Death of Economics [Paperback]

The Death of Economics is a book divided by the author into two parts, each of five chapters. Everything good that has been said about it this book is true, But it is true ONLY of the first part. The devastating criticisms in Part One of economics as it is practised, strangely apply completely to Part Two. The author curiously seems not to have realized this.

Part One starts in fine form:

"The world economy is in crisis. Unemployment in Western Europe rises towards the 20 million mark. America faces the deep-seated problems of the twin deficits, the federal budget and the balance of trade. Vast tracts of the former Soviet empire are on the brink of economic collapse. Japanese companies, faced by the deepest recession since the war, are on the verge of breaking the long-standing and deep-rooted social convention of lifetime employment.
"The orthodoxy of economics, trapped in an idealized, mechanistic view of the world, is powerless is assist."

So follows a clear and enlightening exposition of the course of economic theory since its inception by Adam Smith to the present day. It describes a decline from a rational, balanced approach to an obsession with abstruse mathematics and wrong-headed theory. I know of no better account of this lamentable process or more incisive criticism of what the "dismal science" has become today. The total inability of economists to even begin to unravel the processes that concern them is beautifully and entertainingly explained. More pertinently, the way they use fallacious theory to further their own suspect political agendas is lucidly analyzed.

Having demolished the analytical approach to economics and its political abuses, the title of the book would lead you to believe that it was only left to see it well and truly buried. But the author in the second part goes about constructing his own elaborate economic theory, which for all the world seems to embody most of the faults of the "orthodoxy" he has previously so well laid to rest. The following paragraph illustrates the kind of insights the reader can expect from Part Two:

"In the short term, such policies may appear to work, in so far as they move the economy to a more favourable position on an ellipse moving around a given attractor point, of the kind represented in Figure 15. These, let us remember, are the stylized ellipses which emerge as the implications of our theoretical LV model. They are idealized representations of the ellipses which actually exist in the empirical data. In practice, the ellipses which are traced around a given attractor point over course of several cycles will all be different from one another. Even during periods of regular behaviour, some cycles may be shorter or longer than the average, or more or less intense in terms of the size of the fluctuations within them.". (P.194)

Ouch! I'm sorry. We are not going to solve any of the world's economic problems like this.. Part Two is a hard and unnecessary grind. So let's return to some points about Part One which really is worthwhile.

The first thing to say is the fact that the book was written in 1994 is of little consequence as regards its power and relevance. The immediate problems discussed are now history, nevertheless, they are interesting as history. What is a bit more disappointing is that the focus is relentlessly on certain issues that may have been the fashionable ones of the day, but now need to be set in a wider framework.

For instance, the word "unemployment" occurs far too often. You feel at times that it is the only problem worth worrying about. This was never so at any time - at least not since the time Keynes applied his mind to economic problems in the 1930s.

The other major focus is on growth, as if to achieve it is an end in itself and one that we should relentlessly pursue. Ormerod claims that it is to growth that we owe our better standard of living compared to, say, 100 years ago. But surely technology has to be put into that particular equation more strongly. And what about the huge increases in productivity that accompany it? A search in the index reveals no mention of that word, and I cannot find it anywhere in the text.

Ormerod also explores a fascinating report by Alfred Chandler from 1990 on how American corporations developed and why they were, for a time, so successful. Chandler's conclusions ran contrary to the economists' pet theories and this kind of rooting of economic studies in reality is typical of Part One. However, Ormerod seems to support the thrust of Chandler's recommendations perhaps a little too uncritically as, for instance, one factor contributing to the corporations' success is said to be their ability to control markets. Most people would have more difficulty than Ormerod seems to have in accepting the virtue of corporations controlling markets.

On the plus side Part One of The Death of Economics is a wonderful piece of summarizing of the complex economic ideas that have been put forward during the history of the subject, and for this we can be grateful to the author. Consequently, the period biases towards unemployment and growth can easily be forgiven. However, the mind numbing strictures of Part Two cannot be. (If you want some practical ideas of how economic theory could change the world for the better read Michael Rowbotham's The Grip of Death.)

The recommendation must overwhelmingly to buy this book. It is to be treasured for Part One. Unless you have a strong interest in economic theory, skip Part Two. You will still more than get your money's worth.