1st Edition

Economics versus Reality How to be Effective in the Real World in Spite of Economic Theory

By John Legge Copyright 2016
    336 Pages
    by Routledge

    336 Pages
    by Routledge

    John M. Legge shows the many ways in which the real world diverges from economics textbooks. He argues that mainstream economic theory took a disastrous turn 140 years ago, when it attempted to use calculus to explain human behaviour. A real economy involves people who are not variables in equations. This error led to a second, mainstream economics becoming obsessed with equilibrium. However, constant change is the reality and one cannot explain the present without understanding the path taken to get here.

    This book presents economics in historical context. It includes a short account of the contributions by some of the key figures in economic theory, starting with Adam Smith. Smith placed great weight on morality: he believed that economic activity took place in a society and could not be justified except insofar as it advanced the interests of that society.

    Too many economists have come to believe that the interests of society can be measured by a number: that if a policy change raises GDP it is justified, whatever its impact on people. Legge places the economy within society, and society within the environment, explaining that every significant decision has a social and environmental impact, as well as an economic dimension. Seeking to provide answers to students, professional business managers, and those interested in the political process, this work addresses the gap between theory and reality.


    Note on Measurements


    1     Uses and Abuses of Economics 
            Textbook Economics 
            Economics and the Environment 
            Economics and Society 
            Economics and Infallibility 
            Economic Miracles 
            Class War 
            Models and Reality 

    2     Names to Reckon With 
            The Classical Economists 
             Adam Smith 
             David Ricardo 
             Thomas Malthus 
             Karl Marx

            Neoclassical Economists 
             Jevons and Walras 
             Alfred Marshall 
             Paul Samuelson 

            The Heroes 

            The Chicago School 
             Public Choice and Regulatory Capture 
             Milton Friedman 
             Neoliberalism Stage 3 in Practice 
             The Washington Consensus 

    3     Competition: Real or Perfect? 
            Perfect Competition 
             Teaching Perfection
             The Welfare Flaw 
             The Mathematical Error 
             The Attractions of Perfect Competition 
             The F-twist
            Realistic Competition 
             IO Economics 
             Monopolistic Competition 

            Price in the Real World 
             Representative Consumers? 
             Representative Firms? 
             Unique Attributes 
             Change and Continuity 

    4     Money and Banking 
            Fiat Currencies 
            Banking in Theory and in Practice 
             Fractional Reserve Banking 
             Dustytown, United States 
             Reality Turned Upside Down 
             Political Consequences 

            Regulated Banking 
            Saving and Investment 

    5     Macroeconomics 
            Crises Are Endogenous 

            Drivers of Employment and Unemployment 
            Monetary Neutrality 
            The Politics of Trade 
             Trade in General 
             Contemporary Issues 

            Trade and Investment 

    6     Inflation 
            Prices and Wages 
            Innovation, Prices, and Employment 
            Origins of Inflation 
             Normal Inflation
             Asset Price Inflation 

            The 1970s and After
             The 1980s 
             The Great Moderation 

            The Politics of Inflation 

    7     The Great Recession and the Eurozone Crisis 
            How the Scene Was Set 
             Limitations on Liberalism 
             Enter Chaos and Complexity 
             The Great Depression 
             The Keynesian Revolution 

            Neoliberalism Ascendant 
            The Southeast Asian Crisis 
             Crisis Phase 1: Subprime 
             Crisis Phase 2: The Eurozone 

    8     The Labor Market 
            Classical Theory 
            Neoclassical Theory: Outline and Critique 
            The Inside/Outside Disparity 
            Labor Market Structure: The Galbraith Analysis 
            How It Really Works 
             Keynes on Unemployment 
             NAIRU and Full Employment 

            Education and Training 
             Equity Considerations 
             Matching Skills to Need 
             Winner Takes All? 
             Education and Experience 

            Policies and Results 
            Responding to the Skills Crisis 
            Proven Labor-Market Alternatives 

    9     The Engine of Growth 
            Growth in Theory 
             Schumpeter’s Spiral Staircase 
             Neoclassical Growth Theory 
             Product Differentiation: Consumer Fraud or Valuable Innovation? 

            Innovation in


    John M. Legge has taught innovation and entrepreneurship for the last twenty-five years. Previously, he worked in the engineering and computer industries in design, development, implementation, marketing, and strategic planning.