An Exemplary Introduction to Economics

(Review of the book, Economics after the Crisis: An Introduction to Economics from a Pluralist and Global Perspective, by Irene van Staveren. 2015. Routledge. Pp. 439)

By Dr. Annavajhula J.C. Bose
Department of Economics, SRCC

Economics students in India, in general, are not aware of this beautiful introductory economics textbook written by a beautiful woman with a beautiful mind. Irene Staveren, the author of this book, teaches Pluralist Development Economics at the International Institute of Social Studies in the Erasmus University Rotterdam, the Netherlands. She belongs to that group of women economists who combine their academic work with activism and/or real world sense and sensibility in order to influence policy agendas in the developed as also developing country contexts. This book along with the books by Goodwin et al. (2014) and The Core Team (2017) can kickstart your own drive to pick up more valuable real world economics than elegantly (mathematically) put forward gas of imaginary economics. These two books along with the book under review are rather expensive but do tell your college librarian to get them for your study.

Staveren reveals her motivation to write this textbook thus: “There are very few introductory economics textbooks which give serious attention to a diversity of economic perspectives. Moreover, all available introductory textbooks, orthodox and heterodox, employ a dominant Western economy perspective. They take the US economy or that of a different developed economy as the standard…This is a textbook of pluralist economics and presents both heterodox and orthodox perspectives on the economy, showing their respective weaknesses and strengths and why these matter.

Pluralism means good science. It allows space for competition between theories. But more importantly, pluralism creates the room for complementary explanations, which are context dependent. That is precisely why this book provides a wide diversity of context, with many real-world examples.” Examples cover countries all over the world, including developing and emerging economies.
The orthodox economics here is the neoclassical economics based on the assumptions of individual self-interest and independent risk—all economic agents act entirely independently and in their own self-interest; and they also rely on individual, probabilistic risk of gain and loss for each individual decision they make. Then there are also the false assumptions of market equilibrium and independence of economic behavior. By contrast, heterodox economics assumes that economic agents behave more like real-world men and women, interdependent and with a variety of motivations, in real-world contexts with fundamental uncertainty and interdependent risk, driven by social-level phenomena such as power, opportunism, short-sightedness, cooperation, fairness, caring, status, beliefs and norms. Heterodox economics tends to be “rather roughly right than precisely wrong. Explanation rather than prediction, is the objective of science: trying to understand the world.” The 2008 financial meltdown along with the increasing students’ demand (e.g. from the University of Manchester) for curriculum change (factoring in many theoretical approaches) in light of that has helped to change a wee bit the dominance of the intellectually homogenous approach of neoclassical economics teaching. There has been no total victory of heterodox economics over the orthodoxy, though, even as the heterodox views are found to suffer from (a) failure to offer rigorous as also coherent alternative visions; and (b) fuzzy thinking on liberal values and democracy in the economics profession.

The continuing dominance of the neoclassical approach is not difficult to understand, according to the author. After all, “Economists are just like people. They try to hold on to their worldview and put much effort into protecting their vested interests as academics, policy advisors, and teachers based on the skills they have acquired and invested in. And the teaching of neoclassical economics at universities in the developing world, with Western textbooks and professors with degrees obtained at Western universities, and supported with training courses by economists from the World Bank and IMF, limits the space for heterodox learning worldwide.”
In this textbook, in light of all this, Staveren considers Social Economics, Institutional Economics, Post Keynesian Economics and Neoclassical Economics as the most influential economic theories today. Social economics is closest to sociology, the key discipline of the social sciences—nay, the mother of social sciences—without which we would not be able to understand economic behavior and outcomes without paying attention to power, gender relations, and international social structures. It includes behavioural economics, with its psychological insights and laboratory and field experiments. Institutional economics has received interest over time and may become the most influential economic theory because economies worldwide are increasingly influenced and directed by human institutions, and much of economic policy is about institutional change. For example, preventing another serious financial meltdown like that of the 2008 one needs changes in laws, stricter regulation, more responsible habits and routines by financial professionals, and social norms directing consumers away from high-risk loans. Post Keynesian economics is included because of the return of Keynes in the crisis responses by governments (increased expenditures), by central banks (re-regulation and a recognition of systemic risk, which is the interlinked risk through social interaction within and between banks, households, firms and the government) and by households (saving rather than spending due to increased uncertainties over livelihoods). She also makes reference to Marxist economics and Austrian economics as well as feminist economics and ecological economics wherever appropriate. Staveren does not exclude neoclassical economics “for the straightforward reason that it still is the dominant economic theory around….not all neoclassical economics has become superfluous—it has contributed valuable concepts and tools to economics, which are introduced in this book.”
After exposing us to these perspectives, Staveren proceeds to discuss all major economic topics such as individuals and households; the behavior of consumers; the behavior of firms; markets; the role of the state; public goods and commons; labour markets; capital markets; the macroeconomic flow; economic growth, international trade; nature and environmental externalities; and poverty and well-being. Each of these topics is discussed with the help of the four theories as mentioned above. “The theory that is closest to real-world economic behavior is discussed first: social economics. Then follow institutional economics and Post Keynesian economics, and at the close of each chapter I will present the neoclassical perspective. Neoclassical theory will come at the end in recognition of its more abstract identity, closer to atomistic view of human beings. It relates to special cases of the real-world economy.”

The book ends with a nice annex on history of economic thought that introduces you to Adam Smith, David Ricardo, Karl Marx, Alfred Marshall, Thorstein Veblen, Joseph Schumpeter, John Maynard Keynes, Amartya Sen, Elinor Ostrom, and contributions to economics from the Global South (apart from Amartya Sen) via Thandika Mkandawire from Malawi, Raul Prebisch from Argentina, and Gita Sen from India, who have largely been influential in development economics, trade and macroeconomics.
To conclude, the book under review is a noteworthy effort to improve economics and economic education. For, it has competently addressed the following two problems of economic pedagogy (Hadas, 2018): (a) contemporary economics undergrads receive more of an indoctrination than an adequate education. The curriculum is narrow, the learning is rote and mathematical models receive far more attention than actual data; and (b) the economic models which the students memorise are mostly close to useless as they are based on false assumptions.

References
Goodwin, Neha et al. 2014. Principles of Economics in Context. M.E. Sharpe.
Hadas, Edward. 2018. Pluralist Economics is a Work in Progress. Reuters Breakingviews. March 23.
The Core Team. 2017. The Economy: Economics for a Changing World. Oxford University Press.