The Assumptions Economists Make

by Jonathan Schlefer

Economists make confident assertions in op-ed columns and on cable news—so why are their explanations often at odds with equally confident assertions from other economists? And why are all economic predictions so rarely borne out? Harnessing his frustration with these contradictions, Jonathan Schlefer set out to investigate how economists arrive at their opinions.

While economists cloak their views in the aura of science, what they actually do is make assumptions about the world, use those assumptions to build imaginary economies (known as models), and from those models generate conclusions. Their models can be useful or dangerous, and it is surprisingly difficult to tell which is which. Schlefer arms us with an understanding of rival assumptions and models reaching back to Adam Smith and forward to cutting-edge theorists today. Although abstract, mathematical thinking characterizes economists’ work, Schlefer reminds us that economists are unavoidably human. They fall prey to fads and enthusiasms and subscribe to ideologies that shape their assumptions, sometimes in problematic ways.

Schlefer takes up current controversies such as income inequality and the financial crisis, for which he holds economists in large part accountable. Although theorists won international acclaim for creating models that demonstrated the inherent instability of markets, ostensibly practical economists ignored those accepted theories and instead relied on their blind faith in the invisible hand of unregulated enterprise. Schlefer explains how the politics of economics allowed them to do so. The Assumptions Economists Make renders the behavior of economists much more comprehensible, if not less irrational.

Genres: Economics, Philosophy

384 pages, Hardcover

First published March 20, 2012

About the author

Jonathan Schlefer is author of The Assumptions Economists Make (Belknap/Harvard, 2012). The former editor of Technology Review, he holds a Ph.D. in political science from MIT. He collaborates with the Harvard Business Review.

Reviews

[Rissa (rissasreading) · Rating 4 out of 5]

As someone who doesn't know much about economic theory or modeling I found this to be really informative and a decent place to start. I found that this was not only informative as someone who doesn't really know a whole lot about the economy apart from experience with it, I found that this book kind of confirmed some of my own theories. Such as the fact that hardship and poverty arises from a lack of distribution of resources, not lack of productivity. It also confirmed that the invisible hand theory can't really ever work out and theorists also abandoned models on it. I also found that this gave a lot of information on economists of days past and their theories. It also critiqued them in the sense that neo-classical economists and ideals don't workout. This novel also confirmed my thoughts that we aren't operating a capitalist economy, or an economy in any sense, in the correct way and I truly believe we need to abandon all neo-classical models for something new. I also learned in this how Reagan resulted in workers having a lack of bargaining power and created a downward trend that has continued that has impacted the economy.
Would recommend this for anyone interested in the economy and economic models.

[Sean · Rating 4 out of 5]

How can Krugman rationalize opposing a $20 minimum wage but at the same time favoring a $7.25 minimum wage??! Anyway -- this is how these guys think.

[Muhammad al-Khwarizmi · Rating 3 out of 5]

Clear and incisive at some points, absolutely muddled at others. The discussion of how unrealistic it is that factors of production should be infinitely substitutable for each other is a gem. As is the mention of agent-based computational economics at the end of the book. Had I not already been aware of that development and turned on to it by this book instead, I would have given it four stars, but you might get more out of this one than I did.

[Fernando Pestana da Costa · Rating 5 out of 5]

This is a wonderfully informative and elegantly written book. The author travels through the main currents of macroeconomics, starting with Adam Smith and Ricardo, and continuing to Marx, Keynes, the neoclassical, the structuralists... Although the author clearly endorses a more Keynesian/Structuralist approach (as opposed to a neoclassical/neoliberal one) he is very careful at avoiding partisanship. The main assumptions of the models are carefully explained and discussed in a non mathematical way as free from technical jargon as possible. Although not a book about the current crisis, it does not avoid the issue completely, discussing, when appropriate, several of its causes in the theory and practice of current mainstream economical thought. After reaching the final page, every non economist (and, I venture, a lot of economists too) have gained a far deeper understanding of the assumptions underlying the public discourse of economists and policy makers, assumptions that often do not seem to be taken by them as such, but as God given truths immune to any rational discussion. A very good book, deserving repeated visits.

[Haaris Mateen · Rating 4 out of 5]

One can read this book on two levels.

One, as an involved history of economics. Schlefer discusses many stalwarts of the profession from its 18th century origins to the current set of economists belonging to various schools of thought. He does miss out on Friedman but I can't complain given the amount of air time he gets everywhere else. As a history then, Schlefer does a reasonable job although the fun really kicks in if you have some prior background in the subject.

Second, it can be read with respect to the ostensible premise of the book itself - that of the many kinds of assumptions economists use. Again to be fair, he does an excellent job of giving us a trip through the seminal models that carry considerable weight today. He does a really good job of making the models more accessible which isn't so easy. I think where the book goes awry is in the author's own judgement about the direction economics really needs to take. He's bang on about the neo-classical stuff but his discussion on the structuralist side reads a little over-excited. In other words, where he thinks things are working he loses his critical eye a bit.

Still, a really good read.

[Devin Gilbert · Rating 3 out of 5]

Had a hard time figuring out who this book was aimed at. I'm a grad student in econ and thought it was an interesting set of criticisms. At times he is lucid and engaging,(especially on the insight of Keynes), but at others muddled and confusing. Many chapters left me wondering whathis point was.

[David]

I didn't actually finish this book, it was dry and dull.