Douglas Dowd, Capitalism and its Economies: A Critical History (Pluto Press, 2000), 319 pages, $24.95 paper.
Mainstream economics, whether of the neoclassical or the Chicago School variant, continues to flourish. Infatuation with "market forces" and hostility to the state seem to be all the rage. Most mainstream economists decry "rent-seeking" in the public sector and find theoretical justification through their theory of "public choice" for one of their most powerful pet ideas: The state should be stripped to the bare-bones "Watchman State" advocated by Milton Friedman in his classic screed, Capitalism and Freedom. Rational Expectations theory, an article of faith for the true believer of conventional economics, denies that either the Federal Reserve System or the Federal Government can help steer the macroeconomy. According to Rational Expectations theory, apparently, the Nasdaq stock index in March 2000 was about right, and the Nasdaq in April 2001 was also about right. The fact that the index has dropped by 66 percent, wiping out trillions of dollars of supposedly "rational" bets on the future earnings/prices of "new economy" stocks has yet to be explained by these gurus. Meanwhile, faddish as always, the mainstream has recently become enamored with "free trade"--as long as this means the free mobility of capital. NAFTA. championed by virtually all major mainstream economists in 1993, was to result in balanced trade (or a surplus in favor of the United States) which would be "win, win" for the United States and Mexico. In Mexico, since 1993, wages have dropped precipitously, contrary to predictions of the mainstream economists. Meanwhile, in the United States the NAFTA deal had effectively eliminated 316,000 jobs in manufacturing and construction in 1999, due to both the impact of the trade deficit and the shifting of U.S. capital and production facilities to Mexico.
Mainstream economists do not care about the above; they do not care about effective policies of the state, nor are they concerned with the downdraft from the implosion of the "New Economy." NAFTA was merely an event which created some opportunities to try out new econometric models and arcane twists on neoclassical theory. Conventional economists do not care about the distribution of income, or the fact that in the past thirty years income inequality has widened at a breakneck pace. Markets "reward" the deserving. Income distribution reflects effort, risk, prudence, "waiting," and the entrepreneurial ethos. As long as we "get prices right"--and "market forces" unrestricted by government regulation will get prices right--market outcomes will be optimal. (Of course there are--rarely though--"market failures" which could necessitate a bit of control on the market. But beware! The cure--limited regulation--could likely prove, through "government failure," far worse than the disease.)
Most conventional economists, at least in the United States, do not care about economics. (1) How could they? More and more, a "good economist" is defined by the "economics profession" as someone with daunting mathematical skills. Where do "good economists" come from? More and more they are failed mathematicians who shift to economics (it's easy!) after they have picked up a B.A. and maybe an M.A. in math. If you cannot stuff "it" into an equation or a model, chances are the "good economist" cannot conceive of "it" as economics. Since most of what could be generously described as "macroeconomics" is extremely difficult to present in a sterile system of equations, mainstream economists are now impatient with it. They would prefer to get rid of macro and focus on "applied microeconomics," where one can answer stilted questions with the tools of constrained optimization. As the classical economists (Adam Smith, David Ricardo, Karl Marx) understood the matter, economic analysis depended upon a careful reading of history, the understanding of social forces, a shrewd assessment of political tendencies, and ultimately, a careful diagnosis of power. …