Rethinking economics: the debate about how to study economics and economic policy

When the Wall Street Crash of October 1929 led to the Great Depression of the 1930s, a counter-revolution in economic policy was triggered by the thinking of the English economist John Maynard Keynes (1883—1946) and the actions of the Roosevelt Administration in the United States through its New Deal legislation and policy agenda. By contrast, the most distinctive feature of economic policy in the immediate aftermath of the 2007 to 2009 financial crisis was that, rather than inspiring a counter-revolution in economic thought and policy, the neo-liberalism that had become the ideological orthodoxy underpinning policy prior to the crisis remained the dominant economic paradigm for many of the major industrialised economies, not least those of the US and the UK. Indeed, influential commentators not only recorded neo-liberalism’s ‘strange non-death’ (Grouch, 2011), but also noted how it had not only survived the crisis but also had been materially strengthened by it (Mirowski, 2013).

Not everyone, however, was persuaded that a return to the pre-crisis orthodoxy in economic policy was desirable. Even before the onset of the crisis, some had begun to raise fundamental questions about economic assumptions (e.g. Fullbrook, 2004; Ingham, 2004). Since 2007, one of the many consequences of the global financial crisis - along with the failure of mainstream economists to predict it, its damaging outcome and the choice of expansionary fiscal contraction (austerity) to escape it — has been that is has provoked a much wider revolt against mainstream orthodox economics and the teaching of economics. In short, many have questioned why the appropriate economic policy response to a financial crisis, caused by the reckless lending and irresponsible risk-taking of private banks and other financial institutions, should be the imposition of a decade-long period of austerity which the Governor of the Bank of England, Mark Carney, described as ‘the first lost decade since the 1860s’ because ‘real earnings have grown at their slowest rate since the mid-19^tn century’ (Carney, 2016).

This revolt has led to demands for nothing less than a reformation in economics, and a recognition that ‘No economic goal can be separated from politics’ (Rethinking Economics and The New Weather Institute, 2019). It has embraced many eminent academic economists (e.g., Pilkington, 2016; Skidelsky, 2018), including Nobel Prize winners (Stiglitz, 2019). However, the rethinking of economics was inspired initially by groups of disgruntled students across the world who in 2013 created the Rethinking Economics network, following the establishment of the Post-Crash Economics Society (PCES) in December 2012 ‘to campaign for changes to the syllabus and teaching of economics at the University of Manchester’ (Post-Crash Economics Society, 2014: 12). Subsequently, the students have published their own approach to rethinking economics and urged a more pluralist approach to its study (Fischer, Hasell, Proctor, Uwakwe, Ward-Perkins and Watson, 2018).

The original PCES’ revolt against orthodox economics was led by the argument that economics education at Manchester had elevated a single economics paradigm — namely neoclassical economics — to be the sole focus of study, excluding all other approaches. This had served ‘to preclude the development of meaningful critical thinking and evaluation’, with the consequence that ‘In the absence of fundamental disagreement over methodology, assumptions, objectives and definitions, the practice of being critical is reduced to technical and predictive disagreements’ (Post-Crash Economics Society, 2014: 9). The syllabus had largely excluded ‘the ethics of being an economist and the ethical consequences of economic policies’, and marginalised the study of the history of economic thought (Post-Crash Economics Society, 2014: 9). In short, economics had become ‘a methodological monoculture’ (Haldane, 2017: xiv). It had also omitted the study of politics and the impact of political power upon economic policy and performance.

From the dissenting PCES perspective, neoclassical economics had been founded upon a mechanical view of the world, where economies were understood and studied as ‘standalone, abstract systems’ inhabited by ‘individuals who interact in a way based on well-behaved, predictable mathematical rules’ (Earle, Moran and Ward-Perkins, 2017: 38, 39). This neo-classical model of optimisation and equilibrium had enabled technocratic economic experts to assume that human action could be modelled mathematically in order to predict how policy would affect the economy. Economic policy could therefore be studied, formulated and implemented without having to encounter real people. Questions of politics and the exercise of political power would be marginalised or excluded altogether.

Subsequently, three of the founding PCES members at the University of Manchester have published The Econocracy: The perils of leaving economies to the experts (Earle, Moran and

Ward-Perkins, 2017). As Andrew Haldane, the Chief Economist at the Bank of England, and one of the most influential thinkers and commentators on economic policy in the UK, has noted, this critique is based upon the argument that orthodox neoclassical economic models and the technical language accompanying them have played ‘a role in policy and in society that has been disproportionate’, not only in relation to our state of knowledge (and indeed ignorance) of uncertain and fragile economies, but also disproportionate in the amount of delegated policy power placed in the hands of the unelected, democratically unaccountable technocrats of the ‘econocracy’, as they have been depicted. Linking ‘from economics to politics, from the technical to the social’, Haldane has contended that the resulting democratic deficit enables the econocracy to make ‘what are essentially social choices’, such as the inflation of asset prices via the policy of Quantitative Easing (explored later in this chapter) whose benefits have been skewed towards those (i.e. the wealthy) who already possess those assets (Haldane, 2017: xvi).

Economic policy has been left in the hands of experts who can take decisions without significant public oversight. Economics has been viewed as ‘a technical subject, not a political one’, when it is actually profoundly political, thereby undermining democratic culture and debate (Earle, Moran and Ward-Perkins, 2017: 3). As an alternative to the econocracy', i.e. ‘A society in which political goals are defined in terms of their effect on the economy, which is believed to be a distinct system with its own logic that requires experts to manage it’, economics has been posited as ‘a public discussion about how to organise society’. In this dissenting vision, ‘The role of experts is to inform citizens of their choices rather than to make those choices for them’ (Earle, Moran and Ward-Perkins, 2017: 7, 3, 26).

What the PCES has attempted to do is to demonstrate how ‘Economics is inherently bundled up with politics and ethics’ (Earle, Moran and Ward-Perkins, 2017: 150). In short, ‘economics is the continuation of politics by other means’ and should be conducted by a new generation of ‘Citizen Economists’, equipped with the knowledge to challenge technocratic expertise in economic policy-making, and able to demand that professional economists conduct economic policy in relation to explicit political and social obligations. The PCES has termed this new approach to the subject ‘Public Interest Economics’ (Earle, Moran and Ward-Perkins, 2017: 150, 154).

The call for a re-think of the way in which economics and economic policy are taught and studied soon spread to the economics profession itself. For example, prominent among the critics of the neoclassical bias in the teaching of economics and the study of economic policy has been Ha-Joon Chang, a Cambridge University academic and author of Economics: The User’s Guide (Chang, 2014). He has reached similar conclusions to those of the PCES, arguing that economics must be understood from a political perspective because ‘It is not -and can never be — a science; there are no objective truths in economics that can be established independently of political, and frequently moral, judgements’. Consequently, when faced with an economic argument, or in our case the study of UK economic policy, one must first ask ‘the age-old question “Cui bono?” (Who benefits?)’ (Chang, 2014: 451).

It is particularly important to ask this question in relation to the UK because economic policy has been based upon the ‘trickle-down’ theory, which in turn is founded upon the inherently political and ideological argument that ‘when given a bigger slice of national output, the rich will use it to increase investments’ - an assumption that has not been borne out by reality (Chang, 2014: 451). Acknowledging that the economy and economic policy is inherently political also means recognising that ‘Political and ethical judgements are present even in ostensibly value-free exercises, such as defining the boundaries of the market’, because ‘Deciding what belongs in the domain of the market is an intensely political exercise’ (Chang, 2014: 452). In short, in methodological terms, there is no such thing as value-free, objective, scientific economic policy. Consequently, one must acknowledge that ‘“Everything factual is already a theory’”, and that ‘facts, even numbers are in the end not objective’ (Chang, 2014: 453).

Second, economics, and with it economic policy, is inherently plural. There is no ‘one-size-fits-all’ approach. Each approach has its strengths and weaknesses. Economic policy, and markets in particular, do require non-market institutions to regulate, stabilize and legitimize them because, as Rodrik has observed, ‘they are not self-creating, self-regulating, selfstabilizing, or self-legitimizing’ (Rodrik, 2007: 156). Third, as Chang has further concluded, the economy and questions of economic policy are ‘much bigger than the market’. Indeed, ‘the economy should not be equated with the market’, especially the orthodox neoclassical conception of the market as ‘a web of exchange relationships’ where individuals and enterprises buy and sell (Chang, 2014: 455). Economic policy is about production as well as market exchanges, an insight which has had particular resonance in the attempt of UK policy-makers since May 2010 to ‘re-balance’ the economy away from an over-dependence upon financial services, debt and consumption and towards manufacturing, exports and private business investment (Lee, 2011, 2015).

Fourth, Chang has concluded that economics and economic policy is far too important to be left to professional economists, whose expertise is far too narrow and contested (not least among themselves). Indeed, he has asserted that ‘the willingness to challenge professional economists — and other experts - should be a foundation of democracy’ (Chang, 2014: 457). After all, not only did technocratic experts singularly fail to forecast the onset and timing of the 2007/8 financial crisis, but they have also openly disagreed about the efficacy of the ‘austerity’ imposed by expansionary fiscal contraction as a means of restoring lasting economic prosperity and healthy public finances. For example, in October 2010 the technocratic experts of the International Monetary Fund (IMF) pointed out that there was no historical evidence that austerity would secure enduring prosperity, at the very juncture when Chancellor of the Exchequer George Osborne was publishing the British government’s 2010 Spending Review, the flagship of its ‘unavoidable deficit reduction plan’ (HM Treasury, 2010; International Monetary Fund, 2010).

For the study of British politics, the campaign to rethink and reform economics amounts to a demand for a return to a focus, not on economics per se, but on political economy, i.e. the relationship between politics and economics, and a rethinking of our understanding of the nature of and relationship between their principal institutional expressions, the state and the market. That demand has already generated some important work that has begun to question not only the conduct of economic policy in the UK, and whose interests have benefited from it, but also some of the central elements of the country’s political economy. This work has included analysis of how money is produced (Pettifor, 2017), the politics of land ownership and housing in England (Ryan-Collins, Lloyd and Macfarlane, 2017; Christophers, 2018; Shrubshole, 2019), the scope for an alternative economic policy (McDonnell, 2018; Coppola, 2019; Montgomerie, 2019) and a challenge to some of the central tenets at the heart of debates about British decline and government programmes to reverse it (e.g. Edgerton, 2018).

Economic policy choices should not be seen as inevitable outcomes, rationally selected by expert technocratic elites, but rather as profoundly political, ideological and moral choices, which must be subjected to democratic scrutiny and public discussion of the tendency of British economic policy, and the political power it reflects, to benefit some individuals, groups and institutions at the expense of others (Lee, 2020). The ideas that influence economic policy are frequently not those of economists but rather the ‘do-it-yourself-economics’ of politicians whose primary motivations are short-term and politically expedient, rather than long-term and economically strategic (Henderson, 1986).

It is in that spirit that the rest of this chapter seeks to evaluate the economic policy choices made in the United Kingdom during the ‘lost decade’.