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Fairytale Economics

by Max Cohen

Earlier this year the academic, student and professional network Rethinking Economics held a workshop-retreat in the Peak District. Rethinking Economics is a new organisation, committed to building support for a new pluralist economics ‘for everyone’. Filled with an array of events such as spokesperson training and creative campaigning, the weekend was, according to the organisers, ‘a banger’. On the face of it, this workshop could represent a seemingly marginal transformation of economics, once called the ‘dismal science’, into a creative enterprise amongst curious intellectuals. And yet, this retreat to the depths of the English countryside is just one example of a growing international movement to re-stir the economic imagination. Since the 2008 financial crisis, economics has been forced through a period of crisis and reflection. Among other phenomena, this economic reimagining includes a burgeoning literature of pop-economic books; changes in undergraduate economic curricula after years of student walkouts; the rise of so-called ‘rockstar economists’ including Yanis Varoufakis, Ha-Joon Chang and Thomas Piketty; and the transformation of a range of economic think-tanks from wonkish ivory towers to popular centres of progressive thought. Connecting these people and organisations is the belief that economics has become out of touch with reality; that today, we are in need of new economic stories to tell and new futures to envision.

Economics was not always so regimented and in need of reform. According to historian Gordon Bigelow, the ethical and imaginative spirit of economics died with the accelerating pace of urbanisation and industrialisation in Victorian Britain. Towards the end of the 19th century, ‘Economics’ as a discipline was detached from the traditional study of ‘Political Economy’ and in the process cleared of any cultural, political or psychological considerations. In its place arose the ‘neoclassical’ tradition, which married economics to the iron laws of mechanical science. The economists of this era modelled their work on emergent theories in physics such as optics and thermodynamics. The economy became an object of inquiry, a ‘thing’ out there to be discovered, with its own unique laws and ordering principles. Consequently, this process of scientific inquiry necessitated an array of economic ‘experts’ with a complementary specialist language. Debate about the economy, what it is and what it means, was removed from the public realm as economics became akin to a natural science. Tellingly, today there is no other social science which offers a Nobel Prize. As Joris Luyendijk has written in the Guardian, this singling out of economics as a natural science ‘not only encourages hubris among economists but also changes the way we think about the economy’.

The protagonist in this hundred-year-old neoclassical vision is the Homo Economicus, or rational economic man, an individual solely concerned with maximising his utility or welfare. This character dates back to early political economists and is usually credited to John Stuart Mill. He (and he most definitely is a ‘he’, in the world of economics) is the economists’ ideal approximation of human nature and represents the most basic assumptions underpinning neoclassical economic theories. How humans interact in the marketplace, make investment decisions and engage in the production process is reduced to the crude calculus of rational action and the pursuit of profit.

Since his inception in the 19th century, though, Homo economicus has taken a beating by thinkers from disparate intellectual corners. As early as 1888, sociologist John Kells Ingram derided Mills’ political economy because it ‘dealt not with real but with imaginary men – ‘economic men’… conceived as simply ‘money-making animals’’. In the 1980s, feminist writers continued the charge against Homo Economicus. They argued that much of economic man’s activities have been supported by unacknowledged free, female labour. Katrine Marçal’s recent provocatively titled book, Who Cooked Adam Smith’s Dinner? (2015) reinforces this critical sentiment. Another key challenge to Homo Economicus has been articulated by behavioural economists. Instead of taking economic man’s rational motivations a priori, behavioural economists explore the irrationality of human action. Taking influence from other disciplines such as anthropology and psychology, behavioural economists show how human motivations are strongly influenced by emotion, habits and biases. For example, psychologists have shown that individuals feel double as much psychological pain from losing $100 as pleasure from gaining $100.

This is what behavioural economists call ‘loss aversion’, describing how losses tend to be twice as psychologically harmful as gains are beneficial, leading to counterintuitive economic outcomes. Loss aversion also applies in the world of sport. When a football team is winning, they tend to become more defensive to protect their lead. Moreover, as any supporter can testify to, if a team scores a last-minute equalising goal, the scoring team will feel relieved and celebrate as though they had won, while the team who lost their lead will mourn their loss, even though the end result is the same for both sides. Overall, what behavioural economists underline is that Homo Economicus is too narrow an explanation for these human idiosyncrasies. After decades of assault by feminists, behavioural economists, and even ‘neuroeconomists’, it is unclear what state Homo Economicus lies in now. However, he continues to stagger through the imaginations of neoclassical traditionalists, albeit on less steady legs. In his ‘Ethology of Homo Economicus’ in 1995, Joseph Persky wrote ‘I suspect that the majority of economists remain confident of the survival of their favourite species’.

Economics as an objective and scientific field has been recently challenged by literary scholars. They have argued that economics has an unconscious literary soul, bringing to life the many literary devices, metaphors and stories infusing the economics vocabulary. Professor Deirdre McCloskey believes that the metaphors and ‘poetics’ of economics are not merely ornamental. Rather, the literary style of economists is to be taken seriously as a form of rhetoric – intended to convince and persuade its many audiences.  

Paul Crosthwaite has, for instance, drawn attention to the surprising neglect of animal metaphors which are prevalent in both professional and popular economic discourse. Amongst the ranks of the ‘economic animal kingdom’ are stock market ‘bulls’ and ‘bears’, ‘doves’ and ‘hawks’ (economic policy pundits who argue for, respectively, lower and higher interest rates); ‘lions’ (the CEOs or CFOs of the major banks: the ‘big beasts’ of Wall Street or the City); and ‘sheep’ (investors who are content to follow the flock). These terms circulate around the ‘trading floors, offices, bars, and clubs where financial professionals congregate’ as well as in the financial media, and to a lesser extent in the general public. In these animal metaphors, humans are understood as competitive and primal, matching the neoclassical approximation of human nature. But the relative lack of scholarly attention to these animal images, according to Crosthwaite, is a result of a long historical process that saw ‘the man being taken out of nature’. The economy, in line with neoclassical thought, was seen to be the result of rational agency alone.

This naturalisation of the economy is also reflected in economic vocabulary of the general public. In a report entitled Framing the Economy published in 2015, the New Economics Foundation sought to uncover the shared assumptions and understandings of ‘the economy’ in British culture. Through interviews with members of the public, the study offers interesting insights into the language people use to articulate what they think the ‘economy’ is, and some general problems associated with these modes of thinking. They found two key interesting results. For one, discussions of the economy ‘are nearly always about money and people often drew on the metaphor of circulation’. This language obscures undervalued things that are not linked to the exchange of money, including care work and the use of natural resources. Another key finding was that language like ‘tumbling’, ‘falling’, and ‘rocketing’ were frequently used to describe the economy, alongside metaphors related to natural or nautical disasters, such as ‘weathering storms’, ‘being buffeted by headwinds’, and economic ‘waves’, ‘tides’, and ‘aftershocks’. Overall, what these metaphors reveal is that the economy is understood as a thing out of our control, ‘a self-governing natural force rather than something actively shaped by humans’. As the authors write, this way of thinking ‘lends itself to a laissez-faire response, however disastrous the consequences’.

One of the most successful projects to denaturalise our economic understandings in recent years is Kate Raworth’s Doughnut Economics (2017). Raworth’s book and captivating public talks have caused a storm in academic, policy and corporate circles. Raworth’s main contention is that the unwavering global pursuit of GDP growth over the past century has resulted in gaping inequality and ecological disaster. Importantly, imagery is central to her project to transform our understanding of the economy. Using the image of a segmented doughnut with inner and outer limits, Raworth encapsulates the conditions for meeting the needs of everyone within the parameters of a finite world. Her doughnut is a visual representation of the planetary limits, delineating the minimum thresholds for the good life in the centre (education, health, water, social equity, gender equality etc.) and the maximum thresholds that we should cease to overshoot at the perimeter (climate change, ocean acidification or chemical pollution). This doughnut is the ‘sweet spot for humanity’, its circular shape standing in sharp contrast to the linear, ever-upward moving arrows of GDP growth which pervade government predictions and economic reports. As Raworth has said, the doughnut immediately transforms the meaning of economic progress ‘from endless growth to thriving in balance’.

What obstacles stand in the way of these attempts to render economics and the economy more inclusive? According to Rethinking Economics, one of the greatest obstacles in the UK to the transformation of economics is the ways in which economics research is funded in universities through the Research Excellence Framework (REF). The REF is a system for assessing the quality of research in UK higher education institutions. As universities rely on this framework for funding, it has a major influence on the economics topics researched, on who gets hired and fired in economics departments, and the kind of economics taught to students. But Rethinking Economics have argued that the REF panels are dominated by individuals who subscribe to and privilege a narrow view of economics while marginalising interdisciplinary modes of thought. A cycle has been perpetuated in which mainstream research underpinned by narrow assumptions about the economy receives the highest grading, while ‘work that draws on innovative insights about human behaviour, market failures, gender dynamics, ecological limits and institutions is not valued’. To overcome the dominance of economics in universities by orthodox accounts, Rethinking Economics has started a campaign to nominate more heterodox economists to the REF panels so that more alternative economics approaches will be valued and funded. By striking at the heart of university research funding, the pressure group believe they will help steer economics towards today’s bigger issues which are largely neglected in mainstream accounts: inequality, financial crises and post-growth economics for the climate change age.

Evidently, it is not just economics that is in need of rethinking, but some of the foundational structures and institutions of society which entrench particular modes of thought and crowd out dynamic alternatives. This is why the activities in the wonkish towers of organisations such as Rethinking Economics and the blossoming literature and imagery of progressive economic thinkers such as Kate Raworth are so exciting. They seek to return discussions about the economy to the public realm, dissolving the monopolisation of economic debate by ‘specialists’ and professional opinion reliant on the knowledge of ‘experts’. If economics is a story, then we all have a story to tell and a role to play.



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