There is widespread agreement on the proposition that people act according to their self-interest. Marx went further to suggest that people subscribe to ideologies conforming to their class interests. For example, agricultural laborers would believe in land reforms, while big landlords would believe that small farms are inefficient. Gradually the weight of strong empirical evidence has led me to understanding that this proposition is false. Large segments of the population can be brought to believe in, and act according to, ideologies extremely harmful to their self interest. As Dani Rodrik has written in “How the Rich Rule”, political scientists Gilens & Page found that on issues where there was a conflict between the interest of the elite and that of the public, Congress voted in favor of the elite and against the public interest. In the past, the elites have enforced their interests by the use of power. In a democratic age, the same effect is achieved by the use of propaganda. This is striking because the propaganda must convince the public to act against their own self-interest, in favor of the ruling elites. It would seem that you can fool most of the people most of the time. Here is some empirical evidence for my thesis: Read More
Modern financial institutions, instruments and their underlying philosophies clash with Islamic law in many areas. For some time, both critics and supporters have thought that these Islamic laws were in need of revision to bring them into conformity with the complexities of modern requirements of trade and industry. Critics have been content with ridiculing the “archaic” law. Supporters have made substantial efforts to provide “Islamic” equivalents of modern western financial institutions and instruments. Many have been uneasy with these efforts, which often seem pointlessly convoluted ways of imitating western ideas about finance. There is also the concern that Islamic laws are being stretched beyond the breaking point to accommodate western forms.
The global financial crisis of 2008 has led to the radical realization that instead of being obstacles to progress, the Islamic laws provide barriers against financial disaster. Many western commentators have remarked that adherence to Islamic economic principles would have prevented this crisis. Challenges, a French magazine, went so far as to say that the 7th century text of the Quran offered better guidance than the Pope on financial matters. Read More
The Great Depression of 1929, and now the Great Recession following the Global Financial Crisis, poses several puzzles for economists. One is them is the sudden and severe drop in aggregate demand. This leads firms to curtail production, and therefore reduces demand for factors of production, most importantly labor. Why does aggregate demand fall, and why do not the price adjustment mechanisms restore equilibrium? The outstanding contribution of Atif Mian and Amir Sufi in House of Debt (see my Review & Summary) is to explain both why aggregate demand fell and also why the standard price adjustment mechanisms fail to restore equilibrium. The correct explanations have eluded famous economists like Keynes, Friedman, Lucas and many others . Only after understanding the reason for the shortfall in aggregate demand does it become possible to prescribe a remedy.
I have written a summary of the main arguments of Mian and Sufi in “House of Debt”. This book provides the answer to the question “How does macro-economics need to change, in light of the Global Financial Crisis?” This has been asked of many but none have given a satisfactory answer. Mian and Sufi analysis is to the GFC what Keynes was to the Great Depression — in fact Mian and Sufi provide the first satisfactory explanaton for both events. My full length review is available from SSRN at: http://ssrn.com/abstract=2517476.. Below I provide an excerpt from my review which gives the history of the Global Financial Crisis, linking it causally to the East Asian Crisis. Read More
While there exist many books, journals and forums discussing improved teaching of neoclassical theories, our goal at WEA Pedagogy blog is radically different. Our goal is to change the teaching of economics in ways that will help all human beings on this planet lead richer and fuller lives, and enable them to realize the potential for excellence possessed by all humans. We would like to eliminate hunger, poverty, economic oppression and injustice, and move towards greater equality in standards of living. We would like all children to have equal opportunities for education, and access to health care.
Is it possible to do this by changing the way we teach economics? Many people, including myself, believe that it is. Indeed, among the major props which support the current extremely oppressive global economic system are the wrong economic theories currently being taught at universities throughout the world. Below I discuss three major obstacles to creating positive changes posed by conventional economics theories. Each of these obstacles provides us with a pedagogical goal: we should change our teaching of economics so as to remove these obstacles.
See link for collections of articles on UNLEARNING ECONOMICS.
FIRST Obstacle to improvements: Normative Positive Distinction
In my paper entitled “The normative foundations of scarcity,” published in issue 61 of Real World Economics Review (download pdf) I have shown that even what is currently taken to be the fundamental defining concept of economics is deeply normative. This is an application of an argument of Hilary Putnam, who showed that facts and values can be entangled in such a way that it is impossible to separate the two. Only after we come to the understanding that economics is not an objective and value-free scientific endeavor, does it become possible to formulate a goal for teaching and studying economics.
ACTION PLAN 1: To remove this obstacle, we need to show that norms are everywhere involved in current economic thinking. An excellent textbook for this purpose is Hausman and MacPherson: Economic Analysis, Moral Philosophy, and Public Policy. We should try to make this text the basis of a compulsory course everywhere that we can. Where we cannot change the syllabus, we should introduce this as an optional course and popularize it among teachers and students. In addition, we should learn how to bring out and highlight normative assumptions hidden within the framework of the economic theories we teach. My paper referenced earlier makes a start on this aspect. This will allow us to bring normative concepts into discussion in virtually all economics courses.