How economics wrecked the world -- and how we can escape from "Ricardo's Dream"

[marmar]

How economics wrecked the world — and how we can escape from "Ricardo's Dream"
Writer Nat Dyer on how David Ricardo's abstract models pushed economics into fantasy — and we all paid the price

By Paul Rosenberg
Contributing Writer
Published February 1, 2025 6:00AM (EST)


(Salon) Economists sometimes present their discipline as the queen of the social sciences, a claim staked primarily on a superificial resemblance to physics: It has universal laws! Expressed in numbers! But that confidence can go horribly wrong.

The global financial crisis of 2008 and ensuing Great Recession should have been a wakeup call, but in the interveneing years, to many have gone back to sleep. And the world of finance is hardly unique. Economics is supposed to be a science whose models tell us how to maximize general welfare — meaning the welfare of the many, not the few at the top. But in case after case, whether in dealing with the climate crisis, economic inequality or international trade — economists’ answers don’t deliver as promised.

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If you studied any college-level economics, you probably remember David Ricardo’s name. He was the other founder of classic economic theory, after Adam Smith, and his “comparative advantage” model, derived from studying 18th-century trade between England and Portugal, is among the most consequential in economic history. To a large degree, it has provided the underlying rationale for the last 60 years or so of corporate globalization. But as Dyer shows, Ricardo's model was abstracted from a single historical example, and avoided discussing the importance of naval power, gold and the slave trade, all of which were part of any fuller understanding of international trade relations at the time. In other words, Ricardo's model barely even tried to describe economic relations in the real world, and was closer to ideological fantasy than to science.

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You have chapters devoted to explaining how Friedman's revival of Ricardo's vision has misled us in three major areas — in finance, in "free trade" and in environmental economics. Could you pick one of those and sketch out what the central problem is?

I'll pick finance, because it's so incredibly powerful and pervasive in our world. Essentially, the study of finance was taken over by theoretical economists, from about the 1960s onward, who were armed with a whole load of highly abstract theories and models, the capstone of which is the "efficient markets" hypothesis, which says that prices are always right, essentially. It allowed finance to shrug off old concerns about its association with gambling and about causing instability. It helped to give an aura of scientific legitimacy to the activities of Wall Street firms and traders. ...................(more)

https://www.salon.com/2025/02/01/how-economics-wrecked-the-world--and-how-we-can-escape-from-ricardos-dream/

[FakeNoose]

1. It's Wall Street greed, not economics, that has ruined our world

I took enough college econ classes to know that it's not an exact science. In fact it's not really a science at all, it's a belief system. That puts economics on the same level as ... you know ... astrology or religion.