by Jonathan Schlefer
Economists make confident assertions in op-ed columns and on cable news—so why are their explanations often at odds with equally confident assertions from other economists? And why are all economic predictions so rarely borne out? Harnessing his frustration with these contradictions, The Assumptions Economists Make sets out to investigate how economists arrive at their opinions.
While economists cloak their views in the aura of science, what they actually do is make assumptions about the world, use those assumptions to build imaginary economies (known as models), and from those models generate conclusions. Their models can be useful or dangerous, and it is surprisingly difficult to tell which is which. Jonathan Schlefer arms us with an understanding of rival assumptions and models reaching back to Adam Smith and forward to cutting-edge theorists today. Although abstract, mathematical thinking characterizes economists’ work, Schlefer reminds us that economists are unavoidably human. They fall prey to fads and enthusiasms and subscribe to ideologies that shape their assumptions, sometimes in problematic ways.
The Assumptions Economists Make takes up current controversies such as income inequality and the financial crisis, for which Schlefer holds economists in large part accountable. Although theorists won international acclaim for creating models that demonstrated the inherent instability of markets, ostensibly practical economists ignored those accepted theories and instead relied on their blind faith in the invisible hand of unregulated enterprise. Schlefer explains how the politics of economics allowed them to do so. The Assumptions Economists Make renders the behavior of economists much more comprehensible, if not less irrational.
Giorgio Baruchello on The European Legacy wrote:
"'Assume a can opener' is the punch line to an old economics joke about how to open a can of beans if stranded on a desert isle. The Assumptions Economists Make is not nearly as funny, and the title is misleading. The book is not about the usual suspects or assumptions economists make, such as homo economicus's setting out to maximize utility or profits in a methodical, well-informed, rational manner, a straw-man characterization behavioral economists have tried to exploit. Rather, Schlefer (research associate, Harvard Business School) provides basically a mixture of history of macroeconomic thought and policy prescriptions from Smith to Keynes and contemporary dismal-science scholars, with a critique of economic assumptions regarding the current environment (e.g., the financial crisis, unemployment, increasing inequality). It is not for those without a significant baptism in economics or who might be allergic to an author's whining and biases (all scientific theory--not!just in economics--is built upon assumptions that probably do not reflect reality). But Assumptions is a valuable book for readers who like to argue, reflect, and advance knowledge. A substantial 30 pages of endnotes, 15 pages of references, and a whopping 25-page index conclude the volume. Summing Up: Highly recommended. Upper-division undergraduate through faculty and researchers."
Robert Teitelma on Huff Post wrote:
"a more exact rendition of the book’s content would recite "the assumptions that ‘orthodox,’ ‘liberal,’ or ‘mainstream’ economists make.” These assumptions are: the markets’ invisible-hand-led selfregulation to establish equilibrium of supply and demand; the homogenisation of diverse economic agents into the individual rational actor or representative agent; the homogenisation of goods and services into one abstract typology; the a priori elimination of unbalancing factors that are later reintroduced as imperfections, distortions, shocks, disruptors, or failures. [...] Schlefer’s book should appeal to intellectually honest orthodox economists, who may be aware of the dire need to thoroughly revise the assumptions used in their models and, above all, the notions taught to new generations of students. [...] It should also appeal to political and social scientists, since the activities of individual economists and pivotal features of economic life (e.g., wage setting, tax laws) are shown to depend on socio-historical contingencies, conventions, and power relations (e.g., trade unions). Philosophers too might find this book of some relevance, as interesting moral, logico-argumentative and rhetorical aspects of economic thought surface rather often in Schlefer’s account [...] Whilst the arguments made (inventio) and the style chosen (elocutio) by Schlefer are very effective, the organisation of the material (dispositio) is not. Even the assumptions that the book’s title announces to be revealing and targeting are presented, if not scattered, in a sparse and unfocused manner, rather than listed and addressed in a more structured form. [...] The book could also be criticised for the unexpected absence of important critical voices within and about orthodox economics [...] or any reference to an alternative economic perspective that is not based on Keynes. [...] However, such a line of criticism is secondary. [...] Since Schlefer’s claims are well presented and well supported, a broader spectrum of references would have been beneficial, but is not, after all, necessary."
Diane Coyle on Enlightenment Economics wrote:
"Schlefer takes those models and — to borrow from another academic field — deconstructs them. He thus accomplishes two things: He argues convincingly for the importance of economic history and economics as an exercise in intellectual history, contrary to the practice of most economists who operate in a 'one-dimensional present,' or who reject, in the words of MIT economist Olivier Blanchard, 'the trash bin of the history of thought.' And Schlefer attempts — this tells you he’s outside the academy — to resurrect a style of economic commentary (not newspaper punditry) that was last practiced at the highest level by John Maynard Keynes: That is, the economic argument not as an exercise in math but in writing. [...] A key part of his argument is how social convention and historical determinants shape thinking and then change; Schlefer accepts Keynes’ core belief in uncertainty. There is no Platonic essence of truth — no final unified model — for a vastly complex, continually changing, social construct we call the economy. That’s why it’s so difficult and so elusive. Assumptions that make eminent sense in a mercantile age (and an age of mercantilism) may make less sense in an industrial age or a post-industrial global age. [...] Schlefer works hard to make all this comprehensible and accessible. But it’s difficult. He packs a lot in these concise essayistic chapters, which restlessly move back and forth in time and from subject to subject, requiring concentration on a sentence-by-sentence basis. This isn’t heading to the bestseller lists — but so what?"
"It’s a book of two halves: a combination of a critique of modern economic methodology in general and a polemic against actually existing neoclassical economics in particular. The former, the first half, is much stronger, although the latter is probably more populist. The two halves will also appeal to different audiences – to professional economists and other social scientists in the first case, and to more general readers who are inclined to blame economics for the mess we’re in in the second. The author is a political scientist and writer who undertook the commendable task of learning economics and reading widely before embarking on a critique. This distinguishes him from almost all other non-economist critics and in itself means economists must offer him equal respect and take this book seriously."
- "My New Book In 750 Words" - Jonathan Schlefer on Exploring Geopolitics, July 2012
- "In Economics, You Are What You Model" - interview with Schlefer in the New York Times, 16 April 2012
- "There Is No Invisible Hand" - article by Schlefer in Harvard Business Review, 10 April 2012
Table of Contents of The Assumptions Economists Make
- The Metaphor of the Invisible Hand
- What Do Economists Do?
- In Search of a Model
- Economics When Society Matters
- Chasing a Chimera
- This Imperfect World
- Entering the Realm of Production
- What Caused Income Inequality?
- Understanding an Uncertain World
- In the Long Run
- In the Short Run
- The Puzzle of the Golden Age of Capitalism
- Economies in Crisis
- Thinking about Economies
About Jonathan Schlefer
Jonathan Schlefer is an independent writer and editor and political scientist. He is currently also a research associate at Harvard Business School. He holds a Ph.D. in political science from MIT and is the author of Palace Politics: How the Ruling Party Brought Crisis to Mexico, as well as articles for The Atlantic and other publications.