A Critical Examination of Economic Methodology, History, and Purpose with Robert Skidelsky

This podcast episode, featuring Robert Skidelsky, critically analyzes the state and methodology of modern economics, particularly in the wake of the 2008 financial crisis. Skidelsky argues that the discipline's failure to predict or adequately respond to the crisis stems from fundamental flaws in its approach, specifically its reliance on models built on assumptions like perfectly efficient financial markets, which discourage necessary regulation. He challenges the notion that economics is a 'hard science' akin to natural sciences, asserting that its true purpose should be to improve material welfare, a goal for which its current intellectual instruments are often ill-suited. The discussion emphasizes the crucial role of philosophical reflection and historical context in understanding and reforming economic thought, contrasting with the views of economists like Paul Samuelson and Frank Hahn who dismissed methodological inquiry.

Skidelsky delves into the historical evolution of economic definitions, highlighting two main perspectives: Adam Smith's classical view focusing on the 'causes of economic growth' (wealth of nations) and Lionel Robbins's late 19th-century neoclassical definition as the 'science which studies behavior as a relationship between unlimited wants and limited resources which have alternative uses.' He explains how the focus shifted from growth to efficient allocation, from insufficiency of supply to insatiability of demand, from institutions to individuals (and individual psychology), and significantly, from narrative to mathematics. This shift, while gaining sharpness and technical precision, paradoxically led to a loss in breadth of understanding, making contemporary economists technically superior but less insightful.

He identifies two primary reasons for the persistence of flawed economic paradigms: internal resistances to change, as analyzed by philosophers of science like Thomas Kuhn and Lakatos, and external power structures. Drawing on Karl Marx's idea that 'the ruling ideas are always and everywhere the ideas of the ruling class,' Skidelsky suggests that the way economics is practiced often aligns with the interests of those in power. Understanding this interplay between economic theory and societal power structures is presented as a vital aspect of studying the history and philosophy of economics.

Ultimately, the episode advocates for a more reflective and historically informed approach to economics. It encourages students to question the discipline's claims, engage with its philosophical underpinnings, and recognize its contested history. By doing so, it aims to foster a generation of economists who possess not only technical skills but also a deeper, more nuanced understanding of human behavior, societal institutions, and the real-world implications of economic policies, moving beyond the 'human robot' model of economic education.

the floors come out of the method of doing economics about out of the wake economics was actually done in the way the models were set up and conclusions drawn from them

If you believe that financial markets are perfectly efficient as most economists before the slump would have said then you're very unlikely to devise policies for greater regulation.

those who can do science those who can't prattle on about methodology

If we didn't study philosophy the academic bandwagon would rush by without being stopped to ask where the hell is it going and why does it want to get there

much of contemporary economics what you get in textbooks has always been very fiercely contested argued about even by some of the greatest names in the history of the discipline

the ruling ideas are always and everywhere the ideas of the ruling class

economics is the science which studies behavior as a relationship between unlimited wants and limited resources which have alternative uses

what economics gained in sharpness it lost in breadth of understanding

contemporary generation of economists are not as good economists as they were a hundred years ago although they're technically better they understand less

the persistence a certain way of thinking in economics has two reasons behind it one internal resistances to change... but there's a very important external reason for the persistence and that is the power structure in a society