Heterodox Economics Newsletter

Issue 265 June 22, 2020 web pdf Heterodox Economics Directory

While books on economics do regularly become bestsellers, it is a rare occastion to see such a bestseller cover relevant terrain in heterodox economics. And although a series of successful books with heterodox content reached a broader audience in recent years – just think of Mariana Mazzucato's Entrepreunerial State, Kate Raworth's Doughnut Economics or David Graeber's Debt: The first 5.000 years –, the frequency of such occasions is not very high. Hence, it is all the more reason to applaud the efforts of Stephanie Kelton, who seems to have landed such a bestseller with her recent book The Deficit Myth. The book deals with budgets, deficits and the potentials of central banking in the US from an MMT perspective and has found huge resonance in recent weeks. Although some of the more specific claims of MMT are controversially discussed also within heterodox circles, I think that a large majority of heterodox economists would agree that the dominant perception of public deficits in academic economics, political decision-making and public debate is somewhere between 'blurred' and 'distorted' and, hence, that any effort devoted to rectifying this is highly welcome.

While a change in perception on public deficits in the US and beyond seems to be also fuelled by the impact of the Corona-crisis, another important shift in perception is currently taking place in the US, where long-standing racist practices of social segregation and discrimination are now openly challenged on a large scale (see also these statements of solidarity from some heterodox economic associations). In this context, one should remember that the economic discipline has a long tradition, showing not only lack of (respect for) diversity, but also openly questioning the actual relevance of 'discrimination' at all. Just think of Gary Becker's models of discrimination (where discrimination is supposed to vanish because of the beneficial impact of market competition), Thomas Schelling's checkerboard model (which explains spatial segregation of blacks and whites solely in terms of individual preferences) or, most infamously, George Stigler's comments on the Civil Rights Movement in the 1960s published under the title "The Negro problem".

The latter explains the subordinated position of people of color solely in terms of their individual capabilities & characteristics. In doing so, it is a quite cruel example of one of the normative subtleties of mainstream economics, namely the occasional transgression from methodological individualism ('solely individuals matter for analysis') to a crude version of a normative individualism, which allocates the responsibility for any plights fully to individuals and the decisions they make ('solely individual decisions determine well-being'). This routine explains away any structural features causing inequalities and allocates all the burden to the individuals, who obviously make poor choices – otherwise they would not experience any plight at all! The routine is visible when it comes to inequalities in the context of gender (as women are supposed to be too risk-averse to achieve high pay), development (as people in the global south are simply assumed to make poor choices, when not being guided by appropriate incentives or prescriptions), race (see Schelling or Stigler) or unemployment (which is not conceived as a structural feature of capitalism, but as an individual consequence of a lack of education, effort and training). This transgression from the ontological to the normative is still coining mainstream economics, although 'nudging' sounds admittedly less threatening than Stigler's openly racist application of the same underlying principle. But still, the principle is alive and well.

All the best,

Jakob

PS: See also this nice list of suggestions for reforming economics to improve both, diversity in economics as well as the appreciation of structural sources of inequalites in economic analysis.

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