FINANCIAL CRISES, POST AUTISTIC MOVEMENT- RETHINKING ECONOMICS

ABSTRACT

‘Economists’ have been targeted for their unrealistic models which failed to predict the arrival of crisis and also which failed to reduce the aftermath of such crises, since early 20^th century, be it the Great Depression of 1930s or the recent Global Financial Crisis of 2008. Research being undertaken in Economics, plus the way in which the subject is taught in Universities and put into to practice by the professional ‘Economists’ are being severely criticised from all possible corners of the civic society. One such major criticism movement was initiated by students from Universities of France, which was famously known as Post –Autistic Movement, in June 2000 by broadcasting an Open Letter addressing the Professors and those responsible for teaching. The sources of their discontentment were the uncontrolled use of mathematics, unrealistic assumptions and the imaginary world in the discourse of Economics. So in this background, an attempt has been made in this paper to document these recent developments in the field of Economics. The paper is structured in three sections. The first section will cover the introduction, financial crisis and evolution of consequent economic thoughts, followed by a brief note on the important issues aroused in Post Autistic Movement in the second section; further in the third and last section article will be concluded stating the need for re-thinking economics through a multidisciplinary approach in studying economics. This paper is one of the amateur documents and maiden attempt in Indian economic literature which is believed to be ‘Food for Thought’ for researchers and academicians.

KEYWORDS: FINANCIAL CRISIS, POST AUTISTIC MOVEMENT, NEO-CLASSICAL ECONOMICS, MULTIDISCIPLINARY APPROACH.

SECTION I

INTRODUCTION

Large volumes of literature, a series of conferences and discussions have taken place soon after the Global Financial Crisis 2008 regarding the role of Economics and Economists in inducing the crisis as well as their failure to predict the crisis. This enormous amount of intellectual exercises can be broadly grouped under two set of arguments: first stating a crisis in Economics discipline and profession and the second denying this allegation. The former deals with the issues like lacuna in the approach of research, changes to be incorporated in curriculum taught at universities where Neo-Classical Economics is mainstream, and where and why Economics went wrong, whereas the latter set of arguments state the reasons as to why Economists must not be held responsible, why economic theory must not be neglected, defending that Economics is not in crisis but there is a need for rethinking the path of research and teaching in Economics. If a close look is taken on these contrasting arguments it is to be observed that there is a similarity that both urge for bringing changes in the discipline. But before attempting for such a discussion it becomes appropriate to deal with the financial crisis and evolution of economic approaches so as to build a strong foundation.

FINANCIAL CRISES AND EVOLUTION OF ECONOMICS

The twin philosophies of Socialism and Capitalism have influenced the Economic thinkers since time immemorial. The two popular institutional arrangements – State and Market are off springs of these philosophies. Further the assumptions on which the traditional economic theories are built upon are highly influenced by these philosophies. If the evolution of economic thought as well as economies are reconsidered, then the role of Crises in Economic activity cannot be undermined, be it the result of State failure or Market failure. Starting from the Great Depression of 1930s till the recent Global Financial crisis of 2008, there have been a series of crises especially Post 1990s and debates on causes, consequences and probable remedies have followed consequently, re-stating the role of either State or Market. But what is to be observed here is that economists do not have a uniform set of explanations for these phenomenons. For instance Keynesians and Monetarists have their own versions of narration of events and their own ways of tackling the crises. However the solution provided by Keynes suited apt for the situation and it became popular when the classical economists failed to provide any feasible solution. Thus there was dominance of Keynesian waves and to the fortune or misfortune of Economics, majority of Keynesian ideas could be quantified with a high rigour of mathematics. Added to this the contributions of Walras, Jevons, Veblen, Samuelson, Hicks, Arrow , Debreu and others carried Economics onto the palanquin of mathematics with crown of “Scientificity”, resulting in highly mathematized mainstream Neo-Classical Economics. Although Keynes was prominent critic of the approach of neo-classical school, his works were also highly mathematized with the passage of time by the modern economists who are trained in Neo-Classical framework and were fascinated with the excessive use of mathematics, in fact many of the Econometric texts use Keynesian consumption theory to be a classic example to explain the regression[3]. The ‘Keynesian wave’ had resulted in the emergence of ‘Macro Economics’ as a subject in itself and the development of technology proved a conducive environment for creation of statistical packages to build econometric models especially Post 1990s; the years which were accompanied by several set of reforms in the name of liberalisation to integrate world economy in many countries. These developments allowed for a free flow of capital across countries and resulted in a well-developed capital markets and global currencies. Thus a new branch of Economics took birth called ‘financial Economics’. This evolution would have been appropriate in the modern sophisticated world if a series of financial crises had not been taken place. The Mexican Peso Crisis, East Asian Crisis, Subprime Mortgage Crisis which ended up in Global Financial Crisis to name a few.

Crises are integral part of any economic system be it in a capitalist or socialist or mixed setup. Naturally as a new Economic thought like Keynesian wave was accepted, in the similar way new thoughts would have been welcomed in the contemporary Economics field but it has not materialised but instead a serious of doubts, discontentment, questions and allegations were raised on the path which Modern Economics was heading to. This was for the strong reason that before crisis , ‘Economists’ regarded the mathematical modelling and predictions with high esteem and treated this technical approach to be an end in itself with a confidence of quantifying anything and everything under the sun. As a result reputation of Economics as a profession, as an academic discipline is at stake and in struggle to reform, several movements have taken place to rethink and revive the path of Economics.