For a little over a century, a mere blink of the eye in human history, western and westernized leaders, politicians, policymaker, and the public have operated on the belief that there can be a scientific discipline of economics, a field of study separate from moral philosophy and the natural sciences. Never mind that economics coevolved with a political discourse driven by power. Economics seemingly explains how society should be organized and people should live. The modern economic world arose around ideas generated by economists, and this world has been supported by corresponding public economistic beliefs that I refer to as “economism”.

— Fullbrook, Edward ; Morgan, Jamie. Post-Neoliberal Economics (p. 97). World Economics Association Books. Kindle Edition.

It is proved that things cannot be other than they are, for since everything was made for a purpose, it follows that everything is made for the best purpose.

—Pangloss, in Voltaire’s Candide, 1759

THE KEY TO ALL THINGS

This invocation of basic economics lessons to explain all social phenomena is economism.* It rests on the premise that people, companies, and markets behave according to the abstract, two-dimensional illustrations of an Economics 101 textbook, even though the assumptions behind those diagrams virtually never hold true in the real world. Economism is an interpretive lens through which people make sense of reality. Like any such framework, it also implies a certain set of value judgments and policy choices. For example, if a simple supply-and-demand model shows that taxes reduce employment, then it follows that high tax rates are bad and should be lowered. Because it claims the authority of “economics,” economism can be a powerful rhetorical tool. And while superficial economic arguments can serve multiple purposes, in today’s world they most often justify the existing social order—and the inequality that it generates—while explaining the futility of any attempt to change it. (Kwak, James. Economism (pp. 6-7). Knopf Doubleday Publishing Group. Kindle Edition.)

For every well-intentioned proposal to help ordinary working people, economism provides an answer. Raise the minimum wage so the working poor take home more money? That’s a nice idea, but that’s not how the world works. According to Jude Wanniski, one of the pillars of The Wall Street Journal’s editorial page in the 1970s, “Every increase in the minimum wage induces a decline in real output and a decline in employment.” Wanniski was an adviser to Ronald Reagan, who echoed, “The minimum wage has caused more misery and unemployment than anything since the Great Depression.” Raise taxes on the rich to pay for services for everyone else? Good try, but, Gregory Mankiw (author of one of the world’s most popular economics textbooks) explains, “as [high-income taxpayers] face higher tax rates, their services will be in shorter supply.” Or, in the words of the 2012 vice presidential candidate Paul Ryan, “if you want faster economic growth, more upward mobility, and faster job creation, lower tax rates across the board is the key.”16 The examples go on and on. The problems of financial markets, health care, education, and many other fields can all be reduced to economic first principles that dictate simple solutions. (Kwak, James. Economism (pp. 7-8). Knopf Doubleday Publishing Group. Kindle Edition.)

These claims are made so often in the media and by politicians that they appear to be a natural feature of the landscape. But they all come from somewhere. They are based on a lesson that economics students learn in their first semester: the model of a competitive market driven by supply and demand. In this model, the supply and demand for any product determine its price; prices create incentives for individuals and businesses; and those incentives ensure that consumers get what they want, companies are as efficient as possible, and resources are allocated optimally across the economy. As the pathbreaking economist Paul Samuelson wrote in 1948, this basic lesson is “all that some of our leading citizens remember, 30 years later, of their college course in economics.”17 (Samuelson was well aware of the power of introductory courses: “I don’t care who writes a nation’s laws—or crafts its advanced treatises,” he once said, “if I can write its economics textbooks.”18) (Kwak, James. Economism (p. 8). Knopf Doubleday Publishing Group. Kindle Edition.)

This elegant model, however, rests on a set of highly unrealistic assumptions. The definition of a competitive market requires that all suppliers offer the same product—there are no differences in features, quality, or anything else—and that each company is so small that its behavior has no effect on overall supply. If this assumption does not hold—such as in the market for cell phone service, or air travel, or automobiles, or books, or almost anything—then supply and demand do not necessarily produce the optimal price, and the allocation of resources may be distorted.19 The argument that a minimum wage increases unemployment assumes that employees are currently being paid the entire value of their work; otherwise, employers would be willing to pay slightly higher wages in order to keep them. Again, this premise is unlikely to be true in the real world of fast-food restaurants or hotels, where workers have little bargaining power and companies are therefore able to claim most of the value that their employees create. (Kwak, James. Economism (pp. 8-9). Knopf Doubleday Publishing Group. Kindle Edition.)

Economism ignores these uncooperative facts and assumes the necessary assumptions, reducing all real-world questions to simple models and answering them in the same terms. In this sense, economism is like an ideology. Communism explained industrial society as the product of class struggle, with the inevitable outcome of proletarian revolution. Nationalism, the other great European ideology of the nineteenth century, saw rivalry between groups of people with a common background as the motor of history. Its lesson was that each nation should achieve political unity to promote its interests in the world. (Kwak, James. Economism (p. 9). Knopf Doubleday Publishing Group. Kindle Edition.)

“Economism” is a somewhat obscure academic term, generally used to criticize someone for overvaluing economics—by overestimating the importance of material conditions, focusing exclusively on economic metrics, applying economic methodologies when they are inappropriate, or accepting economic theory too readily.14 In this book, I use “economism” in a more specific sense, as the belief that a few isolated Economics 101 lessons accurately describe the real world. The economist Noah Smith calls this phenomenon “101ism.”15 (Kwak, James. Economism (p. 17). Knopf Doubleday Publishing Group. Kindle Edition.)