Timothy Aine’s Post

As a Master's student in Applied Economics, I came across an enlightening article by Angus Deaton called "Rethinking My Economics." It challenges our understanding of markets, emphasizing the importance of power dynamics in setting prices and wages, and how these influence inequality within capitalism. Deaton calls for a revival of ethics and philosophy in economics, urging us to think beyond income-based utilitarianism and consider what truly constitutes human well-being. This perspective is crucial for us as future economists, as it shapes how we approach economic efficiency, social justice, sustainability, and individual liberty. This article is not just an academic read; it's a call to action for economists to introspect and adapt. As we delve deeper into our studies, we should be inspired to contribute to an economic paradigm that values both efficiency and equity. #RethinkingEconomics Check out Deaton's article below:

Changing your mind as a public figure is difficult. So I can't image how difficult it must be for Angus Deaton, an Economics Nobel Prize winner, to change his mind about the effectiveness of the profession of economics. As a former (frustrated) economics major, I am SO glad someone has spoken up. In the latest IMF magazine, Angus Deaton argues: 🏆 Economics doesn't understand how power influences the allocation of resources (its not just free market) 👩👩👧👦 Economics over indexes on individual free market choice and fails to take into consideration of community, families ,impact on decision making 💸 Equating well-being solely to money or consumption 📐 Econometrics is not so great processing potentially important but slow-acting variables that operate with long and variable lags He also says he was once against unions and that globalization and migration was a good thing. He has second thoughts on both topics now. The 19-year old economic undergrad student in me feels heard. 🔗

For almost a decade, we at the Dutch foundation Our New Economy have been advocating for a more diverse perspective in economics (pluralism). While change is occurring, it is progressing at a rather gradual pace, particularly at the highest levels. Two days ago, the editorial board of the Financial Times published an excellent op-ed titled 'Is economics in need of trustbusting?' and subtitled 'An elite closed shop of economists at US universities sparks concerns over groupthink.' A recent study of Nobel laureates suggests that power in economics may be too concentrated. The editors argue that this is problematic because 'there is no shortage of criticisms to lay at the profession’s door' and advocate pluralism as the way forward: 'It is said that success has many parents, while failure has none. The opposite is the case for the economics profession: its shortcomings are what economists would call “causally overdetermined” — many factors could be to blame. A less concentrated economics could just mean more dispersed failure. Still, the principle that more pluralist systems are better and faster at self-correcting is worth holding on to, in business and knowledge production alike.' I agree wholeheartedly. Let's hope it will happen soon!

An Interesting article in the FT introduces new titles in Economics. It begins with an interesting statement...... "Human discovery has been driven by a desire to sort and simplify the world. But our ability to navigate the future will be increasingly determined by how we handle its complexity. Adam Smith, the father of economics, described the economy as a complex system. Yet the study of social science that emerged after Smith wrote his 1776 opus The Wealth of Nations was largely about modelling the decisions of rational actors in simplified settings. That served its purpose, but as our economies have become more complex, parameters that were considered well-defined are no longer so. We are more interconnected; technological change is exponential; our climate and environment are changing faster than we can adapt. In recent years, complexity economics has risen as a response. Three new books help outline how we can respond." So despite Adam Smith recognising the economy is a complex system centuries ago, the discipline of has taken a very long time to wake up to the fact. And, whilst I agree with most of what the journalist says, I disagree with the suggestion that the path economics went down - largely about modelling the decisions of rational actors in simplified settings - has "served its purpose," unless its purpose was something other than serving society which it has done very badly. And I suggest the economist Ha Joon Chang was absolutely right when he said, "economics is far too important to be left to the economists." https://lnkd.in/eW2rW9GC #economics #systemsthinking #complexity #chaostheory

The International Monetary Fund dedicated its Finance & Development issue of march 2024 to Rethinking Economics: How Economics must change. The economists that contributed to this march 2024 issue, provide a sobering account of a discipline in disarray and, I would say, to some extent in a collective delusion. There is plenty of room for more pluralism in Economics teaching.   I highlight some passages of articles from Angus Deaton, Jayati Ghosh and Diane Coyle   Angus Deaton -  "Our emphasis on the virtues of free, competitive markets and exogenous technical change can distract us from the importance of power in setting prices and wages, in choosing the direction of technical change, and in influencing politics to change the rules of the game."   "We are technocrats who focus on efficiency. (...) When pressed, we usually fall back on an income-based utilitarianism. We often equate well-being to money or consumption, missing much of what matters to people. In current economic thinking, individuals matter much more than relationships between people in families or in communities."   "After economists on the left bought into Chicago’s deference to markets—”we are all Friedmanites now”—social justice became subservient to markets and a concern with distribution was overruled by attention to the average, often nonsensically described as the “national interest.”   Jayati Ghosh "The original sin could be the exclusion of the concept of power from the discourse, which effectively reinforces existing power structures and imbalances. Underlying conditions are swept aside or covered up, such as the greater power of capital compared with workers; unsustainable exploitation of nature; differential treatment of workers through social labor market segmentation; the private abuse of market power and rent-seeking behavior; the use of political power to push private economic interests within and between nations; and the distributive impacts of fiscal and monetary policies."   Diane Coyle “In the middle decades of the 21st century, nature will be the binding constraint. Economists must make a major effort to develop natural capital statistics, devise new ways of measuring the social cost of nature’s services, and above all integrate the analysis of the human economy and nature in a meaningful way rather than relegating the issue to isolated “externalities.”

“Without an analysis of power, it is hard to understand inequality or much else in modern capitalism.” Angus Deaton, winner of the Nobel prize in economics That’s why I did my PhD in political science (which is all about studying power) rather than economics. As I often tell my students, economics (generally) seek to discover and explain how the economy should work. Political economy, which is what I studied (and it does require a deep understanding of economics too), seeks to discover and explain how the economy actually works (i.e., why many policies that economists generally advocate don’t get adopted). That’s why the concept of “political will” is meaningless. Saying that the absence of political will explains why the “right” or “good” economic policy was not adopted by political leaders is equivalent to people saying that someone eats/drinks/smokes/shops/gambles/games too much because they lack the will to control themselves. To make sense of the excessive behaviour, we need to unpact the factors that cause it. It’s the same for policy-making. One needs to unpack the politics of any government policy decision.

Economists should listen to Angus Deaton's wise words and read historians a lot more than they currently do! : https://lnkd.in/eTjVH73C? "Historians, who understand about contingency and about multiple and multidirectional causality, often do a better job than economists of identifying important mechanisms that are plausible, interesting, and worth thinking about, even if they do not meet the inferential standards of contemporary applied economics."

This is what economics now does. It tells the young and susceptible and the old and vulnerable that economic life has no content of power and politics because the firm is safely subordinate to the market and to the state and for this reason it is safely at the command of the consumer and citizen. Such an economics is not neutral. It is the influential and invaluable ally of those whose exercise of power depends on an acquiescent public...Neoclassical economics...sees the unmanaged sovereignty of the consumer, the ultimate sovereignty of the citizen, and the subordination of the firm to the market as the three legs of a tripod on which it stands. These are what exclude the role of power in the system. Economics, so long as it is thus taught, becomes, however unconsciously, a part of an arrangement by which the citizen or student is kept from seeing how he is, or will be, governed. This does not mean that economics now becomes a branch of political science. That is a prospect by which we would rightly be repelled. Political science is also the captive of its stereotypes—including that of citizen control of the state. Also while economics cherishes thought, at least in principle, political science regularly accords reverence to the man who knows only what has been done before. Economics does not become a part of political science. But politics does—and must—become a part of economics. The men who guide the modern corporation, including the financial, legal, technical, advertising, and other sacerdotal authorities in corporate function, are the most respectable, affluent, and prestigious members of the national community. They are the Establishment. Their interest tends to become the public interest. It is an interest that even some economists find comfortable and rewarding to avow. "Foucault points out that there are constantly shifting boundaries which police what can be said within a specific discipline. Within a discipline, there are propositions recognised as true or false and beyond a discipline, there is an endless field of ideas which are utterly forbidden." https://lnkd.in/dXhbdXVz

#economics #nobelprize For as long as I remember since my graduate school days when I began studying both engineering and political science at the graduate level at the same time in 1992, an unusual graduate melange, I was a critic of economics. My first brush with the subject was in early childhood in India when one of my many paternal aunts was a professor of neoclassical economics. I would quietly listen to my trade unionist banker father and his economist sister argue about economics. She recently retired in Mumbai as chair of an economics department in a local college after teaching the subject for over 40 years. After that, in high school I took a course in economics and did a well received thesis on money and monetary institutions. When I was in college studying engineering, I helped my mother obtain her undergraduate degree in politics, economics, and public administration as an adult student and I would learn her subject matter and teach her economics. Then I was married to one for 18-1/2 years, now an accomplished economist at International Monetary Fund. We have been separated, divorced, and out of touch for 14 years. For a large part of my marriage, I also worked as an analyst supporting Federal Reserve Board economists in fiscal analysis for 8 years from 2002-10. To help me do my job at the Fed better, I obtained a graduate degree in Applied Economics at The Johns Hopkins University. While Angus Deaton in a long tradition of internal critique of the economics profession which began with John Maynard Keynes, Friedrich Hayek, Kenneth Arrow, Amartya Sen, Nicholas Georgescu-Roegen, Herman Daly, George Akerlof, Joseph Stiglitz, Jagdish Bhagwati, Jeffrey Sachs, Dani Rodrik, and Thomas Piketty keeps the critique to itself, I have noticed that lately economics has become even more intolerant of not only external criticism but internal dissent. Internal dissent in commonplace in politics and the law. Not so in economics. To make it worse, these economists teach aspiring managers and leaders in business schools. The economic orthodoxy practices excommunication and exorcism by the many tribes of its highly siloed cathedral. In doing so, it is excommunicating and exorcising the divine from its culture of satanism, while the Catholic cathedral of the Vatican does the converse. Before the Catholic cathedral of indulgences in the economic sciences can reform itself into legitimate economic Protestantism, perhaps at least first the cathedral can flip itself upside down to exorcise satanism within its ranks with divinity in a return to the moral philosophy of Adam Smith to understand the bazaar about which it needs to pontificate better.

Austrian Economics is a school of economic thought that emphasizes individual action, subjective value, and the role of time and uncertainty in economic decision-making. Here are some key points about Austrian Economics: It originated in Vienna, Austria in the late 19th century, with Carl Menger as its founder. Austrian economists believe in methodological individualism, focusing on how individual choices drive economic phenomena. They emphasize the subjective theory of value, arguing that the value of goods and services is determined by individual preferences rather than any inherent quality. Austrian Economics is skeptical of mathematical modeling and empirical testing in economics, preferring logical deduction from basic principles. It strongly advocates for free markets and minimal government intervention in the economy. The school has made significant contributions to theories of entrepreneurship, capital, and business cycles. Austrian economists are often critical of central banking and advocate for sound money policies, sometimes supporting a return to the gold standard. Key figures in the development of Austrian Economics include Ludwig von Mises and Friedrich Hayek. While influential in certain circles, particularly among libertarians and some conservatives, Austrian Economics is considered heterodox and has faced criticism from mainstream economists for its methodology and some of its conclusions.