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Economist criticizes "pathological allegience" to economic models

by Rudolf Hickel Tuesday, May. 15, 2012 at 11:08 AM

The crisis was born when Maggie Thatcher and then Bill Clinton deregulated the financial markets. The explosive force that was detonated was incalculable. Economics gave support because it provides models.


Rudolf Hickel urges a new economic theory

[This interview published on dradio.de 4/13/2012 is translated from the German on the Internet, ]

In the view of economist Rudolf Hickel, many of his colleagues lack courage to fight crises and prevent them from the start with new ideas. Lessons from the failure of finance-driven capitalism must be drawn.

Dradio: During the economic- and financial crisis, a system collapsed that believed too much in the market and pursuit of profit. Whenever politics did something to combat the Euro crisis, these markets, the financial markets, had to be satisfied or at least calmed.

The surprising survival of neoliberalism is the title of the English economist Colin Crouchs latest book. In Germany, some are now surprised that economics seems to have learned so little from the crisis. A circle of nearly 100 professors emphasized this in a Memorandum for the Renewal of Economics. Rudolf Hickel, professor at the University of Bremen, was one of the first signers and joins us for an interview.

Dradio: Is this crisis that we experience a child born in the economic faculties?

Hickel: Not immediately. It was not born there. The crisis was born when Maggie Thatcher and then Bill Clinton deregulated the financial markets. The explosive force that detonated was incalculable. Economics indirectly gave support because it provides models according to the motto: financial markets are never susceptible to crises. They can always operate optimally. The banks function like clockwork. This kind of political advice obviously has a great responsibility for the crisis. The advisory economy must now finally draw the lessons from this crisis, rebu9ilt its textbook models and include the financial markets susceptibility for crises in the future.

Dradio: You say the guild did not do this in the past. What is the reason? Is imagination lacking?

Hickel: The reasons are clear. The courage to grapple with the rulers is lacking. When one criticizes the banks, for example when Deutsche Bank is decried for its gigantic speculative businesses with food on the commodity futures exchange, the interaction can become cheerless and nasty. There are really two reasons: first, the somewhat convulsive allegiance to the elegance of the models. According to the Hegelian motto, too bad for reality if it doesnt agree with the model. Secondly, the courage to organize the guild critically is lacking, strictly speaking to understand the lessons of the failure of finance-driven capitalism.

Dradio: Perhaps economics thinks according to the basic principle of the economy, namely the principle of the market, buy, sell and make as much profit as possible.

Hickel: Well, what can you say, if that were the substance of economics, I would suggest abolishing it since it would really have lost its very important function. Economics must be critical economics. There are marvelous historical predecessors. Adam Smith, one of its founders, saw very critically. Economics must be critical economics. There are marvelous historical predecessors. Adam Smith, one of its founders, saw very critically. Crisis and malformation can be triggered when the economic profit motive is followed or the Homo oeconomicus is assumed, a highly-individualized, abstract, socially-empty figure that always maximizes his advantages. No welfare in the macro-economic context occurs. That welfare is really the task of economics.

The regulars table and current policy ignore this. But our job in our study group Alternative Economic Policy is two fold, first showing that such systems are prone to brutal crises always afflicting those who had nothing to do with the crisis and secondly demonstrating models of coming out of this.

Dradio: The question is why isnt politics changed? When we look back in economic history, there is this terrific story of the rise of neoliberalism. Economists smiling condescendingly around Milton Friedman developed this theory in the 1970s. As you mentioned, politicians like Maggie Thatcher in Great Britain and Ronald Reagan in the 1980s raised this neoliberalism on their banners. In this situation of crisis, politics must successfully show alternatives and then make them into policy.

Hickel: Yes, when these alternatives are shown, there must be massive interference in the past controlling powers of the economic system. This is the point where nothing has happened. An example could make this clear. In 2009 the German chancellor under the shock of the crisis flew to London and declared there may never be financial market products, financial markets and financial institutions that are not strictly controlled. Today we ask what is left of this resolve. Today the sentence is reversed; the financial markets and the banking system must be spared. This obviously reflects the conditions of the political landscape.

Our problem which is the problem of criticism is that our proposals always encounter enormous opposing interests and cannot be simply realized. In the meantime there is a gradual learning process even in mainstream economics. Mainstream economics has been so widely criticized that people now understand we need a new theory that gives special emphasis to a much clearer policy.

Dradio: We ask questions about this new theory. What does it look like? What would our economy look like if it were based on such a theory?

Hickel: Well you know I say very plainly and a little superficially the markets must be tamed. The financial markets must be restrained. The banks must be taken and smashed, particularly in the investment- and speculative area that must be reduced throu9gh regulation.

Then we need a financial transactions tax to contain the international speculative businesses. There is already an instrument for this. We only use the market forces where they are efficient. When they produce crises and grave burdens on the economy or on society and politics, counter measures are necessary, a stronger primacy of creative policy. Politics itself must obviously be re-structured since politics failed tremendously in Germany in 2002 and 2003 with the deregulation of the financial markets.

Dradio: But isnt state correction and state regulation the logic of these markets which occurs after such a crisis situation so it runs better? Then people say any regulation limits growth so the economy falls again in the international competition. Isnt that the inner logic of what must be called the end of capitalism?

Hickel: We now have a bank bailou8t fund that was created and into which the banks pay. This starts from the logic that you described, that banks at the end are paid out of a pot when the next crisis erupts. We say crisis must be prevented, for example through prohibition of the shadiest speculative instruments. The commodity futures market must be controlled. The third imperative is fighting the shadow banks. A broad consensus exists from the German governments chief advisor Issing to the World Bank that these shadow banks must be fought and not become concrete.

Dradio: Then we will see whether this great consensus leads to any political results.

Hickel: That is the great question!

Dradio: Rudolf Hickel, economics professor and first signer of the Memorandum for a Renewal of Economics, hearty thanks for this interview!


Hickel, Rudolf, The Banks Must Serve the Real Economy

Altvater, Elmar, "The Great Crash or the Century Crisis"

Batko, Marc, "Shouting from the Caboose"

Konasz, Tomasz, "The Crisis Explained"

Lohoff, Ernest and Trenkle, Norbert, "The Great Devaluation"

Reiber, Norbert, "Stagnation as a Trend

Schutze, Ingo, "Our Beautiful New Clothes"
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