Economist Ha-Joon Chang Made Some True Statements about Economics — which Consistently Escape Most Economists and Politicians

11 April 2014

Citation

Seung-Yoon Lee, Ha-Joon Chang: Economics Is A Political Argument, Huffington World Post (09 April 2014)

Rational minds will probably appreciate Seung-Yoon Lee’s interview with Cambridge University economist, Ha-Joon Chang

Evidence-based thinking appears not be a prominent part of economics chatter. Occasionally, there are exceptions. Cambridge University economist Ha-Joon Chang is one.

What he says cuts through the nonsensical free markets drivel that so many American politicians and economists like to pretend is somehow apolitical:

Seung-Yoon Lee:

You have said that “economics is a political argument,” that you cannot really separate economics from politics.

Even the concept of “free market” is determined by politics. “What is free” is determined by society and through the political process. How do you come to this conclusion?

Ha-Joon Chang:

I am seeking to debunk this widespread view, propagated by the current generation of economists, that somehow you can neatly separate economics from politics.

[A]ll markets are in the end politically constructed.

A lot of things that we cannot buy and sell in markets used to be totally legal objects of market exchange - human beings when we had slavery, child labour, human organs, and so on.

So there is no economic theory that actually says that you shouldn’t have slavery or child labour because all these are political, ethical judgments.

When the market itself is constructed as a result of some political and ethical judgment, how can you say that this area can somehow be separated from the rest of society and the political system?

Free markets, as a pretended apolitical idea, got its start because a lot of people picked the wrong definition of what economics actually is:

To me, economics is study anything to do with production, exchange, and distribution of goods and services.

But according to the definition by Lionel Robbins in his famous book, "An Essay on the Nature and Significance of Economic Science," economics is [:]

“the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”

From there, we have developed the notion of economics as basically a rational choice theory, about how people make these rational choices.

In other words — most of American economic politics are based on falsely mechanistic arguments

This is the rock-headed stupidity that automatically assumes that capitalism is some kind of easily defined and unmodifiable thing.

Too many of us refuse to look at:

(a) how markets actually work — in practice, rather than ideology

(b) how economic structures actually affect individuals and social strata

and

For example, when people toss the word “capitalism” around, especially in opposition to socialism and its variants, they forget that economic activity runs along a spectrum of political decisions that are impossible to reduce to simple formulations.

Professor Chang cites Singapore as an example of this:

If you read the standard account of Singapore’s economic success in The Economist, The Wall Street Journal, or some textbook, you only learn about Singapore’s free trade and welcoming attitude towards foreign investment.

But you will never be told that all the land in Singapore is owned by the government, and 85 percent of housing is supplied by the government’s own housing corporation. [Twenty-two] percent of GDP is produced by state-owned enterprises (including Singapore Airlines), when the world average in that respect is only about 9 percent.

So I challenge my students to tell me one economic theory, Neo-Classical or Marxist or whatever, that can explain Singapore’s success.

There is no such theory because Singaporean reality combines extreme elements of capitalism and socialism.

[A]ll theories are partial.

The Classical school or Marxist school focuses more on production than exchanges, in contrast to the Neo-Classical school. They make different assumptions, and they are interested in different issues. They all have their weakness and strengths.

In recognition of the fact that the real world is very complex, we need to teach our students and the general public that there are different ways of understanding the economy.

The moral? — Wisdom avoids foolishness by grounding itself in accurate definitions, evidence, and provable causations

In economics, rational thinking begins by accepting that societal economic structures and decisions are inherently political ones.

By accepting this fact, we avoid the potent silliness of pretending that any economic system is necessarily mandated by apolitical and allocative efficiency considerations.

PeteFree.com

Economist Ha-Joon Chang Made Some True Statements about Economics — which Consistently Escape Most Economists and Politicians