Questioning the Dominant Narrative in Economics
Supply and demand, market equilibria, utility, and revealed preferences; the conventions of economics are largely neoclassical ones.
However, since the publication of an open letter by French economics students in 2000, it is increasingly clear that the world is ready for other approaches.
Edward Fullbrook’s Narrative Fixation in Economics makes the case that the neoclassical approach has stultified economics by shutting out other approaches to relevant subject matter. While I wanted to see the book consider neoclassical economics in terms of the sociology of knowledge, Fullbrook delivers a satisfying intellectual history with some gestures at the practices that have made one school dominant and others quite marginal.
The neoclassical approach can work and in many cases does provide helpful explanations, but there are questions it does not answer meaningfully. More importantly, it is usually presented as the only correct way to understand the world.
I have run into this many times. In reading a neo-classical approach to art, I notice that it fails to explain much at all about art. In reading about the psychology of decision-making, human behavior departs very clearly from neoclassical assumptions. Why is it considered sufficient to assert another neoclassical mantra as the basis for understanding a topic? Why are other methods dismissed so entirely?
Fullbrook’s aim is to legitimize alternative economic study, especially ecological economics and feminist economics. I think the value of these approaches stands on its own. Ecological economics can show the carbon footprint of global tourism. Feminist economics can document how eldercare impacts women’s participation in the labor force as compared to men’s.
But Fullbrook’s method is to point out the contradictions and limitations of the neoclassical project at its fundaments. This involves a fair amount of intellectual history, with the hope to prove the paradigm non-sensical. (I think any attempt to disprove an approach is fairly pointless, politically, but at least you can give ammunition to your supporters.)
Any theoretical paradigm makes a simplified representation of reality (60).
Narrative selection proceeds through a set of assumptions which simplify or pre-empt many features of the narrative’s domain. These assumptions include a system of classification of entities, the attribution of a limited number of properties to those entities, some metaphysic which posits a kind or kinds of connection between events, and usually a recognition of different structural levels within the domain of inquiry. (6)
Fullbrook argues that Euro-American elites have preferred simpler, closed narratives and groomed economics to offer such explanations (15). (I wonder why this is true and what has changed to make this less useful to power?)
Whereas other fields, such as history and evolutionary theory, embrace a variety of narratives and find value in multiple approaches, economics has tended toward a monoculture, most in teaching and publication, where the attitude is that there is one correct approach to any particular question. (I have little first hand experience here and am trusting the author on this! It seems hard to believe, but I’ve met very few unconventional iconoclasts in economics — and very many working in other fields.)
Coming from a background in inter-disciplinary social sciences, I find the pluralism Fullbrook advocates normal. It lets researchers explore different frames to create a more interesting and productive analysis of their topic. It’s a critical step and, when given time, a graduate student will spend years drifting between frames and refining whatever theory they find most relevant. The only time this doesn’t happen, in my experience, is when the student is beholden to an advisor who is building an empire, requiring their advisees to cite certain works and use set methods to understand the world. This is usually a bid to increase the prestige and authority (and raw citations!) of the heads of this empire. You could think of it as multi-level marketing.
Fullbrook goes a step further accusing neo-classical economics of scholasticism, arguing that neoclassical reasoning exists primarily to defend the foregone conclusion that markets should be left alone to find their own equilibrium.
Scholasticism was characterized by the use of deductivism to develop a systematic presentation and defense of Christian belief. Likewise, today’s Neoclassical mainstream is characterized by its use of deductivism to create a systematic presentation and defense of its belief in equilibrating economic systems. (96–97)
This is certainly my experience of neoclassical economics: the author insists on an assumption so that we can see a particular market equilibrium as the natural order. “Diminishing returns” is a common trope and it is quite often asserted about a thing, rather than demonstrated empirically. Fullbrook is calling this a result of a single, closed narrative in which some assumptions are welcomed and others are challenged harshly.
Hence, one finds embedded in general equilibrium models a long list of stipulations regarding the micro elements, including pure competition, constant coefficients of production, identical products and methods of production, within an industry, perfect markets or instantaneous omniscience, perfect divisibility of goods, and, of course perfect “rationality” for economic agents. Some combination of these and other micro conditions must be true before the Equilibrium Hypothesis conceivable can be true. (94)
The closed narrative of neoclassical economics relies on a specific form of human nature often referred to as “homo economicus.” Fullbrook points to several common aspects of human experience that do not fit this “rational” model (107–123).
- Double-bind situations where a person is socialized to act in a way that conflicts with neoclassical “rationality,” such as African-Americans expected to live in one part of town even when they don’t want to.
- Social being: a person may care about others so much that they don’t simply act as a free economic agent.
- Reciprocal imitation: investors often buy not because they believe something to have value, but because they think others believe it has value.
- Self-referential goods are things that people will spend money on just so everyone else can see they spent money on it, which is surprisingly common in beverages and apparel.
- Spontaneity is a common part of the human experience that often conflicts with neoclassical rationality.
- Adventure also motivates people, and hinges on unknown outcomes as in trying new foods, travel, and watching sports
- Free choice does not really exist in neoclassical reasoning, because there is always a right answer for an actor. When someone wants to make a choice for some reason not obvious to an economist, they will probably appear to be “irrational.”
In the spirit of thorough analytic argument that he hopes to dethrone, Fullbrook maps each of these categories to a specific neoclassical precept that it violates.
- Transitivity is the assumption that if a person prefers A to B and B to C, then they always prefer A to C.
- Completeness is the assumption that each person always has a preference about everything.
- Independence is the assumption that each person makes decisions independently, not just following the next cow in front of them.
Basically, Fullbrook rejects that neoclassical economics shows “the laws of human enjoyment” (134–135). It shows one set of laws. I wonder who these laws do make sense for and in what contexts they have been sufficient for the theory to make practical headway. I think the answer has to do with those who have certain kinds of privilege to act in the public sphere and perhaps do not do the social being and spontaneity things so much in this role. But I don’t know!
Regardless, it’s easy to take this attack on the closed narrative as simply “there are some exceptions.” But Fullbrook takes this point further by showing another neoclassical assumption that obscures the deeper effects of social inequality.
Atomism is the very neat assumption that each little unit, such as a consumer or a firm in an economic model, is self-contained and responds to forces without much impact on others. This idea is well captured by Margaret Thatcher: “[T]here’s no such thing as society. There are individual men and women.” Fullbrook disagrees with this quite strongly. (In my experience, most social scientists disagree with Thatcher on this point!)
Neoclassical economics derives its intellectual project from Adam Smith and other thinkers establishing the enlightenment ideal of self-consciousness in the 18th century (43). The assumption that I am my own person driven essentially by my mind was quite exciting and fresh at the time, as Europe transitioned out of Christianity and into a secular world where government, commerce, technology, and personal life were changing rapidly (and in exciting new ways). However, while this idea was once a radical experiment, it now feels like brusque libertarianism, denying what most people see as obvious inter-subjective connection between people.
Our experiences, including those formative and reformative of our individual selves, take place inside intersubjective structures — genders, races, languages, legends, histories, governments, fashions, genres, games, news professions, families, romances, friendships, etc., etc. — which we, as autonomous individuals, may modify but which are ontologically prior to each of our individual subjectivities, selves, preferences, etc. … Our social embeddedness is kaleidoscopic. In the coming and going of everyday life, as well as in the pursuit of ambitions, we enter and leave, and simultaneously inhabit different intersubjective fields, micro and macro, and with diverse and changing sets of people, which exercise their different influences on who we are. (50–51)
Because people live in a subjectivity (experience the world and think in a way) that has been socialized, they make decisions in a different way. Why do some people spend hundreds of dollars on shoes? Why don’t they prioritize fiscal responsibility in their decision making? Why do other people make ridiculous music videos about the antagonism borne of this conflict?
People grow up differently and live differently too. Very few look at prices on a market and try to maximize gains all day. Some people are motivated by a spiritual quest. Others focus on church as an escape from the very poor social options around them that result from a history of colonization or slavery. The history of subject formation is rich and not always so hard to understand. The fact that not everyone thinks the same way should come as no surprise and the influence of oppression in shaping subjectivity should be obvious to any who have experience it.
Fullbrook goes into an extremely compelling story from his own childhood of an African-American family that bought a nice house in a white-only part of town; the house was promptly burnt to the ground by local whites. While the family reasonably hoped to live in a nicer house than they could find in the black part of town, they were ultimately punished for what would generically be called “rational behavior” in a neoclassical narrative (106–107). Because this socialization is a real part of subject formation, it is understandable that the supposedly universal rationality of the enlightenment ideal is not at all a sensible approach for embedded social actors a.k.a. real people.
Fullbrook concludes that neoclassical economics is indeed racist in its omission of subjective formation along racial lines and it seems inarguable that ignoring racial dynamics like this and then guiding policy with it perpetuates systemic racism. To me, the line between “keeping your hands clean” and “doing something about it” has shifted a bit recently, and I think most academics writing between 1800 and 2000 ignored race, unless they were specifically engaging with it. We could call them all racists, as we could call most philosophers before 1990 sexist, but the important point is to change how we use these old ideas.
Fullbrook has made the case that economics is dominated by a single, closed narrative that makes some very unfair assumptions about people. But the critical consequence of the intellectual empire in question is how it impacts key decisions made by institutions.
In a very satisfying section for anyone who has doubted the wisdom of an economic theory that seems to have settled everything in just the wrong way, Fullbrook calls out the neoclassical tradition for embedding ethical judgments into its basic analytic terms.
“The market” for example means “both a brute fact (as in ‘the Chinese market for mobile phones’) and a normative and hence ethical idea as when a government is said to interfere with ‘the market’s free operation’” (75). Rationality, efficiency, growth, and revealed preferences all function as bridges between an empirical vocabulary and a normative one, telling you how to live.
The impact is that neoclassical economics normalizes bad policies and governance in many cases because it focuses entirely on fictional market equilibria for what are often white, male economic agents.
It would be nice for him to spell out examples of this going wrong, and I had hoped for something about Argentina, neoliberalism, or trickle-down economics. However, the case is made at the level of theories and their assumptions, rather than actions and their consequences.
Why Did Economists Do This?
Fullbrook explains the foibles of a dominant school in Economics, but does little to try to account for its rise to dominance or the means by which it perpetuates itself today.
From my perspective, economics has enjoyed tremendous success relative to other (more pluralist!) social sciences by presenting as a hard(er) science and flaunting arcane technical explanations to prevent regular people from disagreeing too easily.
These can be very helpful for advancing a research agenda. Early on in DARPA’s development as an agency funding research, it was funding social science research as well as computer science. However, a congressman got his hands on some actual social science research he could pretend to understand and poked holes in it in a bid to cut this funding. The research on computers made no sense to him or anyone else, and was left alone, because it was not relatable. (This story is from an oral history with Jack Ruina.)
Engineering accomplishments in the last hundred years have made benefits to quality of life that are obvious (HD TVs and smartphones!), if not really meaningful. Because hard sciences enabled this work at some level, the common impression is that science is productive and worth funding.
I imagine that between economists applying for grants, neoclassical work is favored because it uses an aesthetic that appeals to institutions funding research. This book provides some hint of the competition internal to economics over resources such as grants, but Fullbrook kindly suggests that neoclassical research should just be considered one “field” among many rather than a prestigious and powerful “school” competing with others. I imagine the narrative of competing schools is bad for his own project of enabling economic priorities other than maximizing returns for well-behaved rational actors.
A short but clear book that probably spends a little too much time shaking philosophical foundations and not quite enough explaining how things really went down.