Yanis Varousakis on flawed economic theory

A very interesting lecture was given by Yanis Varousakis in January this year,  which I’ve only just got around to looking at. The link is here.

I summarise below the essence of what I understood.

He suggests the economists are Utopians – and much like Biblical scholars of the middle ages, they form the language of power, the language that couches the affairs of society and of course, finance. Just like the Bible in the middle ages it leaves many baffled, which, he suggests, for its proposers, might be its greatest merit.

In the real world to suggest that perfect maths is how practical society works for its people is necessarily an ideology.

The complex maths of much theoretical economic thought means that those who understand it, if they are to challenge it, have to reject the power that that understanding imbues them with. People who understand that this mathematical model is not actually how society works have to admit that their knowledge may actually be, in this instance, worthless. They have to admit that its power is misdirected. That is both career threatening and reduces your own influence. Thus this supposed apolitical science turns out to be, in the end, in fact deeply political opinion.

More prosaically, he mentions that trees have value but no price – because the deeply flawed GDP doesn’t measure them. (Of course I should indicate that GDP was really invented as a rough draft in the 1930s so it was never created to be a definitively precise measurement).

Yet still most economists hang on to GDP and thus it transpires that Amazon workers are more reminiscent of the Chinese people’s army than any sort of capitalist market place. Poverty was at least as much invented by capitalism as ameliorated by it. Certainly capitalism’s side effect is inequality. This symptom has lead to the idea in both fascism and Soviet communism of authoritarian egalitarianism.

Economic Utopia turns out, in fact, to be not so Utopian after all.



  1. Charles Adams -

    “Economic Utopia turns out, in fact, to be not so Utopian after all.”

    because we are not optimising the right thing. Optimising GDP per capita is far too crude. because, as you say, GDP is flawed.

    Optimising freedom may be a better strategy. The first stage of enlightenment is to realise that freedoms conflict, so freedom optimisation requires restrictions on some freedoms, such as the freedom to pollute. Unfortunately, much of contemporary economics, e.g. of the Hayek variety, does not even attain this first level, such as Lord Harris of the IEA https://en.wikipedia.org/wiki/Ralph_Harris,_Baron_Harris_of_High_Cross

    who thought freedom meant he should be allowed to smoke on the train.

    1. Peter May -

      I think you’re probably right, although I worry that freedom is always promoted by people like the IEA as freedom to buy and sell and becomes a sort of rampant consumerism, which is fake freedom.
      Optimising freedom would have to be redirected to a Declaration of Human Rights sort of freedom, which is barely economic at all…

  2. Graham -

    Too much of economics is simply nonsense: the efficient market; the representative agent; with no basis in the real world. And the most dangerous and deeply political belief is austerity. It is astonishing that such beliefs persist in people who call themselves academics, researchers or think-tanks.

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