The Puzzle of Modern Economics: Science or Ideology?

by Roger E. Backhouse

Does economics hold the key to everything or does the recent financial crisis show that it has failed? This book provides an assessment of modern economics that cuts through the confusion and controversy on this question. Case studies of the creation of new markets, the Russian transition to capitalism, globalization, and money and finance establish that economics has been very successful where problems have been well defined and where the world can be changed to fit the theory, but that it has been less successful in tackling bigger problems. The book then offers a historical perspective on how economists have, since the Second World War, tried to make their subject scientific. It explores the evolving relationship between science and ideology and investigates the place of heterodoxy and dissent within the discipline. It is argued that, though there are problems with the discipline, economics is needed to combat the myths that abound concerning economic problems.

Genres: Economics, Nonfiction

214 pages, Paperback

First published June 1, 2010

Reviews

[Rob · Rating 4 out of 5]

For sure, Roger Backhouse covers old ground in this short survey but as an explanation of the state of economics today and the conditions that have led to this, it will be a hard book to beat. The author’s typically moderate, unhistrionic take on the subject will suit newcomers to economics of any persuasion; yet he never ceases to tackle controversial issues and never denies the role ideology has had in shaping the discipline.

Topics that I have struggled with before including the nuts and bolts of Keynes’ General Theory and the rise of finance as a discipline are explained expertly and in terms that the layperson can understand.

The concluding chapter wrestles with economic methodology and advocates a middle line whereby we should draw conclusions about the economy both from observation and scientific method. Backhouse also feels that the economists who have best succeeded in subverting orthodoxy hail from within the mainstream of the discipline and in this he is right: Stiglitz and Krugman have in many ways pulled the rug from under the feet of Tony Lawson and Fred Lee. But the result is a book that is well timed – its publication at a time when old shibboleths are being dismantled lends it the air of a last word on the economics of Friedman, Becker and Hayek. Hopefully this will mean good riddance.

[Yuni Amir · Rating 5 out of 5]

Roger Backhouse made the most important conclusion in this well-written book; economists must embrace that none of us have full information, that some people know more than others, that people are influenced by fashions, that one person's action may have a direct effect one someone else, and that it is not always possible to charge for a good.

[Phil Good · Rating 4 out of 5]

This is one of the best books on economics I have read. The combination of case studies in the first half of the book and history/theory in the second half of the book sheds an amazing amount of light on the mysteries of modern economics for an ill-informed reader like myself. The book's central aim is to work out what modern economics is for and whether it achieves the aims it sets for itself. As one might expect of an academic treatment of this issue the results are mixed. Backhouse claims that modern mathematical economics does well when it models microeconomic phenomena, e.g. markets for carbon trading or auctions for 3G networks, but generally performs poorly when it tries to predict or dictate macroeconomic phenomena, e.g. the Russian transformation to capitalism or the financial deregulation that caused the recent financial crisis. However, Backhouse resists the conclusion that such failures should push us toward more heterodox positions. Modern mathematical economics may have failed on occasion but if heterodox positions such as the post-Austistic movement or the recently energised Keynesian fringe wish to profit from this then they must produce models with the same predictive power and explanatory scope. It's time to put or shut up, or this is at least what Backhouse would have us believe. Keynesians and the like would be forgiven for concluding that this is an enormous case of question begging and they would probably be right to do so. Despite these obvious biases toward the mainstream, this is still a very well written and very interesting book.

[Friend of the Talking Bird · Rating 3 out of 5]

Is economics a science or an ideology? When economics predicts the behavior of professionals in restricted situations, such as trading in permits for acid rain-causing pollution, or auctioning the 3G frequency spectrum, it is a science that makes falsifiable predictions. When you have broader situations involving a wider group of people, such as Russia's transition to capitalism, or the globalization of Third World countries, or the recent world financial crisis, economics loses its predictive power and becomes more of an ideology. And as Alan Greenspan admitted in his Congressional testimony, this ideology is flawed.