Dean Baker does a nice job in Worms, Pond Scum and Economists of laying out the pattern of thinking, ideology, that governs (with a few exceptions) the political and punditry class over the “crisis” confronting Social Security and Medicare, and mainstream economists’ inability to understand the housing bubble and its negative consequences. He correctly notes that mainstream economists have been largely “AWOL when it comes to prescribing the medicine to rescue the patient.”
There is a close relationship between the political economic ideas viewed as legitimate in capitalist society and ideas viewed as meritorious in the discipline of economics. This is not unique to the current time period, but has been a long-standing feature of the relationship between the political culture of capitalism and dominant economic theories. The inability of mainstream economists to offer appropriate solutions to the Great Recession was not the result of timidity, but rather the result of a decades-long movement within the discipline to bury Keynes with differing versions of the notion that competitive market systems are efficient and, most importantly, reflect the reality of existing capitalism. Monetarism, Rational Expectations morphed into New Classicism, Real Business Cycle arguments, and DSGE modeling, have all contributed to the blinding of the discipline to the instability of capitalism and the fragility of the financial sector. What’s more, its underscored the tendency to view the market system as forever hovering about full employment equilibrium, quickly moving back to that equilibrium if displaced by “random” exogenous shocks. Government, in this view of things, is more often than not the source of such shocks and, as such, should be kept from “interfering” in the system.
In short, free markets work well – indeed efficiently – and should not be tampered with by government. But this argument has been a feature of bourgeois culture since the beginning of capitalism. The business class is forever going on about the efficiency of the market and the inefficiency of government; the bourgeois rallying cry has always been “leave government out of the market”, unless business acumen dictates subsidizing or saving a corporation or two. And within the profession, the notion that free market systems generate outcomes that benefit society as a whole either through economic growth or efficiency or both, has been around since Adam Smith and David Ricardo and is a central theme of the current crop of neoclassically inspired macroeconomists. The suggestion, as made by Keynes – but also Marx, Veblen, Kalecki, and Minsky, that the free market system may not move toward efficient outcomes or may not bring about benefits to society as a whole is taboo.
It’s important to not lose sight of the cultural role played by the discipline of economics in providing arguments intended to celebrate capitalism. Economics plays an important ceremonial role in bourgeois culture, one that almost always trumps its role as science intended to explain things as they really are.