The Death of Economics
by Paul Ormerod
Faber: London, 1994
ATTACKS ON the practice and profession of economics are not new to Australians. For some years now we have seen a succession of books and conferences denouncing, in particular, the evils of 'economic rationalism'; a crusade now joined by Brian Toohey's Tumbling Dice, which adds economic modelling to the list of heresies. It is, therefore, interesting to have a British book which seems to belong to the same line of debate. Despite the title, however, be Death of Economics is very different from its Australian predecessors. It is written from inside the profession, by one who appears to have an impressive command of the technicalities of his discipline. It will give some comfort to the anti-rationalists, certainly; and irritate some of their betes noires. It is in the end, nevertheless, a plea for better economics, rather than an irrational demand to give up economics altogether.
Perhaps the title was wished on Ormerod by his publishers. It is certainly misleading, in that it is not about the 'death' of economics at all -- perhaps rather, if Ormerod had his way, a rebirth of economics.
The book is directed at the public policy debate in general, rather than at fellow economists. It is for the most part clearly and forcefully written, at about the same level, say, as an Economist briefing; and though economists will find it much easier going, it is accessible to determined non-specialists.
MUDDLED MODELLING: Ormerod's argument, very briefly is that much of economic practice is flawed. He believes in particular that the theory and practice of economic modelling (and hence much of the economic policy advice based on such modelling) are widely astray, because of the extent to which that practice depends on competitive equilibrium theory. It is that which enables economists to say what happens when one part of a given set of economic circumstances changes, moving from one notional point of equilibrium to another. Ormerod believes, strongly, that it is a theory which cannot bear close scrutiny. That leads into the most interesting section of the book, in which Ormerod tries to explain why linear mathematical models are of limited usefulness for complex phenomena such as economic behaviour, and why non-linear theory (now becoming familiar to laymen in its 'chaos-theory' guise) offers a more useful starting place for better theory and practice.
Ormerod illustrates his thesis by a discussion of unemployment, showing how unemployment levels tend to fluctuate quite closely for some years around notional 'attractor points' until an economic show moves the point, up or down, to provide a new focus. His point here is that the traditional economic measures (such as demand management) will affect only the oscillations; what is needed is a way of shifting the attractor points. He goes on to offer his own minimal non-linear model of the macro economy -- the details of which we can leave to professional economists.
Economist and non-economists alike will find much to chew over in all this.
NARROW FOCUS: The focus on varieties of economics is remarkably narrow. The reader would never guess that there are whole schools of economics which do not share the theoretical framework which Ormerod so forcefully criticizes. No single economist of the 'Austrian' school, for instance, is mentioned. And many 'free market' economists would be surprised to discover that their preferred approaches are alleged to depend intimately on competitive equilibrium theory.
Indeed, it has to be said that Ormerod, in concentrating so heavily on equilibrium theory, gives a rather skewed picture of the huge range and wealth of economics as a discipline. In fact, his views of the pitfalls of modelling would be shared by many economist; his critique is not quite the solitary voice in the wilderness that his tone would have us believe. In Australia, may practising economists are very wary of the applicability of any thing much beyond the classical micro level -- and for reasons which have as much to do with politics as economics. …