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57 of 64 people found the following review helpful:
2.0 out of 5 stars
A weak contribution to the "economics-in-crisis" literature, September 7, 1998
By A Customer
This review is from: The Death of Economics (Paperback)
Opinions of this book are likely to break down along the lines of defenders versus critics of mainstream academic economics. However, even those sympathetic to the charges of irrelevance and arrogance levelled at mainstream economics will have to concede that this is an unimpressive contributions to the "economics-in-crisis" literature. There are two reasons for this. First, although the author does have an alternative approach to economics in mind (of the evolutionary/multiple-equilibria variety), he does not consistently criticize the mainstream in terms of this approach, so his critique lacks focus. Second, the presentation is just badly organized; Ormerod toggles between methodological and substantive criticisms in a way that suggests he does not appreciate the difference between the two. Better introductions to the ideas of those who criticize mainstream economic practice can be found in Mark Blaug's recent piece on "Disturbing Currents in Modern Economics" in the May/June 1998 issue of Challenge, or J. Cassidy's "The Decline of Economics" in the New Yorker, December 2 1996. These articles make many of the same points as Ormerod, in a fraction of the space. For a more a detailed critique that is still accessible to an educated general readership (albeit with some perseverence), nothing matches the collection of essays edited by Alfred Eichner in the early 1980s, Why Economics is Not Yet a Science -- although that book, unfortunately, is out of print.
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54 of 61 people found the following review helpful:
4.0 out of 5 stars
Economic Correctness exposed, February 23, 2001
"...there appear to be so many violations of the condition under which competitive equilibrium exists that it is hard to see why the concept survives, except for the vested interests of the economics profession and the link between prevailing ideology and the conclusions which the theory of general equilibrium provides." Ormerod, Pg. 66 In this book Ormerod, an economist, presents us with a scorching critique of orthodox, or neo-classical, economic theory. He criticizes the idea of `equilibrium', widely believed by academic economists but found nowhere even approximately in real economic data. He argues that, in reality price levels are never determined by the matching of supply to demand. Real markets are always far from equilibrium, so that there are no clearing prices for assets or commodities. Said otherwise, the `graphs' in Samuelson's famous textbook do not represent real data but are merely cartoons invented for inexperienced or uncritical students. Traders know that equilibrium does not prevail. Traders generally do not use orthodox economic theory in decision making. Ormerod's summary of the neo-classical theory (which theory led to the emphasis in the west over the past 15 years to implement free market solutions regardless of circumstances) is concise and clear: 1. A free market competitive equilibrium is efficient, demand equals supply, no resources (including people) stand idle or unused. That is, Adam smith's invisible hand leads to the best of all possible worlds. 2. In equilibrium no person or unit can be made better off by altering resources without making someone else worse off (Pareto optimum). That is, redistribution of wealth will make things worse. Indeed, this is the religion of the far right in America, and elsewhere: In this phlosophy governments simply should not intervene at all (Greenspan and the Fed are unnecessary). As is well-known, general equilbrium theory is based on the assumption of perfectly rational agents who foresee the future perfectly and all conform to the same picture of the future (pg. 89). Ormerod's message is that nothing could be further from economic reality than this picture. Ormerod does a nice job, via presentation of empirical data, of demolishing the notion (beloved of governments) of the Phillips Curve, the idea that there is a simple relationship between unemployment and inflation (ch. 6). He shows that there is no such relationship in the data. He also argues that Adam Smith was interested in empirics and did not advocate a completely unregulated free market devoid of all moral principles, but that economic theorizing was `highjacked' late in the last century by theorists who ignored empiricism altogether and instead tried merely to take over the physicists' notion of equilibrium, but without any idea of dynamics and nonequilibrium. Mirowski makes a similar argument about the lifting of the idea of static equilibrium from physics. Ormerod lambasts the tendency of academics to prove empirically meaningless theoems, to treat economics as a branch of mathematics rather than an empirical science. Also criticized is the hokey assertion by orthodox economists that the failure of real markets to be in equilibrium is due to governmental and other constraints, that a truly unregulated free market would approach equilibrium (i.e., the problem of unemployment is supposed to be solved by complete deregulation). The disaster of Russia is given by Ormerod as a good counterexample. The next examples of such disasters may be the entry of former E. block countries into the (price levels of) the European Union. The text propagates some common misconceptions about deterministic dynamics, in particular about detreministic chaos. Here are a few examples: the author asserts that the behavior of a chaotic machine cannot be predicted accurately in the long run (true in nature, completely false mathematically). Analogs of phase plots (Poincare sections) are misinterpreted as showing evidence for stable cycles (elliptic points). Certainly, in contrast with what the author expects, there are no elliptic points indicated in the data that he shows (ch. 7). The search for unstable cycles would require data of high decimal precision and cannot be decided on the basis of merely staring at a scatter plot. `Linear' is confused with `mechanistic', as if chaotic and/or complex could not be mechanistic. Scientifically, we do not really know how to distinguish `mechanistic' from `organic'. Perhaps there is no real boundary in nature. These are, in context, relatively minor criticisms of a book that does a good job of emphasizing the flaws in neo-classical economic theory when compared with economic reality.
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8 of 8 people found the following review helpful:
4.0 out of 5 stars
Keynes already did this in the General Theory in 1936!!!, March 31, 2005
This review is from: The Death of Economics (Paperback)
Paul Ormerod's book correctly points out that the results of general competitive analysis,general equilibrium theory and neoclassical macroeconomic theory revolves around the concept of one single,unique, optimal,stable point of equilibrium that is presented mathematically as a fixed point based on any one of close to a hundred or so fixed point theorems that have been published in various math and economics journals since the early 1940's.This is identical to the claim that economies are always operating on the boundaries of their dynamic and static production possibilities curves(the stochastic equivalent is that ,on average,the mean position of every economy in the long run,operating without any government interference in the market,is on both boundaries ,combined with small deviations around the mean.These small deviations are interpreted as minor short run cases of recession and inflation that are self correcting through adjusting the mix of product inventories.)Ormerod shows, correctly,that such a theory,based on a misinterpretation and misapplication of the law of large numbers and the central limit theorem,is not supported by any empirical evidence.In fact, this approach is based on the fallacy of conditional a priorism(long runism).Ormerod then proposes to construct an alternative approach based on the existence of multiple equilibria.This is correct,but is redundant since Keynes already constructed such a theory in 1936 in his General Theory.Keynes's theory is based on the theory of effective demand.There are many unemployment equilibriums possible,but only one full employment equilibrium.The mathematical modeling for his theory was provided by Keynes in chapters 20 and 21 of the GT.Any competent mathematician should be able to derive Keynes's result,which is that w/p=mpl/(mpc+mpi),where mpl is the marginal product of labor,w/p is the real wage,and mpc and mpi are the marginal propensities to spend on consumption goods and investment goods,respectively.Multiple equilibria are specified as long as mpc+mpi <1.This result holds for both the short run and the long run.Involuntary unemployment is the result in either case.Only in the very special case of the mpc+mpi =1 will any of the various neoclassical theories be operational.Nevertheless,I still recommend this book for purchase since the discussion of multiple equilibria is more broad based than in the GT.Ormerod's deficiencies regarding Keynes's analysis in the GT can be traced back to his training in the economics department at Cambridge University,where"...Lord Kahn,revered as the closest collaborator of Keynes and ...credited in the oral tradition of Cambridge as having had the original insights which led to Keynes's theories".(Ormerod,p.116).There is no support for this claim,a claim that has misled literally hundreds of thousands of economists worldwide since the late 1930's.
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