Category: Critique of Mainstream Economics

The Fiscal Black Holes of Mainstream Economics

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By Jacob Assa and Marc Morgan

“The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.”
― Joan Robinson

Recent years have seen a proliferation of debates on the shrinking of fiscal space in both industrialized and developing countries. In the former, the discussion often takes the form of agonizing over fiscal ‘black holes’, whereas in the latter it is usually presented in the context of ‘unaffordable debt’.

In reality, the real black holes, or blind spots, are those found in neoclassical economic models underlying such debates, rather than in the real economy (Table 1). We describe three such neoclassical fiscal black holes, based on our recent paper ‘The General Relativity of Fiscal Space’.

Table 1. Overview of fiscal black holes in the neoclassical paradigm.

Source: Authors’ elaboration. Shaded in black are the black holes of the neoclassical fiscal paradigm.

We show how fiscal space is not the absolute sum of taxes and borrowing, but rather relative in several ways. It depends on macroeconomic conditions, such as unemployment and inflation, countries’ degree of monetary sovereignty, and their level of productive capacity. Furthermore, fiscal space is relative to what governments do with it, expanding or contracting depending on the function of public spending.

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Systems Thinking, Polycrisis, and the Blind Spot of Power

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Why do so many people who claim to “see the whole system” remain blind to power?

This question struck me while listening to a recent episode of Planet Critical. The guest was Joseph Tainter, best known for The Collapse of Complex Societies. Tainter is celebrated as a pioneer of collapse studies and systems thinking. Yet when the conversation turned to the genocide in Gaza, his framing reduced it to Israel’s “historical fear of Arabs.” The structural realities of colonialism, imperialism, and resource politics — central to understanding both Gaza and the Middle East more broadly — disappeared. Here was a thinker revered for complexity, offering an analysis that was Eurocentric, ahistorical, and politically naïve.

This is not about Tainter alone. Similar patterns appear in the work of figures like Nate Hagens and Daniel Schmachtenberger, both of whom have influenced me personally. Their mission is helping people make sense of the complex issues: Nate by weaving ecology, energy, financial systems and human behavior into accessible frameworks; Daniel by building sweeping syntheses across cognitive science, culture, and existential risk.

The often criticise most disciplines for their blindness. But their critique of blindness has its own blindness. Across their work, capitalism, imperialism, colonialism, and class power rarely appear as sustained focal points. Yes, Daniel sometimes critiques modernity and gestures toward indigenous knowledge, and Nate occasionally hosts guests who reference colonial history. But overall, the crisis is cast as a species-level problem — as though “humanity” collectively overshoots limits — rather than as the outcome of specific, historically rooted systems of exploitation with identifiable beneficiaries and victims.

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The Economist Who Solved the Free-Rider Problem

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Defenders of capitalism argue that cooperation is undermined by individuals’ tendency to take more from society than they contribute. The economist Elinor Ostrom refuted this idea, but without identifying capitalism as the real cause of exploitation.

Socialist arguments that cooperation and collective action represent the basis of a better society are often dismissed by supporters of capitalism. “Human nature,” so the argument goes, is inherently self-seeking.

The so-called “free-rider problem” purports to prove that large-scale cooperation is unsustainable because individuals seek to benefit from the collective action of others while minimizing their own contribution. This tendency is, the argument goes, a barrier to collective solutions to social problems.

Rather than cooperate, individuals should allow market forces to dictate how they decide to allocate their time and resources. Such arguments are applied by supporters of capitalism to explain why rational collective resource management and attempts to tackle climate breakdown are unlikely to succeed without the aid of market forces.

Since capitalism emerged as the world’s dominant economic system, its defenders have argued that private property rights and the pricing of natural resources are the only way to collectively manage our social goods.

The economist Elinor Ostrom provided a sharp critique of such notions from within the framework of mainstream economics. She demonstrated that cooperative management of natural resources can preserve rather than degrade them, and that trust between strangers can be established, expanded, and become the basis of collaborative ways of managing what she described as “common-pool resources.”

Within the field of sustainable development studies, her work became highly influential and helped to bring the notion of “the commons” to a broader audience. However, outside of academia, she remains largely unknown — a glaring oversight in a world in which education, water, and even land are increasingly run and managed for and by private companies.

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COOPT, EMPTY, EVISCERATE: Nievas and Piketty on Unequal Exchange

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By Güney Işıkara and Patrick Mokre

The recent paper by Gastón Nievas and Thomas Piketty, “Unequal Exchange and North-South Relations” has gained substantial praise as well as criticism in a short period of time. Their empirical endeavor is impressive: the authors compiled and published a large dataset of balance of payments, including traded goods, services, direct transfers, and income from foreign labor and capital assets. This is a gruelling task in itself, and the dataset will certainly provide the foundations for many fruitful studies. For many academic economists, Nievas and Piketty’s own interpretation of the data constitutes one such great contribution for it puts forward, as the title of their paper suggests, that modern inequalities across regions and countries have their roots in colonial extraction and unequal exchange characterizing international trade until today. 

We on the other hand argue that the paper falls behind the state of perception of international inequalities in the Marxist tradition, dependency and structural economics literature. It (1) grasps global inequality as the outcome of a collection of distortions of the capitalist market mechanism rather than as an intrinsic feature of the latter; (2) consequently, proposes structural reforms to alter the power asymmetries in international trade, without an appropriate model of those power relations and why they exist in the first place; (3) lacks an adequate theory of production, value and price to understand the exchange relations at stake; and (4) artificially separates the term unequal exchange from the existing literature on trade inequalities, value transfers, and drain of wealth.  

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The Nobel Illusion: Why the Nobel Prize in Economics Needs to be Abolished

Dr. Dawa SherpaLeave a comment

Every year the Nobel Prize is awarded to different disciplines including Economics. And each year it generates a wave of euphoria and hype. But unlike literature and natural sciences, economics is the only social science where the Nobel is awarded. Even critical voices within the discipline get swayed by the hype of Nobel. Notwithstanding the problem of absolute marginalization of Blacks, Women and economists critical of Capitalism among award winners, there are other serious problems with Nobel Prize in Economics.

First of all, the Nobel Prize in Economics is not actually a Nobel Prize. The award in Economic sciences was not among the original set of disciplines included in the Nobel Prize in 1901. It was established by the Central Bank of Sweden (Sveriges Riksbank) in 1969, after 68 years, rather than by the Nobel Committee itself. The greatest irony is that this fact is mentioned even on the Nobel Prize website, which states, “The prize in economic sciences is not a Nobel Prize.” (NobelPrize.org, 2018). Hence contrary to all other Nobel prizes in different subjects/fields, the Nobel Prize in economics is called by the special name “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”.Initially, members of the Nobel committee (including family members of Alfred Nobel) strongly objected to naming the prize given by the Central Bank of Sweden as the Nobel prize (Offer & Söderberg, 2016). To quote Alfred’s great-grandnephew Peter Nobel, “Nobel despised people who cared more about profits than society’s well-being. There is nothing to indicate that he would have wanted such a prize”, and deliberate association of Nobel prizes in Economics is “a PR coup by economists to improve their reputation” (The Local – Nobel Descendant Slams Economics Prize, 2005).

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The nobel of influence in Economics or Why theories fail

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The only Nobel Prize that has nothing to do with the will of its creator, Alfred Nobel, was announced on Monday, October 14th. As usual, the announcement sparked a range of reactions, and as economist Noah Smith points out, this prize has traditionally been awarded to influential scholars within the sphere of economic discipline. This time, the prize did its job and recognized the contribution of neo-institutionalism to economics. Its influence is undeniable, as can be seen from the fact that these authors are widely cited in macroeconomics courses. For instance, Daron Acemoglu had long been mentioned in academic circles as a favorite to win the Nobel, much like Leonardo DiCaprio was repeatedly named a favorite for the Best Actor Oscar. While we are already familiar with the kind of economics that dominates classrooms and the hegemonic media, as well as the economics that influences politics and shapes economic policies, it’s worth discussing the theoretical and empirical contributions being recognized and their main critical observations.

Daron Acemoglu, Simon Johnson, and James A. Robinson (AJR) have been awarded for studies of how institutions are formed and affect prosperity. Their work addresses what is perhaps one of the most important questions in economics: How do we explain the economic disparity between countries? Why are some nations persistently wealthy while others remain consistently poor? We should understand prosperity as the plain and simple economic growth. If we rule out biological, cultural, or geographical reasons, what remains is dimension of the historical-political order. Development, then, is largely dependent on one key factor: In the early stages of nations, before they became modern states, what forms of government, civil codes, and laws were established? According to AJR, the root of development lies in the different types of political institutions that were established across the world. Thus, inclusive institutions are in sharp contrast with extractive institutions.

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Is It Possible to ‘Decolonize’ Economics?*

Eiman Zein-ElabdinLeave a comment

Calls for decolonizing disciplines, fields, even businesses have proliferated. The goals and meaning are not always clear, but any decolonizing process necessarily entails deconstructive and reconstructive tasks. In Economics, the first task must challenge dominant and domineering paradigms – orthodox and heterodox – and expose mechanisms of exclusion in the profession (Zein-Elabdin and Charusheela 2004). The constructive task, at least in part, consists of developing a theoretical vocabulary of economic meaning and well-being based on contemporary understandings of ‘value’ and its genetic relationship to questions of power and justice. Amartya Sen has aptly noted that “what moves us, reasonably enough, is not the realization that the world falls short of being completely just – which few of us expect – but that there are clearly remediable injustices around us which we want to eliminate” (2009). I would argue that historical injustices, such as those brought about by colonialism or other forms of lasting domination, cannot be remedied without reconstructing the meaning of economic value and valuation. Confronting value, power, and justice as a mutually constitutive problem is a necessary step for any project of ‘decolonizing’ Economics.

More than a century ago, Thorstein Veblen noted that “economics is helplessly behind the times” (1898). His remark then was made in reference to the rise of Anthropology and new biological sciences. Today, this statement could well serve to depict the sluggishness of Economics to engage with postcolonial critique. Nowhere is this engagement more needed than in theories of value where a contemporary view is lacking. Value is a dauntingly complex concept; it is interpretive rather than discoverable. For the sake of this argument, I broadly frame it as a reference to what enables material sustenance and general well-being. Among other things, a new theoretical framework must seek to: a) revalue different types of work, especially those performed by women and ethnic and cultural subalterns; b) recalibrate ‘humans’ relationship with the ‘natural’ world; and c) redefine ‘poor’ countries’ contribution to life in ‘rich’ parts of the globe. So far, most economists have studied social disparities in income and wealth, ecological degradation, and global inequality as analytically separable problems without much attention to their common foundational reliance on major concepts of value inherited from industrial European modernity. In this brief commentary, I suggest that new, less “behind the times” interpretations of value in Economics are long overdue.

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When economists shut off your water

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Researcher Irene Nduta in Kayole-Soweto.

By Adrian Wilson, Faith Kasina, Irene Nduta and Jethron Ayumbah Akallah

In August 2020, people all over the development world started talking about water in Nairobi. There was a lot of anger, and some calls for sending people to the guillotine. The reason: the publication of results from a development randomized controlled trial (RCT), run by two American development economists, working together with the World Bank. In order to compel property owners in Kayole-Soweto—a relatively poor neighborhood in eastern Nairobi—to pay their water bills, this experiment disconnected the water supply at randomly selected low-income rental properties.

There’s no doubt that water is a problem in Nairobi. As Elizabeth Wamuchiru tells us, the water system in the city has a built-in spatial inequality inherited from the British colonial era. Visitors to the city can readily see the differences between the cool, leafy, green neighborhoods of Kilimani and Lavington—segregated white neighborhoods under colonialism, now home to rich Kenyans, foreigners, and NGOs—and the gray and dusty tin-roof neighborhoods of Mathare, Kibera, Mukuru, and Kayole, home to the lower-income Kenyans excluded from Nairobi’s prosperity.

Today’s water system reflects this history of inequality. Nairobi’s water is harnessed from a combination of surface and groundwater sources; however, the city’s groundwater is naturally salty and very high in fluoride. Piped water systems, provided to upper- and middle-income housing estates, do not exist in the vast bulk of the city’s poorer neighborhoods, where people must instead buy water from vendors—often salty water pumped from boreholes, or siphoned off from city pipes through rickety connections that are frequently contaminated with sewage. In the richer neighborhoods, Nairobi Water Company, a public utility, sells relatively clean piped surface water for a fraction of the price paid by poorer Nairobians—a disparity that research has shown to often be the case in other cities in the global South. As the Mathare Social Justice Centre puts it, in poorer neighborhoods such as Kayole-Soweto, “water provision costs more, is less safe, and is less consistent than in other richer parts of the city.”

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