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5.0 out of 5 stars Excellent study of the shortcomings of orthodox economic models, 26 Feb 2013
This review is from: The Assumptions Economists Make (Hardcover)
John Schlefer has a background in technical journalism and political science. This is relatively unusual for a commentator on economic theory, but it's that difference in the angle of approach that makes 'The Assumptions Economists Make' such an interesting book. Schlefer is concerned by aspects of economic theory that he first encountered as a postgraduate student: in particular, the apparent use of opaque, highly abstract models based on unclear or dubious assumptions. He makes a good case that in this respect, economics is neither as 'scientific' as the hard sciences whose authority it envies, nor as responsible as other social sciences in acknowledging the limitations of its models and the incoherence of some its most cherished doctrines.

Schlefer looks at the metaphors, analogies and 'parables' that economists have used as they have attempted to construct convincing microeconomic and, in particular, macroeconomic models. He begins with Adam Smith's notion of 'the invisible hand' and proceeds through the history of macroeconomic theory, demonstrating at each stage how far theories presented to the public and policy-makers as scientific were in often not merely technical advances but also reactions to earlier theories whose political and social implications were felt to be unacceptable. This combination of 'science envy' and socio-political bias resulted in an economic orthodoxy - neoclassical economics - that rested on unproven assertions about the nature of the market and the minds and behaviour of economic agents. Ultimately, it was this school of economic thought - still the basis of almost all undergraduate-level teaching - that generated the conviction among politicians that economic crisis was a thing of the past and tight regulation unnecessary: a conviction shown to be untenable even before the 2008 crash provided the conclusive demonstration.

Schlefer doesn't argue that models are useless and theory unnecessary. On the contrary, he asserts that only through such simplifications and abstractions can the immense complexity of the real economy be approached. But, having no particular dog in the fight, he can be merciless on the shoddy thinking and presumption of economic theorists and their excessive claims, and the disastrous effect of widespread belief in the expertise of self-promoting economists. On his reading, economics is a discipline that fatally lacks a capacity for self-criticism and any sense of disciplinary modesty. He concludes by proposing simple tests for useful economic models and the crucial assumptions on which they are founded.

There are of course other issues on which the author doesn't touch. The book avoids partisan politics, but also any examination of what in some ways is a larger scandal: the extent to which the economics profession has been co-opted by business and government. The reader will have to look elsewhere for such material. However, what Schlefer has chosen to do he has done well. He has deliberately avoided mathematical language, and the intelligent general reader should be able to cope with the book so long as he or she is prepared to pay attention - this is not a book to skip-read.

Recommended to anybody interested in contemporary economic theory and the roots of the recent financial and consequent economic troubles. Well worth reading alongside Nouriel Roubini's 'Crisis Economics', Ha-Joon Chang's '23 Things They Don't Tell You About Capitalism', and John Quiggin's 'Zombie Economics'.
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