Peter Radford — DSGE Is a Plutocratic Tool

Hah! That caught your attention. 

People who criticize General Equilibrium – henceforth GE – often fail to mention one of its major benefits to mainstream economists, one that explains its tenacity despite its obvious irrelevance as a real economic artifact. 

This is that it is a weapon that allows economists to expunge politics from their subject…

Sums it up. Also expunges economic rent.

But before you blame Leon Walras,  John Bates Clark

The real issue is power. The purpose of conventional economics is exclude consideration of power in economic behavior. The method is through appeal to assumptions like the metaphysical concepts of utility and rationality, which are the basis of the marginalism that accounts for meritocracy and just deserts without reference to institutionally constituted power.

Ever since Adam Smith’s fateful reference to the invisible hand, economists have been obsessed with finding an alternative to overt power relationships as a way to distribute resources and hence wealth in a social setting. Any conversations about power relationships invokes politics, since the latter is the rightful study of said relationships. This would establish political theory as a competitor to economic theory as a source of social welfare allocation.

Interestingly, this libertarian strain of thought lies at that basis of both left and right libertarianisms, which see government as superfluous.

In this way GE is a parallel to Marxist theory: they both posit the ultimate extinction of politics from economic allocation. 

Both are idealist illusions presented to us to divert our attention from the growth and meaning of democracy.

Democracy, on the other hand, is based on the concept of rights. The guarantee of rights is the antidote to power and the guarantor of equality as absence of privilege.

The history of democracy is the history of inclusion. Of the constant extension of the rights and burdens of citizenship. And, consequently, of the right to dare to be equal and the right to engage in politics. This inclusion invades and degrades whatever existed prior to it. The ever growing voice of the newly empowered threatens to overwhelm that of the previous generation. 

In the realm of economic allocation this growing voice may express a desire for a greater share of society’s wealth to be dispersed. Since the first economists were representatives of landowners and merchants such a tide or force had be resisted.

Good post that cuts to the chase. Economics is not a value-free positive science. The presentation of it as such is suffused with interest — class interest.

Most subsequent economists working in the GE/DSGE tradition find it convenient to ignore the essential anti-democratic core of their endeavor. They simply argue they are being scientific. But others have been overt. Hayek and his heirs, especially Friedman, had no compunction or pretense. They openly presented the hidden hand as a socially virtuous force and were quite clear about the perils of political interference. They elevated GE/DSGE, as it has become, to the level of a faith or dogma. One cleansed of the dirty influence of the very forces that, at the individual level, Smith identified as the material essential for input into the hidden hand’s magical transformative process. In their view that transformative power has supplanted, because of its universal efficacy, the need for politics. It has especially supplanted the need for democracy, since the democratic impulse includes the rudeness we know as a desire for equality. Or, at least, greater equality.

The Radford Free PressDSGE Is a Plutocratic Tool
Peter Radford