Orthodox economists have failed their own market test | Seumas Milne

Ha-Joon Chang, 1 of the final surviving independent economists at Keynes’s Cambridge: ‘The supporters of neoclassical economics have an practically religious mentality.’ Photograph: Sean Smith for the Guardian

From any rational level of see, orthodox economics is in critical difficulties. Its champions not only failed to foresee the greatest crash for 80 many years, but insisted such crises were a thing of the previous. More than that, some of its major lights played a crucial role in creating the disastrous fiscal derivatives that aided trigger the meltdown in the 1st location.

Plenty were paid propagandists for the banking institutions and hedge funds that tipped us off their speculative cliff. Acclaimed figures in a discipline that claims to be scientific hailed a “wonderful moderation” of marketplace volatility in the runup to an explosion of unprecedented volatility. Other individuals, this kind of as the Nobel prizewinner Robert Lucas, insisted that economics had solved the “central issue of depression prevention”.

Any other occupation that had proved so spectacularly incorrect and caused this kind of devastation would definitely be in disgrace. You may well even envision the free-market place economists who dominate our universities and advise governments and banks would be rethinking their theories and considering choices.

Following all, the big majority of economists who predicted the crisis rejected the dominant neoclassical thinking: from Dean Baker and Steve Keen to Ann Pettifor, Paul Krugman and David Harvey. Regardless of whether Keynesians, post-Keynesians or Marxists, none accepted the neoliberal ideology that had held sway for thirty many years and all understood that, contrary to orthodoxy, deregulated markets will not have a tendency towards equilibrium but deepen the economy’s tendency to systemic crisis.

Alan Greenspan, the former chairman of the US Federal Reserve and higher priest of deregulation, at least had the honesty to admit his see of the planet had been proved “not right”. The identical cannot be mentioned for others. Eugene Fama, architect of the “efficient markets hypothesis” underpinning monetary deregulation, concedes he doesn’t know what “causes recessions” – but insists his theory has been vindicated anyway. Most mainstream economists have carried on as if nothing had happened.

Numerous of their college students, though, have had adequate. A revolt against the orthodoxy has been smouldering for many years and now seems to have gone crucial. Fed up with parallel universe theories that have minor to say about the world they are interested in, students at Manchester University have set up a publish-crash economics society with 800 members, demanding an finish to monolithic neoclassical courses and the introduction of a pluralist curriculum.

They want other schools of economic imagined taught in parallel, from Keynesian to a lot more radical theories – with a much better record on predicting and connecting with the true world economic climate – along with green and feminist economics. The campaign is spreading quickly: to Cambridge, Essex, the London College of Economics and a dozen other campuses, and linking up with university groups in France, Germany, Slovenia and Chile.

As one particular of the Manchester society’s founders, Zach Ward-Perkins, explains, he and a fellow pupil agreed soon after a 12 months of orthodoxy: “There need to be a lot more to it than this.” Neoclassical economics is soon after all developed on a conception of the economic system as the sum of the atomised actions of millions of utility-maximising men and women, exactly where markets are stable, details is excellent, capital and labour are equals – and the trade cycle is bolted on as an afterthought.

But even if it struggles to say something meaningful about crises, inequality or ownership, the mathematical modelling erected on its half-baked intellectual foundations give it a veneer of scientific rigour, valued by students aiming for nicely-paid City jobs. Neoclassical economics has also presented the underpinning for the diet program of deregulated markets, privatisation, lower taxes on the wealthy and totally free trade we were informed for thirty many years was now the only route to prosperity.

Its supporters have an “practically religious mentality”, as Ha-Joon Chang – a single of the last surviving independent economists at Keynes’s Cambridge – puts it. Despite the fact that claiming to favour competition, the neoclassicals will not tolerate any themselves. Forty many years in the past, most economics departments were Keynesian and neoclassical economics was derided. That all altered with the Thatcher and Reagan ascendancy.

In institutions supposed to foster debate, non-neoclassical economists have been systematically purged from economics faculties. Some have located refuge in company schools, growth scientific studies and geography departments. In the US, corporate funding has been essential. In Britain, peer evaluation by means of the “research excellence framework” – which allocates public investigation funding – has been the principal mechanism for the ideological cleansing of economics.

Paradoxically, the sharp boost in pupil fees and the marketisation of greater schooling is producing a pressure point for college students out to overturn this intellectual monoculture. The cost-free marketeers are now getting industry-tested, and the clients will not want their solution. Some mainstream academics realise that they may possibly have to compromise, and have been colonising a Soros-funded project to overhaul the curriculum, hoping to restrict the scale of alter.

But modify it should. The cost-free-market orthodoxy of the previous three decades not only assisted create the crisis we’re residing via, but gave credibility to policies that have led to slower growth, deeper inequality, greater insecurity and environmental degradation all more than the globe. Its continued dominance right after the crash, like the neoliberal model it underpins, is about electrical power not credibility. If we are to escape this crisis, the two will have to go.

Twitter: @SeumasMilne

Orthodox economists have failed their own market test | Seumas Milne