In this month's issue, Howard Reed says we need to rebuild economics from its very foundations. Plus: the great economic thinkers suggest the next big question for their fieldby Tom Clark / April 14, 2018 / Leave a comment
Published in May 2018 issue of Prospect Magazine
“Let those who will write the nation’s laws if I can write its textbooks.” So said the late great economist Paul Samuelson. Having sniffed the influence, he went on to sell over four million textbooks himself. The basic economic concepts that frame vast tracts of public policy—market equilibria, marginal costs and “externalities”—are all encountered in the very first term of an undergraduate course. But the breathtaking charge pressed by Howard Reed is that the textbook is irredeemably flawed, and so we’d be better off ripping it up and starting again.
Many other economists—including Diane Coyle who has written a robust counter-polemic—will take umbrage at Reed’s caricature of their work. Coyle points out that professionals don’t spend their days with textbooks, but with data about real human beings; some of them are taking rational economic man to pieces in the process.
But old theories can be hard to shrug off. When intellectual architecture is installed in young minds, then adults—busy with work and family—will inevitably make sense of later experience within its frame. Or, as Keynes put it: “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” The real question is just how defunct that old theory is.
I can think of cases where it has worked well: mainstream economists immediately warned that the gains from George Osborne’s “right to buy” scheme would go to existing homeowners, not the aspiring home buyers it purported to help. And I can think of cases where it has led them to take the wrong path, as when they confidently predicted that market-based housing benefit reforms would drive rents down. It didn’t. So even if you baulk at Reed’s scorched-earth radicalism, there is scope to refine and improve.
So it’s surely good news, 10 years on from the crash, that more economists are rethinking widely. When we asked some of the best for the next big question, answers ranged from the nature of risk to the nature of work. And I was stunned but delighted to hear from Andy Haldane at the Bank of England about how it is seeking inspiration from way beyond the field—even talking to poets, percussionists and potters. Let a thousand textbooks bloom.