Modern Political Economics: Introduction

I am currently reading “Modern Political Economy: Making sense of the post-2008 world” by Yanis Varoufakis, Joseph Halevi and Nicholas Theocarakis, published in 2011 by Routledge. In this and next posts I will collect my comments, chapter by chapter. These notes also form the foundation for a reading club initiated at Queen’s University Management School at Belfast.

This volume consists of two “books”. The first book reports on the theories developed by some of the major historical economic thinkers. Their ideas are discussed in the context of their contemporary socio-economic environment and assessed in the light of the financial crisis of 2007-08 and its aftermath. The second book develops a view of the world that was also debated in the single-authored book by Varoufakis on “The Global Minotaur”. This book was a more popular account of this world view.

The discussion of historical thinkers in Book I is centred around the theme of Inherent Error as the main deficiency of economics. As such economics is not really a science, but more a pursuit that always will remain unfulfilled. The notion of inherent error essentially refers to the impossibility of telling a credible story about how economic values (prices) are determined in a complex growing economy.

Unfortunately, the authors do not really build a convincing explanation why this is the case. Of course, if one knows the cause of this inherent deficiency, then one can remedy it. The main argument seems to be that economists are fully embedded in their subject and cannot take a fully objective external position in relation to its object of study as is the case with the natural sciences. But this remains a rather unsatisfactory argument. Is it really impossible to device a theory of value that would be outside the governance system of the economy without in turn affecting the growth patterns of this economy? I hope to have more insight after reading the subsequent chapters.

Nevertheless it seems true that economic reasoning is subject to this inherent error and its consequences. None of the theories and models developed in economics are fully inclusive and have full explanatory power; there always remain deficiencies and holes that require patching. In this regard economics is subject to its own incompleteness problem in the sense of Goedel. Similarly, it is subject to amnesia, since economists apparently lose valuable insights from previous generations. This is a secondary theme that runs through Book I of this treatise. In that regard economics does not seem to make true progress.

I want to add to this a third deficiency that has been pointed out by multiple authors which is closely linked to the perceived inherent error: Economics is dogmatic and is more akin to religion than science. (Backhouse, 2010) This is actually shown in the absolute lack of responses to the main economic events in the past decades, in particular the financial crisis of 2007-08 and it’s aftermath. Instead of throwing out most of our theories as complete drivel, economists just continue as if nothing has happened. The unresponsiveness of economics shows that it violates the most basic of scientific processes.

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