Flip-flops of Economics

Most US economists are professors in colleges and universities.  Their academic positions enable research and teaching that is supposed to be independent of corporate interests.  They could, at least hypothetically, provide the critical insights into economic problems needed for their solution.  Economists might help to propose, evaluate, and debate the wide range of possible solutions — from those that minimally change the status quo to those that entail fundamental social change.  However, history shows that most professional economists have been subservient to corporate interests rather than constructive critics.  They celebrated capitalism, ignored or dismissed alternative economic systems, and only argued over how best to manage the huge social costs of capitalism’s recurring instability.  The economists’ shameful corporate subservience has been the nation’s loss.

The US professional economic establishment — its members call themselves “mainstream” — never leads.  It always follows.  Before the Great Depression, mainstream economists dutifully embraced what they called “neoclassical economics.”  This economic “science” showed, they said, that what profited business benefited the whole society.  In this mainstream perspective, private enterprise and markets worked best for everyone when left free of government regulation or interference.  Big business led and publicly promoted this celebration of capitalism.  Colleges and universities sought financial contributions from businesses, their owners, and their leaders.  They needed enrollments from these people’s children (few others could afford the costs of higher education).  Academic administrations neither wanted nor supported professors who criticized private business interests or otherwise displeased them (for example, by challenging mainstream economic science).

After 1929, when private enterprises and free markets yielded the Great Depression, business largely shifted to advocate massive government interventions to “fix” the broken economy (as it does again today).  Except for a few diehards, the professional economists quickly followed and reversed their “science.”  They found a new guru in John Maynard Keynes who extolled the virtues and clarified the mechanisms of government economic interventions.  Mainstream economics became Keynesian from the late 1930s through the 1970s.  Everywhere college economics courses taught about business cycles (the polite term for capitalism’s chronic instability).  Textbooks instructed a generation that governments’ monetary and fiscal policies were necessary and effective means to limit, offset, and eventually eliminate business cycles.

In the 1970s, the mainstream reversed course yet again.  Keynesian economics had failed to overcome or even prevent capitalist business cycles in the US.  Monetary and fiscal policies had not delivered the prosperity, growth, and stability promised by the Keynesians.  Meanwhile, US corporations had gotten rich and powerful enough — while memories of the Great Depression had faded enough — to undermine the government regulations and controls provoked by the Great Depression.  Because business resented those government interventions that limited profits, corporate interests promoted Reagan’s candidacy for the presidency.  His lifetime service to corporate interests qualified him to roll back the New Deal.  Tax cuts, especially on businesses and the rich, and deregulation of business became mantras for leading politicians in both parties.  Corporate America resumed the pre-1929 celebration of private enterprise and free markets.

Academic economists again followed.  Curricula, textbooks, and conferences all changed.  Keynesian economics was out, neoclassical economics was back in, and Milton Friedman was the new guru.  He had been a diehard who kept celebrating private enterprise and free markets across the mainstream’s Keynesian period.  Then, as businesses increasingly decided that “our economy no longer needed government intervention” that constrained profits, Friedman won their support for his University of Chicago economics department.  So, in Reagan’s new America, the economics profession dutifully found that Friedman’s economics was now “correct” and “scientific.”  He and his supporters took over the mainstream.  They marginalized Keynesians and breathlessly re-endorsed the old pre-1929 “neoclassical” economics that exalted private enterprise and free markets as guarantors of prosperity.

So complete was the academic mainstream’s embrace of neoclassical economics that very few students learned about capitalism’s instability.  Courses in business cycles, once staples of the economics curriculum, largely vanished.  The Bush government’s economists were products of economics educations that incapacitated them to cope with today’s massive capitalist crash.  Thus, they (1) failed to see, let alone prevent, the crash, (2) waited too long to act as the crash unfolded across the latter part of 2007 and 2008, and (3) proposed one half-baked and ineffective government policy after another since mid-2008.  The economists gathered by Obama exemplify the same incapacitated generation.

The profession’s shameful history of opportunism may be best illustrated by the January 2009 annual meeting of the supremely mainstream American Economics Association (AEA).  Late 2008 had seen big businesses get trillions in government bailouts.  Leading mainstream economists at the AEA meeting cravenly announced the errors of their former ways and advocated return to Keynesian economics.  Neoclassical economists saw their careers jeopardized and acted quickly.  New York Times reporter Louis Uchitelle even applied the religious term “conversion” to the paper by Harvard’s Martin Feldstein.  Like many born-again Christians, though, born-again Keynesians will no doubt backslide at the first sign of financial-sector stabilization.

To sum up, repeated oscillations between neoclassical and Keynesian economics in defining mainstream economics reveal the profession’s opportunistic subservience to business needs.  The same subservience explains why it consistently refuses to engage the economists who respond to capitalism’s instability by advocating social change to alternative economic systems.  In the wake of yet another massive capitalist breakdown, however, our real choices need not and should not be limited to neoclassical or Keynesian economics, to just another shift between private and state-managed forms of capitalism.  The case for debating movement beyond capitalism has never been so strong.  The now considerable theoretical literature on post-capitalist economies (for example, S. Resnick and R. Wolff, Class Theory and History: Capitalism and Communism in the USSR, New York: Routledge, 2002) and the accumulation of local and national experiences with them provide ample resources and lessons to make such moves.

Rick Wolff is a Professor Emeritus at the University of Massachusetts in Amherst and also a Visiting Professor at the Graduate Program in International Affairs of the New School University in New York.   He is the author of New Departures in Marxian Theory (Routledge, 2006) among many other publications.   Be sure to check out the video of Rick Wolff’s lecture “Capitalism Hits the Fan: A Marxian View”: <vimeo.com/1962208>.