Economics versus Reality : How to be Effective in the Real World in Spite of Economic Theory book cover
1st Edition

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

ISBN 9781412862516
Published January 30, 2016 by Routledge
336 Pages

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Book Description

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.

Table of Contents


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

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