The claims economics makes about itself as a subject for study can in no way be matched with the value-laden, neoliberal way in which much of it is now practised. It's the practice that needs reform.
This is the audio version:
This is the transcript:
It's 2025, and it's time to talk economics.
Economics can be defined at its simplest as a study of the way in which we manage the scarce resources of the world in order to meet needs and wants. And, in many ways, that's a pretty good definition. But I stress, that is what it is. A definition. Think of it in linguistic terms and that's a noun, a description.
But that's not how economics is used in practice because, in reality, economics is like a verb. It's an action. It's something that we do. And that's particularly true when economics informs politics. And so, that description of economics is not much use if the verb that we use to describe the economy and the way in which economic theory informs it is something entirely different.
Now, Nobel laureate economist Gary Becker - and I do, by the way, know all the problems with describing anyone as a Nobel laureate in economics - but Gary Becker did have a definition of what he thought economics was as a verb. And I'm going to read it to you. He said:
Economics combines the assumptions of maximizing behaviour, stable preferences, and market equilibrium, used relentlessly and unflinchingly.
Now, that's a very different definition of what economics might be as a verb from what economics is as a noun, which is where I started this video. Because what it says is that as a verb - economics in action in other words - economics seeks that companies maximise profit.
It requires that individuals maximise utility, although, no one on earth knows what utility is, but because of the way in which Gary Becker defines this, he does mean consumption paid for with money.
And he presumes that everyone is rational, which is what stable preferences mean. And I don't know about you, but I have had my odd moments of irrationality, and I'm going to put a very high bet on the fact that you have too. Which means that this verb, for economics, does not relate to the world that really exists.
And this verb assumes that markets are efficient and, therefore, that the outcomes that result from them, whether that be massive gross inequality and climate change, are good.
And finally, the implication of this verb when it's used in this context to describe political economy suggests that everything to do with government is bad because markets are efficient and as a corollary, but not stated, but nonetheless unflinchingly required, is the assumption that everything to do with government must be minimised.
Now, what that means is that in practice - this perception of economics, which comes straight out of the Chicago school by the way - Gary Becker is an heir to Milton Friedman - this definition of economics is in direct conflict with that definition I gave right at the start of this video where I said that economics is about the decisions that we make about the allocation of scarce resources to meet needs and wants. Because there isn't a decision in this process, there is instead an assumption, which is that markets work, but that is not true because people are not rational. People do not have the perfect information they need to work within marketplaces and markets do price things incorrectly, which is contrary to what Gary Becker presumes, because he thinks there is a price for everything and that markets know it.
So, what we get is something, in this view of economics as a verb, which is fundamentally different from that rather nice-sounding definition of economics about meeting needs and wants.
So, which of those two informs the way in which our politicians behave? I would love that it is the first that they spend their time worrying about meeting needs.
But the truth is, they don't. That isn't where we are politically. Neoliberalism has been informed by the Chicago School of Economics for well over 40 years now. And so have our politicians.
If we look at all our leading politicians, whether that be Keir Starmer, or Rachel Reeves, or Kemi Badenoch, or frankly the Liberal Democrats, and to some degree the SNP in Scotland - but I would exclude here the Greens and Plaid Cymru because they definitely are not neoliberal parties - but all the rest are informed by that type of thinking that Gary Becker explains, even if they don't even recognise the fact. They assume that markets will allocate resources effectively and that it's their job to stand back and let them do that. That is what neoliberal economics does. And that's what neoliberal politics does. It is all about standing back and letting markets do what they wish.
That's why we're in the mess we're in. It's also the reason why we have so many problems. Because what our politicians assume is that companies should be allowed to maximise their corporate wealth. They should be allowed to maximise that wealth on behalf of their corporate owners, who are, of course, a tiny proportion of society as a whole.
They are quite happy when corporations seek to minimise their costs, including with regard to paying people - and seek subsidies even from the state to do so.
And they're quite happy when corporations abuse the planet or anything else.
They want to minimise the role of government. And that's not just that corporations want that, although they very clearly do because they don't like paying tax. And they most certainly don't like being regulated. But that's also true of our politicians.
I mean, just look at Keir Starmer. Over Christmas, he asked the UK's regulators of things like water and electricity and so on, “How can we create growth by minimizing the regulation you impose?” That is the proof that it is Gary Becker's type of economics that is actually dominating the way in which our economy is run.
Our politicians should be seeking to redistribute income and wealth. But what did we see in Rachel Reeves' latest budget? We saw measures that actually made it harder to employ people and which actually will impact upon the earnings of ordinary people. Because that's what the National Insurance Increase will do.
But she didn't increase the rates of tax on the very wealthiest when it came to income tax. She only made small changes to capital gains tax, and she by and large let private equity off any additional tax charges. A little bit of a change, but not much.
This is the whole point, and there's something even more important. Politicians, if they really served people and not the interests of corporate power, would take into consideration our emotional needs, our intellectual needs, and our spiritual needs, by which I do not mean our religious needs because I see spirituality and religion as quite different issues. By spirituality, I mean our purpose as human beings.
But as far as politicians are concerned if they're briefed in the Gary Becker School of thinking - and as I've said already, ours are - that our purpose is to be economic units inside the economy, there to serve the maximization of corporate wealth. And the strongest evidence of that comes from Wes Streeting's attitude towards healthcare, which is all about getting people back to work and nothing about improving the quality of our wellbeing.
In 2025, we need to rethink economics. It's a theme that I've been talking about, and this is, in some ways, the first video on that theme. In 2025, we need to give up and clearly renounce the Gary Becker view of economics. We need to go back to talking about economics as the way in which we live. We decide about the allocation of scarce resources to meet needs as the first priority and wants, if there is anything left over within our society, with politicians having the job of intervening in whatever the market does to ensure that those needs are met.
That is what we need. That is not what we've got. That's what economics has to change if it is to be relevant. And we are a very long way from achieving that goal at present when we have people like Keir Starmer, Rachel Reeves, Kemi Badenoch, and all the others in UK politics who believe in this nonsense view of growth at all costs and corporate maximization as their priority.
People should be the epicentre of their concern, but they're not.
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Hi Richard
I mostly watch your Utube videos with interest. So thanks for all the information you put out.
Just wondering if you follow Gary Stevenson and if there is a possibility of collaboration with him?
Sue
We have been in contact
Thanks. Sounds promising. I’m a huge fan of you both.
I wasn’t looking forward to starting 2025 with an educational video about utility in economics and you didn’t disappoint.
Ha ha
Jeremy Bentham would have been looking forward to a video on utility economics, i am quite sure……..
Maybe he’ll get one….
“The term Homo economicus, or economic man, is the portrayal of humans as agents who are consistently rational and narrowly self-interested, and who pursue their subjectively defined ends optimally” https://en.wikipedia.org/wiki/Homo_economicus
“[Daniel] Kahneman, with the collaboration of his colleague Amos Tversky, challenged the traditional view of the homo economics concept that describes individuals as rational beings who use all available information for optimal and unbiased decision-making based on preference. However, Kahneman and Tversky’s research showed that we do not always act that way. We are emotional beings, we do not analyze all the information and we are prone to cognitive biases” https://www.fynsa.com/en/newsletter/mas-alla-del-homo-economicus-el-legado-de-daniel-kahneman/
Kahneman is considered one of the fathers of behavioral economics for which he won the 2002 Nobel Prize.
We are not rational
Nor are we impartial !
Tell me someone.
Is being disgusted about child poverty, cold pensioners and long NHS queues a form of ‘cognitive bias’?
I mean, I’m all for science and sound analysis but where the fuck is the morality? Where is the supposed ‘Christianity’? Hmm? The humanity?
How is it that we seem unwilling to imagine ourselves as poor, or old or ill when it is literally outside the door waiting for all of us? We spend so much time dreaming about being wealthy to the point where we will not contemplate being poor and therefore will not seek to improve the condition of those who are poor, whilst improving our own prospect for ourselves should disaster come a-calling.
It makes no sense at all.
“How is it that we seem unwilling to imagine ourselves as poor, or old or ill”
To play the devil’s advocate, I think it is because people assume their success is due entirely to their own efforts, and so “bad luck” is avoidable. People don’t realise that we do not control all of our circumstances. Empathy has to be taught like all behaviours.
I recall during Covid that the nurses were criticised because they could not afford their own food and houses. The solution according to one MP was for them to change jobs, just like that. The fact that there will be nurses, or that nurses may have their own hardships and poor circumstances, seems to have eluded the MP.
Sadly I think this is a neoliberal perspective.
KS, RR and KB really ought not to be described as leading politicians when they are neither leading (except backwards, retreating) nor politicians (because they don’t seem to be working for the interests of the people as a whole).
And at first I misread “give up” as “grow up” & renounce Becker’s economics — which I think was quite a good misreading.
My reaction to your post is that economics is NOT about allocating resources. That is far too rational a description.
Rather, modern economics is too much about enabling people to acquire resources for a narrowly defined benefit which is sold as being socially useful, which it is not, and even celebrated.
The main players and main beneficiaries of this economics are not even the providers and end users – instead it is the middle men, the banks who take huge fees to enable goods and services to be exchanged, sometimes very unwisely and inappropriately.
You are right – economics as a function has to change and genuinely benefit everyone.
Where’s the understanding that we human beings are are highly social creatures who constantly balance individual need against those of others in Gary Backer’s head and all those so-called economists who think like him? – Gone AWOL!
Richard,
“ In 2025, we need to rethink economics”.
Looking at undergraduate syllabuses they seem to have changed little since I did my degree over 50 years ago.
However economics students themselves have been pressing the case for change for over a decade now and deserve our support.
See https://www.rethinkeconomics.org/about/
Post-Crash Economics Society
I know!
Ignoring everything I’ve read to try and understand economics over the last 10 years or so, and just taking the messages of politicians and MSM (MainStreamMedia), I’d say that economics, as presented to the voting public, was about:
– Balancing the gov’ts books because gov’t can only do what it can afford, and it is spending too much.
Gov’t can’t get any more taxes because taxes are bad and need to be reduced, so it must reduce spending, and obviously taxpayers’ money is being wasted because of civil service waste, excess immigration, the work shy choosing to live off sickness benefit, other benefit scroungers and benefit cheats, and wasteful subsidising of public services like health, which could be run far more efficiently by entrepreneurs who are the real creators of wealth, when they aren’t held back by pettifogging woke regulations and red tape.
Now, all that’s rubbish, of course it is (although I am briefly tempted to explore a future writing speeches fot Ms Kemi Badenoch), but that’s what Mr Nobel Laureate Economist Gary Becker’s message is about by the time it has been processed for discussion on the omnibus.
I prefer Richard’s definition, embracing ideas around need, & neighbourliness, & will be thinking about how it can be translated for use on the omnibus, or in the speeches of a campaigning MP or a sympathetic tabloid, during 2028/29. Now I’m fantasising about the Mirror & the Record writing banner headlines promoting “we can do it” MMT-based messages as they report on the speeches of a Chancellor determined to meet the needs of our society with the spending power of the Treasury and the political power of a parliamentary majority. I may need to have a lie down.
Have a coffee, then a lie down
Twenty minutes later the caffeine will kick in and you’ll need to wake up
Becker would undoubtedly fall into Abby Innes’ definition of what she refers to as a ‘Camp 1’ Economist. To quote: ‘…are those who adopt a taxonomic approach to economics: a group dominated in modern times by those who accept mathematical axiomatic deductivism as an orientation to science for us all and who regard any stance that questions this approach as misguided. In Camp1 the instinct is to stand by mathematical modelling as a complete method and apply first-best reasoning and the most idealised, or perfect, conditions to the case. Camp1 economists will tend to ignore market imperfections.’ (Innes, A. 2023:32). Note the fundamental point here is that they are treating economics as a closed system.
Innes’s goes on to define Camp 2 economists, who are slightly less hidebound in their beliefs and analyses than Camp 1, but still dominate in economics, as Camp 1 does. Again, the fundamental point is that as in Camp 1, economics is reduced to a closed system where all variables can be known and controlled – or wished away if they can’t – for the purpose of theorising and modelling.
And then there’s Camp 3: ‘We might classify what are often called “heterodox” economic approaches as a third camp. Camp 3 economists recognise the open system, causal-processual nature of social reality and, in contrast to Camp 2, they fashion their methods in light of this ontological understanding.’ (op cit: 33).
I assume most of your readers can guess where you sit, Richard, as do I and I’d guess almost all your other readers. Sadly, though, this is not the case amongst many/all of the politicians of the world, nor the vast majority of economic commentators in the MSM – to the great cost to nearly all (apart from the wealthy) of the peoples of the planet.
But anyway, I digress. Innes’s book – ‘Late Soviet Britain: Why Materialist Utopias Fail’ – has been mentioned on this blog by PSR and others over the past year and I’d strongly recommend it to anyone. They may be shocked to have it demonstrated conclusively that there’s not much difference between neoliberal forms of economics and those that drove the Soviet Union to destruction. It would do well for our politicians to pay attention to this point too.
Thanks Ivan
And I really must read it
Thank you for the hat tip Ivan, in all fairness though, it was Mike Parr who brought Abby Innes’ book to my attention.
The two other must-have books IMHO have also been written by women:
The Deficit Myth by Stephanie Kelton (2020)
The Capital Order by Clara Mattei (2022)
And, being in the throes of completing it, a bloke called Richard Vague (rather an unfortunate surname) and his book ‘The Paradox of Debt’ (2023) is well worth a look – he acknowledges the ability of the state to print money, the past use of debt jubilees and does not see base money as a causal issue in inflation but sees debt money certainly as causal. It is very American in outlook and addresses a lot of U.S. domestic issues but I think his principle arguments are sound – but I do have a green L on my back when it comes to these matters remember.
In the real world I am just a development officer in the micro economy after all.
Thanks. Perhaps it would be useful to explicitly include “externalities” … And encouraging “cost driven market outcomes” even if there was a “perfect market” is also deeply flawed. Reducing the role of governments or regulators allows market players to ignore many of the consequences of their activities.
Meantime, we all know that clean air, water is precious!
I must admit that when I read Becker’s definition I greatly admird his ability to describe in a sentence why economics does not work. Especially the ‘used relentlessly and unflinchingly’ bit. I read that phrase as a criticism because, obviously the previous 3 assumptions are all invalid or unreal.
It is only on reading on that I realised he was serious and words fail me. He even used the word ‘assumptions’ rather than ‘facts’, surely acknowledging that as assumptions they may be wrong?
J Bentham has had his say, how about a spot of Utilitarianism from John Stuart Mill?
Thanks for this timely post.
A couple of references from James K Galbraith and Jing Chen who seem to be thinking about alternatives….
file:///C:/Users/7rich/Downloads/ssrn-4137452.pdf
https://www.paecon.net/PAEReview/issue106/Galbraith106.pdfcitationMarker=43dcd9a7-70db-4a1f-b0ae-981daa162054
They are discussing Entropy Economics (also publishing a book on the topic. I had never heard of the topic until a couple of days ago. So I have no idea if this is realistic as an alternative. But this is the sum total of what I have discovered so far about the book:-
Key Themes and Concepts
Critique of Traditional Economics:
The authors argue that mainstream economics often relies on the ideal of equilibrium, where markets are seen as perfectly competitive and orderly.
They suggest that this view is overly simplistic and fails to account for the complexities and dynamics of real-world economies.
Introduction of Entropy:
Entropy, a concept borrowed from thermodynamics, is used to describe the degree of disorder or randomness in a system.
The book posits that economic processes should be understood through the lens of entropy, emphasizing that economies are not static but rather dynamic and constantly evolving.
Life Processes and Economic Value:
Galbraith and Chen propose that economic value is rooted in life processes, which are inherently unequal and subject to change.
This perspective encourages a shift away from the idea of fixed values and towards understanding how value is created and transformed over time.
Real-World Applications:
The authors explore how this new framework can be applied to various economic issues, including resource allocation, production, and sustainability.
They emphasize the importance of recognizing the interconnectedness of economic activities and their impact on the environment and society.
Call for a New Economic Paradigm:
The book advocates for a rethinking of economic theory that moves beyond the constraints of equilibrium and embraces the complexities of real-life economic interactions.
It encourages economists and policymakers to consider the implications of entropy in their analyses and decisions.
This works, and is the correct link:
https://www.paecon.net/PAEReview/issue106/Galbraith106.pdf
Thanks for the correction.
Now just trying to understand what is a new concept for me
“Labour’s economic agenda has all the right ideas”
(Says Sheffield Univ economist- no, not Richard!)
https://www.theguardian.com/commentisfree/2025/jan/02/labour-economy-agenda-starmer-reeves-trump
I’m just an economically inactive pensioner with no economic training, but even I can see that what he is writing is rubbish, and his “four things” the government are doing to bring about “ambitious structural economic reform” are laughably inadequate.
Has he been tasked with giving Reeves/Starmer a few academic fig leaves to cover their nakedness during the cold spell?
He was a Gordon Brown advisier once upoin a time and has not moved on.
He is a provider of fig leaves.
A colleague of yours at Sheffield has this today in the Guardian – he seems to think Labour has a good economic strategy. Does he have a point?
https://www.theguardian.com/commentisfree/2025/jan/02/labour-economy-agenda-starmer-reeves-trump
No
Michael is a Labour shrill, being an ex Gordon Brown adviser as I recall it, and I do not share his views. I know few at the university who would share his views on political economy.
Some readers may be familiar with Adam Smith’s “invisible hand” metaphor:
“The Invisible Hand is believed by economists to demonstrate that markets where goods and services are freely exchanged will result in the greatest benefit to buyers and sellers alike”
Source: “How the Invisible Hand Was Corrupted by Laissez-Faire Economics”
https://evonomics.com/how-the-invisible-hand-was-corrupted-by-laissez-faire-economics/
But as the economy shows us today, the well-off and bir corporations are the ones getting richer, at the expense of everyone else.
As far back as 2008, it was reported that “The Invisible Hand is Dead. Long Live (Smart) Regulation”, The Huffington Post: “Let there be no more talk of unfettered competition as a moral virtue. Cooperative social life requires regulation.”
Source: https://www.huffpost.com/entry/the-invisible-hand-is-dea_b_128030
Thanks
I remember studying ‘political economy’ at university in 1975 – it wasn’t called the Department of Economics, it was the Department of Political Economy. The omission of the word ‘Political’ in the conversations and contributions is possibly quite deliberate I reckon. Modern-day ‘economists’ would like to believe that the operation of the economy ought to exclude the politics and the exercise of power in how it actually works in practice. I think this is important, we ought to never forget the reality of political economy.
Yes it is time to talk economics. You explore many topics of great value and importance but, in my opinion, how scarce resources are utilised and managed for the benefit of all in society is the most important theme of all. For is it not through the equitable allocation and distribution of resources to meet needs and wants that poverty can be removed, affordable housing, quality health and education be provided? And, as a consequence, democracy be revived and trust in the state restored?
Not much at stake then
I’m afraid not