Are financial markets efficient or not? What sort of capitalism best suits a post-crisis world? What should economists learn at university? Do we need a new paradigm to challenge neo-liberal market fundamentalism?
I couldn’t care less. These questions are all invitations to “big think”. But, for me, economics is not about grandiose ideas, but about detailed, empirical answers to smaller questions.
Take two examples.
1. When Vince Cable said that capitalism “kills competition where it can”, some claimed he was obviously right, and others that he was obviously wrong. But this is an empirical matter: is there a long-run trend towards a greater or lesser degree of monopoly? And the answer seems: neither. The powerful forces towards monopoly are more or less balanced out by powerful forces towards competition.
2. Will big cuts in the deficit jeopardise growth? This is not a question of whether Keynes was “right” or not. Instead, the question is: are the mechanisms through which deficit reductions (pdf) can stimulate economic growth likely to work here and now? My view, FWIW, is: probably not.
Now, my leftist readers might reply that this “small-think”, empiricism has a conservative bias.
Rubbish. The serious challenge to market fundamentalism comes not from airy-fairy theorizing - any fool can do that - but from empirical evidence showing that people are not wholly rational and selfish and that (some) markets do fail. And as I try to show sometimes, apparently low-level empirical studies can sometimes have very radical implications.
So, let’s forget big ideas. Look after the small ideas, and the big ones will take care of themselves.
I couldn’t care less. These questions are all invitations to “big think”. But, for me, economics is not about grandiose ideas, but about detailed, empirical answers to smaller questions.
Take two examples.
1. When Vince Cable said that capitalism “kills competition where it can”, some claimed he was obviously right, and others that he was obviously wrong. But this is an empirical matter: is there a long-run trend towards a greater or lesser degree of monopoly? And the answer seems: neither. The powerful forces towards monopoly are more or less balanced out by powerful forces towards competition.
2. Will big cuts in the deficit jeopardise growth? This is not a question of whether Keynes was “right” or not. Instead, the question is: are the mechanisms through which deficit reductions (pdf) can stimulate economic growth likely to work here and now? My view, FWIW, is: probably not.
Now, my leftist readers might reply that this “small-think”, empiricism has a conservative bias.
Rubbish. The serious challenge to market fundamentalism comes not from airy-fairy theorizing - any fool can do that - but from empirical evidence showing that people are not wholly rational and selfish and that (some) markets do fail. And as I try to show sometimes, apparently low-level empirical studies can sometimes have very radical implications.
So, let’s forget big ideas. Look after the small ideas, and the big ones will take care of themselves.
Ahem.
'An extremist, not a fanatic' it says at the top of your blog. And you often remind us of your debt to Marxism - surely a classic example of 'Big' thinking ?
Marxian influenced economists - never mind those who call themselves political economists - might argue there are one or two rather more sturdy challenges to 'market fundamentalism' than "..showing that people are not wholly rational and selfish and that (some) markets do fail.. Surely they tend to think it all be a bit more systematic and structural than that?
Can one have a Marxism of small thoughts? isn't that a contradiction? Small thoughts may be good things - and certainly I'm as much against windy generalities as the next person - but they hardly help you live up to your own self description do they?
Posted by: CharlieMcmenamin | September 24, 2010 at 03:06 PM
Well, you may want to look at the empirical literature researching the impact of antitrust and regulatory authorities as a (small thing) proxi for the (big thing) question raised by Cable. If your conclusions (i.e. The powerful forces towards monopoly are more or less balanced out by powerful forces towards competition)
ignores the roles played by these institutions than, you are the one in airy-fairy territory.
Posted by: Paolo Siciliani | September 24, 2010 at 03:37 PM