The failures of modern economics, continued…

I picked up Graeme Maxton’s

with a dutiful sigh, expecting one of the now-standard rants about my profession having caused the financial crisis. I mean, it’s obvious to all but a few diehards that standard macroeconomics has been demonstrated to have serious flaws, and will have to change. But a new consensus doesn’t emerge overnight. Hence at the moment we have the Punch and Judy show amongst macroeconomists about deficit reduction that is an action replay of the monetarist vs Keynesian battles of my student days. So yet another book pointing out the flaws of macroeconomics wouldn’t be adding much.

Then I started reading and was, briefly, pleasantly surprised. The book zeroes in on exactly the same set of long-term economic challenges that I wrote about myself, namely financial crisis, environmental sustainability, and the damage unfairness is doing to the social fabric. So of course I agree with Maxton that these are serious and important issues, as anyone would. These concerns are very much in the air, and widely shared. I settled down to enjoy the rest of the book.

The rest was a disappointment. I like the author’s passion about these issues but was driven to distraction by his apparently not having read directly any of the recent economic literature on them (the notes to each chapter typically cite one official report and several media articles). Worse, there are some really bizarre claims. For example he defines externalities as “variables that were not obvious at the time” (?) and says: “Modern economic thinking encourages us to price the world’s natural resources incorrectly.” I suppose this is meant to be accessible to a general, non-expert audience. But of course, environmental economics, a huge field of research, is all about externalities and I don’t know an economist who doesn’t recommend a carbon tax or carbon pricing mechanisms to correct for them.

Some chapters were clearly better informed and therefore more informative, such as one about Chinese attitudes to the rest of the world (although, on China’s African investments, I’d recommend Deborah Brautigam’s more detailed and nuanced view in


But although the author’s heart is in the right place, I found the book simply too full of infelicities and bizarre interpretations. I do also think that  people who are going to criticize wholesale all of modern economics should actually read and cite some economists. After all, nobody would think it acceptable to rail against the hopeless state of modern physics (string theory? Higgs bosons? parallel universes? Be serious!) without actually knowing a reasonable amount about the physics they were criticising. And – as I said – there is definitely something to criticise about macroeconomics, as lots of thoughtful economists recognise.

Other readers, less kindly disposed than I am to economists, and just as concerned about the state of the world, might nevertheless find this an enjoyable airport bookstore rant, with lots of one ‘punchy’ sentence paragraphs and a seasoning of hyperbole.

[amazon_image id=”0470829982″ link=”true” target=”_blank” size=”medium” ]The End of Progress: How Modern Economics Has Failed Us[/amazon_image]


3 thoughts on “The failures of modern economics, continued…

  1. Hi Diane,

    Just to clarify…. of course I have heard of environmental economics. And I know about carbon taxes. My point is that we are not applying them properly, or indeed much at all. Nor are we accounting for the loss of the world’s resources to our grandchildren and classical economics says we should. You are also unfair and wrong to say that I have not read what academic economists write. I have a first in the subject. I chose this way to make the book more accessible, to try and access a wider readership, not for sales, but because my real goal is to try and make people think.


    Graeme Maxton

  2. I’m sorry you feel I was unfair, but the review reflects how the book read to me. And as I say, I completely agree with the broader points you’re making, including proper measurement and pricing resources adequately. It can’t be a huge surprise to you that an economist thinks you could make such points without the blanket – and consequently partly unfair on your part – criticism of economics. (And I do think that definition of externalities quoted here is just hard to understand.) It’s not because of bad economics that we’re not applying carbon taxes, after all, but bad politics.

  3. Virtually all of what you state is supprisingly appropriate and that makes me ponder why I hadn’t looked at this in this light previously. This particular piece really did switch the light on for me as far as this specific issue goes. But at this time there is actually one particular point I am not necessarily too comfy with and while I try to reconcile that with the actual main idea of your issue, let me observe what the rest of the visitors have to say.Nicely done.

Comments are closed.