Is economics a hard science,
like physics? Or is it more like sociology and history? Many economists would
like us to believe that the first is true, that economics is now firmly rooted
in mathematics and empirical evidence.
In Seven Bad Ideas: How Mainstream Economists have Damaged America and theWorld, author Jeff Madrick asserts that the myth that economics is a
science is one of the ideas that have inflicted damage on our country. In
particular, he writes that for all the talk about being a science, many
economists don’t care much about how their theories work in the real world. In
Paul Krugman’s review of the book, he
wrote, “Economists presented as reality an idealized vision of free markets,
dressed up in fancy math that gave it a false appearance of rigor.”
It seems to me it’s time to do an
empirical test of economic theories; an objective analysis of real-world
results. For forty years from about 1930-1970, the policies of John Maynard Keynes
were followed. Keynesianism included a strong role for government in regulating
business and the markets.
In the 1970s a different
economic model began to gain popularity, and in the U.S. the main proponent was
Milton Friedman, so I’ll call this model Friedmanism. This model claimed that
markets work best without government interference, because markets had an
inherent tendency to always find perfect states of equilibrium. By 1980, with
the ascendancy of Ronald Reagan and Margaret Thatcher, this new economic
thinking began to dominate western economic thinking.
We now have forty years of
Friedmanism to contrast with the forty years of Keynesianism. How do those two
periods compare? Keynesianism produced strong economic growth and a relatively
equal society with no major financial crashes. Friedmanism has led to poor
economic growth, an increasingly unequal society, and regular and painful
financial crashes. Interestingly, somehow these crashes are, in the end, only
painful to the middle and lower classes; they are strangely rewarding to the
1%.
