Nelson Mandela and heterodox economics
The death of Nelson Mandela and heterodox economics don’t have much in common. But I’ve noticed at least one similarity: the relentless focus on the individual. Almost every journalist and politician deifies Mandela, holding him solely accountable for the overthrow of apartheid. It was his 27 years of jail and his dogged pursuit of “justice” which finally did for the apartheid regime.
Not a week goes by without an article or new movement criticising the standard-bearers of mainline economics for their inability to predict the crisis and their continuing silliness. The main targets are academics like Paul Krugman, John Cochrane and Greg Mankiw, who retort that despite its shortcomings mainstream modelling is the best tool we’ve got.
I’d be the first to say that people and ideas matter. Mandela was a hero, and it’s in the nature of his genius that those from across the political spectrum can find something to admire in him – rightwingers, his statesmanship and his ability to forgive; the left, his egalitarianism, perseverance and championing of the dispossessed.
I’ve also been quick to criticise the personalities of standard economics, with their ridiculous assumptions that make their theories so far removed from reality that in many circumstances they are worse than useless. The relentless flood of opposition to these people may help chip away at the edifice, bringing about a more realistic and human form of political economy.
But in both cases individuals and ideas are only responsible for so much; whilst important, at best they’re probably only the conduits through which the flood of history is channelled. Mandela (as many commentators in fairness point out) was the brilliant figurehead of a mass movement which would stop at nothing to dispose of a corrupt, fascistic and brutal regime.
Sooner or later apartheid would have ended, against the backdrop of a hostile global environment and an increasingly unviable economy whose principal beneficiaries could see little hope of long-term prosperity. The white middle and ruling class were not as opposed to democracy as might be supposed. They have benefited most in the ANC era, a time when poverty has remained entrenched and white-black inequality has worsened.
Mandela may be individually more responsible for the success of a social movement than any human being in history, and he may even have single-handedly hastened the end of apartheid, but ultimately he was a man of his time. It’s the interplay of history and personality that make the overthrow of apartheid so interesting – as Marxists and Weberians have long pointed out. Men make history but not in circumstances of their own choosing, you might even say.
Similarly no matter how much the cheerleaders-in-chief for mainstream economics are criticised, their discipline functions to support certain interests. Neoclassical economics isn’t neoliberalism – several leftish economists like Krugman and Simon Wren-Lewis are at pains to point out the anti-austerity credentials of textbook economics – but it does promote a fundamentally individualist, liberal, utilitarian worldview in which people act according to self-interest. This worldview is useful in our existing economic system.
Whatever the heterodox say, the main tenets of finance theory are alive and kicking. I’d even go so far as to say that they “work”, at least within the confines of making short-term money in investment banking if you’re not bothered about the social fallout. As the latest Nobel prize showed, the efficient markets thesis still has currency. It’s pretty much impossible to construct a credit derivative without at least some reference to financial economics. Business schools still teach this stuff because it’s in demand.
Keynes’s general theory was forged in the furnace of the great depression. It was a response to the bankruptcy not just of the banks but of classical economics. Even financiers and industrialists realised that raising effective demand and the possibility of the restoration of full employment were in their interests.
Despite enlightened political economists banging away for decades about the wrong-headedness of the mainstream, and the development of viable alternatives like post-Keynesianism, Modern Monetary Theory and complexity economics, few of these alternatives have made it on to mainstream syllabuses, and they don’t guide policy.
To that extent it’ll probably take a lot more than just criticism of individuals to overthrow mainstream economics, valuable as criticism is. New ideas are also important, and it’s great that certain imaginative political economists are readying them for when the time is right. But their acceptance may depend on which social and economic groups find them useful, and which ideas need replacing. People and ideas make history, but, depressing though it sounds, circumstances matter.