Bill Mitchell-en Falling enrolments in mainstream economics programs is a desirable outcome1
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(i) Irakasten dena
When you first start to study economics, particularly at universities, you are forced to rote learn and accept a very curious set of assumptions about human behaviour.
You are also urged to accept, rather berated to accept, that economics is a ‘value-free’ area of study. That is, the principles that are espoused are allegedly, independent of human values. You are told there is a clear-cut difference between so-called objectivity (‘value-free’) and subjectivity, which is the messy world of emotions, values, morals and the like – ‘shoulds’ rather than ‘what is’.
It is of course a false distinction. Anything seen through a human lens, by definition, is tainted by our subjective beings.
To try to discourage us from seeing that, and to make it look as though economics is a ‘scientific’ discipline along the lines of the physical sciences, students are told that the goal of individuals, who are assumed to be infinitely rational, is to always maximise utility or, self-interest.
By acting in this fiercely independent fashion, the pursuit of our own greed, produces the best outcomes for everyone. Once we deviate from the maximisation of our own greed, or, more to the point, are prevented from doing so by government regulation, then everybody suffers diminished outcomes.
Moreover, individuals make these rational, maximising decisions on the basis of full and relevant information, which extends from today to infinity. Indeed, many economics papers will assume the choices are made by an ‘infinitely-lived’ agent (individual).
For example, in graduate studies students will be introduced to so-called transversality conditions, which dominate decision-making over the course of one’s lifetime (so-called intertemporal optimisation).
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(ii) Defizit fiskalak
I am sorry if you don’t follow it. Most students don’t. They just rote learn it to pass exams but, importantly, pick up the subjective message of the exercise:
– that fiscal deficits have to be paid back via higher taxes or lower government spending in the future and that imposes costs on all of us.
– that is, fiscal deficits are bad and should be avoided.
This is tied in with notions that as individuals (either as household decision makers or in our capacity as decision makers within business firms) we engage in behaviour that offsets any fiscal interventions that the government impose on us.
The best known example of this nonsense in the mainstream narrative is the so-called Ricardian Equivalence which builds on the so-called Rational Expectations concept in economics.
I considered these issues in this blog – The myth of rational expectations
(iii) Itxaropen arrazionalak
The Rational Expectations (RATEX) literature, which evolved in the late 1970s, claimed that government policy attempts to stimulate aggregate demand would be ineffective in real terms but highly inflationary.
People (you and me) anticipate everything the central bank or the fiscal authority is going to do and render it neutral in real terms (that is, policy changes do not have any real effects).
So attempts by government to expand the economy and reduce unemployment via increases in the discretionary component of the fiscal deficit will lead to accelerating inflation because agents predict this as an outcome of the policy and build it into their own contracts.
In other words, they cannot increase real output with monetary stimulus but always cause inflation.
RATEX theory claims that individuals (you and me) essentially know the true economic model that is driving economic outcomes and make accurate predictions of these outcomes with white noise (random) errors only. The expected value of the errors is zero so on average the prediction is accurate.
Everyone is assumed to act in this way and have this capacity.
For example, if the government announces it will be expanding the deficit and adding new high powered money, we will also assume immediately that it will be inflationary and will not alter our real demands or supply (so real outcomes remain fixed). Our response will be to simply increase the value of all nominal contracts and thus generate the inflation we predict via our expectations.
(iv) Baliokidetasun Ricardiarra
Ricardian Equivalence goes one step further. It assumes that we know the government has to pay back any deficit with higher taxes in the future – and we know the quantum that will be involved. As a result, we reduce our consumption spending (increase our saving) so as to exactly create a sum in present value terms that is exactly equal to the present value of all future deficits.
So government net spending increases as our spending declines – no change in spending. Less extreme versions of the theory maintain that the non-government offsets might be partial. Some say, the offsets overshoot – so the economy goes backwards if governments increase their spending.
The whole idea that the IMF and others paraded during the GFC of a ‘fiscal contraction expansion’ was predicated on the offsets being greater than 1. In other words, if government engaged in ‘growth-friendly’ austerity (cutting their net spending) then the non-government sector would increase its spending by more than the cuts in public spending and, as a result, total spending would rise and economies would resume growth.
We know from experience that none of that happened.
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Ondorioak
Of course, even if the level of literacy was higher, the sort of decision-making framework claimed to determine individual choices is still pie-in-the-sky sort of stuff.
But it serves its purpose as an ideological construct creating a narrative that is anti-government and allows policy to maintain mass unemployment and diminished well-being.
