Reconstructing Economics

This blog is primarily about economics and public policy. I use this space to bring together all of my non-academic writing and, very occasionally, republish the writing of others that I think is of note. Most of what is here has been published first elsewhere including The GuardianThe Monthly, The Conversation, The Drum and The Age.

The title of this blog reflects my belief that the discipline of economics is in turmoil and is in need of reconstruction.

under reconstruction

Mainstream neo-classical economics is founded on a series of assumptions and value judgements that are, to put it mildly, very questionable. I believe that economics should be reconstructed from a scientific footing instead. In other words, I think our economic theory should be data driven rather than ideologically driven. To read more about my thoughts on the state of economics and economic policy go here and here.

The key to implementing change in the field of economics lies in re-examining and reinventing economics education. Tim Thornton of Swinburne University has completed a doctorate on this subject and has published a great op-ed in The Age explaining the problem.

There’s a lot of progress being made in terms of reconstructing economics including the growing field of ecological economics, the teaching of heterodox economics at some institutions and the publishing of numerous books highlighting the flaws of the neoclassical paradigm. However, most of this work is happening outside of economics departments in universities.

Warwick Smith
Reconstructing Economics

Selection of recently published articles

IMG_3864The war on waged labour by Warwick Smith in The Monthly. Posted on March 9, 2015

Do we dare to question economic growth by Warwick Smith in The Guardian. Posted on October 13, 2014

Tony Abbott achieves the impossible: unity among economists by Warwick Smith in The Guardian. Posted on July 23, 2014

The perils of the last human – by Warwick Smith in New Philosopher magazine. Posted on August 4, 2014

Snowpiercer, a film that makes you cheer against yourself – by Warwick Smith. Posted on August 11, 2014

You can also watch the below speech for a good potted summary of my political and economic thinking.

25 Responses to Reconstructing Economics

  1. I believe you also need links to Economic Reform Australia (if they are on the Web), and to Georgist and other “rebel” schools of economic-political thought. Keep up your good work!

  2. I was wondering, what you think of Buddha Economics (as Schumacher calls it)?

    I believe it should be the future as it aims to create a sense of community and fulfillment, which I think is vital to success and economics is currently lacking these.

    • I don’t know anything about Buddha economics but more generally I feel torn between advocating a more humanistic approach to economics or a more scientific approach with the humanistic part coming from other disciplines.

  3. What is “Buddha Economics”, please. Is there a link for us to check?

  4. Frank Weir says:

    How about government factories in each state (using current unemployed people) to manufacture double glazing. Sell them at cost or marginally higher to every household to be installed in all north facing windows, eventually all windows. New building’s require double glazing by law. Phase out incandescent lamps, government to subsidise or manufacture lamps.(another employment opportunity). 15 watts from a CFL is 20% of the power required for a 75W incandescent for a similar amount of light. LED’s are similar power savings but appear more unidirectional)
    Why aren’t we investigating Thorium reactors as on alternative power source?

    • Hi Frank,
      I’m pretty interested in employment guarantee ideas. I think there’s merit in them but haven’t yet given it the time needed to form a really confident view.

      • Nick Salter says:

        My ideology includes the solution to unemployment, take a look at my blog. Do you know of any possible sources of funding for my campaign? Nick Salter Rational Group

  5. Anthony says:

    Under your model how much will the Earth s temperature be reduced by the year 2100?

  6. Darryl Stewart says:

    To change the emphasis a little. I’ve done my own detailed cost analysis of going solar power. Our supplier AGL increase their price by 50% for the “peak” hours 1pm to 8pm. This is exactly just enough to punish us and totally negate any financial gains by installing solar. This is despite nearly halving our power use and putting a significant amount of power back into the grid. There is something rotten going on in the background.

  7. Liam Shelmerdine says:

    Just read your fantastic article on The Guardian about stopping the pursuit of growth, I’m really relived to hear such an esteemed and qualified person as yourself having such an attitude.

    It is the only solution to long term sustainability of our planet and not only that there’s just also nothing wrong with staying on a level and enjoying stability so as not to be exhausting ourselves to chasing unattainable infinite growth that includes inevitable risks of decline as people become more desperate to appease the elite and join them.

    Your whole paragraph of “The 1% need us to agree to their system” is just socialism and I hope one day the world wakes up and shakes off the demonisation and lie factory from said 1% about something that would benefit us all.

    I’m certainly not a highly educated person on the level of your discussions and this whole environment but your words speak to me and make more sense than anything else I read on such issues.

    Please keep writing about and fighting the fight of ending an endless pursuit of growth, I’m sure as an economist you are in the minority believing this and we need you.

    Great article.

    • Thanks for the encouragement Liam, I’m glad the piece resonated with you.

    • Nick Salter says:

      Yes, an esteemed person is needed to break ranks from the groupthink. I realised pursuit of growth was dodgy while at Manchester Uni 1979/80 and so dropped out, ended up doing chemical engineering. I see the world as a big chemical plant with no raw materials / feedstocks being brought in LOL Google nick salter ourvote to find my campaign

  8. Bill Davis says:

    I also just read your Guardian article, and agree, I really like it. Great stuff, needs to be said.

    I also wanted to ask a question about about one of your earlier articles in which you stated that business was required by law to maximise shareholder profits.

    From my understanding, corporate governance is a choice that many countries make differently, such as Japan, where it has traditionally been much more stakeholder oriented, (is this a cultural decision by a society?). And in fact, the high growth periods of USA seemed to be from a time where they had a much broader definition of stakeholder value, there seems to have been a myth perpetrated there about this issue, which seems to have been spread by some business oriented educational institutions?

    Is it just in Australia where there is a legal requirement maximising shareholder profits?

  9. NYC Arts! says:

    Mr. Smith, would you contact me. I am working on an art project and would like your opinion —

  10. Peter Smith says:

    Read your article (Tony Abbott achieves the impossible: unity among economists by Warwick Smith in The Guardian. Posted on July 23, 2014) for the first time today when it was highlighted in the Guardians Comment is free email. Earlier I had read Tony Abbott’s “No Surrender” end of year comments – which to me echoed the late Reverend Ian Paisley – a fellow monarchist. I agree with your conclusion that the Abbott team “are not ideologues, they are just puppets dancing to the tune of those pulling their strings” and would add that it is therefore necessary to defeat the puppet masters. Many thanks.

  11. Colin Cook says:

    Warwick, I have just read your piece reproduced in the ERA Review. It seems to me that it is often overlooked that high land prices must be reflected in high wages/salaries; we all need a roof over our heads – at home and work – and we pay for this as owners and as renters. This must affect our international competitiveness. Thus high land prices benefit a few – as you relate – but are harmful to many and to society as a whole

  12. Nice articles..I always go back to them for referring…

  13. Thanks for your excellent blog.

    Although a layman amateur in economics I have spent most of my career in global financial markets and on trading floors all over the world (and witnessed the catastrophic fallout from the GFC up close and personal).

    I personally believe that since globalisation modern capitalism has grown to Leviathan proportions to become form of predatory “corporatism” (which is ironically how Mussolini described Italian Fascism) , Adam Smith style capitalism no longer exists.

    Although I never studied economics at university level I have read extensively and have recently been impressed by Paul Craig Roberts’ “Failure of Laissez-Faire Capitalism …” and Thomas Piketty (although “Capital” is pretty hard going for non-academic) and there is also an Italian economist whose name I always forget but who advocates “state capitalism” which I personally think is an awesome idea.

    I believe that, in times of economic hardship, governments ought to focus on innovative ways to raise revenue instead of cutting spending – especially on essential services.

    Anyhow I just wanted to say that I like reading your work and keep fighting the good fight.

  14. Gary Prosser says:

    Hi Warwick – I’ve read some of your statements on national economy != household with which I agree. One question I have is on funding current spending deficits: you refer to borrowing, but why convert deficit to debt ?

    • Hi Gary,
      It’s a good question and certainly it’s not necessary for currency issuing governments to issue debt in order to deficit spend but in Australia there is an automatic link because of how we set interest rates. Interest rates are set through open market operations, which means that when deficit spending occurs, liquidity in the banking system increases and that places downward pressure on interest rates. In order for the reserve bank to maintain target interest rates it’s then necessary for the AOFM to issue bonds to remove those new reserves from the system. It’s all about interest rates, not funding the expenditure. If we set official rates by fiat then we wouldn’t have this automatic link between deficit spending and bond issue.

      Another reason for sometimes not bringing this up in popularly published articles is that it’s important not to challenge too many commonly held beliefs in a single piece. Explaining the impact of government budget balances on private sector balances is enough for one piece without also opening the can of worms of government capacity to net spend without issuing debt. People stop reading if you challenge them on too many fronts at the same time. Besides it really doesn’t matter much if the government issues debt or not – despite the mainstream commentary, it’s of pretty marginal importance.

      • Gary Prosser says:

        Warwick – thanks, I’ve learned some new things from your reply to my question ! Specifically about managing interest rates. I’ve not heard of that regime in the UK where instead the main goal of central bank operations is management of inflation.

        On your point about issuing debt being of marginal importance, I wonder if that is correct: in the UK at least (I think also in Australia) the case for reducing overall debt is made in part by fear of incurring high interest rates and in part by ‘loading’ debt onto the next generation. These have become often repeated justifications for ‘austerity politics’.

        I think it would be useful and interesting to explore the probable economic effects of deficit write off (I wonder if you know of any economists who have done so ?), in particular whether such a practice could support BI (or UBI).

        best wishes

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