Tag Archives: neoclassical theory

The Nature of the Beast: eBook now available

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The Nature of the Beast: how economists mistook wild horses for a rocking chair.

Mainstream free-market economics fundamentally mis-identifies the nature of market economies.  Its record is of retarded growth followed by disaster.  It counts costs as positives instead of negatives.  It is blind to how the present banking system destabilises the economy.  It is relentlessly materialistic and adversarial.  It ignores most of what we know about real people and the real world.

The result is pseudo-scientific gobbledygook, and the unstable, inequitable, undemocratic, destructive and unsustainable mess known as the global economy.

The Nature of the Beast draws out the real nature of market economies using modern knowledge of systems, human behaviour, ecology, biology and physics.  It points the way to stable, prosperous, democratic market economies that can support people, societies and the living world into the indefinite future.

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Bad theory, Bad Practice – Bad Ethics

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[ The three earlier posts “How free-market fundamentalists are hopelessly wrong” are extracted from a paper that is now published by the World Economics Association in an on-line conference on Economics in Society, the Ethical Dimension.  The full text of the paper follows, covering more deficiencies of the mainstream and some new modelling illustrating a more useful approach.   A pdf can be downloaded here (300 kb) ]

A profession that claims to understand economies, and that has gained power over the greater part of our societies, has big responsibilities.  The fundamental responsibility is to ensure its perception of economies gives some useful guidance to the behaviour of real economies.  Here mainstream economics fails utterly, and has been failing for a long time.  Worse, it actively resists alternative views that might overcome its failings.  Ethics do not come much worse than that.

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How Free-Market Fundamentalists are Hopelessly Wrong, III: money, debt and blindness

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Part I presented the evidence that economies in the free-market era delivered only mediocre performance before crashing in the disastrous Global Financial Crisis.  Part II showed how the standard theory of free markets bears no useful resemblance to real economies, and its application amounts to pseudo-science.

Returning to the GFC now, there is a particular reason free-market economists claim the GFC was unforeseeable:  debt and money play no role in their standard equilibrium economic models.  They claim one person’s debt is another person’s asset, and so aggregate “demand” is not affected by debt.  This would be true in a barter economy, or if the banking system was based entirely on savings, for only in those cases would the extra purchasing power of the borrower be balanced by the reduced purchasing power of the depositor.

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How Free-Market Fundamentalists are Hopelessly Wrong, II: the theory

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In Part I we saw that readily available evidence shows clearly that economic performance in the free-market era that began around 1980 was already poor, even before the disaster of the Global Financial Crisis.  Here we look at the theory that underlies the free-market rhetoric, the so-called neoclassical theory.

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The Nature of the Beast manuscript available on request

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A complete manuscript of The Nature of the Beast is available for comment.  It is under a password, so as not to upset potential publishers, and so I can keep track of who is looking at it.  I would love to have feedback of any kind.

Use the Books and Downloads menu above, or go here.

A sample, the first 16 pages, can be downloaded without password.

Fundamental Flaws in Economic Thinking and Practice

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[After a 6-month break I have returned to working on The Nature of the Beast. A new version of Chapters 1-4 is available for download and comment – use the links at the top. More will follow soon. To whet your appetite, here is a sample, from the Introduction.]

The Global Financial Crisis, also known as the Great Recession, is the biggest economic malfunction since the Great Depression. You might think that those in charge when it happened, and those who designed the economic system within which it occurred, would have been chastened and purged, to be replaced by those who saw the crash coming and those who warned that the design of the economic system was prone to such failures.

However few of those responsible have been purged, and few seem to have felt chastened. Rather, they claim that no-one could have seen the crash coming. If that were true, what exactly has the economics profession been doing for the past eighty years? Everyone knows there was a Great Depression. Would it not be a top priority to figure out how it happened, so we might see the next one coming, or better still avoid the conditions that would trigger a depression? One might think so, but that is not how the great bulk of the profession has spent the past eighty years.

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The Value of Simple Models, with Examples of Economic Dynamics

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[This is posted in the new Category Economics, Technical]

[Published 14 March at Real World Economics Review Blog.  Also posted 12 March at Steve Keen’s Debtwatch]

Many people, including many heterodox economists, understand that the neoclassical equilibrium approach to understanding economies is futile and misleading [1], because modern economies are far from equilibrium.  The neoclassical prediction of equilibrium or near equilibrium requires a string of patently absurd assumptions.  However the development of better theories seems to be significantly hindered by a feeling that any superseding theory has to be thoroughly quantified before it can be useful, and a feeling that the neoclassical theory has set a benchmark for sophisticated mathematics that must be matched before another theory can be respectable.  Less fundamentally there seems to be a common perception that empirical insights can only be gained through elaborate statistical treatments of observations.

Here I offer some discussion from my experience as a natural scientist, and some examples regarding the Global Financial Crisis, to counter these hindrances.  Continue reading →

The Nature of the Beast (Post)

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[This post is addressed to fringe economists and others who have broken with ever-more dysfunctional mainstream neoclassical economics, but who still search for a replacement paradigm.]

[2 Aug:  Posted on Real-World Economics Review Blog.]

The need for a new conception of economics is widely acknowledged in the wake of the global financial crisis[1], at least outside of diehard neoclassical circles.  However a common perception seems to be that no adequate and coherent general conception is in sight, though many loosely related or unrelated heterodoxies vie for attention, as noted by the Editor of Real World Economic Review blog.  I argue here that when the subject is approached from the point of view of dynamical systems a broad new framework becomes evident.  Furthermore, once the nature of the beast is identified, some fundamental conclusions can immediately be drawn.

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The Underlying Crisis in Economics – Mistaking the Beast

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Extracts from Economia.

The writing of Economia was essentially completed in 2003.  It was obvious then that the global financial system must come to crisis within a few years.

The Global Financial Crisis, serious as it is, is only part of a deeper crisis reaching to the core of how modern economies are conceived and managed.  The problem is not just that financial markets have acquired excessive power and are greedy, corrupt, unstable and destructive.  It is not even that the GFC has not yet shown us its worst, as Steven Keen argues (Declaring victory at half time).  It is that mainstream economists have fundamentally mis-identified the nature of the beast they are dealing with.

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