The Econocracy: Has Economics Become Undemocratic?

Summary

The authors of The Econocracy: On the Perils of Leaving Economics to the Experts argue that economic experts, orthodox economic theory, and the methods of teaching the discipline contributed to the 2008 economic crisis and continue to diminish our ability to effectively tackle critical real-world issues such as inequality, affordability, and adverse environmental impacts.

The book raises broader questions about the nature of the economy and its purpose, and how political issues being presented in technical economic terms that many voters do not fully understand allows policy-makers to bypass democratic scrutiny. In this article, we examine how the cracks appearing in economic theory and policy are beginning to bear on our daily lives, and whether we need to re-think the first principles of organising economic activity.

Introducing Econocracy

The economy, and therefore economics, has come to define and dominate the modern world. All things can be assigned a monetary value and everything has a price. Political issues are framed in economic terms often not well understood by the public, whose lives depend on decisions made by experts educated in increasingly-contested theories. Abstract economic analysis and modelling are prioritised over examinations of the real world [1], and policies that result from this approach are imposed by those whose main concern is the strength of an economic system in which human needs and nature are reduced to inputs and assumptions. The technical nature of modern economics and its mathematical (or scientific) view of human activity has, along with highly-centralised governmental systems, undermined individual autonomy and diminished democracy. The economy is often described as a machine, and the bigger it grows, the more that machine seems out of control - or uncontrollable - and increasingly taking the majority of the population in a direction it does not want to go. Today, economics - and the reality of societies built upon its ideas - raises more questions than it provides answers. How should economics be taught? What is the purpose of an economy? Is this the best we can do, or the only way? How should we live? What exactly is economics, or the economy?

The Econocracy: On the Perils of Leaving Economics to the Experts [2], a book written by several young economics graduates in the wake of the 2008 economic crisis, details how standardised university economics education has produced experts who hold great power to shape government policy and our daily lives, but were unable to predict or avoid a system-wide failure arising from unchecked financial innovation and global economic interdependence. They criticise ‘neoclassical’ economics and its assumptions - such as market equilibrium - as flawed and unrealistic. They describe how political policy is often shrouded in complex economic language and concepts and, because of this, is able to bypass the democratic scrutiny of non-experts who feel unable, or unqualified, to question authoritative practitioners of the ‘dismal science’.

They are not alone. There have long been alternative voices about economic theory, though dissenting ideas, whether they be Austrian, Post-Keynesian, Marxist or otherwise (known collectively ‘heterodox economics’), seem to have become more common. But, even after the very public failure of economic experts in 2008, alternative ideas are largely overlooked in what has become the orthodox of economic theory and education, which emphasises GDP growth, efficiency, free trade, and individual utility. Many have lost faith in the all-powerful, all-encompassing economic system and its ability to provide a coherent plan for the future or solve basic problems such as secure and affordable access to housing, the financial security to start a family, wealth inequality, environmental impacts of many kinds, ill-conceived and inefficient urban planning that disrupts community formation, and a sense of purpose and meaning in our work and lives.

How did we get here, and what can we do better?

Economics was once a holistic study, encompassing ethical, social, and political issues

Did you know that Adam Smith and David Hume were, in addition to their work on political economy, also moral philosophers? That John Stuart Mill wrote Principles of Political Economy, but is also famous for his work on ethics?

Economics has transformed since their time into a much more technical discipline owing to greater access to data and statistics, computers, and the development of tools such as econometrics. Complex mathematical models are now at the centre of academic analysis and policy-making. There has been a crystallisation, or perhaps narrowing, of economic thought along scientific lines that leaves out, or assumes, much about morality, history, politics, and society. The authors argue that “Economics lost a great deal on the way from its roots to the modern day – much of it we would argue for the worse.”

Economics education is flawed

The book provides evidence that ‘neoclassical’ theories dominate at most British universities (though such approaches are also widespread in other countries). Students learn how to interpret and create economic models but not how to question them or the theories on which they are built, or how to understand the real-world implications of policy. Evaluative assessment questions, which encourage students to engage with the subject critically, are under-used. Mathematical analysis can over-complicate (or over-simplify) and obscure understanding of economic problems. There is even a well-known term to describe models that have unrealistic assumptions and inaccurate conclusions: the ‘Ricardian vice’ (referring to economist David Ricardo and his use of mathematical analysis). Models contain assumptions and selective inputs: the authors cite the selection of discount rates (which can reduce the present value of future effects) that demonstrate short-term time preferences. A map is not a territory, and a model is only an approximation of a highly-complex world with many moving parts. Economics deals with human problems and there are different and complementary ways to analyse them. Experts who influence solutions to these problems should have a well-rounded and integrated knowledge of related intellectual disciplines.

The science of economics is perceived as ‘settled’ by many academics, and a consensus has formed around the current approach. This approach is standardised by using a small number of popular textbooks which make courses less flexible and more detached from the real world; economic journals and other media are less common. This is a problem because, unlike some academic disciplines, economics is not confined to the classroom - economics is everywhere - and its results are beginning to break down faith that experts and their tools do what they are supposed to: increase prosperity and economic security for societies and individuals. Importantly, there is no explicit ethical foundation for economics, which largely continues in an unspoken utilitarian tradition.

The ‘black box’ of economics: how power is maintained through complexity

The authors argue that “The British public as a whole has never been asked what the aims of the economy should be. Instead, the goal is simply to increase a number [GDP] that may fail to capture much of social reality and that many people do not truly understand. A failure to challenge this state of affairs creates the impression that there is no alternative.”

Most people do not understand the inner workings of central bank monetary policy, market operations, or the multiplier effect. Is this a defect in public education, or the result of over-thinking by inward-looking economists and academics who have created a fittingly complex theoretical structure to match a system that has itself grown ‘too big to fail (or change)’?

As a result of its size and complexity, the highly-centralised global economic behemoth appears to have feet of clay in situations when agility is required, but this feature also has its benefits to those who wish to maintain political and economic power. When the time value of money is a law of nature and the teams of economists inside independent central banks tell us how things must be, we accept their conclusions. The vicissitudes of life become variables fed into the expert’s economic calculator - a kind of ‘black box’ - to determine how the output from millions of invisible hands is to be utilised or allocated. What is good in life comes from maximising growth and employment, price stability, and a stable rate of inflation. What alternative is there?

The diminution of democracy

Today, national economies are integrated into regional and ‘global’ economies coordinated by international bodies. Government policies, whether economic or political, are often aligned or ‘harmonised’ with those in different parts of the world and are less focused on the needs of their own citizens. An Econocracy might look and sound like a representative democracy, but its political goals are often defined in economic terms, determined without public oversight, and shaped by bureaucrats and powerful private interests. Ever-greater power rests in the hands of economic experts who see their role as technical and neutral advisors, but the authors argue that economics affects everyone and is too important to be left to them. The more economics is seen as beyond the capability of ordinary people and managed in a machine-like way by bureaucrats and big business, the easier it is to treat people as numbers or statistics, to accept GDP as an end goal, or for alternative ideas to be approached as obstacles.

Re-imagining the economy

An economy is an abstraction; an idea (or perhaps illusion). Some form of economy has always existed - as activity involved in production, consumption, and trade - but the modern ‘economy’ is a theoretical model of real-world actions involved in providing for ourselves. An economy is really its participants, who, collectively, make decisions and work towards prosperity for themselves. It is also highly-centralised and powerful governments, central banks, debt, interest rates, and the money supply; intangible and theoretical things without which the idea of an overall, integrated economic system could not exist. Economics is a kind of political computer that quantifies and values, and then produces policies from a bird’s eye view for those navigating a labyrinth with invisible walls.

The authors argue that assumptions made about the economy are, however, flawed. These include the idea that there are knowable and predictable forces which can be modelled with sufficient accuracy, and that there are cause-and-effect relationships between variables such as inflation, unemployment, and taxes. But economics is not an exact science, and economic outcomes are only as predictable as economic actors (you and me) who must conform to assumptions made in economic models or adapt to policy pressures due to their dependency. This dependency is formed by the necessity of taking on debt for housing (which, despite being a need, is largely subject to the same market forces as wants) employment [3], and the elimination of traditional means of self-sufficiency. Human motivations are often reduced to ‘maximising utility’ and assumptions are made about what people think is best for them: elaborate theories have been created for us to understand ourselves, which - strangely - seem to take us further away from what makes us happy and content [4]. The authors point out that things don’t have to be this way. What we call an ‘economy’ is a description of a particular form of social organisation. It is not universal or natural; it is created.

Building rocket ships and going nowhere

The economy is us, but it’s not really about us anymore. We are no longer really telling a human story with our lives and labours, but a kind of sci-fi tale about building the ultimate technology that will eventually free us from everything that makes us human. What will this technology look like? Artificial intelligence? Rocket ships? Nuclear weapons? Robot dogs? A man on Mars? The possibilities are exciting (and sometimes horrifying), but what purpose do they serve for us? Where exactly are we going with all this? What world are we trying to create for ourselves?

We might save or invest, or struggle to get by, but most of us spend the majority of our time on subsistence tasks (though ones less onerous than in the past). Rather than use cheap energy to fuel a renaissance of the human spirit, we are consumed by luxury goods; things we take for granted but don’t really need. Our constant movement seems a bit like a centrifuge – a whirl of chaotic economic activity. Where it ends, and what ends it serves, we are not quite sure. Could we harness this high-point of human achievement to plan lives best suited to us as human beings, instead of changing our ways of life to suit the latest technologies? For what is possible is not always desirable [5].

The solution, of course, is that the messy nature of human beings and our struggle for survival is solved by the market and modern economics. We are to be content building modern-day pyramids and helping to create castles in the sky for those whose grand designs sometimes resemble a prison [6]. It seems that we lack necessary and fundamental direction (or that this direction is not adequately defined, transparent, or decided democratically). Without a foundation of meaning and morality to guide us, or to assure us that what we are building is for us, not just by us, we might end up having to escape what we’ve created for ourselves (and hope we have enough rocket ships for the trip to Mars).

Conclusion

We live in an age of economics, one characterised by a system the authors of The Econocracy argue has become less understandable, less controllable, and less democratic. This is caused, in part, by a flawed and narrow education that produces inadequate ‘experts’ who, due to the transformation of economics into a highly-complex and specialised tool of government policy-makers, wield great power over our lives. Ongoing economic uncertainty and periodic upheavals have led many who are dependent on this highly-centralised system to argue for alternative ideas or compete for control over the economic machine. A broader view of economics integrating ethics, politics, society, and history might help guide us towards an economic future which is better built for human needs, and away from one dictated by the latest technologies which lacks purpose and direction.

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[1] "If economists wished to study the horse, they wouldn’t go and look at horses. They’d sit in their studies and say to themselves, ‘What would I do if I were a horse?’"

Ronald Coase, The Task of the Society. https://www.coase.org/coasespeech.htm

[2] A kind of technocratic system run by ‘experts’: “A society in which political goals are defined in terms of their effect on the economy, which is believed to be a distinct system with its own logic that requires experts to manage it.” Earle, Moran, Ward-Perkins. The Econocracy: On the Perils of Leaving Economics to the Experts.

[3] We cannot all be businesses or employers; an economy of sole traders is hard to imagine, no matter how individualistic we have become. Though the idea of individuals coming together to perform purposeful economic actions based on collective need, rather than continual - often purposeless - activity, is appealing.

[4] As an example, the authors cite the use of a ‘nudge unit’ (or ‘Behavioural Insights Team’) in the UK designed to “exploit psychological tendencies in order to ‘nudge’ us towards certain decisions”.

[5] Such as cities of transient consumers built around motorways instead of self-sufficient localised communities and economies.

[6] Perhaps something like utilitarian philosopher Jeremy Bentham’s ‘panopticon’; a prison where inmates can be monitored at all times.