While Skidelsky’s arguments have more than an element of truth about them, he does not really explain why mainstream economics has become divorced from reality. This is not a mistake of education or lack of recognition of wider social sciences like psychology; it is a deliberate result of the need to avoid considering the reality of capitalism. ‘Political economy’ started as an analysis of the nature of capitalism on an ‘objective’ basis by the great classical economists Adam Smith, David Ricardo, James Mill and others. But once capitalism became the dominant mode of production in the major economies and it became clear that capitalism was another form of the exploitation of labour (this time by capital), then economics quickly moved to deny that reality. Instead, mainstream economics became an apologia for capitalism, with general equilibrium replacing real competition; marginal utility replacing the labour theory of value and Say’s law replacing crises.
As Marx succinctly put it: “Once for all I may here state, that by classical political economy, I understand that economy, which, since the time of W. Petty, has investigated the real relations of production in bourgeois society, in contradistinction to vulgar economy, which deals with appearances only, ruminates without ceasing on the materials long since provided by scientific economy, and there seeks plausible explanations of the most obtrusive phenomena, for bourgeois daily use, but for the rest, confines itself to systematizing in a pedantic way, and proclaiming for everlasting truths, the trite ideas held by the self-complacent bourgeoisie with regard to their own world, to them the best of all possible worlds.”
What is wrong with mainstream economics is not (just) that economists of today are too narrowly mathematical and focused on economic models – there is nothing inherently wrong with using maths and models – or that most economists do not have the wider “erudition and multiple talents” of the classical economists of the past. It is that economics is no longer ‘political economy’, an objective analysis the laws of motion of capitalism, but an apologia for all the ‘virtues’ of capitalism.…The Protestant ethic equated virtue with material wealth and worldly success. This was an underlying factor in the development of capitalism (economic liberalism) as a cultural norm in the West. See Max Weber's The Protestant Ethic and the Spirit of Capitalism and R. H. Tawney's Religion and the Rise of Capitalism, for example.
It is not just market fundamentalism that is the problem, according to Michael Roberts. Even Keynesianism is only a ploy to paper over the warts of capitalism when they arise cyclically, addressing the symptoms rather than the underlying etiology.
In my view, policy makers may have chosen to ignore fiscal spending to solve the ‘technical problem’ of the Long Depression partly “for political reasons”. But there are also very good economic reasons for arguing that in a capitalist economy, increased government spending and running budget deficits would not get an economic recovery if the profitability of capital is low.If the profitability of domestic investment is low, then increased funding will flow to increases in asset prices, e.g., stock buyback that increase financial wealth but not real wealth, or investment will flow abroad where returns are more attractive.
Michael Roberts' Blog
The system is broken
A study of social class — defined by annual income and by education-level — finds that “Social class rank was positively associated with essentialist beliefs [beliefs that genetics is more important than environment in explaining social class]. ... Social class rank was also positively associated with both belief in a just world ... and meritocracy beliefs, ... suggesting that upper-class ... individuals are more likely to believe that society is fair and just than are their lower-class rank counterparts.”Social Darwinism.
This study, “Social Class Rank, Essentialism, and Punitive Judgment,” was published in the Journal of Personality and Social Psychology, and was performed by Michael W. Kraus and Dacher Keltner, two leading social scientists, whose investigations of the moralities that are applied respectively by the rich and by the poor, are contributing importantly to our understanding of society, of politics, of law, and of economics.
This research found that “Upper-class ... individuals were more likely to endorse beliefs that social class is an inherent, stable, and biologically determined social category relative to their lower-class ... counterparts. Moreover, this pattern emerged after accounting for both political attitudes and material resource measures of social class. ... Beliefs that society is fair and just explained the tendency among upper-class ... individuals to endorse essentialist [biological] beliefs about social class.” Thus: the richer and more educated a person was, the more that he thought the world is just, and the more he attributed his being upper-class to his supposed inborn superiority, rather than to the circumstance of his having been born from rich parents who possessed the money to send him to college and perhaps to an expensive university.
The Huffington Post
The Rich And Educated Believe Wealth Correlates With Virtue, Says Study