How Economists With Bad Ideas Wreck Your Life, America's Economy, and the World

[xchrom]

http://www.alternet.org/economy/how-economists-bad-ideas-wreck-your-life-americas-economy-and-world





Many of us have long known in our guts that something about mainstream economics doesn't add up. As a new, must-read book proves, we were right. For decades, dubious, false and nonsensical ideas have dominated public discourse and decision-making, from the irrational belief in the efficiency of markets to a willful blindness about the inequalities of wealth and economic opportunity in a system that has been rigged for the benefit of the few. Author Jeff Madrick has just come out with his latest challenge to the pernicious ideas that have captured the minds and clouded the judgment of huge numbers of orthodox economists and the legions who follow their advice: Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World. In this brisk and accessible volume, which should be on Econ 101 syllabi, Madrick outlines the wrong-headed propositions, fictitious models, shoddy research, and partisan agendas that have made a reexamination of the entire field long overdue, especially in the wake of the financial crisis of 2008. Madrick’s book is part of a healthy movement to set the record straight and chart a new direction for an economics that can serve the whole of society and lead to sustainable growth.

Lynn Parramore: Why does the invisible hand (the metaphor used by 18th-century economist Adam Smith to explain what he saw as the benefits of individuals in pursuit of their own interests) get top billing in your list of bad economic ideas? What value judgments come with this model of how the economy works?

Jeff Madrick: Adam Smith’s invisible hand is really the hub of the wheel: the other ideas are all spokes. It argues that if we all follow our self-interest and the government stays out of the market—for instance, it should not regulate prices—then the interaction of buyers and sellers will result in the greatest prosperity for all.

The invisible hand suggests that all wages will be established at fair levels and that regulation of financial markets can be minimized because free markets will lead to the "right" price for securities or commodities or currencies. On and on. But this is only an idea, if a beautiful one. It tells us how a market may work, not how it actually does work. Long after Adam Smith wrote about the invisible hand, as the economics profession became increasingly ideologically conservative, economists came to accept it as a rule, not a hypothesis.

[JHB]

1. Economic Lysenkoism

Where a faulty theory is promoted above all else (and better theories scorned or persecuted) because it those in charge have taken a shine to it.

[hunter]

2. Good analogy.

.