Thirty-three flawed Theses
Five hundred years ago, so legend has it, a dissident priest called Martin Luther nailed a list of 95 "theses" to the door of the Castle Church in Wittenburg. His action launched the Protestant Reformation.
Last week, the dissident economist Steve Keen "nailed" a list of 33 Theses to the door of the London School of Economics. His aim was to launch a Reformation in economics as significant as the religious Reformation that Luther started. It was a bold gesture.
But for such a movement to take hold, there has to be substance in the criticisms. And as I read the 33 Theses, my heart sank. For these are in no way like the 95 Theses.
Luther's 95 Theses are a brilliantly argued academic case against the (then) Roman Catholic doctrine of indulgences, which was a clerical scheme for fleecing people of their money by promising them salvation. The money was supposed to go to the poor, but almost never did. Instead, it went to enrich both the sellers of indulgences and the Church itself. It was, in short, a protection racket.
Luther's critique was utterly brutal, not because it presented an alternative to Roman Catholic teaching, but because it was faithful to it. In Theses 8 and 9, for example, he points out that the "penitential canons", which define the Roman Catholic Church's doctrine of repentance, exempt the dying from the need to do penance for salvation:
8. The penitential canons are imposed only on the living, and, according to the canons themselves, nothing should be imposed on the dying.
9. Therefore the Holy Spirit through the pope is kind to us insofar as the pope in his decrees always makes exception of the article of death and of necessity.So telling the dying to buy indulgences to avoid being consigned to purgatory, as was common practice at the time, broke the Catholic Church's own rules. Luther goes on to censure both the priests selling indulgences to the dying and the bishops turning a blind eye to the practice:
10. Those priests act ignorantly and wickedly who, in the case of the dying, reserve canonical penalties for purgatory.
11. Those tares of changing the canonical penalty to the penalty of purgatory were evidently sown while the bishops slept (Mt 13:25).And he then reminds the readers what the penitential canon actually says:
12. In former times canonical penalties were imposed, not after, but before absolution, as tests of true contrition.
13. The dying are freed by death from all penalties, are already dead as far as the canon laws are concerned, and have a right to be released from them.This is merely one example in what is a simply devastating critique. But the 95 Theses are concerned only with one doctrine. Luther did not attack the teaching of the Catholic Church, as is often alleged. He was exposing the corruption that ran through the Church from top to bottom like a disease. And his call was for reform, as Thesis 91 shows:
91. If, therefore, indulgences were preached according to the spirit and intention of the pope, all these doubts would be readily resolved. Indeed, they would not exist.Calling corrupt institutions to repent and reform has been the role of prophets for millenia. Luther was merely the latest in a long line. I do recommend reading the whole 95, in order. They tell a story which the Church at that time was not willing to hear.
Had the 33 Theses been so narrowly focused, and so deeply rooted in the fundamental teachings of economics, they would potentially have been equally devastating. But they aren't. Rather than delivering a detailed critique of one aspect of mainstream (macro) economics, they skate across the surface of the entire field. And even more importantly, they seem intended not to remind the economics establishment of its own teaching, and call it to repent and reform, but to set out a completely different agenda. So, for example, Larry Elliot complains that "complex mathematics is used to mystify economics, just as congregations in Luther’s time were deliberately left in the dark by services conducted in Latin." I don't disagree - indeed I have complained myself about the way complex mathematics and economics jargon combine to make economists some sort of priestly caste. But the use of Latin in church services is simply not what Luther was complaining about.
As I read the 33 Theses, I found myself becoming more and more disappointed. They don't demonstrate enough scholarship to constitute a serious attack. Even worse, they don't even clearly define what they are attacking. What does "neoclassical economics" even mean, or "mainstream economics"? The piece appears to use these terms interchangeably, but never defines them anywhere.
But worse, the authors commit exactly the same sins of which they accuse the economics establishment. Here, they complain that economics has become dictatorial:
First, within economics, an unhealthy intellectual monopoly has developed. The neoclassical perspective overwhelmingly dominates teaching, research, advice to policy, and public debate. Many other perspectives that could provide valuable insights are marginalised and excluded. This is not about one theory being better than another, but the notion that scientific advance only moves ahead with a debate. Within economics, this debate has died.But then they take it upon themselves to define what the "purpose of economics" should be:
1. The purpose of the economy is for society to decide. No economic goal can be separated from politics. Indicators of success represent political choices.
2. The distribution of wealth and income are fundamental to economic reality and should be so in economic theory.
3. Economics is not value-free and economists should be transparent about the value judgments they make. This applies especially to those value judgments that may not be visible to the untrained eye.
4. Policy does not ‘level’ the playing field, but tilts it in a direction. We need a more explicit discussion of what sort of economy we want, and how to get there.With the exception of Thesis 4, these rules don't appear to leave any room for debate. But the authors don't have any more right than the "neoclassical" economists they so despise to set these rules. Where is the scholarly critique to back these statements? Where are the references to the founding fathers of economics? In short, where is the authority?
Sadly, this opening section set the tone for the entire piece. Here they are, dictating how economists should treat the natural world:
7. Economics must recognise that the availability of non-renewable energy and resources is not infinite, and the use of these stocks to access the energy they contain alters the planet’s aggregate energy balances, creating consequences such as climatic upheaval.
8. Feedbacks between the economy and the ecology cannot be ignored. Ignoring them to date has led to a global economy that already operates well outside the viable thresholds of the ecology that houses it, yet requires further growth to function. But economics must be grounded in the objective constraints of the ecology of the planet.I am flabbergasted. Economics is all about the allocation of scarce resources. How on earth can these people say that economics "must recognise" that resources are scarce? A fair critique would be to say that old assumptions about the factors of production need to be revisited in the light of climate change and pollution, since we now know that air, water and land can be degraded by human activity. But mainstream economists have certainly not been blind to this. The trouble is that solving it is beset with "tragedy of the commons" type problems, as Jean Tirole (by any standard a mainstream economist) has eloquently pointed out. Everyone wants the problem solved, but no-one wants to pay for it.
It gets worse. Luther would be turning in his grave if an argument like this were used about the Christian Church:
13. Since different economies have different institutions, a policy that works well in one economy may work badly in another. For this reason among many others, it is unlikely to be helpful to propose a universally applicable set of economic policies based solely on abstract economic theory.Eh, what? The way different peoples choose to structure their economies changes the underlying laws of economics? Heaven help us. More damage has been done by politicians believing the laws of economics don't apply to them than almost anything else. If you don't believe me, read this paper by Rudiger Dornbusch, and weep over those dying of hunger in today's Venezuela, where exactly this mistake has been made. This is not to say that policy should not be adapted to local conditions, but it surely needs to be rooted in the economics equivalent of Scripture.
Then there is this:
16. People are not perfect, and ‘perfectly rational’ economic decision-making is not possible. Any economic decisions that have something to do with the future involve a degree of unquantifiable uncertainty, and therefore require judgement. Mainstream economic theory and practice must recognise the role of uncertainty.Now, it is fair to say that the Efficient Markets Hypothesis and "rational expectations" led financial economists, at any rate, down a very deep rabbit hole. Rediscovering Knightian uncertainty, and perhaps humility as well, would be a very good thing. But the role of uncertainty runs like a golden thread through the General Theory of John Maynard Keynes, the founding father of macroeconomics. Is Keynes not mainstream? Haven't the authors simply missed a golden opportunity to call the macroeconomics profession to repent and return to the true faith?
Really, this is my critique of the whole 33 Theses. Instead of homing in on areas where the economics profession appears have to lost its way, and using deep scholarship and impeccable logic to expose error and corruption, as Luther did, the authors have introduced what amounts to a new religion and demanded that what they call "mainstream" economists adopt it, without ever explaining exactly why they should. This is indeed a missed opportunity.
To show just how badly the opportunity has been missed, I want to return to Luther. In Thesis 11, quoted above, there is a Scripture reference. The reference is to the Parable of the Weeds, Matthew 13:25-30 ("tares" is an old name for weeds). Emphasis is mine:
25 Jesus told them another parable: “The kingdom of heaven is like a man who sowed good seed in his field. But while everyone was sleeping, his enemy came and sowed weeds among the wheat, and went away. 26 When the wheat sprouted and formed heads, then the weeds also appeared. 27 The owner’s servants came to him and said, ‘Sir, didn’t you sow good seed in your field? Where then did the weeds come from?' 28 ‘An enemy did this,’ he replied. “The servants asked him, ‘Do you want us to go and pull them up?’29 ‘No,’ he answered, ‘because while you are pulling the weeds, you may uproot the wheat with them.Let both grow together until the harvest.30 At that time I will tell the harvesters: First collect the weeds and tie them in bundles to be burned; then gather the wheat and bring it into my barn.’ ”Luther implies that canon laws - i.e. the Church's own teaching - had been corrupted by the practice of selling indulgences to the dying. He roots his argument firmly in the teaching of Jesus Christ, the foundation upon which the Church rests. This isn't knocking the Church down, it is shoring it up.
The equivalent for economics might be Adam Smith's twin epics, the "Wealth of Nations" and the "Theory of Moral Sentiments". A really good critique of modern economics might be that it has become infected with the ideas of thinkers such as Ayn Rand and has lost its moral foundation. Way too much attention is paid to wealth and not nearly enough to morality. But I don't see this in these Theses. There is simply no reference to, or reverence for, the founding fathers of economics. The authors simply state their own agenda.
I have been as critical as anyone of modern (macro)economics. I would like to be able to support these 33 Theses. But in conscience, I can't. They are not the devastating critique of modern economics that they claim to be. They are simply a hostile takeover bid. I want modern economics to repent and reform, not be replaced with another flawed paradigm.
So I reject the 33 Theses as they stand, and I call on the authors to repent and return to the true faith of Adam Smith, Ricardo, Wicksell, Walras, Keynes, and many others upon whose shoulders we stand.
When the Nile floods fail
The economics profession does not need a "reformation" - Independent
Economics for the Common Good - Jean Tirole
The Econocracy - Joe Earle & Cahal Moran (this is a biting critique of the way economics is taught in major universities, strongly recommended)
The Stern Review: the economics of climate change - Nick Stern
Risk, Uncertainty and Profit - Frank Knight
The General Theory of Employment, Interest, and Money - John Maynard Keynes (pdf)
An Inquiry into the Nature and Causes of the Wealth of Nations - Adam Smith (via Econlib)
The Theory of Moral Sentiments - Adam Smith (annotated)
Image from Twitter.