Jo Michell — Economics, Ideology and Trump

Debate rages in particular on the question of whether Trump’s victory was driven by economic factors. Like Duncan Weldon, I think Torsten Bell gets it about right – economics is an essential part of the story even if the complete picture is more complex.

Neoliberalism is a word I usually try to avoid. It’s often used by people on the left as an easy catch-all to avoid engaging with difficult issues. Broadly speaking, however, it provides a short-hand for the policy status quo over the last thirty years or so: free movement of goods, labour and capital, fiscal conservatism, rules-based monetary policy, deregulated finance and a preference for supply-side measures in the labour market. 

Some will argue this consensus has nothing to with the rise of far-right populism. I disagree. Both economics and economic policy have led us to this point.

But to what extent has academic economics provided the basis for neoliberal policy? The question had been in my mind even before the Trump and Brexit votes. 

A few months back, Duncan Weldon posed the question, ‘whatever happened to deficit bias?’ In my view, the responses at the time missed the mark. More recently, Ann Pettifor and Simon Wren Lewis have been discussing the relationship between ideology, economics and fiscal austerity.…

This is a good analysis of Keynesianism versus Monetarism. Its is the most comprehensive, clear and concise account of which I am aware.

What I would add, largely from Marxian economists, is that there are three approaches to economic analysis.

The first is superficial economics, what Michale Hudson calls "junk economics." It is superficial because there is no analysis of how economies actually operate in societies populated by real people influenced by culture and institutions, which constitute complex and dynamic system. Rather the axiomatic (formal) hypothetical-deductive approach is declared the only way of scientific approach. However, the axioms are not based on analysis of actual operations in real systems but rather simplifications that are assumed to be close enough approximations. Macroeconomics models are not tested dynamically owing to lack of availability of data over extended periods based on the same conditions.

The second is crude economics, which Marx calls vulgar economics. It's the economic approach of business people that are not interested in explanation but rather informed expectations for planning and decision-making. This exists however mostly at the micro level, although business people and investors also take macro conditions into account. But this is a much more complicated affairs than running a business or trading short term. So far almost no one has excelled at it long term.

The third is refined analysis that looks deeply into the structure and functioning of the society as well as its economic system. Marx held that is was the approach that distinguished classical economists like Smith and Ricardo from their predecessor and it was an approach that he followed and sought to improve upon. This is what Michael Hudson means, for example, in calling for a return to classical economics from neoclassical and its derivatives, which are merely superficial in their analysis.

Critical Macro Finance

Economics, Ideology and Trump
Jo Michell | Senior Lecturer in Economics at the University of the West of England, Bristol