John Stuart Mill's economic thinking would be more useful than the European Central Bank's in reversing the global economic downturn, writes J. Bradford DeLong, professor of Economics at the University of California at Berkeley, research associate at the National Bureau for Economic Research and a former US assistant secretary of the Treasury.
The following contribution is authored by J. Bradford DeLong, professor of Economics at the University of California at Berkeley, research associate at the National Bureau for Economic Research and a former US assistant secretary of the Treasury.
"One of the dirty secrets of economics is that there is no such thing as 'economic theory'. There is simply no set of bedrock principles on which one can base calculations that illuminate real-world economic outcomes. We should bear in mind this constraint on economic knowledge as the global drive for fiscal austerity shifts into top gear.
Unlike economists, biologists, for example, know that every cell functions according to instructions for protein synthesis encoded in its DNA. Chemists begin with what the Heisenberg and Pauli principles, plus the three-dimensionality of space, tell us about stable electron configurations. Physicists start with the four fundamental forces of nature.
Economists have none of that. The 'economic principles' underpinning their theories are a fraud – not fundamental truths but mere knobs that are twiddled and tuned so that the 'right' conclusions come out of the analysis.
The 'right' conclusions depend on which of two types of economist you are. One type chooses, for non-economic and non-scientific reasons, a political stance and a set of political allies, and twiddles and tunes his or her assumptions until they yield conclusions that fit their stance and please their allies.
The other type takes the carcass of history, throws it into the pot, turns up the heat, and boils it down, hoping that the bones will yield lessons and suggest principles to guide our civilization's voters, bureaucrats and politicians as they slouch toward utopia.
Not surprisingly, I believe that only the second kind of economist has anything useful to say. So what lessons does history have to teach us about our current global economic predicament?
In 1829, John Stuart Mill made the key intellectual leap in figuring out how to fight what he called 'general gluts'. Mill saw that excess demand for some particular set of assets in financial markets was mirrored by excess supply of goods and services in product markets, which in turn generated excess supply of workers in labor markets."
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Published in partnership with Project Syndicate.