Rethinking My Economics

By: Angus Deaton (International Monetary Fund)

The field of economics has achieved significant milestones, boasting expansive repositories of intricate theoretical frameworks and compelling empirical evidence. Within the profession resides a wealth of knowledge and understanding. However, contemporary economics finds itself in a state of disarray. The profession failed to foresee the financial crisis and may have inadvertently exacerbated it due to an unwavering faith in market efficacy, particularly within the realm of financial markets, whose complexities were not as well understood as previously assumed. Recent macroeconomic anomalies have sparked heated debates among experts, marked by a pervasive atmosphere of dissent where agreement is primarily found in the criticism of others’ perspectives. Notably, even Economics Nobel Prize laureates have engaged in public denouncements of each other’s work, much to the dismay of those in scientific fields where accolades are typically reserved for precision and accuracy.

Reflecting on these dynamics, many, including the author, have undergone a process of intellectual reassessment—a discomforting experience for seasoned economists with decades of practice. While acknowledging the prevalence of corruption allegations within certain debates, it’s conceivable that economists, having prospered substantially over the past half-century, could be accused of harboring vested interests in the status quo of capitalism. It’s important to note that the discussion herein primarily pertains to the mainstream perspective, recognizing the existence of numerous nonmainstream voices within the discipline.

One notable critique centers on the oversight of power dynamics within economic analysis. The emphasis on the virtues of free markets and exogenous technical changes often diverts attention from the pivotal role of power in shaping economic outcomes, including the setting of prices and wages, directing technical progress, and influencing political frameworks—a critical omission hindering the comprehension of modern capitalism’s inherent inequalities.

Moreover, contemporary economic discourse has largely abandoned philosophical and ethical considerations, departing from a tradition that spans from Adam Smith to John Maynard Keynes. Economists today often operate as technocrats fixated on efficiency, with minimal engagement in discussions about the broader ends of economics or the complexities of human well-being. Instead, well-being is typically reduced to monetary or consumption metrics, neglecting crucial aspects of human experience such as relationships within families and communities.

Efficiency, while undeniably significant, is frequently prioritized at the expense of other societal objectives. Many economists adhere to Lionel Robbins’ definition of economics as the allocation of scarce resources among competing ends, advocating for a focus on efficiency while relegating equity concerns to non-economic actors. However, this approach often leads to recommendations that exacerbate societal inequalities, prompting a reevaluation of the balance between economic efficiency, social justice, and individual liberty—an issue Keynes famously highlighted. Unfortunately, the increasing deference to market mechanisms, exemplified by the ubiquitous “we are all Friedmanites now” mentality, has subordinated social justice concerns to market imperatives, undermining equitable distribution in favor of vague notions of the “national interest.”

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