social conventions and institutions with which we interact. Consequently individual choice is unavoidably and inextricably bound up with historically and geographically given social worlds. An economics that has nothing to say about the formation of economic tastes and preferences is silly and irresponsible, especially in an age of consumer societies and in a world now threatened with climate-change or worse.

For half a century neoclassical economics has hid its ideology behind the notion that it calls positive economics. This is the idea that it contains no value judgements because it mentions none. Of course such a notion belongs to an intellectually more naive age than today, but nonetheless it persists as an effective tool of indoctrination of undergraduates. The fact that neoclassical economics requires a highly restricted focus in order to maintain its atomist and determinist metaphysics compels it to make many extreme judgements about what is and is not economically important. There is not space even to list them. But an example is its notion of “economic man”, which is acutely ideological, as it emphasizes some roles and relationships and excludes others. By allowing only decisions based on utility maximization, it excludes other forms of ethics. As an economic agent, each individual acts in many roles, not just market ones, and is guided by his or her “ideological orientation”. That orientation may be founded on utilitarianism or not. It may for example be based on social and environmental ethics. PAE economists do not believe that economists have the right to select one ethics as the “correct” one for framing economic analysis. Furthermore the neoclassical insistence upon the utilitarian ideology legitimises a kind of “market ideology” and “consumerism” that increasingly appears dangerous to society and sidelines the debate about Sustainable Development.

Like rationality, nearly everyone thinks efficiency is a good idea. Neoclassical economists adore using this word, especially when addressing the public. But the meaning of “efficiency” always depends on what you choose to count. For example, suppose five firms all manage to lower by the same amounts the production cost and selling price of a standard product that they all produce. One does it by cutting its workers’ pay, another by working them longer hours, another by getting materials at lower prices from a poorer country, another by replacing some of its workers with robots, and another by inventing machinery improvements that allow it to cut work hours with no loss of output, profit, jobs or pay. Are all of these changes equally efficient (or inefficient)? A neoclassical economist will answer yes, because the five firms all end up producing the same product at the same cost and selling it at the same price. For them that is all that matters.

The prevailing mainstream also holds that in the realm of public affairs its concept of “efficiency” can and should determine the net balance between the positives (total benefits) and negatives (total costs) that would result from an economic policy or act. In place of public debate economists would substitute “cost-benefit analysis”. But any such analysis depends on the consequences selected and the kinds of “measurements” made. No efficiency claim is ever based on an identification of all the consequences, and quantitative quesstimates of the future inevitably have a crystal-ball dimension. In the final analysis, “efficient”, like “beautiful” is little more than a way of expressing a positive opinion.

Mainstream economics, and in consequence most policy dialogue, conflates two very different meanings of economic growth that are in common usage and with GNP mistakenly taken to be a measure of both. There is quantitative growth meaning an increase in the quantity of production and consumption, and there is qualitative growth meaning an improvement in well-being. For example, an epidemic may lead to growth of medical expenditure and hence increase GNP but not well-being. Pollution and congestion lead to huge expenditures to escape them (e.g., commuting from the suburbs, double glazing, air filters, security measures), the creation of new industries and an ever larger GNP but they also decrease well-being. Quantitative growth that causes negative qualitative growth is also called uneconomic growth. It is both a reality and a concept with which policy makers must come to terms, the sooner the better.

Closely related to these new anti-neoclassical concepts is another one, sustainable development. This refers to the physical scale of the economy relative to the ecosystem. Ecological economists view the economy as an open subsystem of the larger ecosystem which is finite, non-growing and, except for solar energy, materially closed. This point of view compels asking questions regarding scale. How large is the economic subsystem relative to the earth’s ecosystem? What is its maximum possible size? What is its most desirable size in terms of human welfare? These questions, around which policy decisions will and must increasingly be made, are not found in standard economics textbooks. Neoclassical economics can not accommodate the concept of sustainable development because if adopted as a goal it requires that goods be valued in part by their contribution to that goal and not solely on their contribution to individual utility maximisation.

The close to monopoly position of neoclassical economics is incompatible with normal ideas of democracy. Economics has some of the qualities of a science, but because of the very nature of its subject matter it is forever and fundamentally ideological. It is best not to deceive oneself and others about that. Economics’ preoccupation with values and worldly acts means that in a democratic society it has a moral responsibility to promote the exploration of economic knowledge from more than one point of view so as to make possible the informed and intelligent debate and discussion that democracy requires. But the hegemony of neoclassical economics means that departments of economics have become political propaganda centres. In 2002, Joseph Stiglitz, a recent winner of the so-called Nobel Prize for Economics, wrote in The Guardian that economics as taught “in America's graduate schools . . . bears testimony to a triumph of ideology over science.” Is this a legitimate use of public funds? What is certain is that it is a dangerous state of affairs, but one that is now being challenged. The PAE movement immodestly seeks over the next ten years a revolution: the transformation of economics into a genuinely pluralistic enterprise wishing to contribute to, rather than subvert, democratic processes. The movement’s success depends in part on other disciplines and professions withdrawing their patronage from the neoclassical hegemony in favour of the now thousands of economists working for the new order.

Note

* A Guide to What’s Wrong with Economics, edited by Edward Fullbrook, Anthem Press 2004