Realising that economists have got it wrong – can we finally return to Polanyi?

There was an interesting post this morning in Foreign Policy, and widely followed up on social media sites, claiming that economists are “on the run”. Paul Krugman in particular has come in for criticism, and no small dose of schadenfreude given his recent admission that he got it wrong. There seems to be a dawning recognition, at least in the United States, that free market policies, neoliberal ideals and globalising aspirations have left the “have nots” much worse off than the models predicted. Of course, this becomes a much sharper problem when the prospect of a US election looms large on the horizon.

What does this mean? An end to neoclassical mainstream economics translated into pure policy? Blanchard has been cited as saying that as a self-confessed left wing economist, he now finds himself at the centre of broader debates. Will this mean a re-examination economics from soci

The problem? That free market economics, which told blue collar workers in the US that free trade and neoliberalism would not hurt their prospects, has been shown to be false. Krugman himself, one of the messiahs of free marketeering, has admitted as much in a recent article entitled “What Economists (Including Me) Got Wrong About Globalization”. He acknowledges the huge economic and social upheaval that followed as a result of policies based on his analysis.

This has been called “quite the ‘Whoops’ moment”. But this downplays the devastation wreaked on the lives of millions in the name of ideology. For anyone familiar with economic sociology, this conclusion has been long overdue. Writing in 1944, Karl Polanyi warned of the consequences of unchecked free marketism, insisting that the state was ideally placed to countermove and intervene to protect against the worst excesses of the free market. He paints a duality and constant battle between business, with their drive to lower costs regardless of the impact on workers and society, and the state, drawn in to protect the basic interests of its communities. This echoes the free market-protectionism debates playing out today. The difference now is that those advocating flavours of protectionism, who have been shut out of policy arenas over the past 20-30 years, have gradually been proven right.

This also reflects the economic monoculture described so succinctly by Earle et al in The Econocracy and “something of a guild orthodoxy” in the profession that advises policy makers of the benefits of free markets, free trade and globalisation. If this hint at regret or dawning realisation indicates an expansion of views or a heterodox approach going forwards, this can only be a good thing. We can only hope that the changes brought about do not fade with the cycles of the US electoral system.

By clarewilliamsresearch

How we can do, talk, and think about legal and economic phenomena better? And what other possiblities emerge when we do?

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