The New Spirit of Economics

John Maynard Keynes, the architect of America’s recovery from the Great Depression and champion of the welfare state, believed that at its core, economics is ruled by “animal spirits.” That is to say that the free, equal and rational mind of consumers in the Locke/Smith economic paradigm does not sufficiently explain human action in the market place; that economies operate more according to Freudian animal heritage, or esoteric and emotional impulses, than reason. Other thinkers from this formative economic era, like Joseph Schumpeter, sensed that a violent, warlike impulse of “creative destruction” lurked at the heart of capitalism. And Karl Marx, the great dreamer, proposed that economic theory, rather than empowering and rewarding the selfish gene, could instead create a better social realm in which every person gave according to his abilities and received according to his needs..

...Today, as Gregory Mankiw’s widely used first year university economics textbook, Principles of Economics, shows, the “common weal” discipline has been reduced to a dry, boring, amoral and inhuman study full of pseudo formulas and cumbersome equations with little connection to ethical questions or social desirability. Graph upon graph on page after page of Principles of Economics reveal just how far economics has drifted from the poetry and prose of its roots – that often misread bible of global finance, Adam Smith’s The Wealth of Nations – to the purposely obtuse and elite math of today.

Along the way, a host of radical (though not really radical – just traditional) thinkers tried to warn the logic freaks of economics that their profession was heading into a dead end. Nobel Prize winner Wassily Leontief said: “Departments of economics are graduating a generation of idiot savants, brilliant at esoteric mathematics yet innocent of actual economic life.” Author of The Origin of Economic Ideas, Guy Routh wrote: “The standard economic texts are powerful instruments of disorientation; for confusing the mind and preparing it for the acceptance of myths of growing complexity and unreality.” And the great American economist and historian Robert Heilbroner, famously warned: “Before economics can progress it must abandon its suicidal formalism.”


But to no avail… for half a century, these warnings have fallen on deaf ears.

So here we are. Great Depression 2.0 and finally the mystery of economics is again awakening from its long logical slumber. In the panic of escalating financial and ecological meltdown, the old certitudes are crumbling and the logic freaks are everywhere in retreat. In 2008 Bush-era Federal Reserve Chairman Alan Greenspan, the man who oversaw much of America’s financial nose dive, told the public “those of us who have looked to the self-interest of lending institutions to protect share-holders’ equity, myself included, are in a state of shocked disbelief.” That’s putting it mildly.. 


Read more: http://www.adbusters.org/magazine/98/new-spirit-economics.html