For the crash they failed to predict, for the Great Recession that followed and for the piddling recovery, a longtime economics journalist blames the wrongheaded theories of orthodox economists.
By “orthodox,” Harper’s columnist Madrick (Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present, 2011, etc.) means the right and center-left economists who’ve taken their cues for the past 40 years from Milton Friedman, “the godfather” of the laissez faire revolution. The author marvels at how Friedman and his disciples have escaped censure for policy recommendations accounting for our current mess and takes a stick to the profession for its insularity, trendiness and refusal to abandon theory in the face of stark, real-world facts. Their litany of error, Madrick insists, stems from reliance on Adam Smith’s Invisible Hand theory: that, without any outside interference, buyers and sellers will reach a just accommodation. This 18th-century insight, writes the author, was descriptive rather than prescriptive and surely an incomplete model of modern markets. Its simplicity encouraged the modern era’s move toward widespread deregulation. From the Freidmanites’ horror at the prospect of government intervention flowed other bad ideas: that “supply creates its own demand” and economies will self-adjust; that government is useful only for correcting occasional market failures; that targeting inflation is all that really matters; that markets are highly rational, unsusceptible to fashion or speculative bubbles; that globalization will somehow triumph, and free trade will lift all boats. Madrick hammers mainstream economists for their insistence that economics is a science rooted in mathematics, unaffected by political bias. We’d do better, he argues, to make room for sociology, psychology, history, philosophy and theology to better account for real-world uncertainties and ambiguities. Economics, he insists, “is a set of value judgments,” and notions of decency and community are every bit as relevant as “the special knowledge” held by the high priests.
A readable, useful economic text. Somewhere, John Maynard Keynes is smiling.